02/17/10 London, England – Yesterday’s big move in the Dow throws us back to our customary position – uncertainty, bordering on da-daism. The Dow rose 169 points yesterday. Gold shot up $29 to $1119.
“I think, therefore I am,” said Rene Descartes. How did he know he thought? And what if he thought he wasn’t? Would he not be? He should have tried following the stock market! It would have improved his philosophy. “I think I think,” he would have emended his famous quotation. “But maybe I don’t…”
Yesterday morning we were uncertain about the direction of the stock market. By evening, we weren’t so sure… We thought the markets were headed down. But yesterday’s strong showing puts our hypothesis in doubt.
Why should stocks go down? Because they’re-priced for a strong recovery. But we’re not getting a strong recovery. We’re not getting any recovery at all. Investors were bound to notice, sooner or later.
A new index of the trucking industry – based on how often they fuel up their big rigs – fell 37% in January, from a big rise in December. Neither unemployment nor housing show any sign of real improvement.
Greece is on the edge of default. China sits on the Great Wall like Humpty Dumpty…threatening to fall off at any moment.
And yet…there is still no big sell-off in the stock market. Why?
Our old friends Mary Anne and Pam Aden recently suggested that this market was like the period in the ’70s when a bear market had already begun – years before – but which was marked by a couple of major rallies. The rallies lasted about 17 months each. And each time, the Dow approached its previous high.
Hmmm…maybe they’re right. This rally could go all the way to the summer.
Let’s put the all-time high of the US stock market at January 2000. The Dow had gone up about 11 times since its low in 1982. Then came the bear market. First, the Dow got whacked in 2001. And the government came in with the largest stimulus package the world had ever seen. That brought about a rally…a large rally…that took the Dow over 14,000 – well over the previous high. Even so, if you adjust the Dow for inflation it made no real progress. And then, in 2007, the Dow got whacked again. This brought the Dow down below 7,000, reaching its low point last March. Since then, stocks have been rebounding.
A typical bounce – if anything is typical – takes a few months and recovers about half of what was lost. This bounce is typical in that it recovered about half of what was lost. But it has gone on for much longer – like the big bounces of the ’70s.
How did the ’70s period end? Inflation increased and the Dow sank. It didn’t hit its final low until August 1982. But at that point, stocks were undeniably cheap. You could buy the Dow for about 5 times earnings.
Will we relive the ’70s?
Passing through the airport in Washington, we noticed a bar. It was named “Harry’s Bar” or something like that. What caught our eye was the décor. It had beige stone on the walls…greens and browns…and sleek wood paneling. Just like the ’70s…
And then, we noticed. Elizabeth had on a new outfit. There was something familiar about it. A flouncy sweater…jeans flared out at the pant leg…
“Yes, the ’70s are back in style,” she explained.
Some would say that Barack Obama is another throwback – to Jimmy Carter. He seems indecisive…and aloof from the people. He seems destined to be a one-term president too.
The politicos in Washington regard Carter as a failure. Yet, to us, he is still a hero. He was the only presidential candidate your editor ever voted for. And he turned out to be one of America’s greatest presidents. He didn’t push the nation to war or to bankruptcy. He left Washington and the nation more or less as he found them. What more can you ask for?
But Mr. Obama is no Jimmy Carter. On Obama’s watch the nation will take on about $5 trillion in extra debt. While Carter left the nation in no worse condition than it was when he took over the helm in 1977, Obama will leave it much worse off.
Of course, his idea that energy conservation was the “moral equivalent of war” was silly. But at least it was mostly harmless.
Besides, Jimmy Carter displayed enormous personal courage. First, he did a remarkable thing – he actually cancelled a pay raise for the military. Then, in 1979, Carter was fishing in Plains, GA, when his presidential boat was attacked by a giant, mad ‘swamp rabbit’ that tried to board without permission. Alone and unarmed, the president beat off the invader with an oar.
As far as we know, no other president has been similarly threatened…and none has shown Carter’s sangfroid under attack.
But back to the ’70s?
Probably not. The ’70s period was marked by stagflation, following the Johnson Administration’s big spending and Nixon’s elimination of the gold backing for the dollar. The CPI reached as high as 14% at one point. And Paul Volcker – a Carter appointee – fought it seriously…driving yields on the 10-year T-note up to 18% at one point. This was co-incident with a severe recession, and it got the job done. It turned around the bond market, the stock market, and the economy. The stage was set for an 18-year boom.
Today, inflation is not the immediate threat. Deflation is still the proximate problem. Here in England, inflation rates are going up. The papers whine that Britain’s middle-class is caught in a vise – between rising living costs and a punky economy. And sooner or later, inflation will be a major problem again – for Britain and America. Pundits argue about whether it will be sooner or later.
We don’t know. But our guess – and it is only a guess – is that the process of deflation, deleveraging, and depression has only just begun. The problems – too much debt, too many bad investments, too much money badly allocated – that existed before the crisis of ’07-’09 have not been corrected. There are still millions of people in houses that they can’t afford. There are still millions of mortgages for more than the houses are worth. There are still trillions of dollars at risk…still waiting to be worked out, written off, or inflated away.
The major contribution of the Bush/Obama administrations has been to add to these credit mistakes with trillions more in federal debt. That, too, will have to be reckoned with. But now there is Ben Bernanke at the Fed, not Paul Volcker. Now we are dealing with deflation (we think), not inflation. And now we have total official US debt 10 times as great as it was when Carter left office…and 3 times as much in terms of GDP.
What can we expect? Well, here’s one thing we feel fairly sure of: ahead lies a crisis much worse that the recession/bear market of the early ’80s.
What is wrong with these New York Times columnists? David Brooks is a smarter version of Thomas Friedman…which is to say, he is more thoughtful. But his thoughts seem to run into similar dead ends. He notes that more men in America are finding it difficult to be the breadwinners of their families. Women now get more college degrees than men. And women typically work in industries that are not suffering as much as construction and manufacturing, where men work. Result: men are out of work and out of money. And who wants to marry a man with no work and no money? So, men end up being lonely too.
Naturally, Brooks has a solution: “we need to redefine masculinity, creating an image that encourages teenage boys to stay in school and older men to pursue service jobs.”
That’s right. “We” need to do that.
And this too: “somebody has to provide institutions for unaffiliated 24-year-olds.”
Don’t worry. Someone will. Someone will give them black shirts. And set them to marching in the streets, beating up ‘class enemies.’ Someone will do something…and make the situation worse.
Regards,
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. 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.
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Carter Bill?
Who’s answer to Inflation was “whip Inflation Now” buttons?
Who blamed the economic woes on the “Malaise” of the average citizen?
Who’s answer to the Iranian hostage crisis was the helicopters crashing in the desert fiasco?
Also Sangfroid: check the definition – not the right word there.
David Brooks is an ass.
My cats breath smells like catfood.
Shoulda called your column The Bonner Party. This has resonance in CA.
from Edwin Lefevre’s book on Jesse Livermore …
“I tell you it was remarkable. What happened was this: I looked ahead and saw a big pile of dollars. Out of it stuck a sign. It had “Help yourself,” on it, in huge letters. Beside it stood a cart with “Lawrence Livingston Trucking Corporation” painted on its side. I had a brand-new shovel in my hand. There was not another soul in sight, so I had no competition in the gold-shoveling, which is one beauty of seeing the dollar-heap ahead of others. The people who might have seen it if they had stopped to look were just then looking at baseball games instead, or motoring or buying houses to be paid for with the very dollars that I saw. That was the first time that I had seen big money ahead, and I naturally started toward it on the run. Before I could reach the dollar-pile my wind went back on me and I fell to the ground. The pile of dollars was still there, but I had lost the shovel, and the wagon was gone.
So much for sprinting too soon!
I was too eager to prove to myself that I had seen real dollars and not a mirage. I saw, and knew that I saw. Thinking about the reward for my excellent sight kept me from considering the distance to the dollar-heap.
I should have walked and not sprinted.
That is how I came to learn that even when one is properly bearish at the very beginning of a bear market it is well not to begin selling in bulk until there is no danger of the engine back-firing.”
Your analysis is rock solid, Bill … just walk and do not sprint ! …
How to see the world like Harry
Homeless Outdoor enthusiast
unemployed extended vacationers
Govt deficits Who cares
Vacant stores Easier to decide where to shop.
Add a few quite fun
I hope it’s a repeat of the 70′s. We need better music. We also need the shapely 70s rumps on our females. Modern music is terrible and modern rumps are flabby and unattractive. Who cares about money when you’ve got that?
MY breath smells like cat food! Because I’m poor masquerader living in my mom’s basement pretending to be a CNBC bigwig.
I’ve been investing in the Canadian stock market for 41 years. Canadians, being economic colonials of the American Empire, are, thusly, vitally interested in what happens on the Dow, etc.
Going through the entrails of the daily market summaries, what interests me is what you have so carefully told us lo’ these many years; NOTHING IS “NORMAL” ANYMORE! There’s an air of “Apocalypse-pending”. The air needs clearing. The question is, when will it clear and what will it look like? I believe it will be soon and that it won’t look very good.
It’ll happen once the Elites get their stuff together in a giant (metaphorically-speaking) panic room somewhere after which they’ll think,”Screw it! We’re alright, Jack! Have a NICE day.!”
Then the roof caves in and the rest of us plebes will begin wandering through the landscape of fiscal/monetary detritus. It’ll remind us of pictures of April 1945; downtown Berlin, or maybe Ancient Greece, or…Rome anyone?
God Bless us All, Bill. The long and the short and the tall. Your good works are still my guide.
Maybe we can all invest in Crapple Computers and ride it from 200 to 795!
I agree about the rumps thing too.
Those ’70′s bikinis were better at showing off the curves as well.
At least the Fed could show us nudie pics while they explain to us how they will steal more of our money to give to banks that are small enough to fail.
The new format is great,much more simplified & easy to get around, its also safer to segregate bonner to his own box for the good of all!
The past two days, yes, two days, we’ve seen great news:
Empire State number was stellar
Treasury International Capital was very, very strong
Housing Market Index rose nicely again
Housing Starts much stronger than anticipated
Industrial Production posted a strong gain
Treasury Budget was cut in half and that was better than expected
Deere expects a much larger demand for equipment
Hewlett-Packard had phenomenal earnings and raised guidance
Dubai restructuring debt in March
These events were reported within 48 hours. All of them are very, very positive events. It is beyond me how people here somehow manage to look beyond the obvious strength and growth and still see doom.
Bonner’s confused. That’s because he’s not seeing the huge pile of cash sitting there to be shoveled into his truck. He thinks it’s a mirage. Well let me tell you all something, it’s not a mirage – it’s real! Real money being shoveled into my truck.
It’s there for the taking. It’s simple: get a shovel and a truck – heck bring along a buddy or two – and start shoveling. You’ll be rich by Fall.
And BTW, everyone here should read Chris Mayer’s short but dead on article here, Quarterly Earnings Looking Good… Time to Buy?
Why does he seem to get it and most others here don’t??
Change, change, change. I thought I was safe with a Royalist like Billy, but no.
What the hell is HTML?
That’s funny, I don’t know if they communicate, but Chris Mayer’s piece today sounded downright rosy?
Anyway, Bill Bonner is probably not so up to date on young girls’ fashion, but he should be advised that 80s clothing is the “new” thing: irridescent purples, turquoises and hot pinks, “skinny” jeans, etc., I’ll leave the economic analysis of that to someone else!
The “Bonner Party”, I like that, it does feel as though Bonner is guiding us on a doomed mission, doesn’t it?
The problem with Chris Mayers piece is that most of the growth he is talking about is in goverment and is payed for by your taxs!!
Are you better off today than you were ten years ago?
Don`t like this new format at all.
Today’s comments were a scream.
Out of ammo, it’s OK, prefer hand-to-hand combat.
Can’t find toilet brush, your backbrush will work fine.
No TP, have to wash hands anyhow.
Stopped eating veal, cat food has good protein too.
btw, nothing wrong AT ALL with sang-froid. my guess it’s French… something for “blood” (sangue, sangre) “cold” (frío, freddo)…. cold-blooded or cool-headed. His usage is correct.