The US stock market is still in âbounce mode.â All bounces come to an unhappy end. This will be no exception.
If you step back a bit further, you could see it in a different light. Ten years ago, The Daily Reckoning warned of a long, Japan-like slump. Then, the stock market fell and the economy went into a recession. But the downturn didnât last long. And in the bubbly years that followed, our alert was quickly forgotten â especially by us! But now, 10 years have gone by. The S&P 500 has lost 20% of its value during that period. Wages and income are static. And there is not one single more job in America than there was then. It was a âLost Decadeâ for the American economy.
So get readyâ¦
How about a depression that lasts for 20 years? It could be on its way.
In December, exactly 20 years ago, Japanâs stocks closed at an epic high â 38,957 for the Nikkei 25 index. Last week, that same index closed at 9,977.
Readers will quickly note that the Japanese are idiots. Why else would they allow a 20-year bear market? Why else would they permit their economy to slide sideways for nearly an entire generation?
Where is the Japanese Bernanke?
This is almost the same question we posed readers 10 years go. Except then, we asked: Where is the Japanese Greenspan?
Greenspanâ¦Bernankeâ¦it didnât seem to make any difference. American central bankers seemed to have magical powers, at least compared to their Japanese counterparts. They seemed able to succeed where the Japanese failedâ¦
American economists mocked the Japanese 10 years ago. But what goes around, comes aroundâ¦
Japanese and American economists go to the same schools. They have the same silly ideas. They are equally incompetent, as near as we can see. And yet, the Japanese have suffered one âlost decadeââ¦and then anotherâ¦while Americans went from bubble to bubbleâ¦.
But, maybe our first idea was right after all. After we warned that the country could follow on Japanâs heelsâ¦entering a long, soft, slow depressionâ¦the Greenspan Fed and the Bush federal government opened up with all cannons. They blasted away on both fiscal and monetary frontsâ¦ending up with the biggest barrage of stimulus the world had ever seen.
And what happened? They inflated another bubbleâ¦bigger and more dangerous than any before it.
Now, that bubble too has blown up. And now we look around. Once again, the Bernanke/Obama team is firing every gun; just as the Greenspan/Bush team did in the early 2000sâ¦only more of them. But this time, the volleys are not having the same effect. Even though asset markets are bubbling up as hoped, the depression wonât go away. Unemployment is over 10% and still increasing. This is not another âjobless recoveryâ like the one in 2002-2003. This is no recovery at all.
Then, we look back at the last 10 years. What do we see? Instead of making economic progress, we see a nation making economic mistakes. And, under the leadership of the Obama/Bernanke/Geithner teamâ¦theyâre still making mistakes. The same mistakes. Only bigger ones. And so we have to wonderâ¦
Maybe the next decade will be âlostâ too. Stocks have gone nowhere for the last 10 years, but they are still expensive. On average, they sell for 50% more than the long-term average P/E. Usually, when they are this high, the next generation produces piddly gains. Could it be that, 10 years from now, we will look back without having added a single dollar of net return? Yesâ¦it is quite possible. Likely even. That will mean a total of 20 years with no profit for stock market investors.
Which would serve them right. Youâll recall, perhaps, that at the end of the â90s it was widely advertised that the surest, simplest road to riches was the stock market. The Dow was supposed to go to 36,000, according to one well-publicized forecast. All you had to do was âbuy and hold.â Youâd get rich for sure.
Of course, it doesnât work that way. As soon as investors all come to think the same thing the only sure thing is that what they all think is balderdash.
Wellâ¦thenâ¦what do they think now?
As near as we can see they believe two contradictory things. On the one hand, everyone says the dollar is doomed. On the other hand, they all seem to want dollar-denominated US Treasury bonds.
But actions speak louder than words. They may talk about the end of the dollar; but that is what they still own. And that is what theyâre still buying â via US Treasuries. Soâ¦we want to be short US Treasuries for the next 10 to 20 years.
But wait. Isnât it too soon? Ah, thereâs the rub. Treasuries seem to be approaching a major peak. Maybe they are there already. Maybe they arenât.
âWhat bothers me is that we still havenât had that other major leg down in the stock market,â we told colleagues Issy Bacher and Dan Denning today. âItâs not natural for a bear to take a chunk out of asset pricesâ¦and then just go away. Typically, the assets bounce backâ¦and then the bear takes another chunk out of them.
âSince we havenât had that next leg downâ¦we have to assume itâs still ahead. But investors seem totally unprepared for it. When it comes, theyâre going to panic. Theyâre going to sell shares all over the world. And theyâre going to seek safetyâ¦where? Theyâre probably going to turn to US Treasury bonds. Treasuries will go up, not downâ¦
âNow the funny thing is that moving to Treasury bonds will help the US government finance its deficitsâ¦and possibly stretch out the depression for years. As long as the dollar is in jeopardy, the feds are in danger. They might not be able to finance their deficits. Which means, foreignersâ¦and investors generallyâ¦could walk away from the dollar at any time. That would cause a major crisis. If the feds couldnât finance the deficit with borrowed moneyâ¦theyâd be forced to print itâ¦causing hyperinflation.
âAs long as they can finance it, on the other handâ¦we could face a long depression.
âThatâs the risk that no one is paying attention toâ¦and no one is prepared for. Thatâs why it seems like the most likely outcome. A long, slow, on-again, off-again depressionâ¦just like we forecast 10 years ago.â
http://wallstreetpit.com/12815-how-about-a-depression-that-lasts-for-20-years
If you step back a bit further, you could see it in a different light. Ten years ago, The Daily Reckoning warned of a long, Japan-like slump. Then, the stock market fell and the economy went into a recession. But the downturn didnât last long. And in the bubbly years that followed, our alert was quickly forgotten â especially by us! But now, 10 years have gone by. The S&P 500 has lost 20% of its value during that period. Wages and income are static. And there is not one single more job in America than there was then. It was a âLost Decadeâ for the American economy.
So get readyâ¦
How about a depression that lasts for 20 years? It could be on its way.
In December, exactly 20 years ago, Japanâs stocks closed at an epic high â 38,957 for the Nikkei 25 index. Last week, that same index closed at 9,977.
Readers will quickly note that the Japanese are idiots. Why else would they allow a 20-year bear market? Why else would they permit their economy to slide sideways for nearly an entire generation?
Where is the Japanese Bernanke?
This is almost the same question we posed readers 10 years go. Except then, we asked: Where is the Japanese Greenspan?
Greenspanâ¦Bernankeâ¦it didnât seem to make any difference. American central bankers seemed to have magical powers, at least compared to their Japanese counterparts. They seemed able to succeed where the Japanese failedâ¦
American economists mocked the Japanese 10 years ago. But what goes around, comes aroundâ¦
Japanese and American economists go to the same schools. They have the same silly ideas. They are equally incompetent, as near as we can see. And yet, the Japanese have suffered one âlost decadeââ¦and then anotherâ¦while Americans went from bubble to bubbleâ¦.
But, maybe our first idea was right after all. After we warned that the country could follow on Japanâs heelsâ¦entering a long, soft, slow depressionâ¦the Greenspan Fed and the Bush federal government opened up with all cannons. They blasted away on both fiscal and monetary frontsâ¦ending up with the biggest barrage of stimulus the world had ever seen.
And what happened? They inflated another bubbleâ¦bigger and more dangerous than any before it.
Now, that bubble too has blown up. And now we look around. Once again, the Bernanke/Obama team is firing every gun; just as the Greenspan/Bush team did in the early 2000sâ¦only more of them. But this time, the volleys are not having the same effect. Even though asset markets are bubbling up as hoped, the depression wonât go away. Unemployment is over 10% and still increasing. This is not another âjobless recoveryâ like the one in 2002-2003. This is no recovery at all.
Then, we look back at the last 10 years. What do we see? Instead of making economic progress, we see a nation making economic mistakes. And, under the leadership of the Obama/Bernanke/Geithner teamâ¦theyâre still making mistakes. The same mistakes. Only bigger ones. And so we have to wonderâ¦
Maybe the next decade will be âlostâ too. Stocks have gone nowhere for the last 10 years, but they are still expensive. On average, they sell for 50% more than the long-term average P/E. Usually, when they are this high, the next generation produces piddly gains. Could it be that, 10 years from now, we will look back without having added a single dollar of net return? Yesâ¦it is quite possible. Likely even. That will mean a total of 20 years with no profit for stock market investors.
Which would serve them right. Youâll recall, perhaps, that at the end of the â90s it was widely advertised that the surest, simplest road to riches was the stock market. The Dow was supposed to go to 36,000, according to one well-publicized forecast. All you had to do was âbuy and hold.â Youâd get rich for sure.
Of course, it doesnât work that way. As soon as investors all come to think the same thing the only sure thing is that what they all think is balderdash.
Wellâ¦thenâ¦what do they think now?
As near as we can see they believe two contradictory things. On the one hand, everyone says the dollar is doomed. On the other hand, they all seem to want dollar-denominated US Treasury bonds.
But actions speak louder than words. They may talk about the end of the dollar; but that is what they still own. And that is what theyâre still buying â via US Treasuries. Soâ¦we want to be short US Treasuries for the next 10 to 20 years.
But wait. Isnât it too soon? Ah, thereâs the rub. Treasuries seem to be approaching a major peak. Maybe they are there already. Maybe they arenât.
âWhat bothers me is that we still havenât had that other major leg down in the stock market,â we told colleagues Issy Bacher and Dan Denning today. âItâs not natural for a bear to take a chunk out of asset pricesâ¦and then just go away. Typically, the assets bounce backâ¦and then the bear takes another chunk out of them.
âSince we havenât had that next leg downâ¦we have to assume itâs still ahead. But investors seem totally unprepared for it. When it comes, theyâre going to panic. Theyâre going to sell shares all over the world. And theyâre going to seek safetyâ¦where? Theyâre probably going to turn to US Treasury bonds. Treasuries will go up, not downâ¦
âNow the funny thing is that moving to Treasury bonds will help the US government finance its deficitsâ¦and possibly stretch out the depression for years. As long as the dollar is in jeopardy, the feds are in danger. They might not be able to finance their deficits. Which means, foreignersâ¦and investors generallyâ¦could walk away from the dollar at any time. That would cause a major crisis. If the feds couldnât finance the deficit with borrowed moneyâ¦theyâd be forced to print itâ¦causing hyperinflation.
âAs long as they can finance it, on the other handâ¦we could face a long depression.
âThatâs the risk that no one is paying attention toâ¦and no one is prepared for. Thatâs why it seems like the most likely outcome. A long, slow, on-again, off-again depressionâ¦just like we forecast 10 years ago.â
http://wallstreetpit.com/12815-how-about-a-depression-that-lasts-for-20-years
