08/12/11 Poitou, France – Whew!
What a week. Traders must be reeling. The rest of us are staggering.
And nobody knows anything.
Is this market going up or down? We don’t know. But wherever it is going, it seems to be in a hurry to get there.
It collapsed on Monday, soared on Tuesday, collapsed again on Wednesday and soared again on Thursday. The Netscape News report:
The Dow Jones industrial average soared 423 points. It had already fallen 634 points Monday, risen 429 Tuesday and fallen 519 Wednesday. Never before has the Dow had four 400-point swings in a row.
The pieces of news that sent Wall Street rocketing higher were not exactly blockbusters: Cisco Systems said its profit was better than expected, the job market got a little better, and France tried to raise confidence in its shaken banking system.
But this is a week in which any move by the market — higher or lower — seems to touch off an investor stampede. So it was on Thursday, when stocks shot higher at the opening bell and never turned around.
So, nobody knows why the stock market went up yesterday. Of course, they don’t know why it went down the day before either.
That’s why a lot of old market hands get tired of wondering about it. “Just show me the chart,” they say. They don’t believe it’s worth trying to figure out the why…they just look at the pattern.
But when we’ve looked at the charts we still don’t know anything. Maybe the seasoned pros can see things we don’t. To us, they’re just as confusing as everything else.
Mr. Market is a cagey fellow, no doubt about it. And if he has a story to tell, he keeps it to himself. That said, he’s only natural. And there are certain natural laws that even he has to obey.
For example, he can’t allow debt to build up forever. There always comes a moment of awful recognition, when lenders realize they’ve been idiots…when they see that they won’t get their money back. Savvy speculators try to sell the debt short before lenders catch on.
Nor can asset prices run too far ahead of real values for too long. Sooner or later comes a moment of reckoning, when asset values and asset prices converge. Savvy speculators bet on convergence. They buy when a stock is far below its real value…and sell when it is far above.
But Mr. Market is a fooler. He doesn’t make it easy.
All over the world stocks are down about 20% from their recent peaks and about 5% to 10% for the year. But they’re far from cheap. Shiller’s normalized earnings put the P/E on US stocks today at about 20. Major bear market bottoms come with the P/E down at 6 to 8. The typical bottom, according to Shiller, comes at about 13.
So, if this were a bear market (we don’t know)…and if it were a typical bear market (we don’t know that either)…it would bottom out at about 8,000 on the Dow (now, 11,143).
If this were a major bear market, we’d look for a bottom in the 4,000 to 6,000 range.
We don’t know what game Mr. Market has in mind. But we know he can play a cruel hand. It’s not that he has no sense of pity. He just wants to teach a lesson that investors won’t soon forget. Here’s what we think he’s up to:
First, he will dally around a bit. Let investors recover their breath and their nerve. Then, he’ll move prices back up….this would draw more money into the stock market.
When most of the seats in the theater are full look for a furry creature sneaking around with a can of gasoline in one hand and a pack of matches in the other. He’ll set fire to it. Stocks will go down…stabilize…then go down again. Then, Warren Buffett will announce that he is buying. The Fed will announce another QE program…perhaps with a different twist.
What ho! Stocks will soar…and then fall again. Down, down, down…they’ll drop to their level of March ’09…and keep falling until they have finally found their bottom – maybe 3…maybe 5…maybe 10 years from now.
The bear in the stock market will send investors fleeing to the shelter of the bond market. In a stagnant, Japan-like economy, even with trillion-dollar deficits, bond yields will stay low. Investors will get 2% on 10 year T-notes. “Better than losing money in the stock market,” they’ll say.
Households will put their savings into US Treasury debt – something they can count on. Businesses will store their cash in US Treasury debt, after all…no point in investing in new plant and equipment. Financial institutions, too, will seek out US Treasury bonds as the only place where they can still place money safely. Ben Bernanke has pledged to keep the key lending rate near zero. Bankers now know they will be given free money for the next two years. All they have to do is take it…and lend it back to the US government!
And then, when the bond market is fat and happy…and the nation’s savings have been transferred to the government and consumed by it, Mr. Market will creep up again – like a thief in the night – and give it a wallop.
Just in the last few weeks, stock market investors lost about $3 trillion of wealth – on paper. How they will look back on these days with pleasant nostalgia! Mr. Market’s next attack on stocks will wipe out $10 trillion. And when he whacks the bond market, he’ll take out another $10 trillion.
And this time, it won’t be just ‘paper’ wealth. It will be real wealth…the savings built up over millions of lifetimes of hard work.
And more thoughts…
Have the riots reached New York or Boston yet?
As Dear Readers know, we have wondered what this Great Correction really intends to correct. At a minimum, it seems destined to correct the 50+ year build-up of debt. But maybe it will destroy modern social-welfare governments too.
The model is simple enough: citizens give up a portion of their freedom and a portion of their money. In return they get safety…protection…and something for nothing. The typical voter believes he will get more than he paid for…he counts on his government to rob those richer than he is and transfer the loot to him.
The system works – for a while. But as these governments mature they become more expensive, rigid, and zombified. More and more people find ways to get something for nothing. More and more join the underclass, because it is easier to live at someone else’s expense, even if you can’t live very well. Pretty soon, there are zombies all over the place.
The Cameron government in the UK – like almost all social welfare governments – spends more than it can afford. It realized it had to stop feeding the zombies so much. It announced cut backs. This week, the zombies counterattacked.
‘They don’t treat me right,’ said one zombie quoted in the International Herald Tribune. ‘They just give me enough money to eat and watch TV.’
When they are not eating at taxpayer expense…or watching TV at taxpayer expense…in an apartment paid for at taxpayer expense…wearing clothes furnished at taxpayer expense, they are likely communicating by cellphone or Blackberry or I-phone, also provided at taxpayer expense. This week, the zombies got in touch with one another and decided to upgrade their lifestyles by breaking into shops and stealing things. That too, was at taxpayer expense. But it wasn’t an expense authorized by the peoples’ representatives in Parliament. The zombies had declared war.
The British feds were outraged. They had spent so much money on these people. Why were they biting the hands that fed them? Ah…you know the answer, Dear Reader. Because the system had turned almost a whole generation of people into zombies. Zombies are used to getting something for nothing. If they get it from the feds …or take it directly, what is the difference?
And what else do they have to do? Watching TV all day is boring. For a brief time this week, zombies were on the march.
It probably won’t be the last time. The Zombie Wars have begun.
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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This is what I want for Christmas:
The Gummint feeds the Zombies funny money scrip.Let’s call it, um “Federal Reserve Notes”.
The rest of us (producers) get to set up our own money system (quietly) using um… maybe um… gold?
Then we can go about our own business of producing REAL wealth while watch the Zombies slowly and unwittingly starve to death.
Oh PLEASE, Santa!!!
So what is the alternative to tax sourced social benefits? If we agree that the future holds less jobs but more people what is the solution? I have a degree as a car designer and haven’t a penny to my name. All these years unemployed on all job fronts. Isn’t it logical that wealth cannot be accumulated by the few beyond the point where the poor suffer until they revolt?
Maybe the solution isn’t no benefits but more regulation of those gettig it. For example in the UK where I lived for 7 years wealthy families were entitled to child support benefit.
kind regards,
As what was narrated, zombies fond of “eating and watching TV.” I also enjoy long hours watching TV drama and eating
junk food. But on several blood screening the results reviewed that my blood was absolutely pure, did not prove zombie positive.
For an advance western mammoth democratic machinery, if you don’t run the printers or if you don’t allow traitors to handle the lottery spinners then, where to run your presidential contest? Where comes money dropping down from the sky for the needy supporters? Given all other factors are in equilibrium, could you expect others to thrive, deprived of the airdrops?
Perhaps stocks lead the way down, but I would expect at some point a near 100% correlation between stocks and bonds as they both crater simultaneously.
The chorus on Wall Street will claim that only by lowering interest rates will stocks be able to once again rally. There won’t be much discussion of bond prices at first, the holders will get creamed with little sympathy from anyone.
The only way to orchestrate a stock rally as interest rates rise will be to print money and out-right monetize government debt as it matures. Will serve the dual purpose of both lowering interest rates and eliminating debt, the only downside being inflation which will become most acute in precious metals.
In any case, I would expect a lot of printing to be going on. Much as Greenspan observed, the Fed can always print money if it can’t be raised any other way.
In the end, the government will do absolutely anything to prevent the banks from being run since that would lead to an outright currency failure. They will slap currency controls on withdraws, they will add massive amounts of liquidity to enable banks to meet withdraws, much of which will be headed into gold and silver.
And their way of legitimizing the whole thing will be by allowing several previously bailed-out too-large-to-fail institutions to go under while pointing the finger at them for having created the seeds of the mess in first place. The share price action in these same instittutions this past week suggest I’m not the only predicting this.
Chris, maybe you should have got a more useful degree, or one that actually required some skill to attain, in order to guarantee your employability in the future.
(Saving wouldn’t have been a bad idea, either. Why is it that you “haven’t a penny to [your] name”?
” nobody knows why the stock market went up yesterday. Of course, they don’t know why it went down the day before either.”
I explained that earlier. On days when I wear mismatched socks, the market goes down.
Other days, it does other things.
“Mr. Market is a cagey fellow, no doubt about it … But Mr. Market is a fooler. He doesn’t make it easy.”
do you get paid to write this?
“There always comes a moment of awful recognition, when lenders realize they’ve been idiots…when they see that they won’t get their money back.”
when? I’m joe schmucko on the street and even I could see years ago that they won’t get paid back. they can not be that ignorant. so what is really going on?
perhaps that is what you are being paid for? to NOT write that?
“Savvy speculators try to sell the debt short before lenders catch on.”
“savvy” should not mean “immoral”.
Seemingly, it is a matter of a good degree. Obscurely, it may not be. Good, bad or quality degrees are in all corners of the world. More often than not degree holder does not settle in job of their specilised discipline. I am afraid prospect does not hold for a quality degree in future.
Market forces deviates from its flight path or trajectory and towards crashing in the wilderness may explain the erratic
movement.
Perhaps stocks lead the way down, but I would expect at some point a near 100% correlation between stocks and bonds as they both crater simultaneously.
The chorus on Wall Street will claim that only by lowering interest rates will stocks be able to once again rally. There won’t be much discussion of bond prices at first, the holders will get creamed with little sympathy from anyone.
The only way to orchestrate a stock rally as interest rates rise will be to print money and out-right monetize government debt as it matures. Will serve the dual purpose of both lowering interest rates and eliminating debt, the only downside being inflation which will become most acute in precious metals.
In any case, I would expect a lot of printing to be going on. Much as Greenspan observed, the Fed can always print money if it can’t be raised any other way.
In the end, the government will do absolutely anything to prevent the banks from being run since that would lead to an outright currency failure. They will slap currency controls on withdraws, they will add massive amounts of liquidity to enable banks to meet withdraws, much of which will be headed into gold and silver.
And their way of legitimizing the whole thing will be by allowing several previously bailed-out too-large-to-fail institutions to go under while pointing the finger at them for having created the seeds of the mess in first place. The share price action in these same institutions this past week suggest I’m not the only predicting this.
the problem is a culture of entitlement, and it applies from bottom to the top in society. from banker bonus’ to cheap flights to the med at tax-payer expense. I fear the worst for the UK, as the only growth sectors in the last 10 years were debt-fuelled or government financed. Thats why i moved to Canada – which so far seems slightly less bad.
Again, a pretty offensive post, not only blaming but disparaging the disadvantaged.
Did you take a sickie the day the nuns did the “social justice” lesson?
Antisocial behaviour is never excusable. But quite often the factors and risk conditions that give rise to it can be identified and explained. I don’t think being a ‘zombie’is very explanatory.
Bill—I have followed you for over 10 years. Agree with you on everything. But you have never considered that the House of Rothschild is behind where we are today. Check the actual stockholders of the Federal Reserve.Check “Analysis-news.com”–D.W.Bradshaw. I am 92 years old. My little brother,William Fair,was co-designer of FICO Credit Scores.I tell you this in the hope of drawing more attention to the above Bob Fair
Can anyone weigh in on how Bonners high inflation expectations mesh with his dow 6000 predictions? Wouldnt inflation keep stocks stable or rising?
The dividing line is whether pro civilian or pro government. If frequency of changes in inclination is high, readers will find it hard to adapt.
usury[lending on interest] is sin,as it transfer wealth from poor to rich,no wonder all religions ban it.some religions like islam and christainty ban it absolutley and judaism patially.rothschild and other shareholder of BIS created this fraud and ponzi scheme i guess in 1909 to 1913 to benfit themselves.in the above article i think bill is talking from both sides of his mouth.sorry bill
All kneel before the great god market. Make, make, make, buy, buy, buy, sell, sell, sell. How pathetic.
The only real war going on in the whole world is the few verses the many. The few have done far more to create this mess. They have alot to answer for. I feel sorry for Bonner calling so much of humanity “zombies .”
the world is like a fickle girl
we’re neurons in her head
and when they all say “go that way”
she’ll quickly change her bed
http://thepeakoilpoet.blogspot.com/2011/08/market-is-whore.html
The Zombie Wars are beginning. This is part of Bill’s Great Correction theory.
Its not just the debt, which is a huge part, but the Zombie Economy has to go along with the high taxation, regulation and overall meddling by those in the business of doing favors. As A. Rand would put it.
The Zombies at the bottom are going to lash out, but the Zombies at the top aren’t going to take it. British Parliament already wants the police “to take back the streets”. It will get real interesting once the Zombies at the top punch back.
I love the chaos!
But then, this is because I’m a sick freak, I suppose.
Crises are the mother of opportunity, no? They also cleanse.
“People do not always get what they want, but they often get what they deserve.”
(Who said that?)
Excellent analysis, and it is correct. And sure I am one of those zombies too.
But do realize my life is a nightmare. I am disabled and I will never hold a job, at least not in the current job climate. Nobody will ever consider hiring me. I live an existence where I feel utterly useless. Without a very meager handout and state subsidized medication I would be in a state unidentifiable to severe psychosis in days – the word for that is cluster headaches. I get onsets several times a week.
I simply had the misfortune to be a useless human being in today’s socio-economic system. All in all you are implying I am a dead woman walking.
Your analysis is impeccable and I do not contradict it. But if this is really how it is, should I consent to state euthanasia programs, or even welcome a ‘quick way out’ ? Or should I feel this searing sense of desperation that screams inside my chest, send my heart racing in utter existential fear, and find a way to change things? I don’t see myself go out and loot – at least not until I am cut off from my medications (then I will KILL to get them – the pain is just too severe).
blog.khanneasuntzu.com/
http://www.scoop.it/t/concentration-of-wealth-existential-risk
Gods know I tried to warn everyone the last few years, to no avail. So now you suggest it is I who should be cut of the troughs, my umbilical severed, and left to decay.
I’d love an alternative suggestion from you that keep people like me aboard your humanity horizon.
“I’d love an alternative suggestion from you that keep people like me aboard your humanity horizon.”
I’d love to hear an answer too. well guys? near as I can figure about you infestment types your horizon consists of money – where it is and whether or not it is moving towards you – and your idea of “humanity” is who is “productive” i.e who is moving money towards you.
well? how ’bout it?
Okay guys here you go.
The Zombie Econ. was never meant to be a dominant, or growning force in America’s system, which it has become. The drain on the productive sector would in theory, and has in fact, become that burden here in 2011.
The Zombie Econ. has to decrease rapidly or the entire ship goes down. Entire Zombie agencies, which are entirely useless could be eliminated and meds, food, housing could be SAVED. But your idiot pols WILL NOT ALLOW this. So you zombies at the bottom are going to suffer. Thank your pols for this, but don’t blame us and ask for solutions when many of you put those idiots in office.
The compassion & money is there for citizens in need from your neighbor, your church, or your community. When the state unconstitutionally involved itself in personal predicaments with my money, thanks to LBJ, corruption ensued and zombies were born. To this day we haven’t found a better way to help those truly in need because, I believe, the money is …or was there to help you. Sad that.
so …
1) it’s her fault
2) it’s not your problem
so what you’re saying is that she just is not aboard your humanity horizon.
speaking of drains on the productive sector, ever wonder just how it is that infestors make their money? off of people who actually work? sit down sometime and have a cold hard look at what it is you actually do.
“I live an existence where I feel utterly useless.”
ask god for something to do. there will be an answer. if nothing else you can make the day brighter for everyone around you.
gman, if God would make me king for just a day I would solve all the world’s problems. But I’m one man caught in the same whirlwind as you.
You see gman we gave lots of $’s to the fed to take care of folks like Zara and they failed, or didn’t want to take of them. Now trillions have been wasted by corruption and incompetence and you want us to give those same people more $? Are you out of your mind?
More $ will only help those at the top and not at the bottom.
Ask yourself this ? Why are there no cuts for the folks who admin. Zara’s meds, but cuts for her?
But go ahead and blame those of us who did nothing. We are easier to lash out at b/c we are here I guess, or your scared, or you just love your wonderful leaders. Whatever makes you feel good.
“Now trillions have been wasted by corruption and incompetence and you want us to give those same people more $? Are you out of your mind? … But go ahead and blame those of us who did nothing.”
said nothing of the sort. she asked where she stood with you all. you answered her – “it’s your fault, don’t bother me.” any blame you hear is not from me.
she’s not a zombie. she’s a person.
Zara is a person gman. Everyone of the Zombies are people. The ones at the top don’t care about Zara unless they need her vote. They will cut Zara’s meds before they cut their salaries, benefits or lay-off any of the admin. Zombies who populate the alphabet agencies.
Now, here is a solution for Zara. Catholic charities WILL HELP HER. She needs to seek them out if her meds are cut-off. If Zara doesn’t want a religious org.s help for whatever reason, then it is her fault she doesn’t get her meds.
Yes the welfare system has been badly subverted from its original intentions, particularly in the UK. Its not Bills fault, its much more Khannea and gmans fault for choosing not to address this dimension of the problem. Bill and others are not being money minded, he is simply doing his patriotic duty in pointing out an unsustainable situation.
Just took a quick look at Khanneas website. My god this womans more obsessed with money than the rest of us combined! If she and her alter-ego are capable of producing all this shit (and it is shit Khannea) then your certainly capable of quitting being a fiscal parasite as well as an intellectual one. Just sayin.