Hoist the Crash Alert Colours!


Is our ‘Crash Alert’ flag still flying? It is? Great.

The Dow got whacked hard yesterday. It was down a few hundred points. And then, somehow, the computer programs triggered the sell signal from hell. It lost another 500 points in just a few minutes.

Then, the computers must have reconsidered. They went into buy mode.

All very strange…

Was it just a mistake? Something weird? Was it a genuine panic…and a phony bounce? Or a phony panic and a genuine bounce? The story last night was that the sell-off was a mistake…that someone hit the wrong button and added a zero. We don’t believe it. Traders must add zeros by mistake all the time. This is the first time it triggered a 998-point drop. As for the recovery, it’s suspicious too…maybe some kind of automatic reaction – perhaps from ‘buy the dip’ program trading, maybe from the mysterious “plunge protection” machinery of the US government.

We don’t know. But what this tells us is what we’ve been telling you: this is a dangerous market. It is no place for widows, orphans, nuns, priests, republicans, democrats, window-washers, bungee jumpers…

..it’s a good market for gamblers. And if you were long the VIX yesterday, you made a killing.

Everyone else got killed.

But it was fun for us. You see, you start out life full of expectations and confidence. Then, you become more cautious. Then, you become more realistic. And then, you become discouraged and hopeless. Finally, after you’ve given up all hope of ever making the world a better place, you become amused by it; you realize that there’s no reason to change it. It’s funny enough the way it is.

That’s the way we felt yesterday, watching the market go wild in the afternoon.

“Hey, Dad…you seem to be enjoying this,” said Jules. “But you must be losing money along with everyone else.”

“Maybe…but it’s worth it.”

We don’t own US stocks. But we have some from emerging market shares. They went down with everything else. And we wouldn’t be surprised if they went down a lot more.


..Because China is going to blow up. It’s on a ‘treadmill to hell,’ says short-seller Jim Chanos.

..Because the US economy is not really recovering. The latest numbers show retail spending sinking again. Bankruptcies are rising. Housing and unemployment remain in the dumps…

..Because the US stock market has been in a decline – in real terms – since January 2000. This move to the downside won’t really end until stocks are cheap again.

..Because there’s more bad new coming from Europe too…keep reading…

In the news tonight (on TV) are pictures from Greece, where the police are trying to keep an upper hand against demonstrators. What are the protestors so irritated about?

They’re protesting against ‘austerity’ measures. They say it’s unfair to cut a pensioner’s monthly check while paying the bankers 100% of what they were due. They’ve got a point. The government should cut them both.

This is a drama worth watching. Partly because it is fascinating. Partly because it is a coming attraction. It won’t be too long before the US is in the same position. So let’s watch carefully.

The Greek government committed itself to cut one of every 5 euros out of its budget. That means it has to cut back on ‘services.’

‘Government services’? Practically oxymoronic… You’re suspicious from the get-go.

Generally, the more services you get from the feds, the worse off you are. Prisoners in federal penitentiary, for example, can thank the government for everything, from the roof over their heads to their daily bread. Being a guest of the state is something you want to avoid.

Even when the government is providing services you actually want – such as delivering the mail – it usually does so with such clumsiness that they end up costing far more than they should.

“You know,” said Judge Andrew Napolitano on Saturday, “the government foreclosed on a brothel, here in the state of Nevada. Apparently, the owners didn’t pay their taxes. The Mustang Ranch, it was called. It had been a profitable business. Then, after the government took it over, it started losing money. It’s almost unbelievable. Only the government could lose money offering hookers and booze to truckers.”

To this story, Chris Hunter, our family office financial analyst, replied:

“This is a good story…but it’s an apocryphal one…

“The feds never ran The Mustang Ranch… The IRS just auctioned it off…

“The story comes from an email rumor that started circulating in 2008.”

Well, if the story isn’t true, it ought to be. We watched some public employees at work in Baltimore the other day. Four guys sat in a truck, with the motor running, while one guy walked lazily over to shovel something off the sidewalk. The city could probably fire 4 out of 5 of its employees and the city would work better. But the employees would pitch a fit.

“They’d complain that the poor would freeze and starve,” said a colleague. “They’d say that children wouldn’t learn to read, that the library shelves would be empty, and the traffic lights wouldn’t work and that murderers would walk the streets with impunity.”

“How’s that any different from it is now?” we wondered.

“Well, they wouldn’t say ‘impunity.’ Public employees tend to stick to shorter words. Besides, no one walks in Baltimore. Even with impunity. It’s too dangerous. You’d need to have a cop at your side. And I guess that’s the problem. If they fired the policemen there wouldn’t be a policeman to tell your wife and kids after you got shot and killed. Maybe they could send an email. If they knew how to use the Internet…”

Baltimore…Athens…Rome – almost all over the world, the story is the same. Public employees earn too much money. They get the best pensions. They get the best health care. They work little and get paid a lot.

In America, as in the rest of the world, they tend to earn about 30% to 50% more than workers in the private sector. And come a recession they don’t lose their jobs. They have powerful lobbies…and direct access to legislators. That’s part of the reason the Washington, DC area suffered much less in the downturn than other metropolitan areas in the US. The roads are still packed with shiny new cars. The restaurants seem to be as full as ever. Our area has million-dollar houses…with 2-bit politicians, lawyers and lobbyists in them.

Yes, they came to Washington to do good…and they have done very well.

Greece will default anyway.


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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2 Comments on "Hoist the Crash Alert Colours!"

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I still can’t help but wonder why the Germans bother to stay in the EU. Seriously, can someone explain it to me? Surely the political “benefits” are more than offset by the very real economic damage tying yourself to such countries will produce. As for Greece defaulting, it should have happened a long time ago. As it stands, the EU won’t let it happen, and thus prolonging the pain. The Greeks say it’s unfair to not pay a pensioner and pay the bankers instead, however they consistently dodged paying taxes and voting themselves more and more perks from government (with… Read more »
This article outlines why it is not all bad news for the stronger members of the EU – such as germany: http://www.businessspectator.com.au/bs.nsf/Article/Eurozone-pd20100510-5AS8C?OpenDocument&src=sph That said however, it is more and more obvious that the Greeks are either going to have to take a massive haircut in benefits or default, neither are going to be pleasant. If that happens then European banks are going to take a frightful hosing with Germany copping the full brunt. I think overall the Germans thought that as long as countries kept their debt levels under control, having a common European currency was a good thing. This… Read more »
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