05/06/11 Baltimore, Maryland – We’re finally getting some action on Wall Street! The Dow has lost more than 200 points in the last two days. Gold is down more than $50. And oil closed below $100 yesterday.
Could this be the sell-off we’ve been waiting for? Maybe.
Why do we expect a sell-off? Because we’re still in a Great Correction. And in a correction, prices tend to go down. Deflation is the underlying trend…not inflation. Debt gets marked down…defaulted on…and written off.
By our reckoning, the beginning of the correction actually began more than 10 years ago when the NASDAQ cracked wide open in January 2000. Since then, the US economy and stock markets have gone nowhere, in real terms.
Who noticed? The feds poured on so much liquidity – beginning in ’02…with a huge flood in ’08-’09 – everything was swamped. Trash floated.
But households drowned…they were shackled to sinking incomes, while the cost of living rose with the tide.
And their costs are still rising. On the radio last night we heard about how hard $4 gasoline has hit America’s lower and middle classes. These people live on tight budgets. If their fuel costs go up $20 a week…they feel it.
The Wall Street Journal:
LONDON – Consumer prices in developed economies rose in March at the fastest pace since October 2008, driven by energy and food inflation.
A couple of reports in The Financial Times have focused on how they cope. One tells us that they aren’t driving to malls the way they used to.
“Online shopping jumps in US as cost of fuel curbs trips to malls,” says the headline.
No report from the malls yet…but online sales are said to rising at a 7% rate.
Meanwhile, “Americans ditch TV is move to save money,” says another headline.
“Lower and middle classes are giving up their televisions and unplugging their landline telephones…” it begins.
Hey, there’s some good news. The TV has probably done far more damage than drugs and alcohol. And certainly a lot more damage than terrorism. Yet, the feds spent $2 trillion fighting terrorism (according to another FT report). How much did they spend fighting TV?
But let’s think more about what happens to investors.
If we’re in a Great Correction…
…and if liquidity from the feds is the only thing that keeps the correction from dragging prices down…
…then, you’d expect prices to go down whenever the feds ease up, right?
Well, get ready. When the feds stop pouring on liquidity, the correction reasserts itself. That’s what happened last summer. QE1 ran dry. Stocks fell throughout the summer…leading Ben Bernanke to announce QE2 in August.
What’s happening now? Is the market anticipating another QE end? Are prices headed down until another QE is announced?
We’ll find out…
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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“Deflation is the underlying trend…not inflation.”
hah. we’ll see both simultaneously. here’s the real truth.
1) demographic decline. fewer productive citizens means less production and fewer debt slaves.
2) the debt dollar pyramid scheme is at it’s limit. it’s base now exceeds all possible support, even as the existing support is evaporating.
we will see default and deflation in all things that people can live without. this will starve tptb who live on interest payment income. but tptb want their take, so they will monopolize and jack up prices on all things people can’t live without. not to mention they’ll jack up taxes and take money directly. not to mention they’ll print like mad and take money indirectly. “pay me first, or die. in fact forget you, I’ll just print what I want and buy it from you, and watch you work yourself to death trying to earn it from me.”
Branded, established belief perceived that
“521″ will be the watershed of humankind. Surprisingly, neither has the investor nor the market responded positively to the one-time-and-that-is-all doom event.
There will be big biggie if a renowned guru declares headline. Yet, there isn’t even a ripple in my coffee cup as the event switches on its countdown. Why? Why? Why?
I suspect the migration to online shopping is driven as much by increases in retail sales taxes as it is by energy prices. Never the less, when combined the cost advantage to a company like Amazon.com are enormous. They already have economy of scale, add in a near 10% tax advantage they enjoy in the abscence of sales tax, and suddenly Amazon becomes one very formidable competitor on the sale of anything that doesn’t cost much to ship to begin with.
Free-floating sentiments are bad for many but benefit a minority. When QE is concerned, sentiment alternate between pro and anti oscillatory. Who are the beneficiaries of the transition? Need no labeling – zombies and the filthy rich.
Leaving poverty sinks deeper. Feel pro or anti only for one direction. Do not budge. If insisted, either pro or anti shines.
When QE2 ends markets will dive and so won’t commodities. Then I’m going to buy buy buy because I know that QE3 is around the corner.
QE in Eurozone; read
Why I Won’t Support More Bailouts
by Timo Soini in Wall Street Journal Europe
edition