Bill Bonner

Did you miss us, Dear Reader?

You won’t believe this…we hardly believe it ourselves…but after months of planning and preparation for our expedition to the high, dry mountains of Argentina, we’re still here in the city of Salta… Our project has been delayed…by floods.

As you may recall, it is so dry up at the ranch that visitors wonder what the cows eat. We tell them we have developed a new race of low-fat, low cholesterol cattle we call “sand fed beef.”

But what ho! Now we are still in Salta, a city about a 5-hour drive from the ranch, and we are stuck.

“Well…” says our foreman “…the road to Angastaco is blocked by the river. The road to Molinos is blocked by mud. But you don’t have to worry about that. You can’t get anywhere near there, because the road to Cafayate is impassable because of rockslides…and the road over the mountain pass has been washed out completely.”

Yes, dear reader, we have been hit by a low, unexpected blow…from water! The ranch got only 120 mm, or about 5 inches, of rain last year. The year before it was only about 4 inches. It looked to us as though the whole place was going to dry up and blow away.

But so far this year, the gods have poured 15 inches of water on that parched ground…and it keeps raining. Fifteen inches is not a lot. Not for Maryland. But up in the barren mountains, the water rolls of the rocks…down through the gullies…and fills the rivers. Soon, it is over its banks, floating automobiles and rolling boulders.

“They’re clearing the main road now,” says our friend. It should be passable tomorrow…if it doesn’t rain tonight. But getting from Cafayate up to your ranch is another matter. Nobody knows what has happened up there. They’ve been cut off for weeks.”


And so, we cool our heels…we rest our heads…we pace the room and watch the skies…eager to see a ray of sunlight…and some hope of proceeding to our objective.

And so…we have time to reckon after all.

And we reckon that investors are in ‘hope mode.’ How else to explain the recent bullishness? Albert Edwards elaborates:

One key lesson from Japan is that an essential ingredient to the end of a long valuation bear market is revulsion. It is when “buyers-on-dips” become “sellers-on-rallies”. It is when volume dries up to almost nothing. It is the loss of hope. In Japan we saw huge rallies in the Nikkei on the back of short-lived cyclical recoveries. Each cyclical failure and further new lows in the equity market saw hope being progressively crushed. Previous US valuation bear markets typically take 4 or 5 recessions to fully play out. We have only had two.

The market is once again in a hope phase — hoping that the US is now in a self-sustaining recovery; hoping that China might be soft-landing; hoping that the Greece bailout and the ECB liquidity polices have settled things down in the eurozone. These bursts of hope are essential in long bear markets. Essential in the sense that hope must be crushed. It will be crushed. Hope still beats in the breasts of equity investors. The market will rip out that hope and consume it in front of investors’ eyes. Only then can the bull market begin.

In our view, the real turning point came in the year 2000. That’s when America’s decline began to speed up. It’s when the credit-driven economy could no longer produce real jobs…or real GDP…or real wealth.

Stocks rose. But they were rising on a bubble of debt. Then, it was mostly private debt. Now, they rise again…this time on public debt.

Either way, it can’t last. Eventually, the bear market will resume…taking down the prices of assets until they are cheap again. At 16 times earnings, stocks are higher than usual…and earnings are at near record levels. We expect earnings to fall…and stocks to fall too… Then, they will keep falling…until they finally reach the bottom. Edwards:

A flattening of the profits cycle is exactly what you might expect as the easy, early cycle productivity gains come to an end. It is worth noting that the last time this occurred was just ahead of the start of the recession which the NBER date as having started in December 2007. Back then too, both markets and policymakers all felt the economy was still quite healthy. Indeed neither non-farm payrolls nor the headline ISM signaled the economy had already entered recession at the end of 2007 — indeed like now, payrolls actually accelerated in the second half of 2007, just as profits began to slip!

But we can’t reach the bottom of this cycle unless and until investors give up hope. As long as they have hope they will buy the dips, hoping to catch the next up-move. Only when they become convinced that there will be no move to the upside, will they stop buying the dips and prices can finally fall to their ultimate low.

Hope must be destroyed. Then, a real bull market can begin.

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.

  • Bob

    Great to have you back Bill, truly an act of God.

  • Ted

    Did you pack a lifejacket?

  • Woody in Florida

    Honestly did not expect to see a post from you this soon. It pretty much summed up what I have been feeling but have been unable to put into words. Makes me feel like such a pessimist to feel this way. I do hope we are wrong but for the life of me I can’t see how. Even stranger to me is how often history can repeat itself. How many times can we believe “this time is different”? Thanks Bill, and I hope everyone at the ranch is ok.

  • Deft

    Hmm I don’t know. If the dollar loses value, I would expect stock prices to rise regardless. I think we’re getting an economic bump from the new money. I think it’s a phony economy. I guess we’ll see.

  • Borealis

    Glad you have access to the Internet and time to reckon. Hope you come back safe and sound.

    By the way, a Canadian hedge fund manager shares your view of the current situation with his article entitled unintended consequences:

  • *Sparkie*

    Folks,BB is not back he’s just touchin base with every1 2 let them know his situation. Who wants a rising “Stock Market” anyway? All it does is cuz inflation 4 every1. JR & GS in there day made a good life 4 themselves and a few others from the “SS” side of the market. Helpin prices 2 fall! A real “Trend Setter” if u ask me!!! *S* PS get ready 4 another wave of inflation Folks,its on its way…PPS Xample,just 1 out of many. A pack of Twinkies in a Deli went fr 10cents 2 $1.59 in 40 yrs,and the Empire says inflation runs @ no more than 2-3% a yr! Pls some 1 help them with there math! I think were all gonna need a big bottle of the Scripts that there on,just 2 keep us fr snapin there necks with there Flim-Flam! #’ers!!! Happy Trails 2 All…

  • mike

    Dear Hope,…have you fared well my friend? for in my minds eye i see you once a day, the gentle breezes of my daily concerns draw as near to you that i feel the very warmth of day upon your lips, i speak of no one else but you this way, for you alone mine chatter this of that, and half believing all i fancy. happily step i long the length of days that stretch across the realm of time content that you are safe and far from harms way…from Faith…

  • JES

    Stranded in a flood? Mudslides? Roads washed out? Paul Krugman has a solution…more rain.

  • An Atheist

    Dear Bill, Thank Gold you’re back!

  • Wrong Way Corrigan

    Floods. Mudslides. Roads washed out.

    Bill. Are you sure you didn’t land in California by mistake?

  • Keynes

    You should put a little airstrip on your ranch if you have 2000′ fairly level ground.

  • emdfl

    The stock market will rise as long as bernake and his friends keep jamming zero interest rates down the throat of investors. When the next crash comes it will be a real hum-dinger…
    Also you might want to check out regarding Argentina and especially the Salta province

  • John

    Stock markets don’t fall anymore – please stop predicting what will NOT be allowed to happen. Everything is RIGGED from the CPI, to the U6 to the S&P, etc. etc. etc. etc. etc.

    Stop predicting a market crash in an election year – what part of election year Bernanke PUT do you not understand?

  • Bloomer

    I am using this rally to unload some of my loser stocks. The higher the market climbs, the more junk I can get rid of. I am thankfull there are greater fools then me.

  • Pilot Jeff

    Airstrip, yes, but more than 2000 feet long at your ranch altitude, unless you buy that Pilatus I tried to sell you and Skousen on in 1990… You can afford it now.

  • jeff

    I wonder how much real money each of you have in the short market…if you believe what you say how do you inviest?

  • david

    instead of praying to gods, why not try the God that is. Jesus. maybe we are in for seven lean cow years of drought or maybe the powers that be will let the party continue…after seeing the recordvgun sales

  • Zach


    This is offtopic, but I found your post from a few years ago and was hoping you might be able to answer a few questions on it.

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