Gold News

Only the Good Days, Please

Did Russia and Argentina just spook equity investors...?
 
WHAT was that sound? asks Bill Bonner in his Diary of a Rogue Economist. Did you feel a little bump?
 
Nah...don't worry about it. Go back to your cabin and have a good sleep. 
 
Just when things were going so well! With all that GDP growth! All those new jobs! We were all set to believe that the US economy really had recovered from the shock of 2008. 
 
What does the stock market know that these happy numbers aren't telling us? 
 
Yesterday, the Dow dropped more than 300 points. Gold fell $14 an ounce. There may be nothing more to this than a case of the jitters. 
 
Or could it be something more? 
 
Remember, if we could just avoid our worst days...the ensemble of our lives would be much, much better. 
 
Think how nice Julius Caesar's life might have been if he had just stayed home on the Ides of March, as his wife, Calpurnia, advised. Think how much better the passengers would have enjoyed their cruise if they could just forget the night the Titanic hit an iceberg. 
 
As for investors, had they just stayed in cash for the 10 worst days in the last 25 years, their annual rate of return would have been about 60% higher. 
 
Don't worry. Yesterday was hardly one of the 10 worst days. It wasn't a good day. But it wasn't terrible. Just a bump. Which makes us wonder. Are our worst days behind us, like icebergs astern? Or ahead? 
 
And if so, where? 
 
The news this morning mentions two proximate causes of the selloff. The sanctions on Russia...and the default by Argentina. 
 
As to the default by Argentina, anyone who claims surprise must not be paying attention. Argentina has been a poor credit risk for a long time. The gauchos have a whole different attitude towards paying their bills. 
 
Down on the Pampas, when you stiff your creditors, you don't hide your head in shame and look for a loaded revolver. No, you go on TV and explain why you are a national hero. 
 
That's what Axel Kicillof did. He's the country's 42-year-old economy minister. And he's angling to become the next president. Cristina Fernández de Kirchner, the present officeholder, is desperate to help him. 
 
Because if she can get Kicillof to fill her shoes, she can retain a bit of power herself...maybe enough to keep herself out of jail. 
 
Argentina deposited $539 million in interest payment on one of its bonds due in 2033 on time. The problem was that US District Judge Thomas Griesa ruled the payment illegal because it violated his ruling on the case. 
 
Griesa had made it clear that Argentina must include a court-ordered payment of $1.33 billion, plus accrued interest, to the "holdout investors" for the country to avoid default. 
 
All of which makes us wonder if a single investor was surprised by the default...and whether it really had anything to do with yesterday's US stock market selloff. 
 
The same thing could be said for sanctions against Russia. Who didn't see that iceberg? Who thinks his US stock – IBM, GE, AMZN, whatever – is worth less today than it was yesterday because Russian firms now face a less friendly world? 
 
Our guess is that these news items have little effect on the real value of US stocks. Instead, investors are worried about something else. 
 
Perhaps they fear that the outlook for the economy is not as bright as they had believed. Maybe they ask themselves why they pay so much money for companies whose profits must already be peaking and whose growth is in doubt. 
 
After all, even with the TARP, TALF, ZIRP, QE, "Operation Twist" – and every other stimulus measure the feds could think of – the real growth of the US economy has been only 0.9% per year for the last seven years. 
 
What will happen when US credit conditions "normalize"? And isn't normalization on the way? 
 
"If the labor market continues to improve more quickly than anticipated," says Janet Yellen, "then increases in the federal funds rate likely would occur sooner and be more rapid than currently envisioned." 
 
In the White Sea...the South Atlantic? We don't know where the iceberg is, but we have no doubt that this market will find it.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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