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.
for 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.”
"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...
The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.
The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”
Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...
The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.
It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.