This Isn’t a Recession

*** The company that Thomas Edison started cut its dividend for the first time in 71 years. Some analysts think GE, too, could default – thanks to the company’s move into the financial sector.

*** Hotels are going into foreclosure too, says USA Today.

*** Dow Chemical is trading at a 24-year low.

*** And the “Great Red Hope” – the idea that China will pull the entire world economy out of a depression – is “pure fantasy,” writes William Pesek.

China relies on exports. And the export business sucks. It will be lucky to get through this downturn without a revolution.

*** An Economist headline: “Are Investors Still too Optimistic?”

Our guess: yes. Most of the action on the stock markets is professional buying and selling. The amateurs seem to be largely sitting on the sidelines, waiting for a rebound to get back in.

They still haven’t gotten the message. This isn’t a recession. There won’t be a quick recovery. And the bailout/stimulus plans won’t work.

This is depression. It will take years to restructure the economy. And bailout/stimulus plans just slow down the process.

Looking back at the Dow…if you take the market peak of January 2000 as the long-term cyclical top…you might expect an eventual bottom 10- 20 years later…and then a new bull market that would return prices to their peak highs 10-20 after that. Between the high of ’29 and the next major high in ’66 was 37 years. Between the ’66 high and the ’00 high was 34 years.

So sit back. Relax. Most likely, we’ll see stock prices much lower…for much longer. Look for a return to ’00 highs in 2035.

Learn to make a correction your friend. Remember, this is a positive collapse, not negative growth. It is correcting the stupid ‘growth’ of the bubble years. What really grew during that period was consumer spending in the United States and Britain. And it grew far beyond the ability of Anglo-Americans to pay for it. Because they were spending too much, the whole world economy bent to sell them too much. The Chinese built too many factories. The shippers built too many vessels. The truckers bought too many trucks. The homebuilders put up too many hovels. The retailers expanded too much…the malls were overbuilt…etc. etc. etc.

Now, in this period of positive collapse, all that surplus capacity is being marked down to what it is really worth…liquidated…and restructured.

Give it time, dear reader. Let Mr. Market do his work.
Until tomorrow,

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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3 Comments on "This Isn’t a Recession"

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Tino Schlegel

Not everyone looses money. The ‘lost’ money must be somewhere – maybe it was burnt or the promised money wasn’t printed.
Anyway, the growth of the last years cannot get faster and faster.

Btw: Saw this nice documentary about the newly built ghost city in Spain last night. Some greedy people invested in this city to rent or sell those overpriced houses and no one wants to live there now. Well done investors. Will it get less greedy in the future? I don’t think so!

Greg Atkinson

Tino, it is a bit like that comment by Gordon Gekko in the movie Wall Street “Money itself isn’t lost or made, it’s simply transferred from one perception to another.” Big winners will emerge from this crisis. At some point the timing will be just right for people to move in and snap up cheap assets.

BTW if Spain is doing it tough I wonder how those over-the-top developments are doing in Dubai?

Tino: In response to “The ‘lost’ money must be somewhere” Correct me if I am wrong please, but I believe money can be lost, especially due to fractional reserve banking. If the banks get afraid to lend to people, won’t that generally cause the total money in fractional reserves to be less? Especially if they want to increase their ratio of deposits to lending, without relying on many new deposits – all they have to do is lend less. (I realise that its not quite that simple for banks to get themselves out of this mess) Basically what I am… Read more »
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