07/28/11 Vancouver, British Columbia – Big down day for stocks.
The Dow lost 198 points.
Why? Are investors worried about gridlock in Washington? Or falling property prices in Beijing? Or maybe it’s the European debt crisis that has them bugged?
It doesn’t matter. When Mr. Market wants to go down, he’ll go down. He’ll leave to us to come up with the ‘reasons’ afterward.
The real reason? The US economy is sinking into a deeper Great Correction.
No kidding. Here’s the latest:
WASHINGTON (AP) – Businesses cut back on orders for aircraft, autos, heavy machinery and computers in June, sending demand for long-lasting manufactured goods lower for the second month in the past three.
The Commerce Department says orders for durable goods fell 2.1 percent in June, with the weakness led by a big drop in orders for commercial aircraft. A number of other categories also showed weakness including autos and auto parts. A key category that tracks business investment plans fell 0.4 percent in June.
But domestic sales of durables is much worse…the lowest in 20 years.
For the last year and a half, the stock market has been signaling ‘recovery.’ Prices rose from a Dow low on March 9, 2009 below 7,000 to a high over 12,500.
But while stocks recovered, the economy didn’t. The rich got richer – those who owned stocks. The middle classes – who tend to own houses, but not stocks – got poorer.
So, the big question: who’s right? The stock market? Or the economy? Which way is it going to go? Is the stock market going to fall to meet the real economy? Or is the economy finally going to recover to justify the kind of stock prices people are paying?
Our money is on falling stock prices. For all the many reasons we’ve told you in these Daily Reckonings, we don’t think you can turn this economy around …not anytime soon. This is a debt contraction. It takes time. Years. In fact, at the present rate – about 5% of GDP per year – we’ll have to wait another 36 years before consumer debt to GDP is back to the 100% level. For reference, it was about 33% when then expansion began after WWII.
We’ve been waiting a long time for the stock market to prove we are right. Until now, neither it nor the economy was willing to give. Stocks stayed high. The economy stayed low. Maybe yesterday, stocks began to ebb lower. Maybe they are just bouncing around.
We’ll have to wait to find out. Investors are probably a little jittery…waiting for a deal on the debt ceiling. When the deal is announced, stocks will probably rise again.
But maybe not. Sooner or later they’ll have to come to terms with the Great Correction. Maybe they’ll do now. Stay tuned.
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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A more likely reason for the stock market decline is: if the guberment doesn’t fix the default problem, 10% of the United States economy will simply disappear.
Look around. It has already disappeared.
Seems to me the Dow is due for a five year dip below 10,000 –how low below 10k is anyone’s guess. If you think back to the exuberance exhibited when the Dow first closed above 10,000 on March 29, 1999 –that was over 12 yeas ago– and then factor in every economic disaster since then from the dot.com bubble, to Enron, WorldCom, the real estate bubble, the 2008 implosion, the post-2008 explosion in public debt… There have been SOOOOO many nasty things that have happened that should have already long ago stomped the Dow into oblivion. Don’t be surprised if the Dow drops below 3,000 before its all over. The dip in early 2009 was a bout of light-headedness compared to the massive cranial hemorage that’s about to occur.
i have ASKED”MANY TIMES ” WHERE IS THE”GURU” ?? IS HE STILL EDITOR ? ALIVE ? ,,I MISS HIS POSTS ! ANYBODY ??
null and void ALL THE LAWS , CZARS , THAT THIS ”FREAK`-IN CHIEF” HAS PUT OUT , HEALTH CARE , SUGAR UNIONS”, EVERY SLEEZE BALL” APPT. … WASH IT OUT , CLOROX IT , ..HOSE IT DOWN , DISINFECT THE ‘OVAL OFFICE ” ……..nuff said.
I guess the question can be rephrased as:
How long can the Plunge Protection Team continue to keep the market from following its natural inclination? Or How long can the Plunge Protection Team keep the technical traders positively excited by “reversals”? Another one coming soon?
Does anyone have any data on this? Is it hidden? How much of daily trade is from Real investors and how much from HFT (which is probably a cover for the PPT)?
Wallstreet is laughing their heads off while the rest of the country is tied up in this very stupid issue of our own making as they take our money and jobs to other countries. That’s the real issue. Meanwhile there are those that whine about the distraction of the size of government as the slight of hands goes on. Just like any magician knows that you distract your audience while robbing them blind.