Bill Bonner

What happened on Friday? A “moment of truth” arrived for Europe. But what is the truth? We’ll have to wait to find out.

The Dow rose 259 points. Gold was up $28.

But who cares? Up, down…up, down… Every day brings more ‘truth.’ But what we want is a truth with legs. We’re not day traders. Not week traders. Not even year traders. We want a long, sure…mega trend. We want the Dow at 900 in 1983. Or gold at 260 in 1998.

What is there today that is equivalent? How about 10-year US bonds at 2.20% yield? For upside, we can’t think of a single other thing. US bonds have been in a long, long uptrend — basically — since they’ve existed. From 1791 to the present, they’ve gone up. Of course, there have been some major problems along the way, notably in the ’70s when it looked like the Fed had lost control of inflation. Otherwise, bond yields have gone down as prices have gone up.

Is it time for a turnaround? Maybe not just yet. We’re still in a Great Correction. Bonds should continue to go up — for a while. But just wait…this is a truth that won’t go away: US debt is expanding…as its ability to pay declines.

Meanwhile, the big trend for the US stock market is probably down too. Just a guess, mind you. Why? We’ve given you the reasons…but since you seem to have forgotten, we’ll give them to you again:

…After 60 years of credit expansion, credit is contracting. That means less household spending, which means lower sales and fewer profits

…A bear market began in January 2000. It never reached its rendezvous with a real bottom. Ergo, the ultimate bottom still lies ahead…

…Stocks rose since 1982…since 2000, they’ve been going nowhere. Now, it’s time for them to go down.

…Most of the ‘growth’ in the last 20 years has come from more and more debt at the household level. Now that debt is shrinking…growth should shrink too…

…There are 70 million baby boomers who desperately need to save money for their retirements. They used to borrow and spend…now, they will have to pay back and save.

…As credit grew, it took more and more credit to produce an extra unit of output. Adding more credit now will not help the real economy expand…

…The feds can’t engineer a recovery, because unlike a recession, the problem is not that debt is too expensive, but that they have too much of it already…

…As the economy softens, the feds take more and more of it into custody. The feds invest badly, leading to less real output…which must supports more and more zombies…

…The European economy is sliding towards another recession; this will hurt the US economy too…

…The whole world economy is weakening; it could drop into a worldwide depression…

…Higher, persistent unemployment undermines consumer spending…

…House prices are still falling, which will further reduce household net worth and reduce both spending and risk-taking…

…Energy use in the US is falling…more inputs of energy do not produce enough extra output to pay for themselves…

…But energy use in the emerging markets is increasing, supporting energy prices and putting more pressure on US household budgets…

…What else? Want more reasons? Stay tuned…

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.

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