Gold News

Mixed Signals Mask Japan, Then Argentina

Deflation looked certain in 2008-09, followed by hyperinflation. Yet today...
 
YOU REMEMBER our prediction for the US economy, writes Bill Bonner in his Diary of a Rogue Economist.
 
First Tokyo, then Buenos Aires. That was our guess when the crisis of 2008-09 began.
 
The idea was simple: The crisis would lead to economic stagnation a la Japan...which would eventually be resolved by government money-printing and inflation.
 
Held up against the facts, that prediction is an obvious forgery. It is correct in the broad outlines of the last six years. But the details are missing...including some very important ones.
 
Unlike Japan, the US stock market rallied. The bounce that we thought would be temporary and small turned out to be huge...and continues until today. Investors who took our advice successfully avoided one of the great bull markets of history.
 
Will it last? Is it real? Who will have the last laugh? We don't know. But for the moment, you will hear no satisfied giggling from this side of the trade.
 
On the other hand, the economy did track Japan and continues to do so.
 
It is strange the way the two things diverged. There is the stock market – which seems to be telling us that we have an American-style revival going on. And there is the bond market – whose puny yields whisper to us in Japanese.
 
The stock market is supposed to look ahead. Investors are supposed to anticipate changes in corporate earnings...which tend to come with higher revenue. Stock prices – at or near all-time highs – should be signaling better times ahead.
 
A real recovery, though, would come to the stock market like an exterminating angel. It would mean higher interest rates and higher consumer prices – as more and more borrowers bid for limited resources. The stock market would soon retreat as fixed-rate investments gained in popularity.
 
The bond market, where yields are falling, not rising, tells us to beware. It suggests that the economy is not really improving; demand for loans remains weak; inflation, too, will likely be subdued.
 
What to make of it? Which market is telling the truth?
 
Our guess is that we are still in Tokyo...with slow growth, low rates, an aging population, increasing debt and low consumer price inflation. The equity market, on the other hand, is a fake-out...an artifact of the biggest stock manipulation of all time.

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

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