07/01/10 London, England – Let’s see…what’s in the news today?
Stocks went down again yesterday. The Dow got trimmed by 96 points.
Gold, on the other hand, went up $3 to $1,245.
The first half of the year came to a close with the S&P 500 down 6%, global stocks down 10%, oil down 5%, Chinese stocks down 27%, the euro down 14%.
What was up? Gold. Plus 13%.
There are two major pieces of unfinished business in the markets. Stocks have still not completed their bear market drop. Gold has not fully realized its bull market either.
Typically, markets move from excess to excess, passing sensible prices like a cross-town bus crossing main street. Back and forth, from over-valued to undervalued…and then back again. And passengers tend to get off on the wrong end!
Gold was very cheap at $260 in 1998. It will be very expensive sometime in the future. Perhaps at $2,600?
Stocks were very expensive when the Dow was at 14,000. Where will they be very cheap? At Dow 6,000? Or Dow 3,000?
We don’t know. We don’t even no for sure what direction the markets are heading. All we know is that we’re somewhere between the top and the bottom. And gold seems to be heading up while stocks seem to be heading down. Until they’ve run their course, only a fool would bet against these trends.
And here’s another trend we wouldn’t bet against. Government debt is going up. In the US, the national debt is now officially at its highest level since WWII.
Yesterday, a film crew caught up with us on the banks of the Thames and posed the question:
“What’s the big deal about debt? The US had as much debt after WWII. The next years were among the best the country ever had…”
We sat at a sidewalk eatery near the river, with a camera focused on us. People walked by and stared. They figured we must be somebody. They looked disappointed when they couldn’t place us.
“The big deal is that we’re going broke,” we explained. “Until very recently debts of this magnitude were always associated with war. From time to time countries went broke. But they almost always did so because of emergency expenses driven by war. In other words, they were spending money for what looked like a very good reason – self preservation.
“For the first time in history, almost all the developed nations of the world are running regular, structural deficits. They’re going deeper and deeper into debt, as though there were a war…but there is no war.
“We have emergency budgets, but no emergency. You may think that they are fighting the emergency of a recession or the threat of a depression, but you would be wrong. Most of the deficits have little to do with stimulus or bailout efforts. They are just the ordinary results of social welfare programs that have gotten out of control.
“For the first time ever, countries are going broke just in the normal course of business. Without an emergency.
“The nice thing about WWII is that it came to an end. But there is no victory in the fight against old age. The pension burden won’t go down. It will go up. There is no VE day for national health programs. There are no tickertape parades…the troops are never de-mobilized and sent home…and the spending never goes down.
“We can never pay off the debt, in other words, because the debt never stops growing.
“National leaders at the G-20 conference over the weekend pledged to bring their deficits under control. Some governments are taking this seriously. The government of Britain, under David Cameron, seems to have the right idea. But we are still waiting to see what happens next.
“The modern welfare state was only invented about 150 years ago. The Romans tried it and it didn’t work out very well. The modern version is still an experiment.
“And currently, in America, there are more people getting money from the government than there are people paying taxes. Forty million people get food stamps. Millions more depend on federal tax credits and so forth. Still others have jobs that are either paid directly by the government or by a contractor for the government.
“All these people have the right to vote. Which is a shame. Because they are likely to vote for more social welfare spending. Then, governments will go broke. “
Yes, dear reader, the welfare state is another piece of unfinished business. So is the dollar-based monetary system. Both of them are approaching the end of the road.
Bill Bonner
for The Daily Reckoning
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 .
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“Yes, dear reader, the welfare state is another piece of unfinished business. So is the dollar-based monetary system. Both of them are approaching the end of the road.” – This sounds nice to our ears. It is high time that the anticipated end arrives.
Let us change the theme. From ‘Saturday night fever’ to ‘gold fever’. Alright!
Though, gold has lost $40 today alone,
nevertheless, its potential to spiral up is not to be taken lightly.
Bill Bonner said:
And gold seems to be heading up while stocks seem to be heading down. Until they’ve run their course, only a fool would bet against these trends.
So… only a fool would hold stocks I guess?
Any yet Warren Buffett became the world’s most successful investor ever by studiously ignoring where either gold or the general market was heading.
In 60 years of writing on the market and investing in it, he invested when individual stocks were cheap and never gave a hoot if they might get cheaper. I know, I’ve read his words. He’s done okay.
Here is a link to a summary of Buffett’s investment letters from 1957 to 1975, during this period stocks experienced peaks and valleys but Buffett just bought what seemed most attractive. He NEVER tried to predict the market. He still doesn’t. Why should I?
http://www.investorsfriend.com/Warren%20Buffett%20Letters.htm
And Buffet’s Berkshire Hathaway is off 20% from its 2007 peak.
Any guess to what it will do in the next 5 years?
Bill,you say that the welfare programs are the source of our problems. You are mistaken. I am a business graduate and investor who has been involved in conservative causes for several decades, and welfare programs are just a troubling side event that must and will be corrected. You are doing us no favors by diverting our attention from the business and Wall Street corruption that was eating us alive. Since Biblical times intellegent people have recognized that the excessive love of money is the root of all evil, and today has been no exception. It was unnatural pride,corruption. and greed,
not welfare, that brought down the Roman Empire and several others, perhaps even our own. We never are going to get out of this mess if some of the nutty ideas you’ve been pushing lately actually catch on. Economic issues cannot rationally be discussed in terms of leeches and paracites. Far better to simply say that our welfare programs must be corrected, among many other things, and then make some rational suggestions.
Is Wall Street corrupt? Yes.
Was bailout money steered toward cronies. Yes.
But when more people receive from the gov’t than pay, that’s a problem. And if they can vote, it’s then a cancer.
“Fred” – Please enlighten us with your “rational suggestions”. I’m also a business man with a masters degree in chemistry and an MBA. I struggle with your post however, because you simply criticize and provide zero insight regarding the problem at hand. That is, you give us a bitter diatribe with no solution. Ahhh, but there’s the rub, Bill’s been providing the solution for years…but you haven’t been listening…governments need to get the hell out the private sectors business, spend less, and stop printing money like delusional crack whores.
Bill, you write that there is no war going on. This is plainly not true. The biggest component of the US’s spending is fighting 2 wars and preparing for others. The UK, another ecconomic basket case is also spending a fortune on “defense”. The tragedy of this however is that a whole lot of capital is being burned fighting ghosts as opposed to the real enemies of civilization that plagued the world in the 1930′s. Civilized society’s greatest enemy today is actually the aparatus of the state because of the mentality of those pulling it’s strings. The trend towards national socialism in the west warned of by Fred Hayek’s continuing unabated. The people steering this trend will not stop until everybody is impoverished and paranoid. Anybody buying government bonds is actually voting for this trend to continue by concentrating spending power in the state’s bureaucracy.
Everyone should have the right to vote by virtue of being human no matter what. There is lots of fascist thinking here in BB’s head going on. I guess that is why the DR closed down its own discussion forum. It attracted to many like minded people…
Yes, if the majority of Americans and their elected representatives agree that those at the top are being greedy with their resources, then the law of the land should reflect that. If they had been more generous the government wouldn’t be in this position where it has to force them to do so. You can’t blame the people and the government for wanting to correct the immoral greed of those who refuse to give more when a clear majority thinks they should.
There is a lot of twisted logic being applied here. This happens whenever politics enter the room. Remove the politics and you may have a chance.
Think about it…..