12/29/09 Ouzilly, France We are looking back at the year almost finished, and trying to figure out what lies ahead. The surprise of 2009 was that the stock market didn’t turn down again. Stocks worldwide were cut in half. Then, they bounced. A textbook, classic bounce…Normally, you’d expect the bounce to peak out after 5 or 6 months. This one hasn’t…yet. Our guess is that it will…
Of course, we could be wrong…
The ‘classic’ depression…a la Japan…comes about when an economy needs to make some fundamental changes. It discovers that a lot of what it has been doing was wrongheaded. Assets, valued at bubble levels, need to be marked down. People need to find new jobs; because the old ones no longer make sense. Businesses need to be restructured and retooled. Households, typically, need to stop spending and pay down debt.
This process is long and hard. The story of bubbles always begins cheerfully enough. But it always ends at Chapter 11, in long workouts…painful write-offs…and court cases.
“Recession Begins Flooding into the Courts,” says a headline in yesterday’s New York Times.
If this were a classic depression, we could anticipate another leg down in the stock market…more unemployment…and on-again, off-again growth over the next few years.
Our guess still is that it IS a classic depression…and that we should see stocks go down…along with all the other phenomena that usually accompany a depression.
But, it’s not that simple.
Because there are a lot of other things going on too. The feds are hell-bent on avoiding a painful restructuring of the economy. First, they made sure the bankers got their bonuses. The banks deserved to go bust…and the people who ran them should have been fired. But the fix was in from the beginning.
Then, they turned to consumers. The feds are using every trick they have to lure consumers back into bubble mode – buying things they don’t need with money they don’t have.
Is it working? Well, the results are mixed and confusing. Every day seems to bring more noise. Today, for example, we learn that spending is up 3.6% this holiday season. We have to wonder…how could that be? Fewer people have jobs. Those who have jobs are working fewer hours and earning less money. And the bankers – bless their greedy little hearts – are not passing on the feds’ cash to consumers. Consumer credit is going down at the fastest pace since the Great Depression. So, how can consumer sales go up? We’ll just have to wait to find out.
The Dow rose 29 points yesterday. Gold went up $3. We would like to see both of them go down. Then, we would sure our ‘classic depression’ hypothesis is correct. In the meantime, we’re watching…waiting…and wondering…along with everyone else.
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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Harry before you chime in with your usual bundle of bunkum, do us all a favor. Disconnect you internet, shut down your computer and leave the public library. Don’t return.
Thanks
Earlier I read a post with BB saying equities were the “trade of the next decade” more or less. Now, he’s clearly saying stocks should fall, we’re in a depression, the usual.
So what’s it going to be a depression with great stock returns?
Like a street preacher exhorting the crowd, Harry thinks he has received a divine call to save wayward sinners from Bonner.
But like most street preachers, he mostly just annoys the crowd.
But like most street preachers, he mostly just annoys the crowd.
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@Theophiluspunofall
In net language, he’s known as a troll
harry is in a hurry to save the world. trouble is the world is deaf and blind.
The numbers just don’t add up anymore and you cannot argue with math.
Ah, poor Harry. Just a misunderstood kvetcher. Not much appreciation playing devils advocate around these webpages.
Too true. Carbuncles and hangnails are so unloved these days.
The latest proposal by Ben will be the final nail in the coffin, it effectively pays negative interest rates to borrowing banks. The more they borrow from the Fed at zero interest rates the more money they have to loan back to the Fed at any rate above zero, guaranteeing profits at no risk.
It may sop up the liquidity in the market as there will be few loans made to business. No business can guarantee the return of the principle none the less pay interest in this environment. This will shut down what remaining business we have left in this country and eventually make the dollar useless.
Get prepared for the worst.