08/17/10 Ouzilly, France – What were they doing down by the pond?
The Dow was flat yesterday. Gold rose $9 to $1,226.
Has the dip in gold already come and gone?
We were expecting lower stock prices…and lower gold prices too. Both went down earlier in the summer. But neither went down as much as we expected…nor stayed down.
But it’s still fairly early in this correction. The recession began at the end of ’07. We’re now approaching the last quarter of ’10.
By this time in the ’30s, stocks were hitting rock bottom. The market crashed in the autumn of ’29…then bounced…and then started down again. It didn’t stop until it hit bottom in July of ’32 – nearly three years later. By then, stocks had lost nearly 90% of their value, from 381down to 41.
It can take longer, however. Japanese stocks crashed in ’90. But they didn’t hit their ultimate bottom until 2008 – 18 years later – with losses of about 90%.
So relax, dear reader.
Analysts are talking about a “double dip.” They’re worried that the economy may slip back into recession in the fourth quarter.
There are signs of weakening. GDP growth figures are being revised downward. Consumers aren’t spending. Banks aren’t lending – except to the federal government. Mortgage payments are falling further behind – even with fixed mortgage interest rates at record lows.
So many people are out of work for such a long time that we’re seeing more and more “Death of the American Dream” articles.
Even lawyers are out of work. Recent law school graduates say they can’t find jobs.
And the president of all the Americans, Barack Obama, tells us not to “give in to fear.”
“All we have to fear is fear itself,” said Franklin D. Roosevelt. Yes, fear…and 25% unemployment…the Great Depression (made worse by Roosevelt’s interventions)…a 27% decline in GDP…the Dust Bowl…the Wehrmacht…and the Imperial Japanese Army!
Obama might want to save the fear claptrap until Americans have something to worry about. So far, the correction has only taken 4% off America’s GDP and only took the official unemployment rate to 10%. And consumer prices haven’t actually gone negative – yet.
Don’t trouble yourself about it. The economy is in a correction that began in ’07 and hasn’t stopped. It won’t end until it has done its work. That will take time…maybe another 5 years. Maybe another 15 years.
Markets have to breathe in and breathe out. This market is exhaling. That’s just the way it works.
A Wall Street Journal headline:
“Another threat to the economy: Boomers cutting back.”
You see, dear readers, the financial press has no idea of what is really going on. Boomers are cutting back? Of course boomers are cutting back! They’re getting ready for retirement. They need to save some money.
It was loony to think you could finance your retirement out of the increases in your house’s value. Who were you going to sell the house to? Boomers were the biggest buyers of houses. When they turned into the biggest sellers, it was sure to cause trouble.
Besides, you gotta live somewhere.
Financing your retirement on stock market gains was a bit absurd too. Stocks go up…and down. There was never any guarantee that they would be up at a convenient moment…nor that they would stay up when the boomers all decided to cash out.
No, dear reader, you can never count on getting something for nothing. You can’t expect to finance your retirement on money you didn’t earn. Instead, you need real savings. Saved money. Money you didn’t spend. Money set aside. Anything else is just hoping…wishing…praying you get lucky.
(Even real savings are not guaranteed. Your money can still be swept away by inflation.)
But the problem with the WSJ headline runs much deeper. Financial journalists don’t understand what an economy is. Instead, they wallow in the same flattering claptrap as economists. They think the economy is something that is supposed to do their bidding. It’s supposed to make us all rich, by growing constantly. If it isn’t growing there must be something wrong with it. Something that needs to be fixed by the mechanics at the Fed and the Treasury.
You think the economy is “threatened” by boomers cutting back? Not the least bit. It’s just breathing in and breathing out. What’s the big deal?
But economists want to “do something.” It’s all very well when the boomers spend and the economy expands its broad chest. But when it exhales they rush to put a plastic bag over its head.
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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Oh but today the Dow roared back to life! Obam, Geithner, Bernanke, et sec have saved us yet another time!!!
Bill – thanks for the articles, always a great read. I feel like I have been ‘waiting for the other shoe to drop’ with things the way they are. I am posting from the UK but the quality of debate is far higher in the US.
My lesson of the last 12 months?… Things can take longer to play out than you might think……way longer…. way way longer!
I feel like the plastic bag is being put over my head! I am not a boomer. I am the offspring of boomers. I maintain that they got an inheritance from their parents and spent it. They are currently spending all the money they earned. They are setting up to try to extract an inheritance, of sorts, from me and my cohorts (hence the plastic bag) through gimme programs from the government that I am expected to pay for. When will this “exhale” of the economy stop? When the boomers finally quit exhaling (and inhaling) (and spending all the money)! I hope I can hold my breath that long
Want to know an absolutely no risk investment that returns a tax-free rate equal to mortgage rates 5%, but as high as credit card rate 18%? Reduce and eliminate all personal debt! And the best part, no brokers or sales commission. Just think consumer, how much disposal income you will have once you have rid yourself of the loan sharks, who continue to siphon off your earning.
John-
I don’t like to think about it, but my circumstances are similar. In many instances the Depression generation gave the boomers everything on a silver tray. The boomers in turn snorted high living off of it. My granddad left his kids some high quality farm ground and despite that I am budgeting to supplement my dad’s retirement, forget about inheritance. I don’t see much hope for the US turning around until the boomers are dead. (Not a threat).
Simon- I can’t believe the quality of debate is higher here in the US. That is depressing. You do have Evans-Pritchard…
Cheers.
Who would have thought that spending more than you earn for eternity was a bad idea?
Bill mentioned FDR. I was reading the March 4, 1933 speech again recently, at I was struck that FDR complained that some people were trying to cure the collapse of credit by issuing more credit. “Faced by failure of credit they have proposed only the lending of more money.” Exactly the problem we have now.
(FDR March 4, 1933 speech):
“… the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.”
“True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.”
“The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”
Had a scary thought today as to why today’s algorithimic trading seems to benifit / reward the worst and most dispicible in society
” the psycopaths & sociopaths”
These people just have so much in common with today’s souless heartless super computers it’s almost like a match made in psycopath paridise.
Our New World Order gets scarier by the day!
Yeah, hard as it is to believe, it’ll take a few more spending orgies before even the current crew has debt/GDP ratios at WWII’s, I mean FDR’s, levels. That transcript was either mistaken, or I just don’t understand on what side of those “ancient truths” he stood.