Investors Tend to Race Ahead and Ruin the Whole Thing

Inflation or deflation
Tell me if you can
Will we become Zimbabwe
Or will we be Japan?

– Merle Hazard

Ol’ Merle Hazard has the key question figured out. Which will it be? Zimbabwe or Japan? Will it be runaway inflation…or deflation that refuses to run anywhere?

Long suffering Markets and Money readers already have our answer. We gave it even before the bubble burst in ’07/’08.

“Yes!” we said…it will be Zimbabwe AND Japan. But not in that order. Japan first. Then, after the feds have got the hang of Quantitative Easing, it’s Zimbabwe here we come!

But there’s gotta be a surprise, right? It can’t be that simple, can it?

Markets rarely make it easy for you. And for a very good reason. If it were easy to see what was coming, it would be easy to avoid trouble and take advantage of opportunities. You can see where that would lead.

Investors would race ahead and ruin the whole thing. If they saw the market going up, they’d buy stocks. This would cause prices to rise before they were supposed to. And if they were going to crash, investors would sell off their stocks…and drive prices so low, the market couldn’t crash – it would already be at bottom.

Do you see where we’re going with this? If investors – or anyone – could see what was coming, they’d short-circuit the process.

Take the run-up in stocks on Wall Street today, for example. On Friday the Dow fell 62 points. If you knew it was going to fall for the next 2 months, you’d sell now? Why wait?

And look at gold. It hit $931 on Friday. If investors knew it would be at $1,000 by the end of the year, it’d be at $1,000 now.

If people could read next year’s fashion magazines, they’d buy tomorrow’s fashions today. Then, some wiseacre would buy the day after tomorrow’s fashions…just to be ahead of everyone else. And then, nobody would want to be stuck with tomorrow’s hairdo – it would already be out-of-style. And nobody would want to hold the stocks that were supposed to go up either. Other investors would have already bought them…and be on to the next thing. The stocks that were supposed to go up tomorrow would go down. Tarnation! All of history would move forward…faster and faster…as people tried to race ahead of trends before they even began…and in a flash…history would come to a blinding stop. We’d all anticipate everything that was going to happen. Why bother reading this book, we’d say to ourselves; we know how it will turn out.

Imagine what would have become of Napoleon’s march on Moscow. “Nah…count us out,” his troops would have said. And what about Tojo’s attack on Pearl Harbor? How did that turn out? “I think I’ll go into the auto business instead,” he might have said to himself. And what about all those homeowners who were speculating on higher house prices? Forget it…the whole bubble never would have happened…and so the whole credit crunch never would have happened either. And then where would we be?

A New York Times financial reporter revealed how easy it was to fall into the housing debt pit in a confessional piece in this weekend’s International Herald Tribune. Here was a smart fellow… His beat was covering the international monetary system and the central banks. He knew all about the credit bubble – he reported it to NYT readers.

But while he was reporting on the world’s bubble economy, his own finances bubbled up on him. A second marriage…a second house…pretty soon he had a mortgage that he couldn’t pay – and that was before the bottom fell out. Now, he’s months overdue in his payments and calls the mortgage company to see when they’re going to kick him out. “Take a number,” they say. “We’ve got hundreds of people to process.” He’s still waiting.

Even when you think you know what is going on…you can be blindsided. The NYT reporter says he got into his mess with his “eyes wide open.”

“Gap between Boomers, young minorities grows,” says a headline in USA Today. The report tells us that the Hispanic population is growing 16 times faster than the population of non-Hispanic whites.

Not only does this gradually change the racial makeup of United States of America, it also highlights another gap: the old white people have the money.

For that insight we thank the International Herald Tribune. Older people typically had already paid off their mortgages, so were less often caught up in the sub-prime crisis. The over-65 crowd reports only a quarter of the problems paying rent or mortgages as those 18-29. They also tell surveyors half as often that they’re having trouble paying their bills. And get this; while the 18-29 crowd has lost millions of jobs during the last 18 months, employment among 65 and older Americans has actually gone up.

Older people also report fewer investment losses. Their investments were relatively safer than those of younger people…and less affected – though still hit hard – by the downturn.

But thank god for all the Hispanics. The feds are running up trillions in debts – much of which will be passed on to the next generation. At least the Hispanics are filling out the population – bringing millions of new debt slaves into the Land of the Free, so that old, white people can continue to live beyond their means.

But wait a minute…aren’t these same babies the ones who expect to receive free day care, welfare, unemployment compensation, free public schooling, food stamps, health care, government jobs and all the other benefits of a bread-and-circuses government? Hmmm…sounds like something’s gotta give.

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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