A Strong Contrarian Signal That the US Market is Toast

It’s still sum… sum… summertime. Still lazy, hazy and crazy. And still not much action in the financial markets. The Dow sold off a little on Friday. Gold went nowhere.

You’ve already heard our guess: investors are marking time… waiting… procrastinating… maybe even thinking things over. The serious action won’t begin until summer ends. Then, they’ll return to their desks… and PANIC.

Panics are rare. Crashes are rare. And we’re not going to predict something with small odds. Most likely, it won’t happen.

But sometimes you’re better off expecting something that never actually happens. Because the importance of an event doesn’t depend on its frequency alone… but its gravity too.

You might, for example, feel like sending out photos of your crotch… or taking up with a beautiful young woman (a soul mate!) from Buenos Aires. Can any dear reader honestly say he’s never considered doing such a thing? And while the odds of getting caught may be slim, it’s still better to think there’s a rat hiding behind every bush. Because if you get nabbed, it can be a major bummer. Especially, if you’re running for elective office. The newspapers might get ahold of it and make a big deal of it.

And think about this: you only die once. On any given day, the odds of dying are probably pretty low. Still, you never know. And when you do die, it’s a real game changer. So, clean the porn off your computer now, just in case.

There are times for ‘out of the box’ thinking and times to stay in the box. Most of the time, you’re better off in the box, keeping to the straight and narrow. That’s where most of life takes place.

And most of the time, the markets stay in the box too. No panics. No crashes. No bubbles.

BUT… and this is an all-cap BUT… as you get older, the odds of dying on any particular day increase. We checked the Social Security tables. A person born in 1948 has about 20 years to live – on average. But a person born in 1913 has barely 740 days to look forward to.

So too do the odds of dying increase if you have a habit of drinking and driving – at the same time.

And by the way, this market has a long history of behavioural problems. It’s addicted to easy credit. It hit bottom in 2000… and probably would have straightened up. But the feds came in with more junk credit. Then, in 2008, it went into rehab. But the feds went to work on it again. They gave it even more credit on even easier terms.

At the time, investors, businessmen, and householders all seemed to want to do the prudent thing – to cut back on their expenses and clean up their balance sheets. The feds put in place their zero interest rate policy in order to encourage them to take more risks.

The pros saw what was happening in ’09 and ’10. They knew the feds were ready to do ‘whatever it takes’ to boost stock prices. Stocks had fallen hard in the deleveraging crisis. The pros saw that 1) stocks were cheap and 2) the feds were determined to get prices up. So… the pros bought.

Mom and Pop investors were slow to join the party… as always. They were burnt in 2000… and again in 2008. They were wary… cautious…

But now they’re back, says MarketWatch:

‘Data shows that the ordinary retail public — Mom and Pop — are back on Wall Street, and how! According to the Investment Company Institute, the Great American Public has poured $92 billion into the stock market via stock mutual funds since the start of the year.

‘To put that in context, in the first seven months of last year — when the market was much lower — they withdrew $180 billion.

‘The last time the investing public jumped into the Wall Street pool with both feet like this was in 2007. And they are investing even more this time around. In the first seven months of 2007 they invested $85 billion into stock funds.’

Mom and Pop are great parents. They go to Little League games. They vote. They separate their trash and wear their seatbelts.

But good investors they ain’t. The idea is to buy low and sell high. Poor old mom and pop can’t seem to get it right. They buy high and sell low. Dalbar, an outfit that tracks investment performance, calculates that $100,000 invested 20 years ago would have grown to $484,000 if you just left it in the S&P 500 and did nothing else.

But the typical investor waited too long to buy and then sold out when stocks went down. At the end of 2012, he had only $230,000.

And now that stocks have been run up – by the Fed’s easy money policies – for five years, Mom and Pop can’t help themselves. They’re back in the stock market… ready to be skinned again…

Watch out below!


Bill Bonner
for Markets and Money


Join Markets and Money on Google+

From the Archives…

Treasurer Bowen: Australian Economy in Crisis
9-08-2013 – Nick Hubble

Bonner For Fed Chairman Over Larry Summers
8-08-2013 – Bill Bonner

Interest Rate Troubles and a House Price Bubble
7-08-2013 – Nick Hubble

Australia’s Shadow Banking Sector is Collapsing
6-08-2013 – Nick Hubble

Diesel Goes to Caulfield and Callum to the Alfred
5-08-2013 – Nick Hubble

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 Markets and Money.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money