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 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.
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.”
Even Noble Prize winning economists can make mistakes. In today's video, Lewis Lehrman examines Milton Friedman's fatal error -- ending the Bretton Woods Agreement -- which triggered worldwide currency wars.
The police operate in their own self-interest, the same as every other human being on the planet. For that reason you cannot rely on your local police department to keep your best interest at heart. As Ryan McMaken explains -- and Ferguson Missouri demonstrates -- your police department’s is not necessarily interested in “protecting and serving you”...
It might go against conventional thinking, but following the crowd usually makes you miss the real opportunities. At one monetary metal conference recently, the smartest guys in the industry sat down to discuss where these real hidden gems lay. But where does marijuana fall in this debate? Doug French has the scoop...
One of the most important trends in the evolution of technology is the advent (and growing importance) of "Big Data." And yet, some people are still confused about what it is - not to mention grossly unaware of just how massive the market for data has become. Today, Josh Grasmick offers an insightful explanation...
The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...