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The Greatest Trick Mr. Market Ever Played?
Submitted by Bill Bonner via Acting-Man blog,
The Mantra
Yesterday, gold climbed back above $1,200 an ounce. US stocks went nowhere. Meanwhile, a chill went down our spine. A sense of dread filled our frontal cortex.
We read a report that was designed to give investors courage and hope. Instead, it felt to us like a guilty verdict in a murder trial. Even with good behavior, our sentence would probably last longer than we would.
A chart told the story. It showed three bull markets over the last 20 years. In the 1990s, the S&P 500 total return was 227%. Then from 2002 to 2007, another bull market. The total return this time: 108%. And from 2009 to 2014, the S&P 500 returned another 195%.
The lesson is unmistakable. It tells you to get in stocks… and stay in. If the market has a fainting spell, don’t get dizzy. Stick with stocks!
Don’t let the occasional 50-60% crashes disturb your peace of mind! You will always win in the long run! Long term bear markets don’t exist…well, maybe except in Japan. And much of the 18th century. But other than that, nothing can go wrong – click to enlarge.
Buy the Dips?
“Yes, we’ve seen some weak periods,” say the wealth managers, investment counselors and stockbrokers. “But they’ve always been followed by even greater strength. Each high has led to an even higher high.”
This is the message taken on board by a generation of investors. And if you go back further, you will find the same lesson learned by their fathers… even their grandfathers.
Since the end of World War II, there have been up markets, down markets and sideways markets. But if you had just gotten in and stayed in over any substantial length of time, you would have done well.
That is true for almost all financial assets – at least over the last 35 years – and true for stocks, especially, over the last 70 years. In 1960, the S&P 500 was 59. Yesterday, it was 1,964.
The lesson is now imbedded in our race memory… in our collective unconscious… and in our brains, our culture and our muscles. Even after a stroke or Alzheimer’s… after senile dementia and adult diapers… we will recite it on our deathbeds: “Buy the dips.”
We don’t have to think about it. We may fear the next recession… or the next sell-off on Wall Street… but we are confident the darkest night will always be followed by a bright dawn – always has!
And always will. At least, until it doesn’t.
A picture of the “impossible” – a stock market that remains 60% below its peak value almost a full 25 years later. It frequently paid to buy the dips, but there was never a full retracement of the lost ground – click to enlarge.
Mr. Market’s Biggest Coup
But what if Mr. Market is about to pull his biggest coup? What if the next dark night lasts 10… 20… 30 years? What if the experience of the last 70 years was sui generis? What if it was the result of particular conditions, which have now changed… and can’t be repeated? What if we are now looking at highs that we will never again see in our lifetimes?
Of course, what we don’t know about the future is encyclopedic. But wouldn’t it be a nice trick on Mr. Market’s part?
After World War II the US had the world’s largest economy – by far – and unlike its rivals in Europe, it was still intact. The GIs came home. They got married… they had the famous baby boom children… they started businesses and careers. Credit expanded – up 50 times since then.
And now, with interest rates lower than ever before, the credit expansion must be nearing its end. World War II vets are dying at the rate of about 1,000 a day. And their children are retiring… at a rate of 10,000 every day. The boomers are no longer adding to wealth; they’re subtracting from it.
They’re no longer expanding credit by borrowing to buy new houses and new cars; now, they’re living off their investments and Social Security, counting on their own savings or the kindness of strangers to see them through the rest of their lives.
You heard about the great jobs report on Friday. Some 248,000 new jobs were created. But wait… The real story is that of the 14 million people added to the adult population of the US since 2008, only 1 million have found real jobs.
That’s the important story: Growth is slowing. We have more people… but fewer of them paying the bills. Reagan’s former budget adviser David Stockman comments:
“Going back to September 2000, for example, there were only 76 million adults not in the labor force or unemployed, and that represented just 35.8% of the adult population of 213 million.
This means there has been a 26 million gain in the number of adults not working – even part-time – during that 14-year period. About 10 million of that gain is accounted for by retired workers on Social Security – a figure which has risen from 28.5 million to 38.5 million during the interim.
But where are the other 16 million? The answer is on disability (+4.5 million), food stamps (+25 million), survivors and dependents benefits, other forms of public aid, living in parents’ basements on student loans or not, or on the streets.
The employment ratio has plunged; full-time breadwinner jobs have actually shrunk; total labor hours employed have been stagnant; real GDP has grown at only 1.8% annually for 14 years – compared to 4% annually between 1956 and 1970; and real net capital investment is 20% below its turn-of-the-century level.
This isn’t at all like the postwar period. It is a whole different ballgame. We may never again in our lifetimes see stocks so high.”
Labor force participation is in a steep downtrend since the peak of the 1990s stock market mania – click to enlarge.
Charts by: BigCharts, St. Louis Federal Reserve Research
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Once more to the PRINTERS.....Mr. Yellen !!!!
Please lord, let silver go to 11-15, I'm buying as fast as I can, but I'll consider that my "borrow money on credit to buy silver" moment!!
I have an inkling that it WILL go lower. There is still a lot of potential liquidation of financial assets building over the future months.
Look to around 14 USD/oz as a moderately support. ~8 USD/oz as a very bearish scenario. Either way I am long term bullish. A guy asked me what to do with a ton of stuff he has sitting around for investment. PMs are high on my list of "it makes sense to own some" investments.
Buying on credit is fun but buying with Chase credit and not paying it back is even more fun.
Heading toward Peak Zimbabwe any time now.
Elsewhere: Is America stuck with the miserable Piers Morgan? http://tinyurl.com/kvbecmc
We keep trying to give him back but the jeezly British won't take him....
Buy the dips, yeller has your back. Sell today's high.
...and cover higher
So don't buy China?
You buy China after a crash.
Then use it for special occasions. ;-)
If Mr. Market is so strong, end the artificial aid.
Markets are desperate for some MOAR... but QE ends Oct 28th... Uh oh ... Mrs. Market ain't going to like that ... esp. when Kev' has to take paternity leave for knocking up that cute NYU intern this spring... "This sucka is goin' down."
Go ahead, cut off the daily infusions of free cash to the strong markets and raise rates even 1 point, I dare you.
I think they may be overestimating the power of Belgium....
Im waiting on a TX homless man locked up in a mental institution.
If he dies by the end of the month ill know what to do, if he doesn't ill know what to do.
Today's a pretty good 'trick', coming just below the 'no taper' wonder.
maybe it is time to reread: This Time is different: Eight centuries of Financial Folly
Uncle Sams Misguided Children – California Loses One Of World’s Largest Manufacturers To Anti Gun Politics
No worries the Nail Salons will pick up the slack I'm sure...Congrats Arizona!
I'm gonna get me a S&P 500 T shirt cause I will always look like a winner!
(Look like).
WTF does the number of people in the workforce have to do with the level of stock prices? Nada.
Stock prices reflect the rate of change of the feds balance sheet, not the strength of the economy.
CNBC are telling me that the DJA has just climbed 200+ point today.
Yellen had a hard on today....now to drag out the brain bleach....
We are proceeding in a fairly orderly manner towards a Japan like environment (with the odd, minor bump in the road). The one missing piece in the jigsaw is the collapse in value of risk assets...that's going to materialise very shortly. The more I observe these markets, the more convinced I am that the Kondratiev winter is about to descend on Western developed economies...and every CB in the world will be totally powerless to stop it's advance.
If they had an ounce of honesty they would have raised rates two years ago while they were buying up junk.
You cant be honest when Lucifer is the god you worship.
AMEN! brother.. Spoken like a saved person..
I love capitalism & prosperity b/c it allows me freedom (though anything remotely resembling true Capitalism died a long time ago).
I do not worship either as an end, but value them as a means to a moral end (e.g. being able to spend quality time with family pursuing healthy activities that we're passionate about; e.g. being able to procure & consume truly high quality, fresh, nutritious food).
Money/Monetary Wealth is a wonderful tool, and a terrible Master.
If interest rates were left at normal levels of 6-8% since 2009, where would the market be now?
8% (2014-2009): (1.08)^5=1.46933
1% (2014-2009): (1.01)^5=1.05101
1962/1.46933*1.05101=1403
(1962-1403)/1962=28% drop
If on 666 =>480
1962-480=-1482 pts drop
If interest rates were left at normal levels of 6-8% since 2009, where would the market be now?
8% (2014-2009): (1.08)^5=1.46933
1% (2014-2009): (1.01)^5=1.05101
1962/1.46933*1.05101=1403
(1962-1403)/1962=28% drop
If on 666 =>480
1962-480=-1482 pts drop
The Great Mistake
The underlying structural cause of present economic problems : see
http://andreswhy.blogspot.com/2014/02/humans-should-have-been-22-richer-...
Wait were talkin fiat right?
I have been reading, and believing, Bill Bonner for 10 years, and pretty much loosing my ass throughout that period (save 2008).
Of course he is correct in the long run, but gaming his "Day of Reckoning" is a loser.
Keaton always said, "I don't believe in Mr. Market, but I'm afraid of him." Well I believe in Mr. Market, and the only thing that scares me is Janet Yellen.
Truth is
"The Public Be Suckered"
http://www.showrealhist.com/RHandRD.html
This article is spot on. A lady friend was recently asking me about whether her stock allocations for retirement were good. I told her that having 80% of it in small caps was a recipe for one day losing like 60+% of the principal. So what, she said, the market will then come back up anyway.
Typical murican'.
Tell her to look at history:
http://www.showrealhist.com
Note that this history is kept unseen; ask her if she figures that trustworthy people do that to her.
I love the 'over the long term stocks go up by 10% per year' mentality.
The reason I find them so entertaining is
a) you know they are simply regurgitating what their broker told them and, more importantly,
b) in the long run, every market in the history of mankind (other than precious metals) has collapsed and returned to zero, zip, nada at some point.
Read the "The Perfect 'Kondratieff Winter' Storm Ahead" also published today on ZeroHedge. It kinda shows were almost at 'screwed' no matter how you look at the various cycles. First comes war, then comes - well, lotsa bad shit.
Those of us who have had the misfortune of losing a lot of money fast will tell you we never saw it coming or that it got far worse than we envisioned in even our worse case scenario. Sure they talk about diversifying but often even this recipe is not guaranteed to protect you.
Way back in 2008 when the meltdown was just starting I found myself on a cruise ship in Greece where one of my fellow passengers who had embarked on this strategy was withering in pain. We are often lulled into complacency and told how markets are regulated and precautions have been put in place to protest us but let me make it crystal clear, once it is gone it is to late. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/03/losing-it-all-with-no-hope-of-rec...
Just a thought I had . . . maybe ....the century where everyone bought stocks is coming to an end?
Maybe in the future stocks wont be traded, they wont exist some better investment tool will come around to completely negate the need for a stock market.
Maybe the stock market was a "fad" and its a passing by kind of thing, people were excited by the idea that they could gamble on future prosperity, especially now since everything was modernized and computers made it "easy".
The problem is, when something becomes "easy" you begin to hit a wall of diminishing returns, since sky-net has taken over, the average joe has no skin in the game, no interest in playing. . . this means that the computers and big fish are left to their own devices to trade their own shares among themselves.... leading to low volume, a market can not exist without volume, in any meaningful way that actually impacts peoples lives in a positive way.
The stock market is going the way of the dinosaurs, it just might take another 20 years or so for it to finally become out-dated.
What has a beginning has an end.
The birth of a market where financial assets were traded started off with bankers peddling debts as investments, this slowly evolved into what we had in the 1980s ~ 1990s, then they needed something new to "trade" and they traded more complicated debt and instruments built basically on lies and fraud.
Now they have scared away the buyers, and they have no one left to sell to but themselves and they are desperate to lure people in with a chart that seems to go perpetually up, yet these gains are meaningless, since they have no real net benefit to society (the stock market going up only helps a very small portion of the population) the people that actually make up the life blood of this country really want nothing to do with it....
What goes up comes down.
When it comes down it lands on your head.
When it goes up it hits you in the face.
This is the stock market today, a computer controlled yoyo attached to a carrot on a stick.
http://imaginationinside.files.wordpress.com/2014/07/carrot-stick.jpg
The really big earners in recent years have benefited greatly from the surging stock prices as much of their income has come from financial markets and gains in equities. Many people seem to think this is the hope of our future.
When you have more than you need or want to put money away for a rainy day where do you store it? If you rated people on a "wealth chart" by how many tangible assets they owned you might be shocked to find much of the wealth people own is in paper and this is full of risk. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/08/where-wealth-is-held.html
Exactly right. This is a new world (NWO).