Joel Bowman

Stocks are up a tad as of this writing. They were up quite a bit more than a tad earlier today but, as happened in yesterday’s session, confidence waned around lunch, sending them lower in the afternoon. All in, the major US indexes are off by about 3% and change for the month…and down a little over 4% on the year.

Gold, too, is having a tough time of it of late. An ounce of the precious metal “languishes” just above $1,616 per ounce after having traded up over $1,900 just a month ago.

What gives?

If you believe the papers, markets fall because of “uncertainty surrounding the Eurozone debt crisis…” or “an unexpected rise in jobless claims…” or “some other unexpected economic phenomenon that threw experts for a loop.” Conversely, if we are to believe the mainstream media, markets rally due to “renewed confidence in the Eurozone…” or “a hunky dory jobs report…” or “because something finally fell in line with what a panel of experts had predicted.”

None of this is true, of course. At least not on purpose. Call it reactive reporting…sometimes known as “deductive fallacies”…other times known as “meeting a deadline.”

Get a journalist under the pump and he’ll say just about anything to ensure he’s out of the office by cocktail hour. Anything, that is, except “I don’t know.” People don’t want to read “I-don’t-knows.” They want answers…even if they are incorrect, poorly thought out and bear the martini-stained scars from a long lunch meeting.

But sometimes it’s worth admitting a little ignorance, a little doubt and uncertainty. At the very least, it lends a bit more credibility to the times you do know something (or at least when you think/suspect that you do).

We suspect (there’s that word again) that, when it comes to stock market prognostications, the shorter the time frame of events, the less likely we are of having any real knowledge about anything. That may be true for many things…but it’s especially true of the markets. Ask us what’s happening today. We’ll tell you we have no clue. Tomorrow? Nope. Still out of luck. How about a year from now, or longer? Ahh…now we’re getting somewhere.

That’s because larger trends take time to work themselves through the pipes. Take gold, for example. In the very near term — like tomorrow — anything could happen. Volatility over the past few weeks has certainly testified to that. $60 up one day. An $80 drop the next. Generally, however, the recent trend has been down. People are heading into the “safety” of cash and bonds. But that, in itself, is still a reasonably short-term trend. Gold may yet go down to $1,400 per ounce. Or $1,200. Maybe lower. But stretch that trend out a bit further and see what you get. Gold is down about 15% over the past month…but it’s up more than 500% during the past decade. Smooth the trend line out a bit. Take out the bumps. What does it tell you?

Cash and bonds might be a “safe” place to be right now…but where will they be in another five years? Or in ten?

Government issued money — be it in cash or bonds — represents a promise to pay. Nothing more. The key, it must be noted, is not only the ability to pay, but, more importantly, the perceived ability to pay. It’s a confidence game, in other words.

Is the US government going to cut spending during the next five to ten years? We doubt it. There might be talk about it along the way (impacting shorter term trends) but, long-term, the fix is in. A report carried in today’s Washington Times, making the point for us, notes how budget cuts would “hollow out [the] military.” An addiction to the military is part and parcel of being an Empire. It doesn’t go away until it shoots itself in the face. Even Nobel Peace Prize-winning presidents are seen to expand the size and scope of the warfare state. Why? Because they have no choice. Too many vested interests. Too many greasy handshakes. Too many kickbacks and too many entrenched lobbyists.

But what about the other component of Empire, the welfare state? Here too we see no choice but for the beast to grow. In fact, it must grow. That’s the long-term trend of a welfare state. And it’s a trend protected by democracy itself. Once the majority become net recipients, as is the case in the US, they vote themselves ever-fatter slices of other people’s pies. The welfare state grows and grows until it ends up feasting on its own tail. Today, some 46 million Americans eat at the government’s table thanks to food stamp programs. Another 60 million or so cash Social Security checks…with 10,000 more baby boomers set to retire every day for the next decade. The warfare/welfare state gorges on itself from one end…and shoots at itself from the other. Eventually, even the perceived ability to keep this charade going collapses. And with it goes the paper dollar promises used to pay for it all.

Joel Bowman
for The Daily Reckoning

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

  • Jason

    From a fellow Australian, I regulary read your articles on DR. Top notch stuff. If only more people in the world could see things that way. Unfortunately, I suspect quite a few do, but even fewer will do anything about it. The fix is indeed in.

  • Tom

    So short term, you don’t know. (I don’t either). Long term gold is the ticket, the hedge against government foolishness and a dollar collapse.

    I am with you about 40%. When gold falls a little further I am going to 50%.

  • Scott Walker & the dread elephants

    I wouldn’t confuse Social Security with the welfare state. Social Security is self funded from the Payroll tax. The biggest problem with Social Security is: (drum roll please) the surplus is lent to the government, and they’ve been using it to fund tax breaks for the wealthy.

    As for food stamps. Pfall. Nobody is eating with the $10-$20 in monthly food stamps they get from the Fedgov. The Pentagon probably spends more to buy pencils.

  • Dave101

    Social Security has never been self-funded in any way, shape, or form. It is a Ponzi scheme that the govt has figured out how to raid twice through the use of IOUs and compulsory participation.

    Also, might want to check your math on food stamps. Or just go to the grocery store and observe the checkouts.

Recent Articles

3 Things Driving the Biggest Investment Story of the Decade

Ray Blanco

Forget about the new iPhone or the Apple Watch. They may create a huge frenzy right now, but they don't have any staying power. In fact, as Ray Blanco points out, these new products are just fads, especially when compared to one incredible story that's poised to be the biggest technology trend of this decade. Read on...


Why a Strong U.S. Dollar is a Commodity Killer

Matt Insley

What's green and white and absolutely killing the commodity sector? Answer: The U.S. dollar... That's right the ol' greenback has been on a tear since the beginning of July, and it doesn't show any signs of slowing down. Today, Matt Insley explains why this is such a huge blow for commodities... and oil in particular. Read on...


Net Neutrality: The Story You’re Not Being Told

Chris Campbell

Traditionally speaking, protesters and corporations make strange bedfellows. But there's one issue they've recently joined forces on: saving the Internet from the evil cable companies. But this union raises an interesting question: what if cable companies aren't as evil everyone thinks? Chris Campbell explains...


How to Trade the Great Commodity Crash

Greg Guenthner

Commodities are being decimated right now. Everything from wheat to corn to silver is seeing a drop in price. Is nothing safe? Today, Greg Guenthner gives a quick rundown of these commodity markets and some advice on how to navigate them through the end of the year. Read on...


How a Single Device Could Accelerate Space Exploration

Stephen Petranek

In recent years, humanity has developed some truly remarkable technologies. Of course, several of them walk a thin line between beneficial and harmful... Today, Stephen Petranek shares two new innovations that straddle this line very carefully... and could provide some interesting investment opportunities. Read on...