The depression is alive and well!
Unemployment claims just came in higher than expected.
And new house sales in January were at their lowest ever. Pundits were quick to blame the snow. But sales were off even in areas that had better-than-usual weather.
Household income has gone nowhere in 10 years. Stocks have suffered a lost decade too. And now Ben Bernanke says we’d better be careful…because the recovery ain’t no sure thing.
The Fed chief has no idea. But average people know what’s going on. They know how hard it is to find a job. If you’re in the building trades…or you have only a year or two of college…you’re pretty much out of luck. You may have to retire before you ever start work again.
That’s why there was such a big drop in consumer confidence.
But look on the bright side. Building more houses for people who couldn’t afford to live in them was not exactly the greatest business strategy. And all those people who were appraising, mortgaging and selling houses can now find more useful work. Real jobs. Doing something more useful. What are those real jobs going to be? We don’t know yet. But it could take a long time to find out. And in the meantime, we have a depression on our hands…
So, let’s enjoy it…
How do you enjoy a depression? Well, the first thing is to make sure you’re not in its way…
Dear readers may not know this, but in addition to writing The Daily Reckoning your editor also has a serious job…
Yes, in the morning he is a moral philosopher…gratuitously insulting public officials, whole professions, and entire nationalities. He is grateful to them all…they make life so entertaining! Imagine what kind of world we would have if people minded their own business and got on with their lives… People would be richer and happier, we don’t doubt it…but at whom could we point a finger and laugh?
No, dear reader, the world needs its bumblers, fools, politicians (are we repeating ourselves?), grifters (sorry…we did it again!), and megalomaniacs. It needs someone to challenge the gods from time to time. Otherwise, the gods wouldn’t have the fun of whacking them. And we wouldn’t have the fun of watching.
But getting back to the point…what was the point? Oh yes, the point is we have a serious job to do too. In addition to writing about the world of money, we actually have to live in it.
You see, we have a Family Office…a little group of researchers and analysts that actually has to make decisions… In the afternoon, we have to decide. What to do? Long or short? Buy or sell?
One thing we need to be on guard against is allowing our emotions to take over. For all our deep thinking and cynical detachment, we’re human too. We get emotionally attached to our own ideas. Then, we’re very reluctant to give up on them…no matter how bad they turn out to be.
We remember…sadly…our own feet dragging after the bull market in gold of the late ’70s. We didn’t want to sell. So we delayed…we hesitated… By the time we realized how wrong we were we didn’t have to sell. The bear market in the yellow metal was over! Gold had hit bottom. Gold was down 70% from the top. Much more in real terms.
But there’s nothing like a 20-year bear market in your favorite asset class to sharpen your wits. We realized that we needed a better way…
When you’re investing real money, you need some discipline…and some rules. At the Family Office, we’ve developed a methodical approach that let’s us choose investment themes very carefully – after much thought, consultation and deliberation. And then it prevents us from making any changes…again, except with much reflection and discussion. We also have our own timing index, which would practically take an act of congress to override. If the timing index says to get out…we get out.
Why are we telling you this? Because you need to follow some rules too – or you’re going to suffer in this depression along with everyone else.
What’s the number one rule in a depression? Conserve cash. In a depression, cash goes up. Everything else goes down.
Almost everyone loses in a depression. All assets go down. Against what? Against money…cash. So, the thing to do is obvious. Get rid of your investments. Cut your expenses. Sit tight. Do nothing. When you’re given an investment opportunity, just say no. Wait until the depression has run its course.
If Japan is any indication, this could go on for another 10 to 20 years – with generally sinking prices for just about everything, but particularly for stocks and real estate.
It’s going to be hard to sit out a downturn that long. You’re going to be tempted to speculate…to get back in… You’re not going to want to be left behind.
And yet, in a real depression, getting left behind is the best you can hope for…
A year or two ago, we would have thought that you couldn’t increase the monetary base so dramatically without grave inflationary consequences. Inflation – with a lag of about 18 months – was a dead certainty. Now that we’re closer to the situation, we see that inflation may be hard to avoid…but it’s hard to summon up too. Japan couldn’t do it. And now the Bernanke Fed can’t seem to do it either.
Central bankers are talking about increasing their inflation targets from 2% to 4% in order to give themselves more flexibility to deal with situations such as the crisis of the last 2 years. But they are dreaming. They can’t really control inflation that perfectly. Maybe they can’t really control it at all, except in the grossest, clumsiest way. They have tripled the world’s monetary reserves in the last 7 years. Prices for gold and oil have responded more or less in line with the monetary base. But most consumer prices are heavily dependent on capital investment in China…housing prices in the US…and a million other things that the economists at the Fed can’t begin to control.
Of course, in extremis, as Ben Bernanke once told the world, a central bank can always create un-controlled inflation. They “have a technology known as the printing press,” he said. Crank up the presses…and let people know that you are cranking up the presses…and you’ll have price inflation lickety split.
But the financial and economic costs of cranking up the presses are so great that very rarely is any central bank…and certainly not any major central bank of a civilized nation…reckless or bold enough to do it. It’s the nuclear option of the monetary world. You have to be very desperate to take the nuclear option. We don’t think Bernanke and crew will get there…not for a long time.
That said, there are also conventional weapons…such as those being used now. One in particular…quantitative easing…packs a lot of firepower. It’s not nuclear. But it can still make one helluva mess. Stay tuned.
Bill Bonnerfor The Daily Reckoning
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.
“….They know how hard it is to find a job. If you’re in the building trades…or you have only a year or two of college…you’re pretty much out of luck. You may have to retire before you ever start work again….”
my personal experience endorses these observations….i will never work again (soon) inspite of making comfortable 6 figures – educational nazis and bigots are out in force….back in school (again) to learn absolutely nothing relevant – to say nothing of anything new – to any job i would apply….entry level standards are required for senior positions…it’s absolutely f-tarded how employers hire…
my contempt of college degrees for typical business jobs knows few limits….for some professions it is a good idea – for others it is lethal to productivity….
Yes, now that the recession has ended (nearly a year ago come May) it’s the greatest time to buy equities. Stay in cash? Only a fool would do so.
Think about how foolish that advice was back in March/April last year. A lot of us have made a ton of money buying equities into the “crisis”. So now, you have more opportunities. It’s wrong of you to advise otherwise. One of the greatest money making opportunities of our lifetimes continues and you suggest sitting on cash. Silly!
Wait, I thought quantitative easing IS increasing the money supply? Aka cranking up the presses? (which you say isn’t being done yet?) Im confused now…
@Huh : I imagine that in the present case, quantitative easing is indeed printing money but the T-Bonds act as a counterpart which means the central bank may do the reverse operation (sell them, that is) to narrow the money supply.
As for the printing press in the case that hre occupies us I assume that’d be fueling the economy with new money without taking any asset in counterpart as a mean to contract the money supply.
That makes sense. I’ve been wondering where the inflation is, given the increase in the money supply. I don’t doubt that we’ll get it eventually… whenever “eventually” is.
“For all our deep thinking and cynical detachment, we’re human too. We get emotionally attached to our own ideas. Then, we’re very reluctant to give up on them…no matter how bad they turn out to be.”
Bill, my moto: Never believe everything you think.
Pingback: khloe kardashian hot
Pingback: horror movie reviews
Pingback: health tourism shoulder surgery
Pingback: casino bonus senza deposito
Pingback: remedios caseros para dejar de roncar
Pingback: best ways to make money
Pingback: kasyno bez depozytu
Pingback: best hcg drops
Pingback: e cigarette free sample
Pingback: el metodo gabriel
Pingback: how to obtain driving record
Pingback: hacer crecer el pene
Pingback: e cig free starter kit
Pingback: blake lively cosmetic surgery
Pingback: Signature Lewis Apartment
Pingback: ip to serial
Pingback: форекс брокер
Pingback: palabras para conquistar
Pingback: Trying To Conceive A Girl
Pingback: ashley judd surgery
Pingback: квартиры посуточно в Минске
Pingback: the glades condo
Pingback: get rid scars
Pingback: carbon marcky
Pingback: marko man
Pingback: universal remote
Pingback: makia julpo
Pingback: payday loans direct lenders
Pingback: homelite chainsaws
Pingback: Check Out Your URL
Pingback: sat math videos
Pingback: ap calculus dvds
Pingback: My Website
Pingback: iherb coupon
Pingback: Asbestos removal
Pingback: no deposit casino ratings
Pingback: nodeposit bonuscasinO
Pingback: Hop Over To This Website
Pingback: click here
Pingback: mark mania
Revolutionizing the taxi industry seemed like a losing proposition -- at least to Wayne Mulligan. But a few months later, he changed his tune thanks to a little company called "Uber." Today, he identifies another company that seeks to revolutionize a different aspect of the transportation industry: mass transit. Read on...
After several years of trial and error, Dr. James Olson and his team have created something called "tumor paint" - which increases the visibility of tumors in a patient, allowing the doctor to work more effectively on removing it. Remarkably, the discovery of this "tumor paint" has come from the most unlikely of places...
It's interesting to listen to politicians' assessment of the U.S. government. Many believe it's a functional system of "self-government" that gives back as much as citizens are willing to put into it. Of course, as Sheldon Richman explains, U.S. citizens do not actually govern themselves, but are rather ruled by those who suggest they do. Read on...
Uh oh... The market rally is looking decidedly "un-rally-like" with the broad market posting losses for 3 straight days, now. Could this be the beginning of the end? Greg Guenthner explains, and provides a reason as to why this year’s recovery could be the beginning of an even larger trend. Read on...
The oil is pouring in from North Dakota's Bakken oil field. And as it does, so do the investment opportunities. Of course, you'll notice a few familiar names in the group currently taking advantage of the "shale gale"... But there are some great small companies to watch as well. Today, Matt Insley relays one of each. Read on...