Expect the Great Correction to Wipe Out this Bounce

It’s springtime. The temperature is 85 degrees here in Washington. New York is approaching record-breaking temperatures. Global warming is back in business.

The flowers are out. Cherry blossoms are thick on the ground. The grass is yearning for the mower.

Heck, everything is back in business. To hear the media tell it, you’d think jobs were picking up…consumer spending too…manufacturing – everything.

Everyone thinks the recovery is as pullulating as April. Obama says we’ve ‘turned the corner.’ Larry Summers thinks we’re headed to the moon.

Is our old ‘Crash Alert’ flag still flying over the building with the gold balls? We hope so. Because, when everyone is thinking the same thing, no one is really thinking at all.

And when you start thinking about it, you begin to wonder…

..what happened to de-leveraging? What happened to all those bubble era mistakes?

..what happened to all that debt consumers were carrying?

..what happened to the Great Correction; isn’t there anything left to correct?

You’ll recall that the Great Correction seemed to be aiming to put a number of things right. Foremost were the economies of the USA and China. The US needed to correct its over-reliance on consumer spending/debt. China needed to correct its over-reliance on exporting things to America.

Of course, there were a number of other things in need of correction too:

..like the huge credit expansion of 1946-2007…in which debt went from 150% of GDP to more like 370%.

..and the phony baloney post-1971 money system in which the reserves of one central bank are the IOUs of other central banks. In the case of Europe, nobody is exactly sure who’s supposed to pay the IOUs. In the case of the US, everybody knows who’s supposed to pay…and everybody knows he can’t pay. He doesn’t have that much money. Even if you liquidated all his assets and all his citizens’ assets, Uncle Sam would still be about $50 trillion short.

..and there’s the stock market too. We’re still in bounce mode, following the big drop from 2007 to March of 2009.

In the short run, our chief researcher – Charles Delvalle, who keeps an eye on our investments at our family office – is bullish:

“The intermediate trend in the Dow Jones is still up. This trend was confirmed after the Dow Jones surpassed its Jan 19 peak. We could see a test in the trend, with a drop back down to the Jan 19 highs. As long as the Dow manages to stay above this, we could see a charge to 11,000 as soon as [this] week.”

But if this Great Correction is as great as we think it ought to be, it will wipe out this bounce…and sink another 50% before finally hitting bottom.

..and don’t forget the bull market in bonds. No one knows for sure, but the 10-year T-note hit its all-time low below 3% in November 2008, after a 27-year bull run. This week it went back over 4% – its highest point for this cycle. “The fun’s over,” says old-timer, Richard Russell. Are 10-year yields headed back to 15%?

..finally, there’s the very big picture…the Anglo-saxon empire…begun by the British in the 16th century…and carried on by Britain’s former colony, America. Is it time to take the English- speakers down a notch? Maybe…

Well, what do you think? Has the Great Correction fizzled out? Is it time to party like it was 2006 again? Is China going to make even more money by selling even more stuff to the US? Are Americans going to go further into debt to buy it? Are their houses going to recover 25% to 30% losses and keep on going? Is the Dow going back up to 14,000 – and beyond? Are bonds going up – even though the supply of them is soaring? And what about the empire? Has it got greater glories still in store?

We don’t know. We just watch…wait…and wonder…

..along with everyone else.

And more thoughts…

Our old friend, Graham Summers points out that the latest employment numbers are close to fraud:

Let’s have a look at these 162,000 jobs.

Right off the bat, we know that 48,000 of them came from hiring census workers. I won’t completely put this down because these ARE new jobs. But they’re hardly sustainable (the census is a temporary employer) or productive: paying someone to count other people adds literally NOTHING to the US’s manufacturing or productivity base. If it did, we could simply start hiring people to count clouds or trees and have an incredible economy in no time.

So without census workers, we added 114,000 jobs in March.

Then there are the +81,000 via birth/death adjustments. This metric is so complicated that it’s not even worth trying to explain. In simple terms, the BLS tries to adjust the jobs numbers to account for the birth/death cycle of businesses. But the reality is that it is an ‘X’ factor used to downplay job losses and boost job gains.

Without these adjustments, we added 33,000 jobs in March.

Then, of course, there are the weather adjustments. The winter of 2009- 2010, was by all counts, a rough one. So the BLS made various adjustments to atone for the fact that for several chunks of 1Q10, people couldn’t even get to work, let alone hire. Now that the winter is over, the BLS is adjusting numbers upwards to make up for former downward revisions. The total number of jobs “created” by adjusting for the nasty winter? 100,000.

Without these adjustments, we LOST 67,000 jobs in March.

Bill Bonner
for Markets and Money

Bill Bonner

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 Markets and Money.
Bill Bonner

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12 Comments on "Expect the Great Correction to Wipe Out this Bounce"

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Love the jobs statistics piece – Incredible

Jon Bain

It sounds to me like the US is treading water in the hope that the tide goes out.

Manipulating the figures in the hope that reality catches up with the figures.
Not impossible.
Just improbable.


A similar message is coming from the top (BIS saying that the bailouts, as you predicted Bill, will blow up in the governments’ faces): http://www.telegraph.co.uk/finance/economics/7564748/Sovereign-debt-crisis-at-boiling-point-warns-Bank-for-International-Settlements.html

Are there drops of sweat appearing on the brows of the bulls yet?


@Comment by Dan on 11 April 2010:

Are there drops of sweat appearing on the brows of the bulls yet?

Nope… most of them are in denial.. when it does occur they will ask “How did this happen?”


@Comment by Dan on 11 April 2010:

A similar message is coming from the top (BIS saying that the bailouts, as you predicted Bill, will blow up in the governments’ faces)

Britain emerges in the BIS paper as an arch-sinner. The country may have entered the crisis with a low public debt but this shock absorber has already been used up, exposing the underlying rot in the UK’s public accounts.

The same can be said of Australia.. Yes we have good tax receipts from our resource boom.. How about when China sneezes?


and what happened to the derivative time bomb? still ticking quietly underneath the mattress, or did it net out to less than the $60 trillion that was talked about in the great panic?
definately the Lucky Country.


Anyone seen those ads on tv offering courses in “safety in the markets”. It’s all about trading in securities and derivatives. Maybe looking for some suckers to buy them?


no annie, I dont watch TV, but $60 trillion of suckers? they wish!


Yep TV is nauseating.
A majority of traders lose money then quit leaving their dough to frontrunners I guess.. hence the ads…I guess.
I have to guess cause the older I get the less I seem to know…but I’m happily unknowing :)

Biker Pete

Ah, 89PeterG, you live in the best little corner of the best state in the best country in the world. Enjoy it!~ :)


biker pete, youve got me…. and a better corner in not having TV reception (I am in a black spot)… BUT with fast enough internet. not paradise, but the next best thing to it… if only my health was up to it. then again , cut out the tourism and social security, and its back to bananas and poor dairy farmers, just like the good old days (when they died before 60). but it was real.

Biker Pete

In a black spot, too, Peter. Two dishes solved it. (Not my wife & GF, either!~) :)

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