Stocks atop a Greased Pole

red_stocks_440

How about that?

The Dow punched through the 20,000 mark yesterday.

It could go much higher. Or lower. We’re not sure which — maybe both. But our guess is that it won’t stay where it is for long.

Too uncomfortable. Like sitting on top of a greased pole.

Besides, the wind is picking up.

Boom or bust?

I think there will be a…boom for a while,’ says Yale’s Robert Shiller.

US stock prices look high, he admits, ‘but they are not yet super high. In 2000, the price-earnings ratio [for the S&P 500, which looks at the average of the past 10 years of earnings relative to share prices] was over 45, and we may see a repeat of that.

Today, the ratio is about 25. Over the last 130 years, it has been higher only three times — in 1929, 1999, and 2007 — all of which preceded major stock market crashes.

Remember, too, that investors still have the Fed working for them.

Its projected short-term interest rate hikes are trivial — just one-quarter of a percentage point per quarter.

The Fed dares not raise rates faster, lest it appear to be trying to undermine the new leader of all the Americans (whose name we will not even mention out of fear of inflaming the already hot passions that run through our dear readership).

The Wall Street Journal reports that a survey of central bankers showed 80% of them are planning to buy more stocks.

Equities may be overpriced to you. But if you could print all the money you wanted, the price would be irrelevant.

Sobering tale

On the other hand…

‘Budget Plans Set Stage for GOP Battle,’ reads a headline in yesterday’s Journal.

Republicans may control Congress, but who has control over Republicans?

We’re going to find out. If that person whose name we can’t mention can bully, bribe, and browbeat them into lining up behind him, it will be a major achievement.

Quick action on tax cuts and spending increases should keep the animals’ spirits high.

As Shiller points out, there’s still room at the top, but the pole is slippery. And a lot could go wrong.

If Congress and the White House get caught up in a budget brawl, for example…and promised tax cuts and infrastructure spending fail to materialise…stocks could crash.

Once things go wrong, I fear that things could turn very bad for the markets,’ Shiller continued, talking to The Telegraph newspaper in London.

What happened after 1929 is a sobering tale. American attitudes changed abruptly.

Real trade problem

We’ve been so fascinated by the [name omitted] phenomenon that we’ve hardly thought about the stock market.

So this is probably a good time to go back to the basics.

No one can tell you what direction stocks will take, only what direction they should take.

The value of America’s businesses should rise or fall with its real economy.

If that person we can’t talk about could make America great again — by returning economic growth rates to what they were in the 1950s and 1960s, when the economy really was great — stocks’ values should rise. (Unless, of course, they were overpriced to begin with.)

‘[You Know Who’s] Real Trade Problem Is Money,’ reads another Wall Street Journal headline. We were startled: It is the first time we’ve seen such an admission in the mainstream press.

It’s fake money that causes our trade imbalances, not the Chinese, or the Mexicans, or bad trade deals, or the lack of trade barriers.

The US can print all the money it likes to pay for its imports. Never does it have to settle up in gold.

And we’re pleased to see John D Mueller, from the Ethics and Public Policy Center, finally say so:

Mr [the fellow to whom Melania, alas, is wed]’s economic and trade policies will fail unless he finds a solution to the dilemma — the inherent incompatibility, in a reserve-currency country, of domestic policy with the international monetary order.

We don’t know what Mr Mueller is talking about, either. But we think he agrees with us. He continues:

A gold…standard prevents the financing of budget deficits through the monetary system.

That’s the point: Real money (gold) represents real resources, which are always limited.

Squeezing the turnips

Real money imposes a limit on what the government and its cronies can get away with — including trade deficits, claptrap wars, zombie programs, crony deals, and Deep State sinecures.

Even Mr ‘T’ (rhymes with chump) is no alchemist. So, under a gold-standard system, he would be limited by how much money is available to him.

He could only spend what he could squeeze out of his population of turnips. And if he put the squeeze on too hard — by upping taxes — they might revolt.

That problem was solved, finally, in 1971, when President Nixon ended direct convertibility of dollars to gold.

Since then, fake money — unbacked by gold — has run wild.

The insiders have privileged access to it. The feds and Wall Street borrow it at rates less than half of what you would pay on your mortgage.

They get richer and richer…and the turnips don’t know what happened to them.

But let’s not get lost in detail. What makes an economy great?

We’ve developed a simple way to analyse it. Then you can judge for yourself whether you think a certain Barnum-like fellow from Queens…and his ‘America First’ policies…will do the trick.

More tomorrow…without fail. With malice toward none. And charity for all.

Regards,

Bill Bonner,
For Markets and Money, Australia

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 MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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