Gold News

Doom-Monger's Cheer

Rome 475...or Russia 1918...?

The LAST leaves are falling from the trees. And the last day of December is counting down, like the quiet moments before an execution, writes Bill Bonner in his Diary of a Rogue Economist.

From Bloomberg:

"Investors rushed out of US equity funds [last week] in the second-biggest weekly exit on record, according to Bank of America Merrill Lynch, as the market sell-off pushed traders to seek safe havens.

"US stock funds bled $27.6 billion in the days through Dec. 12, which includes last Friday's plunge in the S&P500 Index that capped the worst week for the gauge since March, according to BofA's note, which cited EPFR Global data. This is the second-biggest redemption since February's spike in the VIX volatility measure, according to Jefferies Financial Group Inc."

Is this one of those rare times when the doom-mongers' predictions understate the approaching danger?

Troy, circa 1184 BC: "You're just a nervous nelly, Cassandra; the horse is a nice parting gift. Bring it into the city."

Rome, 475: "We've heard these warnings over and over...But the barbarians will never cross the Po River. Our legions will soon have them on the run."

Russia, 1918: "Don't worry about it, Vassily. It will all blow over soon. These hotheads will soon be history."

New York, 1929: "What? This is a great market..."

Germany 1933: "The Reichstag fire was an accident, Benjamin. And who would support these lunkhead Nazis? Things will go back to normal."

Washington, 2018: "Unemployment is down. GDP growth is up. We've had a tax cut. Inflation is low. What's to worry about?"

We don't know. But since it is the Christmas season, we look on the bright side.

If the stock market keeps sliding, a lot of problems will disappear (or at least get upstaged in the news ratings) – the trade war, the search for a chief of staff at the White House, the "shutdown"...Nancy Pelosi, Trump.

Who will care about any of this when the Dow loses 10,000 points?

Besides, most of the leading new stories are just BS and claptrap. Phony wars. Fake "investigations". Fake statistics. Most mean less than nothing.

After you learn about them, you know less that is honest and real than you did before.

But a serious bear market is real. Like a hurricane or a barbarian invasion, it gets people's attention.

But keep looking on the bright side of it. Worried about inequality? Just let the correction do its work. The rich will be taken down a peg.

On Friday, for example, the selloff took stock prices down by more than 2%. Since the whole stock market is valued at about $30 trillion, a 2% drop shaves about $600 billion off balance sheets.

And that's in addition to the 10% or so they were already down. Or about $3 trillion in all.

But hold on...there's a long way to go.

By our estimate, the rich have gained about $30 trillion in total (from their investments in stocks, bonds, real estate, rare artwork, and collectibles) from the fake money system and the manipulation of interest rates by the Fed.

If the stock market gets cut in half (which we expect), that alone will take care of half the problem.

Alas, it's not just stock owners who take a beating. Stocks represent real companies. Companies have owners, bankers, suppliers, employees...and creditors. All of them lose.

For example, Corporate America owes a record $9 trillion, give or take – 50% more than it did 10 years ago. When stock prices go down, sales and profits go down, too.

Employees are laid off. Bonuses are reconsidered. Expansion plans are shelved. Purchases are rescinded. Business implodes.

And the weakest companies are unable to pay their debts.

Then, of course, the whole credit industry gets the shakes. The weaker lenders collapse immediately. Stronger ones call in their loans – putting further pressure on the wobbly companies.

But's supposed to work that way.

Panics, credit crises, and bear markets – like maggots on dead flesh – clean up market economies.

And, still looking on the bright side, we personally will lose millions; but it will be worth it to see the dumbbell rich get what is coming to them.

Stay tuned...

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, 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 the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

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.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals