Who Will Be Proven Right?

Big down day for stocks.

The Dow lost 198 points.

Why? Are investors worried about gridlock in Washington? Or falling property prices in Beijing? Or maybe it’s the European debt crisis that has them bugged?

It doesn’t matter. When Mr. Market wants to go down, he’ll go down. He’ll leave to us to come up with the ‘reasons’ afterward.

The real reason? The US economy is sinking into a deeper Great Correction.

No kidding. Here’s the latest:

WASHINGTON (AP) – Businesses cut back on orders for aircraft, autos, heavy machinery and computers in June, sending demand for long- lasting manufactured goods lower for the second month in the past three.

The Commerce Department says orders for durable goods fell 2.1 percent in June, with the weakness led by a big drop in orders for commercial aircraft. A number of other categories also showed weakness including autos and auto parts. A key category that tracks business investment plans fell 0.4 percent in June.

But domestic sales of durables is much worse…the lowest in 20 years.

For the last year and a half, the stock market has been signaling ‘recovery.’ Prices rose from a Dow low on March 9, 2009 below 7,000 to a high over 12,500.

But while stocks recovered, the economy didn’t. The rich got richer – those who owned stocks. The middle classes – who tend to own houses, but not stocks – got poorer.

So, the big question: who’s right? The stock market? Or the economy? Which way is it going to go? Is the stock market going to fall to meet the real economy? Or is the economy finally going to recover to justify the kind of stock prices people are paying?

Our money is on falling stock prices. For all the many reasons we’ve told you in these Markets and Moneys, we don’t think you can turn this economy around …not anytime soon. This is a debt contraction. It takes time. Years. In fact, at the present rate – about 5% of GDP per year – we’ll have to wait another 36 years before consumer debt to GDP is back to the 100% level. For reference, it was about 33% when then expansion began after WWII.

We’ve been waiting a long time for the stock market to prove we are right. Until now, neither it nor the economy was willing to give. Stocks stayed high. The economy stayed low. Maybe yesterday, stocks began to ebb lower. Maybe they are just bouncing around.

We’ll have to wait to find out. Investors are probably a little jittery…waiting for a deal on the debt ceiling. When the deal is announced, stocks will probably rise again.

But maybe not. Sooner or later they’ll have to come to terms with the Great Correction. Maybe they’ll do now. Stay tuned.

And more thoughts…

You might think Americans would be making fun of their soldiers, not idolizing them.

It’s one thing to get bread from the feds. But overseas, never- ending circuses are getting expensive. The Guardian reports:

…a Brown University study released last month, estimates at $3.7tn for the Afghanistan and Iraq wars. Our military presence – to say nothing of our reconstruction and stabilisation expenses – costs the American taxpayer a whopping $1m per soldier per year. We’ll spend almost $120bn in Afghanistan in 2011 alone. Recently, the nonpartisan congressional budget office noted that ending our current wars would save the American taxpayer over $1.4tn …

Why are our wars so costly? Despite the Pentagon-friendly Rand Corporation citing policing, intelligence and negotiations as the most effective strategies in ending or dismantling 84% of terrorist movements, we continue to rely on heavy military and air presence, including big-ticket items like the $40bn Joint Strike Fighter. These strategies are ineffective against increasingly mobile and amorphous groups. Why the reliance? Because the defence industry has built operations in every state and almost every congressional district, and because its lobby is extremely powerful in Washington.

That’s right, even the military has been zombified. It’s run to benefit people in the defense industry, not to defend the nation. Present wars – if you can call them that – are already scheduled to cost the US $4 trillion. That’s about $40,000 per household. You can buy a lot of big screen home entertainment centers for that kind of money.

Why don’t the people back home object? They should be fed up. You’d at least expect them to hiss or snigger when a soldier walks by. After all, they mocked soldiers returning from Vietnam in the ’60s and ’70s. In Vietnam, US troops faced a real enemy in a real war – even if it was a stupid one. Now, troops fight ‘terrorists,’ not an opposing army. Nobody understands who the enemy is…or why it is worth going to war with him. But Americans are neither embarrassed by their men in arms nor ashamed of them. They say prayers for them in church…and let them board airplanes first.

In America, circa 2011, people put their faith in guns…and the men carrying them. The soldier, the policeman, even CIA operatives are given the respect once accorded to clergymen, doctors, and bartenders.

Go figure.

*** We are not a ‘ladies man.’ But nor are we a man’s man. We don’t hang out with other men. We don’t follow sports. We have no interest in politics or hunting or automobiles, or any of the other things men are supposed to be interested in.

The trouble with men is that they are too predictable. You admire a smart man for the speed and agility of his brain. But you always know where he is headed.

A smart woman is different. Her brain works fast too. But her destination is a mystery. You only know where she is going when she arrives. And then you are astonished by how she got there.

But last night we enjoyed a good night with a small group of men and a large group of wine bottles. Included in the first group were 3 Texans, one New Yorker, two Irish Americans, and one Sicilian. Included in the second group were two white French, two red Italians…and many others we can’t remember.

We won’t bore you with the evening’s discussions. Instead, here is a tally of the group’s conclusions (we merely listened…having no opinion or experience to contribute):

On Sex – Cialis is better than Viagra.

On Sports – Mark Cuban is not a bad guy.

On Money – the average guy is going to be whacked; if the bear market doesn’t get him inflation will.

On Pretty Women – don’t hire them; it will lead to trouble in the office.

On Politics – Rick Perry is a nice guy, but too dumb to be president.

This last item touched off a lively debate.

“What do you mean, too ‘dumb’ to be president? Didn’t you Texans send us George W. Bush, the biggest disappointment since Bill Clinton?”

“Hold on. George is not stupid. He just pretends to be dumb. Like you pretend to be smart. It’s just his stage role. He’s actually very smart.”

“Then, what about Perry? Maybe he just pretends to be stupid too. Texans like bonehead politicians. Especially if they’re wealthy too. They figure they’re too dumb to lie. And too rich to steal.”

“No Perry is the real McCoy. He’s as dumb as he appears. Maybe dumber.”


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 Money.
Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

1 Comment on "Who Will Be Proven Right?"

Notify of
Sort by:   newest | oldest | most voted
george gameson

the best email i get every day enjoyable informative no bull shit tells thing as they are.pleasure to read and digest
politians all over the globe are so out of touch why? from obama to swan
didnt they go to school and study MATHS
just a small business man living in bali.[ uneffected by world crazy finances.

predictions 2012 euro gone by years end obama and gillard wiped out.

george gameson.

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au