The Dow jumped over 25,000 yesterday. But unless (and until) it can beat the January top of 26,616, we will presume that the primary trend, which we detailed recently, is down.
And since primary trends tend to last a long time, we further presume that stocks may be set to slide for the rest of our lives.
Long trend down
Big moves take time.
Stocks peaked out in August 1929. Inflation adjusted, it was not until 30 years later that they fully recovered.
They peaked out again in 1966. And again, it took 30 years for an investor to get his money back in real terms (not including dividends).
If this pattern holds, the peak in January won’t be seen again until 2048.
Good luck with that!
Meanwhile, the bond market, too, seems to be sliding. The peak in bond prices came and went nearly two years ago, in July 2016, when the yield on a 10-year Treasury bond hit a low of 1.4%. [The price and yield of bonds move inversely.]
There, too, the primary trend is now down. Expect it to last a long time. As we rehearsed a few days ago, the last top in bond prices occurred in the late 1940s.
If this pattern repeats itself, we’d have to live to be 136 years old to see the next one.
So we presume that we have already seen the one and only top in bond prices that we will ever see…and that the only gain we will get from stocks will be from dividends.
Alas, the dividend yield for the S&P 500 last year was only 1.8%. That was about the same as the Consumer Price Index, the fed’s measure of inflation.
Real inflation is probably twice that. So an investor holding stocks for the dividend yield is losing money.
But there are big trends in the political world, too.
Get to be a ‘bad guy’
Yesterday, we wondered how you get to be a ‘bad guy’ in global politics.
Iran, for example, hasn’t invaded another country since the Achaemenid dynasty went on a spree in the 4th century BC. But it’s been invaded by almost everyone able to do so — Mongols, Russians, English, Muslims, and in 1980, US-backed Iraq.
In the 1950s, the country also endured a coup d’état organised by the US. Its democratically elected president was replaced by a CIA puppet.
So who’s the bad guy?
Today, Iran is considered such a bad hombre that US Secretary of State Mike Pompeo read it the riot act on Monday. The Associated Press followed the story:
‘The Trump administration on Monday demanded that Iran make wholesale changes in its military and regional policies or face ‘the strongest sanctions in history’, as it sought to turn up heat on Tehran after President Donald Trump’s decision to withdraw from a landmark nuclear deal.
‘Unless such a treaty can be reached, Pompeo warned that Iran would face tough sanctions that would leave it ‘battling to keep its economy alive’.
‘‘These will end up being the strongest sanctions in history by the time we are complete,’ Pompeo said…’
Moses, bringing the law down from Mt. Sinai, announced 10 things Jews needed to do to keep themselves in God’s good graces. But Pompeo came with 12 demands.
And while the US made a dozen demands, Iran made not a single one. Why the imbalance?
Is it because the US has already reached perfection…or because the Pentagon spends an amount equal to the entire Iranian defense budget every seven days?
Among the US demands is a requirement to allow inspectors ‘unqualified access’ to all nuclear sites. But does the US give Iranian inspectors unqualified access to its sites?
So, too, must Iran release all US citizens held in Iran on ‘spurious’ charges. But will the US release all Iranian citizens held on spurious charges in Guantanamo Bay?
No? We didn’t think so.
Crime, no punishment
Power, as discussed yesterday, has rules of its own. Reciprocity isn’t one of them. When you can throw your weight around with nothing to stop you, why not?
Crime, but no punishment. Up, but no down. Israeli soldiers, for example, can shoot Palestinians. But the Palestinians can’t shoot back. What’s not to like?
But power is still subject to the rule of ‘too much’. When a nation has too much power, like a child who has had too many desserts, it becomes insufferable.
Nature needs balance and harmony. Civilisation thrives on limits, restraints, and corrections. ‘Too much’ upsets it. When there is ‘too much,’ something has to give. Otherwise, it tips over into chaos and calamity.
After the Cold War ended, the US was master of the field…unopposed…on the top of the heap.
It could have brought its troops home and cut its military spending in half…or more…restoring some measure of balance with the rest of the world.
It could have taken up the America First slogan, minding its own business and being a good neighbour to other countries. It could have balanced its budget, paid off its debt, and devoted its time, money, and energy to building a great country.
Instead (and we don’t recall any debate in Congress)…it took another path.
The ‘enemy’ was defeated. But military spending still went up, and now sits at $580 billion, up from $355 billion in 1991. The cost of the War on Terror alone is reaching up to about $50,000 per household.
And now, all over the world, the US bombs, drones, and assassinates…bullying, bossing, and bamboozling small countries that can’t defend themselves.
But who bombs targets in New Orleans? Who drones America’s ‘extremists’ in Kentucky? Who assassinates ‘insurgent’ leaders in California? Who imposes sanctions on America?
Americans are perfectly happy with this situation. Neither Democrats nor Republicans resist.
But what about the custodians of the natural order? What about the guardians of civilised justice? What about those who make sure people get what is coming to them?
What about the gods? How do they feel about it?
Our bet is, they don’t like it.
More to come…including how America got to be a ‘bad guy’.