Bonds Are Saying Something - We Should Be Listening

by: Eric Basmajian


- Despite the equity market rally, long-term interest rates continue to move lower.

- Long-term interest rates move lower when growth and inflation decline.

- The equity market was pessimistic in December and optimistic in January yet conditions have not changed.

- Bonds are speaking - we should listen to what they are saying.

- A comprehensive analysis of Treasury rates.

Bonds Are Saying Something - We Should Be Listening
The euphoria that carried the stock market to an 8% gain in January all but erased the pessimism that led to one of the worst December's on record, when the S&P 500 (SPY) fell nearly 9%. Net, over the past two months, there has been a lot of chop, volatility and constantly shifting narratives that resulted in an equity market that is virtually unchanged; down about 1.5% as of this writing to be exact. While the equity market suffers from the rapidly changing sentiment, narratives and emotion that is typical in stocks, the bond market is different. Short-term bonds can whip around with the stock market which changes expectations of monetary policy from the Federal Reserve. Long-term bonds, specifically 20-30 year Treasury bonds, which are most sensitive to growth and inflation conditions, do not respond to wild emotional swings as the stock market does, and typically do not overreact in either direction. The iShares 20-30 year Treasury ETF (TLT), is the most common proxy for the long bond, carrying an effective duration of 17. There are other ETFs that carry larger effective durations, such as the Vanguard Extended Duration ETF (EDV), an effective duration of 25, but for most of the analysis in this note, we will be looking at TLT in combination with the actual Treasury interest rates.
Long-term bonds have been saying something the past few months, something the equity market has been ignoring. Typically, the long-term bonds are correct and the equity market responds at a later date when sentiment and emotions calm or reverse.
We are going to do a comprehensive study of the moves in the Treasury market starting over the summer and conclude by looking at what the action in interest rates over the last several weeks is suggesting.
While we are only going to look at the recent action, for a long-term analysis of long-term Treasury bonds, I'd refer you back to a previous note I wrote which you can find by clicking here.
The primary factors behind the analysis of the long-term Treasury bonds, and thus ETFs like TLT, are growth expectations, inflation expectations, and credit risk. I have covered these factors at length in previous notes, and this can be empirically proven in the data. In this note, those factors will be used as assumptions.

Interest Rates Will Always Follow Nominal GDP Growth Trends:
Growth and inflation Source: BEA, FRED, BLS, EPB Macro Research

While the S&P 500 rallied in January, TLT was up 0.38% as well. In December, when the equity market fell 8%, TLT only gained 5.9%, insufficient for some that incorrectly view Treasury bonds as inverse equity funds. Even famous investors such as Jefferey Gundlach suggested that the lack of a rally in long-term bonds given the rapid declines in equities is suggestive of a bearish catalyst for long-term Treasuries. If that were true, why does the inverse not hold true? If the equity market increased 15% since Christmas Eve and TLT is also up 0.54%, is the lack of a decline in long-term bonds given such a severe equity rally a bullish catalyst for the long bond? If the inverse of the analysis does not hold, the analysis is likely missing a few critical factors. Let's take a look at the move in bonds over the past year and use the analysis to better understand what bonds are saying today.

TLT Over The Past One Year
Over the past year, TLT has increased by 2.08% in total return terms, suffering a 7.92% drawdown in that time period.

TLT Total Return:
Source: YCharts, EPB Macro Research

TLT currently is 9.5% off the high level made in 2016 but that was a time period when inflation was 0.8% and the U.S. was escaping a near recession along with the rest of the world. Using the assumptions above, growth and inflation, a near global recession and sub 1% inflation sent the 30-year Treasury rate to a low of 2.2% and TLT to a high of $135. To get back to those levels, growth and inflation conditions would have to be similar which they currently are not.
I make that point just to preempt any rebuttals that claim TLT is off the all-time high. Growth and inflation conditions are not the same. If the U.S. experiences a near recession and sub 1% inflation as was the case in early 2016, then TLT will go back to all-time highs.
With that out of the way, let's focus on the last year.
When analyzing interest rates, you have to look at both the nominal rate of interest, currently 3.05% on the 30-year Treasury as well as the shape of the yield curve. The shape of the yield curve for this note will be proxied via the spread between the 30-year Treasury rate and the 2-year Treasury rate.
30-2 Treasury Spread:
Source: YCharts, EPB Macro Research
The shape of the yield curve, among other factors, predominantly represents future growth/inflation expectations over the next several years. If the yield curve is steepening, growth expectations are rising. If the yield curve is flattening, growth expectations are falling.
If the yield curve remains constant, growth expectations are more or less unchanged.
This can explain why an inverted yield curve is a strong harbinger of recessionary conditions (future growth expectations are falling). The yield curve steepens into and during a recession because the Federal Reserve is cutting the short-end rate and also because if the recession is at the doorstep, the next several years are likely to bring increased rates of growth if the worst is coming in the next several months.

As I write to members of EPB Macro Research frequently, it is highly unlikely for the yield curve to invert without a recession occurring but a recession can occur without an inverted yield curve.
Long-Term History Of The Yield Curve:
Source: Hoisington Management, Federal Reserve, Lacy Hunt
All recessions throughout history have been preceded by a material flattening of the yield curve but not necessarily a fully inverted yield curve. Thus, we must focus simply on the rate of change in the yield curve; steeper or flatter.
Let's now go back to the previous one year and study the drawdown in long-term rates that took place from July through November.
TLT Total Return:
Source: YCharts, EPB Macro Research
At the start of July, when TLT peaked at a price of $122.75, the 30-year yield was about 2.95% and the 2-year yield was 2.57%. The spread between the 30-year Treasury rate and the 2-year Treasury rate was roughly 0.35%. A spread of 35 basis points was where the market was comfortable considering growth expectations and future monetary tightening. At the start of July, based on the Fed Near Term Forward spread, or the difference between the Treasury rate maturing in six quarters and the Treasury rate maturing in three months, a proxy for monetary tightening over the next year, the market was expecting 75 basis points of tightening.
Fed Near Term Forward Spread:
Source: Bloomberg
So, what led to the sharp drawdown in TLT (increase in interest rates) that ended in November?
From July to November, expectations of monetary tightening by the Federal Reserve drifted higher, moving to 90 basis points over the next year at the end of November. Again, all else equal, the market would keep the shape of the yield curve the same and shift the entire curve higher in a parallel fashion. Thus, equal growth expectations plus an increase of 15 basis points on rate hike expectations would have upward pressure of about 15 basis points on the 30-year yield.
Secondly, and equally as important, from July to November, there were a series of economic data points that smashed all estimates and raised growth expectations notably.
The most drastic example is the ISM Services number which jumped from a reading of 55.70 to 61.60 in one month.
ISM Services:
Source: YCharts, EPB Macro Research
Right after this report, the expectations of monetary tightening jumped as can be seen in the Fed Near Term Forward Spread.
Fed Near Term Forward Spread:
Source: Bloomberg
There were other data points that suggested growth would increase but the ISM report was the most impactful due to how large the report was relative to expectations.
As a result of the increased growth expectations from better economic data than what was priced in resulted not only in an increase of monetary tightening expectations of about 15 basis points but a steepening of the yield curve.

From July to November, on the better growth data, the 30-2 spread rose from 0.33% to a high level of 0.55%, a 0.22% increase.
To summarize, increased monetary tightening expectations put about 15 basis points of upward pressure on the entire Treasury curve and increased growth expectations steepened the yield curve by about 22 basis points, a 0.37% to increase to the long-end of the curve.
30-2 Treasury Spread:
Source: YCharts, EPB Macro Research
This was a double whammy for the long bond and TLT; increased rate hike expectations and increased growth expectations.
As the chart above shows, the yield curve, or growth expectations, re-priced in the middle of 2018, as the Treasury market anticipated that the amount the Fed had already tightened would start to slow growth, and has been oscillating in a range of 0.35% to 0.55% for the past six months or so.
Today, the 30-2 spread is roughly the same. The yield curve compressed sharply into December as the equity market was falling as growth expectations were notably coming down. The curve did not invert or get close to inverting because there was no recession in the economic data. The stock market overreacted and priced in a recession before it was time while the bond market, less emotional and more reliant on data, simply lowered growth expectations.
As the equity market has rallied and all the fears of growth have seemingly disappeared, the yield curve has steepened again, back to the high level of the band over the past six months.
Why are interest rates lower on the long end? Monetary tightening expectations. As the Fed pivoted dovish and yanked all rate hikes out of the market, the 2-year yield has dropped sharply from about 3% to 2.50%, a 50 basis point drop. As noted, growth expectations are back to roughly the same level as before the equity market correction, especially after the jobs report, but the 2-year yield is 50 basis points lower, pulling the rest of the curve lower as to maintain the shape of the curve and thus, the 30-year yield is down 46 basis points from a high level of 3.46% to 3.0% today.
Short-Term Rates:
Source: YCharts, EPB Macro Research
So, what will happen with TLT and long-term interest rates going forward?
Future Direction Of Interest Rates
Now that we have explained the moves in TLT and long-term rates with data and true explanations rather than narratives about China selling Treasuries or fiscal deficits that cannot be quantified, we can have a reasonable idea of where rates are headed in the future or at least, what will drive rates in the future.
The key elements to consider are monetary tightening expectations for a parallel shift higher or lower for the whole yield curve and growth/inflation expectations for the shape of the yield curve.
Now that the Fed is essentially out of the market, with the market forecasting zero interest rates hikes, growth expectations play a larger role.
Let's spell it out.
Right now, the Fed is priced for zero action in 2019 so unless that changes, the 2-year yield should trade in a range until expectations change one way or the other, rate hikes back into the market or a rate cut coming. If rate hikes are back in the market, the 2-year yield will shift higher and growth expectations being equal, 30-year rates would raise an equal amount as to maintain the shape of the curve.
If the market starts to forecast rate cuts on the horizon, with growth expectations being equal, the 30-year yield will fall below 3.0% again as to maintain the shape of the yield curve.
The same goes for growth expectations. Right now, growth expectations are at the upper end of the range set over the last six months on a roaring equity market and a strong jobs report. If growth expectations continue to rise, the curve will steepen and the long-end will sell off.
Conversely, if monetary tightening expectations remain constant and growth expectations come down, the curve will flatten to the lower end of the band, about 15 basis points lower, putting the 30-year yield in the high 2.8% range, about where the 30-year yield bottomed in January when the Fed was priced for no rate hikes and growth expectations were diminished with the equity sell-off.
What About A Recession?
A recession is not in the economic data in the United States and that is why the yield curve has been simply flattening and steepening within a range based on the prevailing sentiment around growth conditions.
If this global growth scare passes, and the U.S. economy starts to accelerate again, the yield curve will break out of this range and start to steepen again, putting upward pressure on 30-year rates.
Should the economic data worsen, however, and look more like Germany, indicating recession probability is rising, the yield curve will move back towards the bottom of that range and actually move closer to the flat-line should recessionary conditions look probable.
Again, it is highly unlikely for the yield curve to invert without a recession occurring but a recession can occur without an inverted yield curve; it is the flattening or steepening to be aware of.
Final Thoughts
One last reason to bring up as to why the yield curve (growth expectations) has been trading in a range is due to the lack of economic data releases from the government shutdown. Even though the shutdown is over, most of the data has still been withheld.
The last update on personal consumption, 70% of the entire economy is for the November 2018 reporting period. We are now in February so the Treasury market, in a sense, has been flying blind as to the direction of the economic data and thus, meandering in a range until conclusive evidence is reported.
What you should do about TLT or long-term bonds is simply based on your thoughts about monetary tightening and growth/inflation expectations.
One of four scenarios can occur. At the risk of repeating myself, here are your options.
Interest Rate Scenario Analysis:
Source: EPB Macro Research
If you think that growth expectations are going to come down over the next several months, as I believe based on the leading indicators, and monetary tightening expectations will be moving anywhere but up, the pressure on the 30-year yield will be lower and in the short-term, we will see 2.9% again on the 30-year, indicating upside for TLT.
To clarify, this analysis is shorter term in nature than the secular call on interest rates which suggests growth and inflation will continue to trend lower and make a new secular low. For more on that analysis, click here.
There are dozens of factors that drive interest rates on a daily and weekly basis but over a long-term trending time period, these are the factors to be aware of.

Gold Is Having a Great Run and So Are Gold Stocks

By Randall W. Forsyth

Gold Is Having a Great Run and So Are Gold Stocks
Photograph by Carla Gottgens/Bloomberg

Gold prices on Tuesday staged their biggest gain since last November, with Comex futures jumping $22 an ounce, or 1.67%, to $1,340. Since its recent low on Jan. 24, the yellow metal was up 4.77%, and up almost 14% from its 52-week low on Aug. 16.

Gold mining stocks, as usual, outpaced bullion. The VanEck Vectors Gold MinersETF (ticker:GDX), which tracks the big miners, jumped 3.17% on Tuesday, to $23.14, just shy of its 52-week high. The more volatile VanEck Vectors Junior Gold MinersETF (GDXJ) popped 4.22%, also within a hair of its yearly high.

Gold’s advance has come in the face of the continued rally in stocks and other risky assets—instead of moving in the opposite direction of those investments. Since Barron’s first noted the nascent strength in the metal last September, gold is up from around $1,200 an ounce.

Trey Reik, senior portfolio manager at Sprott Asset Management, says gold’s steady rise reflects the market’s recognition that the Federal Reserve will not raise interest rates further and will end the contraction of the balance sheet. He contends gold investors anticipated the central bank’s pivot, first enunciated by Fed Chairman Jerome Powell on Jan. 4. Since then, both financial assets and gold have been lifted by the Fed’s pause.

In addition, Reik said, given the much smaller size of the markets for gold and mining stocks, it doesn’t take more than a few money managers adding a bit of these investments to their portfolios to give bullion and gold stocks a lift.

Finally, the dollar has been easing after having initially rallied in tandem with the U.S. stock market since the end of 2018. Despite rising concerns about Europe’s economy and Brexit, the U.S. Dollar Index(DXY) fell 0.4%Tuesday. At the same time, bitcoin is showing a sudden revival, briefly topping $4,000 Tuesday. Over the past two days, the cryptocurrency is up over 7%. Both gold and bitcoin can be viewed as alternatives to paper currencies.

Hello Old Friend…Gold Nears $1,350 Resistance That Has Repelled It Four Times In 5 Years

by John Rubino

The past five years have been baffling for gold bugs. In an environment of massive central bank money creation, rising government deficits and a populist takeover of many countries’ political systems – all of which should be great for safe haven assets – gold has spiked to around $1,350 four times, only to be smacked back down each time. Very demoralizing.

And now it’s gearing up for another try.

Gold price gold $1,350 resistance

It’s obvious that the forces now at work in the world will eventually send terrified capital pouring into sound money like gold and silver — and that, from a technical standpoint, piercing $1,350 resistance should trigger a big, fast move to the next resistance level somewhere in the high $1,400s.

But the “when” part of this story has become an embarrassment, given the number of disappointments the past few years have dished out.

So why risk ridicule by going back there? Because, damn it, $1,350 will be not just pierced but shattered one of these days. And next week could be the week.

I know, Charlie Brown’s football, Einstein’s definition of insanity, Sisyphus’s boulder, some people never learn. But the world really is set up for serious instability, and two new factors have swung in gold’s favor since the last failed attempt. First, central banks have become fairly aggressive net buyers of gold. Recall that not so long ago central banks as a group were dumping gold on the market in order to “diversify” their reserves into government bonds. Now they’ve apparently seen the error of that approach and are back to buying. See Central bank gold buying hits highest level in half a century.

This is a big, not-especially-price-sensitive new source of demand that might not view $1,350 as a reason to slow down.

Second, the Fed, which had been promising to tighten for years and then actually did tighten for one year was, like the proverbial mule, smacked in the head with a stock market two-by-four. That got its attention, and the tightening has stopped, to be replaced shortly with another, probably much bigger round of easing.

This aligns the US with other major countries, which are already easing. Japan, for instance, is now apparently doubling down on its high-fiscal deficit/NIRP experiment:

Architect of BoJ stimulus calls for big fiscal spending backed by c-bank 
(Reuters) – Japan must ramp up fiscal spending with debt bankrolled by the central bank, the Bank of Japan’s former deputy governor Kikuo Iwata said, a controversial proposal that highlights the BOJ’s challenge as it tries to reignite an economy after years of sub-par growth. 
Iwata, an architect of the BOJ’s massive bond-buying programme dubbed “quantitative and qualitative easing” (QQE), warned that inflation will miss the central bank’s 2 percent target without stronger measures to boost consumption. 

That means Japan must lean on fiscal policy by ditching this year’s scheduled sales tax hike and committing to boost government spending permanently with money printed by the BOJ, he said. 
“Inflation won’t hit 2 percent just with the BOJ continuing its current policy. The BOJ doesn’t need to change its policy much now. What needs to change is fiscal policy,” Iwata said. 
“Fiscal and monetary policies need to work as one, so that more money is spent on fiscal measures and the total money going out to the economy increases as a result,” he told Reuters on Friday. “That’s the only remaining policy option.” 
Instead of relying on commercial banks to lend more to already cash-rich companies, the BOJ should finance government spending for measures to boost consumption such as payouts or tax breaks for younger-generation households, he said. 
His proposal resembles the idea of “helicopter money” – a policy where the central bank directly finances government spending by underwriting bonds.

Europe, now descending into what might be the death throes of its post-WWII single market plan, has one and only one chance to salvage it: Aggressive banking integration funded with extremely easy money. And China, after accounting for 60% of the world’s new credit in the past decade, has decided that that wasn’t enough, and is now creating new credit at an even faster rate:

China’s banks throw open spigots in January, lend record 3.23 trillion yuan 
China’s banks made the most new loans on record in January – totaling 3.23 trillion yuan ($477bn) – as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy. Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share. But they have also faced months of pressure from regulators to step up lending, particularly to cash-starved smaller firms. Net new yuan lending last month was far more than expected and eclipsed the last high of 2.9 trillion yuan in January 2018.  
Analysts… had predicted new loans of 2.8 trillion yuan, more than double the level seen in December.” 
China’s January new bank loans were 11.4% higher than the previous record from January 2018 – and 15% above estimates. Bank Loans expanded an imprudent $821 billion over the past three months alone, a full 20% above the comparable period from one year ago. Total Bank Loans expanded 13.4% over the past year; 28% in two years; 45% in three years; 91% in five years; and an incredible 323% during the past decade.

Which brings us to the strong dollar. Gold is actually up nicely in most other currencies, but a rising dollar has depressed the metal’s US price. Now, however, with a presidential election in which the choice is between Republicans committed to trillion dollar deficits basically forever and Democrats who are either quasi or overtly socialist, the dollar looks like a sitting duck at these levels.

Add it all up – newly aggressive fiscal and monetary ease, central bank gold buying, and political turmoil – and gold $1,350 is toast. Okay, eventually.

Feeding the Ten Billion

Our diets are becoming less healthy, and global food production is increasingly unsustainable. A new report suggests that the planet can sustainably provide a healthy diet for ten billion people in the future, but only if we make big changes in what we eat and how we produce it.

Line Gordon

pea pod world

STOCKHOLM – Our current diets are bad for our health and are harming the planet. Two billion people are now overweight or obese. Poor diet is the biggest cause of noncommunicable disease in the world, posing a greater risk of morbidity and mortality than unsafe sex, alcohol, tobacco, and drug abuse combined.

The way we produce and consume this food, meanwhile, damages Earth’s life-support system. It accounts for about one-quarter of greenhouse-gas emissions and is the biggest cause of land-use change, biodiversity loss, and water extraction, leaving rivers dried out.

The sheer volume of books on healthy eating and weight loss suggests that people want to move to healthier diets. But few countries are taking action to improve diets and preserve the environment. The big question is whether we can sustainably provide a healthy diet to a global population that is projected to reach ten billion by 2050.

Two years ago, the EAT-Lancet Commission, comprising 37 scientists from 16 countries – me included – set out to provide an answer. We began by determining what a good diet for a healthy life should contain. We then explored the implications of such a diet for global sustainability of food production in the future.

The Commission published its findings in January in the medical journal The Lancet. Our report identifies, for the first time, scientific targets for diets and the global food-production system. With more than 5,000 stories about the report already in the international media, its release clearly has hit a nerve. That is not surprising, given that its findings have implications for food companies, farmers, and consumers everywhere.

Our main conclusion, supported by reams of peer-reviewed evidence, is that feeding ten billion people on a sustainable planet is possible. But doing so will require a transformation of the food system to address obesity, improve health, end forest loss, curb greenhouse-gas emissions, and protect the oceans.

The world must do three big things in particular. It needs to halve the amount of food waste by 2050. It must move to more efficient and sustainable production systems and invest more in healthier crops. And people need to eat more fruit, vegetables, nuts, and legumes and reduce their dairy and red-meat consumption. Our analysis indicates that moving to such a balanced diet could prevent 11 million premature deaths per year.

To achieve this, the Commission proposes a “planetary health diet” of 2,500 calories per day for an average global citizen leading an active life. The diet provides daily consumption ranges for different food groups (such as 200-600 grams of vegetables per day). We recommend that people eat significantly less red meat than they currently do in most parts of the world.

A typical weekly meal plan under our proposal might include a hamburger, a couple of chicken dishes, and one or two fish meals, with the others being plant-based. Vegetarian or vegan diets also fall entirely within our food group ranges. Alternatively, people might use animal-based foods as flavorings rather than as the main part of a meal.

We went to great lengths to stress that this diet is flexible and can be adapted to different cultures and different produce, whether Asian, European, African, or those of the Americas. The common Mediterranean diet of a generation ago, with plenty of fresh vegetables and fruit, has much in common with our planetary health diet. Similarly, those of us in Nordic countries used to consume less meat and fewer dairy products, in line with the Commission’s recommendation.

It is important to recognize that shifting to the planetary health diet will not in itself lead to sustainable production. We also need to improve how we produce what we eat. There is no single path to sustainable production. Whether food producers operate large businesses, intensive farms, smallholdings, or organic farms, all can support the dietary and sustainability transition.

Since the report was launched, the Commission has been overwhelmed by the support shown for its conclusions. At the same time, several industry groups and other commentators have argued that meat and dairy are an important part of a nutritious diet. While I agree that they can be part of a healthy diet, that part should be much smaller than it is today.

Some argue that it simply is not feasible for large populations to adopt healthy, sustainable diets. Globally, however, we can trace how diets have changed dramatically in recent decades. Now, we want the report to start a discussion among all stakeholders – from farmers to consumers – about what we will be eating, and how we produce it, ten, 20, and 30 years from now. If we can do that, our food system can benefit, rather than harm, our own health and that of the planet.

Line Gordon is Director of the Stockholm Resilience Centre at Stockholm University.

Homo Credulus

By Joel Bowman

Man: He’ll go along with just about anything.

Given the right circumstances… a little programing… and enough time for it all to marinate in his soft, mammalian brain… there is almost nothing Homo Credulus will not learn to embrace.

Don’t believe us?

Take a look at the historical record; you’ll soon wonder how we ever got this far.

Sure, you’ll discover gizmos and flying contraptions… art and agriculture… music and mathematics. You’ll witness spectacular scientific breakthroughs, the number “0” and a man’s footprint on the moon. You’ll also find automobiles with so many cup holders, you won’t know where to holster your oversized 7/11 Big Gulp.

But you’ll also scratch you head. Perhaps you’ll even weep. And if you think hard enough, you’ll put a few things to serious question…

“Central banks?” “Modern democracy?” “The Rosie O'Donnell Show?”

How has mankind survived such atrocities? Self inflicted, no less! And why, moreover, does he rush so earnestly to repeat and replay his worst mistakes?

Don’t be too hard on yourself, Dear Reader. After all, repetition is nothing new…

You’ll recall that it was the Greeks who first gave the world democracy – from the Greek, dēmokratía, literally “Rule by 'People'”. (And yes, it was those very same Greeks who put their own beloved Socrates to death… by a majority vote of 140-361.)

Today, democracy is a cherished tenet of “the West.” It is woven into the civic religion, sewn into the social fabric. Men march off eagerly to fight for it, to proselytize it … and to die in forgotten ditches defending it.

At least, that’s what they believe they’re doing. As usual, the poor saps have been duped. Herewith, a little historical context…

The phrase “Making the world safe for democracy” was actually a marketing slogan, coined back in the 1910s, as a way to sell “The Great War” to America. Weary from their own disastrous Civil War just a few decades earlier, in which hundreds of thousands gave up the ghost, Americans were mostly inward looking at the time. That is to say, they wanted little to do with what they largely saw as a “European affair.”

Polls might have indicated no appetite for battle… but the nation’s politicians were nonetheless starved for military misadventure. They sensed big profits abroad, both in manufacturing armaments and making onerous bank loans to foreign lands. Sure, “the nation” would have to fill tank and trench with warm young bodies… but very few soldiers would carry senatorial surnames along with their rifles.

And so, after a public relations campaign of truly epic proportions, America marched off to war… wrapped in the delusion they had freshly been sold.

Eddie Bernays, the man who coined the phrase and, thus, peddled the war to America, made a fortune for his efforts. He was even invited by Woodrow Wilson to attend the Paris Peace Conference, in 1919, as a show of gratitude for his services.

There, Bernays learned the full impact of his “democracy” slogan. An obviously bright fellow, the surreal experience caused him to think…

If people will line up to kill one another under influence of a mere marketing campaign… they could surely be convinced to do, say and buy just about anything!

Bernays was right. In fact, he wrote a series of books, detailing his insights. They included Crystallizing Public Opinion (1923), A Public Relations Counsel (1927) and a neat little number titled Propaganda (1928), in which Bernays laid out the blueprint for mass social and psychological manipulation.

The collected works went on to become a huge success… and the favorite of none other than Joseph Goebbles, Reich Minister for Propaganda in Nazi Germany between 1933-45.

Bernays himself, writing in his 1965 autobiography, recalls a dinner at home in 1933 where…

Karl von Wiegand, foreign correspondent of the Hearst newspapers, an old hand at interpreting Europe and just returned from Germany, was telling us about Goebbels and his propaganda plans to consolidate Nazi power. Goebbels had shown Wiegand his propaganda library, the best Wiegand had ever seen. Goebbels, said Wiegand, was using my book Crystallizing Public Opinion as a basis for his destructive campaign against the Jews of Germany. This shocked me. [...] Obviously the attack on the Jews of Germany was no emotional outburst of the Nazis, but a deliberate, planned campaign.

It is indeed chilling to think of such a heinous undertaking as being engineered, blueprinted, premeditated and carried out according to some kind of script. And yet, there it is… in Bernays’ own words, the “Father of Propaganda.”

Having acquired somewhat of a tainted reputation-by-association, propaganda, itself, underwent a “strategic rebranding” after WWII. But make no mistake, the very same métier thrives to this day, under the more socially palatable designation, “Public Relations.”

Still, a ruse by any other name…

“Could we be so stupid again?” wonders the gentle reader. “Might the mob still be swayed by what Charles Mackay termed ‘extraordinary popular delusions and the madness of crowds?’”

Why, of course! That’s the nature of the mob!

Whether in love, finance, politics or any other matter, man is ever wont to be convinced, assured, persuaded, often against his own best interests. Few are the absurdities in which he will not take refuge, invest his hard-earned capital or squander his morality.

All he needs is a good story, something to arrest his imagination and cauterize his capacity for reason. A distraction from his lonely, quotidian existence.

That, and a few crumbs to pass his lips.

The Roman poet, Juvenal, recognized as much when he mocked the panem et circenses (bread and circuses) stratagem almost two millennia ago. In his Satire X, he referred to the Annona (a kind of grain dole) and the famous circus games, held in the Colosseum and elsewhere, as designed to keep the unthinking population fed and happy.

Look around you today, Dear Reader. What do you see, two millennia later, in the Year of Their Lord, 2019 AD?

Stadium sports matches… food stamp programs… and of course, the greatest bread and circuses show ever, modern representative democracy…

Now, as then, the show goes on!