Bad, bad day yesterday. Municipal bonds took a big hit. California is going broke. The Dow finished down 178 points. Gold up $30.
Did you pay attention to our “Crash Alert” flag, dear reader? Hope so. This market is dangerous. Because it is built on a lie – that EZ money from the Fed’s printing press will cause stocks to rise, interest rates to go down, and the economy to revive.
It ain’t gonna happen.
Never in history has it worked that way. Ben Bernanke maintains that what he is doing is merely an extension of normal monetary policy. It’s not. It’s a daredevil maneuver in which the Fed funds about 100% of the US government’s borrowing needs over the next 8 months.
Will it do any good? It could cause a speculative boom in the stock market. Or a speculative bubble in commodities…or emerging markets…or anything else.
But real, genuine, honest-to-God prosperity? By just printing up money?
Nope. Not possible. It’s not that easy.
The risk is that investors may connect the dots. Let’s see… Stocks haven’t made them any money in 10 years. Yields are still down around 2% – so they can’t expect any decent returns from that quarter. And stocks are still expensive – with P/Es close to 20.
So, what can investors expect? Will P/Es go up? We can’t think of any reason why they should. Will stock prices rise? Again, they can do what they want…but we can’t think of any good reason for them to go up.
On the other hand, we can think of several good reasons for them to go down. The best one is this: that’s what markets do. They go from peak to valley…and back to peak. This one was at a record peak in 2000 and then another record peak in 2007…and still no valley. Stocks never got to be as cheap as you would expect at a major bottom. So, unless something has changed…that valley still lies ahead.
And wouldn’t it be just like Mr. Market to bring it on now? Investors are creeping cautiously back into the stock market. They took huge losses in ’07-’09. Their houses are down 30%…and still sinking. Many have lost their jobs. They have retirement ahead of them. And they haven’t saved enough money. So, they’re hoping to make some money now.
Meanwhile, the feds are hoping that this big $600 billion inflow of new money lifts stock prices. This is supposed to make people feel richer. Then they act richer…and then, like magic, they ARE richer.
But if the feds want stocks to go up, they should buy stocks, not bonds. When they buy bonds the money goes into the banking system. Does it end up long the US stock market? Or does it end up betting on gold or cotton or Indian stocks?
No one knows. But there is no guarantee that the feds’ gamble will raise stock prices. On the other hand, wouldn’t it be a cruel and obnoxious thing for Mr. Market to hit them all now with a major bear market?
Yes it would. Will he do it? We don’t know. But it’s a risk. Stay out of stocks. Buy gold on dips. Be happy.
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.
Bill, your stable of publications are almost all telling us which stocks to purchase, yet you tell us to stay out of them? Just wondering. But I pretty much am following your advice with the exception of mining and energy stocks.
The U.S., Russia, the EU and Ukraine all met in Geneva, where all sides agreed to halt all violence and provocations in Ukraine. But the news media are still taking an antagonistic stance toward Vladimir Putin and Russia. What gives? Today, Marc Faber explains the hypocrisy behind U.S. foreign policy... and the BS the news media are pushing about it...
One of the world's foremost innovators - Wired Magazine's former editor-in-chief, Chris Anderson - talks about the future of innovation, his company 3D Robotics and how he built the world's first Lego-operated drone at his dining room table.
Politicians talk about the uninsured. Special interests argue on behalf of those with pre-existing conditions. But why is no one wondering how doctors are affected by Obamacare? They're the ones on the front lines dealing directly with new patients, as well as the red tape that makes bureaucracies go round. Loren Heal explores further...
Since the beginning of March, hedge funds have been steadily moving out of growth stocks. So it's not coincidence this sector has fallen in tandem. But the question is, where is the "smart money" headed now? Greg Guenthner examines the current, decidedly "unsexy" trend in the market. Read on...
Thanks in part to Michael Lewis's book Flash Boys, High Frequency Trading (HFT) is front and center for this round of the news cycle. Today, John Rubino continues the discussion, explaing why HFT is so dangerous, and how public awareness of it is affecting something called the "trust horizon." Read on...
U2 frontman and self-proclaimed demigod Bono held a benefit concert in an Iowa cornfield on Tuesday, in an attempt to help those poor investors who were devastated by last month’s Mt. Gox bankruptcy...