Emerging Markets and Commodities: Where Stimulus is REALLY Going

“It was a debt of honour, so-called, which I had to pay, and I used money which was not my own to do it, in the certainty that I could replace it before there could be any possibility of its being missed. But the most dreadful ill-luck pursued me. The money which I had reckoned upon never came to hand, and a premature examination of accounts exposed my deficits.

“The case might have been dealt leniently with, but the laws were more harshly administered thirty years ago than now, and on my twenty-third birthday I found myself chained as a felon with thirty-seven others convicts in the ’tween decks of the barque Gloria Scott, bound for Australia. “

– Sir Arthur Conan Doyle, The Adventures of Sherlock Holmes

Imagine going from England to Australia on a sailing ship, shackled ’tween the decks. The convicts must have been happy to finally get here.

Imagine getting sent to Australia for failing to pay a debt (even one that was never intended by the creditor)! That would discourage you from spending money that is not your own!

It was a tougher world back in 1855. The “laws were more harshly administered” then.

Now, the laws aren’t administered at all. The culprits are in so tight with the feds you’d need some WD40 to get them loose. The banks seem to have taxpayer money on tap. As much as they want. 24/7. On/Off. And the feds spend money that is not their own…and promise to replace it. That replacement money will never come to hand. And an examination of the feds’ accounts exposes immense deficits – about 20 times the entire annual output of America’s private sector.

And along comes Washington with word of a deal. The bargain was struck yesterday. The rich get to hold onto their money for another two years. And the poor get another 13 months of unemployment benefits.

Win/Win, right?

Are you kidding? The feds’ accounts show a deficit of $1.3 trillion. Tax cuts and further spending? Lose, lose, lose…

Well, why not? Give everyone a Christmas present – whether you can afford it or not. Stocks will probably go up today. The papers are reporting that the extension of the Bush tax cuts may be all the economy needs. No further stimulus may be necessary. Because if rich people can look forward to the same tax rates next year…

…what exactly is it they will do? Invest more money? Yes…in India! And China! And commodities! And even gold!

Yes, that’s where the stimulus has gone so far.

We don’t like the looks of it. This market. This economy. Or this political situation.

We don’t like any part of it. It’s all based on hype, fraud and hallucination.

So, we’ve got our “Crash Alert” flag out.

Most likely, of course, it won’t be necessary. Things usually muddle forward. And most likely, they’ll muddle forward like they did in Japan in the 1990-2010 period…or in Britain from the end of WWII to the Thatcher years. Sluggish economy…high unemployment…falling house prices…and foolish government intervention.

We should see falling stock prices too. Investors have made no money in stocks in a dozen years…but stocks are still pretty pricey. We’d like to see them fall to about half to a third today’s level. Then, maybe we could get excited about buying them. As it is, we presume they still face their rendezvous with the bottom. Until it is behind us, it is still ahead of us.

Giving good financial advice is really very easy.

Buy investments that are going up.

“But what if they don’t continue to go up?” you ask.

Then don’t buy them.

See how easy it is?

Bill Bonner
for The Daily Reckoning

The Daily Reckoning