Now for a few words about life:
First, Donald Trump. There are many likeable aspects to Mr. Trump. He is non-PC. He is not afraid of Hillary and her friends in the media. He is not afraid to stand up for keeping America a real nation by enforcing the legal status of immigration. He plans a much bigger defense. That’s his single best point.
But one of his many claims to fame is that he knows a lot about money and about the economy. With the greatest respect to Mr. Trump and to his friends, may I offer a few notes to the contrary.
First, he has failed at an astonishing variety of businesses: an airline, a university, foods and beverages, and above all, what is supposed to be his strongest suit, casinos and hospitality. The fields of American finance are littered with the corpses of those foolish enough to trust Mr. Trump’s promises about investing. If I may say so, I was one of the first to point this out in a lengthy article in Barron’s about 27 years ago. The article was called “The Art of the Dubious Deal.” It was a series of questions about Mr. Trump’s self-dealing and abuse of his bondholders in a deal. Frankly, I thought it proved him unworthy of trust, but obviously, I was seriously wrong.
However, breach of contract to bond holders is a small matter compared with an attack on the entire world trading system, and with an afterthought by Mr. Trump that leaves some of us who have toiled in the investment vineyards for decades shaking our heads.
Last week and somewhat before that, Mr. Trump raised the possibility that in some future economic crisis, he might respond by lowering government expenses by not paying back all U.S. Treasury debt at 100 cents on the dollar. That is, he would try to walk away from the “full faith and credit” trust that undergirds our national economy.
The trustworthiness of the U.S. debt is also the foundation for all economic activity the world over. If investors in China and Japan are told in advance that they will not be paid back what they invested, that puts all economic transfers on shaky ground. The dollar — and its utter trustiness — is what lies behind every kind of financial matter in the world.
To tamper with it is breathtakingly irresponsible. If the whole worldwide system of trade is put in jeopardy by Mr. Trump, he will be the most dangerous U.S. President there ever has been. Without international trade, without the ability of the U.S. Treasury to finance government operations, just about everything grinds to a halt.
Perhaps Mr. Trump was told this by his smart friend, Steve Wynn, because soon after he made a series of remarks attempting to tamp down the fire. He said he had not meant to imply he would not pay 100 cents on the dollar. What he meant, he said, was that if times got really tough and the government needed to save a few shekels, he would borrow at low interest rates to buy back and retire high interest Treasury debt. He had learned such maneuvers, he said, because he was “the king of debt” when he was building his business empire.
Indeed, at a distance, this looks like a good idea, and it was tried by the Drexel Daisy Chain players in the ’70s and ’80s. For private bond issuers whose purchasers are under the thumb of the self-same issuer, it all makes sense.
But the Drexel situation was unique. There are no large scale bond issuers whose buyers are controlled by the issuers, as far as I know at this point.
Now, a much more potent bond market axiom comes into play: “There are no free lunches in the bond market.” The bond players are cagey rascals who know their math.
If the Treasury had high interest rate debt outstanding — let’s say 6 percent on the 10 year just to give an arbitrary number — and if the prevailing interest rate went to 2 percent, the market would bid up the 6 percent so high that its level of return was equal to within pennies of the return on the 2 percent bond.
That’s how the bond market works and I would have thought that the “King of Debt” would know that easily. It’s child’s play for investors.
There is no possibility of making money with the kind of trade Mr. Trump has in mind. By the way, Bill Clinton famously started to fish in these waters in 1999 when he was running surpluses. It didn’t even get to the starting gate. There are no free lunches in the bond market.
This sad episode shows just how little Mr. Trump knows about the world of money he is supposed to know so much about. I want to add that it’s exactly, precisely why Presidents have educated, qualified individuals advising them.
It is high time that Mr. Trump start assembling such a team in every area. An ignorant, irresponsible man as the nominee of the GOP is terrifying. As President, it’s almost beyond comprehension.
It’s not too late. Mr. Trump can get the right people around him, and he should. But the “ideas” coming out of his head without such persons to help him are dangerous to everyone — and music to Hillary’s ears.
On another subject, my dear friend and inspiration, Phil DeMuth, has written a book every investor should have and read. The Overtaxed Investor is a humorous, highly readable tome on how to arrange your investments and the liquidation of them, in such a way that you minimize your tax burdens. Phil correctly points out that expenses are an immense cost to investors. Reducing that cost can be the difference between a retirement you can live on and one you cannot live on. Phil offers us the example of the peerless Mr. Warren Buffett, the most successful investor of all time. Mr. Buffett accomplished this in large measure by transmuting ordinary income into something less heavily taxed. There is no one who cannot learn from Mr. Buffett — and there is no one who cannot learn valuable lessons in investing and harvesting returns by buying and reading The Overtaxed Investor.
It’s not just a good idea: It’s an absolute must from a gem of an investment manager (his firm is Conservative Wealth Management). Run, don’t walk, to your computer to order it. Read it and weep over all of the mistakes you have made — and then start doing it the right way.
On another subject, I am writing this on Mother’s Day. It is just glorious to be married to the best woman in the world and our son and his family are blessed, too, and they know it. Gratitude is the granite foundation of my life and Alex’s, and this includes gratitude for friends like Phil and Mr. Buffett — the most capable man on the planet, and for the freedom of speech I have to criticize the nominee of my party. Please, Mr. Trump. Take some time off from your speeches and find some smart, learned men and women to advise you. If Lincoln and FDR and Nixon did it, so can you.
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