Bill Bonner

Stocks down another 104 points yesterday…measured by the Dow.

What’s going on…? What’s going on?

That was a song by Marvin Gaye. It was also the question the interviewer asked. Followed by, what’s going to happen next?

But those are questions no one can answer. All we can do is guess…speculate…and wonder.

“Deflation now. Inflation later” is what we’ve been saying for the last 4 years.

The interviewer seemed happy with the answer. And the elaboration:

“Japan now…but don’t be surprised when we end up in Argentina.”

What do Japan…Argentina…and the US all have in common? They can print money. And when their backs are to the wall, that is what they will do.

But that’s later, remember. Right now, investors are lending money to governments at the lowest rates in history. They do not ask anything more than to get the money back. Eventually. And since the US and Japan can print, they are confident that they’ll paid.

But what about Argentina? Turns out, Argentina borrowed in dollars too…and pledges to repay, in dollars. So, you might think you’d get the same interest yield in an Argentine bond as an American one.

But what’s this? The yield on the ‘Boden,’ which is what they call Argentina’s dollar bonds, is over 17% — which is more than 10 times what you get from a 10-year US note. What gives? Simple. Argentina can print pesos. It can’t print dollars. So investors are afraid that when time comes for repayment, the Argentines won’t have enough dollars on hand.

No such problem in the US. And as long as this recession or ‘contained depression’ continues…investors will probably continue to treat US debt like a mattress. You put your money in. You can get it out when you want. You don’t make anything. But you don’t lose anything either.

But how long will this Japan-like slowdown continue, our interviewer wanted to know?

“Hard to say,” was the reply. In terms of private sector debt, the downturn is taking out an amount equal to about 10% of GDP every year. But there’s still the equivalent of 100% of GDP of excess debt left to go before we’re down to ’70s levels.

If that’s where it is going, we’ve got another 10 years of travel — at this rate.

Meanwhile, in the near term, it looks like the US economy is headed into another recession. That’s what usually happens when retail sales go down for 3 months in a row.

Seventy percent of the US economy is consumption. So, when the consumers stop buying, the economy goes down. Lakshman Achuthan, who runs Economic Cycle Research Institution, says he thinks a recession has already begun.

And when the economy goes down, generally, stocks go down. The little sell-off we’ve seen so far is nothing. The Dow hit 13,000 in 1999. It has gone nowhere since. And now, it should begin to sink.

As mentioned, retail sales are falling…
Corporate profit estimates are going down…
The Chinese growth rate has dropped 6 quarters in a row…
America’s corn and soybean crops have failed…
Family income is in decline; never before has it gone down over such a long period (12 years)…
US bond yields are at their lowest ever, with the 10-year at 1.39%.

Came the question: “Well, what should our viewers do?”

“Sell stocks,” was the answer.

Regards,

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • The InvestorsFriend

    Your comment section sucks, it randomly blocks me.

  • Longnine009

    Little Bighorn 1876:

    “General Ben, scouts report the entire Sioux Nation
    is waiting for us on the other side.”

    “Don’t worry about them captain, they’re not part
    of the core index.”

  • http://InvestorsPal.com/ The Pal of The InvestorsFriend

    Yes, my invaluable comments are also randomly blocked!

  • Boris

    Yup, impossible to post comments at times.

  • Wags

    So if we’re headed for an economic slowdown, US bonds should continue to go up. I don’t loan money to governments on principle. Just saying.

  • Bill B. Bonner

    Shawn, nous essayons au hasard pour vous ennuyer dans l’espoir que vous quittera.

  • gman

    “it randomly blocks me.”

    yeah, me too. deal with it.

    “And when their backs are to the wall, that is what they will do.”

    since politicians’ backs are against the wall every election cycle, and since deflation will leave tens of millions of voters yelling for a political solution, just how long will this deflation period be?

  • Moomglow

    Bill. Why is consumption considered to be ‘evil’ ? If no one is consuming the goods being produced, what is the point of production anyway?

  • Angelique Wow

    The world economy is not going to end.

  • gman

    “And when their backs are to the wall, that is what they will do.”

    since politicians’ backs are against the wall every election cycle, and since deflation will leave tens of millions of voters yelling for a political solution, just how long will this deflation period be?

  • gman

    “Why is consumption considered to be ‘evil’ ?”

    it’s a “me” thing. few people consider their own consumption to be evil. many people consider others’ consumption to be evil. “how dare americans have guns” says the mayor from behind his armed bodyguards. “americans need to pollute less” says the president as his wife jets around the world on vacation. “americans need to be productive again” says the infestor as he buys income.

  • mike

    …dr.B says(that’s as in Daily Reckoning Bonner…retail sales are falling…
    Corporate profit estimates down…
    The Chinese growth rate is stalling…
    America’s corn and soybean crops…dead in the ground…
    Family income is in decline; never before has it gone down over such a very very long long period …of time…
    US bond yields are at their lowest ever, with the 10-year at 1.39%, america has a fever!…for a cold, spend money…for a fever, print it!??…

  • phelps

    I noticed that most comments only get blocked when Bill’s articles are being reposted over at Lew Rockwell. Other than that, have usually been able to post comments.

    English Bill, english.

  • phelps

    Big time slow down in the economy. Took some expensive purses of my wife’s to a local resale shop. She usually takes all my stuff, but this time nothing. She made an excuse to keep me coming back. However, my stupid car won’t start when parked on hill if it doesn’t have so much gas. I had to wait for the car in front of me to move before I could leave. Waited 45 minutes. Only sellers were coming in to the shop. Talked to her again and 90% of customers this month are sellers. She was just unable to take on any more merchandise, but encouraged me to keep coming back as things “would pick-up”. Let us hope it does.

  • The InvestorsFriend

    Moonglow is right.

    Bill is alarmed that 70% of GDP is for consumption. What ought it be for? exports to Mars?

  • DaCuriousMind

    So…..If only 70% of the GDP is for consumption, what do they do with the other 30% ??? Do the 1% keep it in their basement or on their yachts where no one can find it?

    Curious minds would like to know.

  • Mogambo’s Ghost

    Moonbat/The InvestorsWashroomAttendant:

    BB didn’t say consumption was evil. Y’all did.

    What BB said was if the consumer driven 70% declines in a recession/depression/correction, stocks follow.

  • Wags

    I think Bill said, “We try to bore you in the hope that you’ll leave.”

    From Google translate from French. Sorry if that’s wrong. Also I don’t know who Shawn is.

  • gman

    so. no answer?

    ok, I’ll give it a try. inflation in everything we need to buy to live, deflation in everything else. both now.

    been saying that for three years. others say it too, better than I did – “inflation in everything they own, deflation in everthing we own.”

  • gman

    by the way, as productivity declines, you’ll see inflation in gold. time accordingly.

  • gman

    hey, this guy says it even better! “deflation in non-perishables, inflation in perishables.”

    http://theeconomiccollapseblog.com/archives/17-reasons-why-those-hoping-for-a-recession-in-2012-just-got-their-wish

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