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.
Bill Bonnerfor The Daily Reckoning
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.
Your comment section sucks, it randomly blocks me.
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.”
Yes, my invaluable comments are also randomly blocked!
Yup, impossible to post comments at times.
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.
Shawn, nous essayons au hasard pour vous ennuyer dans l’espoir que vous quittera.
“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?
Bill. Why is consumption considered to be ‘evil’ ? If no one is consuming the goods being produced, what is the point of production anyway?
The world economy is not going to end.
“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.
…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!??…
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.
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.
Moonglow is right.
Bill is alarmed that 70% of GDP is for consumption. What ought it be for? exports to Mars?
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.
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.
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.
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.”
by the way, as productivity declines, you’ll see inflation in gold. time accordingly.
hey, this guy says it even better! “deflation in non-perishables, inflation in perishables.”
Too often investments are made in a vacuum. But as Byron King demonstrates, the global economic crash... easy money... and technological advancements are all interdependent. In particular, that connection has changed the investment calculus in the resource market. Read on to learn how...
Back in the 1980s, John Nestor became infamous for single-handedly causing massive traffic jams on the Capital Beltway. But in his professional life, he created a completely different kind of traffic jam... one that may have contributed to the deaths of thousands of innocent people. Juan Enriquez has the full story. Read on...
Too many people think that long-term care planning is just a decision about whether to purchase long-term care insurance. However, long-term care planning is so much more... It is a discussion about how you will fund this expense, where you will receive long-term care, and who will provide the care. Jamie Hopkins explains...
Lately, the market seems to be obsessed with new tech darlings with flashy names and exciting stories. But there are more sinister forces at work... Today Greg Guenthner explains why you should pay no attention to the man behind the curtain, and avoid being tempted by big name tech IPOs. Read on...
Stocks have started off this week pretty flat. But is more volatility to come as the week progresses? Today, Dave Gonigam takes a look at a few scenarios for the rest of this week, and for 2014 as a whole - specifically relaying what one analyst sees as the two main forces currently driving the market boom. Read on...