On January 11, 2020, Hugo Chavez Frias was sworn in for a third term as Venezuela’s president, promising to expropriate strategic sectors of the economy, specifically public utilities and oil properties and to generally run rough-shod over property rights and the rule of law.

	President Hugo Chavez

This is unadulterated good news for the US domestic bond markets.

With socialist or left-leaning governments emerging from the corrupt soup of democratic politics in Bolivia, Chile, Brazil, Nicaragua, and Venezuela, wealthy people throughout Latin America have reason to look out for their wallets.

Building dollar reserves abroad through false invoicing of exports or through the black market is good business and prudent behavior when facing a growing trend towards socialist expropriation of property.

Frightened capitalists in ‘democratic’ regimes help keep the dollar the unofficial ‘world currency’, boosting the US trade deficit, and, as an inevitable result, sending money into the US fixed income market, pushing bond prices upwards.

Lighting a Candle to Saint Jimmy

Countries throughout Latin America are now entering the end game of the ‘democratization’ movement of the continent, which started with US President ‘Jimmy’ Carter’s ferocious attack on the Brazilians that had engineered an ‘economic miracle’ in that country in the 1960s and 1970s.

US bondholders, I suppose, should light a candle to Jimmy Carter, America’s worst president.

Every time he hugs and kisses a socialist dictator, encouraging a developing country to take the socialist road to misery and poverty, capitalists throughout the world shudder and millions more move into offshore dollar accounts that have kept US interest rates falling for a generation.

So I say, thank you Jimmy Carter, thank you Hugo Chavez, for helping to keep US interest rates low.

The Democratic Party and its supporters have indicated a willingness to enact legislation that will reduce demand for bonds, while increasing supply: a recipe for lower bond prices and higher yields.

There are few signs that the weakened Republican Party, now in the minority, will put up effective resistance.

Here are some signs, portents, and expectations:

• Increased Minimum Wage: No matter how you cut it, increasing minimum wages is inflationary and Federal Reserve Chairman Bernanke seems to be genetically programmed to increase short term interest rates at any sign of inflation. This would put negative pressure on short-term bond prices.

• Protectionist Trade Measures: Labor unions may seek payback for supporting the Democratic Party with protectionist legislation that will tend to cut back imports. This could decrease the supply of foreign dollars that support the bond market. Decreasing the supply of less expensive foreign goods also contributes to inflation — another signal to Chairman Bernanke to raise short-term interest rates.

• Support for Fannie Mae: With Democrats in control, Fannie Mae should be out of regulatory limbo, able to increase issues of mortgage-backed bonds, now competing with asset-backed securities from commercial banks that moved to take over the market while Fannie Mae was repairing its balance sheet.

• Support for Stock Buybacks: Democratics have long-favored reducing corporate income taxes, since large companies are their favorite tax collectors. Democrats have avid supporters on Wall Street, including corporate executives, speculators like George Soros, fund managers, and investment banks, all of whom stand to benefit from stock buybacks. Reducing corporate income tax gives executives money to spend on buybacks to jack up the value of their options, as seen with the Jobs Creation Act. Recent increases in stock buybacks have been financed by bond issues, putting pressure on long term debt markets.

• Support for Defined Benefit Pension Plans of Unionized Civil Servants: The real payoff for trade unions will come in increased benefits for unionized civil servants, which means higher costs for states and municipalities, higher local taxes, and new bond issues. See: “Municipal Bonds and the Democratic Takeover of Congress“.

The Trade Deficit Still Rules

The key to the bond market, of course, is the trade deficit.

It seems unlikely that the Democrats will reverse long-term policies that favor the trade deficit, at least not immediately, so this powerful source of demand for bonds should continue.

It’s too soon to expect retiring Baby Boomers to move into bonds, especially while the stock market is bolstered by buybacks. The Democratic Party supports tort lawyers (who have begun to show interest in class action suits involving buybacks), but this is unlikely to impact the buyback trend in the short term.

All in all, it would seem that the outlook for bonds is less positive with a Democratic Congress, but not to a degree that suggests an immediate change in long-established trends.

On November 7, 2020, about 20% of American voters went to the polls and delivered control of the House of Representatives to the Democratic Party, making the ultra-liberal Nancy Pelosi Speaker of the House and third in line to become Commander in Chief of the US Armed Forces. (Voter turnout was about 40%.)

This was not unexpected. The Republicans had become fat and complacent, misspending taxpayer money, involving themselves in corruption and scandals, and abandoning conservative principles. Hard core Republicans lost the essential Hispanic vote by failing to follow President Bush’s rational policy on immigration reform.

Furthermore, the Bush Administration had gone to war without creating the necessary propaganda machine to gin up martial revolve and a sense of sacrifice and duty. Americans managed a brief spurt of patriotic fervor in the months following nine-eleven, but by 2006, the flags had been put away and people had returned to cheering sports events and gushing over the scandals of celebrities.

Compared to World War II, the Korean War, and the War in Vietnam, the conquests of Iraq and Afghanistan were small affairs. In terms of cost and disruption to the home economy, these two wars were incomparably less burdensome than World War II.

There was no rationing of gasoline or sugar, no War Bond Drives, no blackouts, no waste paper campaigns, no civil defense or home guard, no government orchestrated propaganda, no huge fiscal deficits, no concentration camps for thousands of US citizens with ethnic ties to the other side, no draft of millions, no censorship of troop mail.

The number of US marines killed in a single battle, Iwo Jima, was greater than all US military deaths in five years of Iraq and Afghanistan. The number of US sailors killed just in the battle of Okinawa surpassed the toll on all services in the War on Terror.

If it were not for television, most Americans would hardly notice there was a war on at all.

The martial spirits of their grandfathers had long departed and could not be rekindled.

Aware of the weakened national resolve, the Democratic Party seized the opportunity and called for retreat in the midst of war. The media, inspired by Vietnam, bombarded the home front with negative images, ignoring victories and successes, while accusing the administration of mismanaging the economy, despite statistics to the contrary, playing on voters’ fears and discontents.

In the end, the media and their Democratic friends — black racists, tort lawyers, labor unionists, government workers, gays, abortionists, and atheists — brought down a weakened Republican Party, already corrupted by being in Washington too long.

What Happens Now?

Although the Democrats have not been specific as to what they will do next, they did promise supporters to work towards:

• Quickly withdrawing US troops from Iraq.

• Relying on diplomacy and the United Nations, rather than force, to resolve problems with Muslim extremists and the nuclear threats of Iran and North Korea.

• Halting eavedropping on terrorist conversations and spying on financial transfers between terrorists.

• Removing Donald Rumsfeld from his position as Secretary of Defense, despite successfully having deposed the tyrant Saddam Hussein in Iraq and the vicious Taliban in Afghanistan — two military goals that the Democrats predicted would not be achieved. (Rumsfeld resigned on November 8, 2020.)

• Halting ‘waterboarding’ and other effective methods of extracting vital information from captured terrorists, even when a nuclear threat on New York City is involved.

• Releasing Muslim terrorists in custody in Guantanamo, Cuba into the population where they will be free to resume attacks on the United States.

This news, of course, has been greeted with great satisfaction and jubilation in Muslim countries, especially among terrorist leaders, who now have evidence that the United States, as shown in Vietnam, is a paper tiger, unable to muster the determination needed to fight a protracted war and easily conquered with the help of a few wealthy liberal media barons who use ‘freedom of the press’ to manipulate public opinion against military action that they do not approve.

Killing innocent Muslim women and children by sending suicide bombers into schools and markets has paid off. ‘Allah will know his own’ and Americans will flinch from the blood shown daily on television which the administration cannot censor.

Most importantly, Muslim extremists have proof that they can rely on American liberals, especially those in Hollywood and the press, to do their bidding, publishing war secrets and demoralizing the home front with anti-war propaganda, undermining military action and tearing down patriotic leaders who attempt to use force against America’s enemies.

Are Europeans Dancing in the Streets Too Soon?

Europeans are also overjoyed with the victory of the flower children and the resounding defeat of President Bush, who is widely hated. Like American liberals, they simply do not understand that the price of Freedom is a willingness of citizens to make sacrifices to keep tyrants away.

	Neville Chamberlain Announces Diplomatic Triumph over the Nazis - 1938

In this, Europeans resemble their grandfathers who cheered that stauch defender of appeasement, Neville Chamberlain, when he said in 1938:

“My good friends this is the second time in our history that there has come back from Germany to Downing Street peace with honor. I believe it is peace in our time.”

“How horrible, fantastic, incredible, it is that we should be digging trenches and trying on gas-masks here because of a quarrel in a far-away country between people of whom we know nothing!”

“Armed conflict between nations is a nightmare … war is a fearful thing, and we must be very clear, before we embark on it, that it is really the great issues that are stake.”

But unlike World War I and World War II, it is increasingly unlikely that America will come again to the defense of European appeasers in World War III. Now, after November 7, 2020, there will be no Yanks coming, with their “drums rum-tumming”, to save the Europeans from despots “over there”.

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