02/27/09 San Jose de los Perros, Nicaragua Come and get it!
The slop is in the trough…and the pigs are coming at a run.
An advertisement on the Internet tells the tale. The Obama Stimulus Program is giving away “$10 billion a month in grants.” These grants “never have to be repaid.”
“Finally, a taxpayer bailout!” it continues…explaining “how to get your government grant.”
Then, there is a photo of the purveyor of this scheme – standing in front of the Eiffel Tower in Paris. In other words, these government grants make anything possible – even a European vacation!
Then, there are a series of testimonials…
“I got enough to buy a new car…”
“I didn’t think it was true…but I got my check today…”
“These government grants are great…just what I needed…”
Soooo…eeee…! We never heard that cry personally…but that’s how farmers used to call their hogs when it was time to feed them.
Just in the last few days, the Obama government has announced another $750 billion for bank bailouts…and a $634 billion.
Where’s all that money going to come from? Only a few months ago, the official budget deficit was projected to come to $800 billion…then $900 billion…then $1.2 trillion…and now, get this, it’s gone to $1.75 trillion.
The pols are taking advantage of the situation. Capitalism has fallen down and can’t seem to get up. So, the politicians get to march ahead and take charge.
General Motors just reported a loss for the fourth quarter of nearly $10 billion. You can see what good it does to bail out failing companies…the money just goes down the drain. The government gave GM more than $13 billion – there goes the bulk of it.
And AIG is said to be nearing collapse – despite the government bailout of this past fall. You’ll remember that the Goldman boys got together with the government and decided to rescue AIG, but not competitor Lehman Bros. AIG was reported to have owed $25 billion to Goldman. We hope the firm stays alive long enough for Goldman to get its money…
Sooo…eee!
The Dow fell another 88 points yesterday. Oil rose to $45. And gold fell 23 bucks.
Sales of previously owned houses fell 5.3% in January from December. There are now fewer sales than at any time in 10 years. The median price of a used house is 26% below its peak, we are told.
But despite the bad news, Americans are not quite in Depression Mode.
We have been trying to gauge popular sentiment. Are investors throwing in the towel? Are consumers giving up? Is this the bottom of the downturn?
Not likely…
“Stocks face long road back after crash,” is a headline in the Wall Street Journal.
“Bernanke says slump may end in ’09,” is how one paper reports on the Fed chairman’s congressional testimony.
“Seven signs of an economic bottom,” is a piece at Seeking Alpha.
And Jeremy Siegel, author of Stocks for the Long Run, says he has never seen such great bargains.
What this tells us is that people are still optimistic. Still hoping. Still thinking positive. Like us here at The Daily Reckoning, they make lemonade out of every cloud…see a silver lining in every glass…and every cloud is half full of lemons, rather than half empty. Something like that. “Yes, the markets have been hit hard,” they tell themselves. “But they’ll recover.”
Unfortunately, this is not depression thinking. This is the kind of thinking that happens at the beginning of a depression. Even after recent losses, most stocks are still selling for 15 times earnings – or more. When you get to the bottom, that multiple goes down to 5-8. And while stocks have lost 50% of their value…we remind readers that at the bottom in ’32…and Japan’s bottom now…stocks were down 90%. And when you get to a real bottom, you don’t hear people talking about ‘the long road back’…or what bargains you can get…or signs of a bottom. Instead, they’re convinced that there is no going back…that stocks are expensive at any price…and that the slump will never end.
*** No, dear reader, we’re not at the end of the slump…we’re not at the beginning of the end…or even the end of the middle…
…we’re only at the beginning of the middle.
We have our ‘Crash Alert’ flag flying because we believe there is another 50% drop coming. But it may not come right away. It wouldn’t be at all surprising to see a major rally, such as happened following the crash of ’29 and the crash in Japan. Stocks could rally to more than 9,000 on the Dow.
Mr. Market is a perverse old coot. If he is going down…he wants to take as many investors with him as possible. So he fakes them out…moving sharply to the upside in order to make them think the bear market is over. And then he takes them all down…
…if we’re right, this bear market won’t end until the Dow trades under 5,000…and possibly under 2,000. And it won’t end until the price of gold and the Dow are about the same number.
This site is always the best reading of the day – thanks!
BTW, I don’t understand why everyone, even you, still talk as if the S&P P/E will remain what is currently reported. Isn’t it patently obvious to everyone that the next couple of quarters are already baked in the cake disasters for the vast majority of companies and that earnings will be cut in half each quarter at best?
Really – I’m surprised that I frequently see the multiple discussed but never see this mentioned. Am I missing something?
Mr. Bonner,
Please keep it coming. There is nothing I enjoy more at the end of my day than to read your article. Absolutley genius. Thank you . Thank you. You have a masterful way of laying out as it is. I have past your insight on to friends and family that have yet to believe me or you but it makes for good comedy to listen to the dumb bells! Take care.
Sincerely,
Ross M. Smarto
FIX THE DAMN FORUM dailyreckoning.com!
dunc, you’re not missing anything.
The trend for earnings is down, meaning stock prices must fall further. It is blindingly obvious yet ‘experts’ like Siegel haven’t even noticed it. That guy and others like him should be drawn and quartered, if only for the sake of the naive investors who listen to their terrible advice.
dunc is missing, or soon will be, his cake which Mr Market will have eaten.
If the bottom is 90% off the peak, then something like 1450 is the number. So gold may only reach 1450…..
And this would indicate an S&P of about 150. Ouch, that’s going to leave a mark.
Awesome site daily reckoning crew. Been reading here for over 10 months now, learnt heaps from Mr Bonner and the crew. Keep up the good work and get the Mogambo to admit deflation! There ain’t no inflation coming for years.
I find it strange to read so many of the top financial gurus, stating that the present market crisis and the quickness and severity of same caught them off guard thus prompting severe losses to their investment funds.
Goodness, all they had to do was review the Daily Reckoning issues these past few years and pay heed to Bill Bonner and his host of marvellous contributors. They were forewarning for months.
No Brainer as far as I’m concerned. Yep, and I’m sure all DR appreciate readers would agree.
Merci Bill for your candid on-the-money thoughts from a thankful Canadian residing in a peaceful hamlet in Ontario.
Dear Bill, Addison, Richard –
I was in cash for the past 4 years. Until early Feb.
Now
– 20% UGL(twice long gold)
– 20% AGQ (twice long silver)
– 20% TBT (twice short 20 year treas)
– 20% UCO (twice long crude)
– 20% Couple fun ones – Smaller Gold companies
What is your reaction?
I am interested in your thinking, not advice.
From you long suffering reader and dedicated student(8 years.) Once you must have been drunk and referred me to your writing staff as a possible talent, yet I am not a writer.
Best to you all and families – Thank for daily entertainment and learning.
– Doug
Very informative site,thanks
but why do we never hear or see a different option… “get rid of the stock market!” Let us go back to responsible banking.
If you want to gamble go to a casino!
Please go back to a larger print. Your readers are aging quicker than ever and the eyesight fails. MN
I don’t know about the rest of you, but I
think it’s time to buy guns, move out of the city and become more self sufficiant.
It’s time to back away from the government
because for Democrats,Republicans and independants, it’s all trial and error.
It’s time to let the posse rise.
Hi Murray,
I have the same problem. Just use the zoom tab or whatever it’s called at the bottom right of your screen.
Cheers,
David
Oh, and thank you all for the brilliant site.