As proof that humans act like herds of sheep, just look at this chart. As rational people like Shiller, Hussman, Mauldin, Schiff, Roubini, Taleb and a few others were warning about the bubble that was going to burst, individual investors poured over $1 trillion into stocks in 2006 & 2007. The market dropped 50% in 2008/2009. Instead of buying when stocks were low, they did nothing in 2008/2009. The market then went up 100%. Now, they have poured almost $1 trillion into bond funds when interest rates are at record lows. Just the slightest increase in rates and they will experience substantial losses. Rates will be going up. Bernanke cannot control them forever.The sheep will be slaughtered again.
If you need any more proof that corporate CEOs are the dumbest people on earth, see the chart below. These morons don’t care about what’s best for the long term of their businesses. They care about earnings per share and bonuses for the executives. The stock market reached its all time peak in 2007 and stayed relatively high until the September 2008 crash. These CEOs thought it was a great time to buy back their stock at the all-time peak of prices. They spent $1 trillion of shareholder money to buy back their company stock. Then stocks declined 50% by March 2009. These boneheaded CEOs then stopped buying their company stock in 2009 when prices were 50% cheaper than 2007. Now, after prices are up 100%, these nitwit CEOs have bought $800 billion of their stock in the last two years. They actually pay these Harvard educated MBAs millions for this brilliance.
You can’t teach stupid.
Pirate Jo says:
When the bond bubble bursts, won’t people pour money into stocks? Doesn’t that mean that now would be a good time to buy stocks, only to sell them when everyone else is buying? (And buy bonds at THAT time, when the rates are better?)
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9th January 2013 at 2:44 pm
AWD says:
Good article. People always pile in at the top, and don’t sell till the bottom. So, they lose all their money. Now would be a good time to short bonds.
Barring a Debt Ceiling Solution, the US Will Begin Defaulting on February 15 2013
Submitted by Phoenix Capital Research on 01/09/2013
We’ve now have just a little over 30 days until US breaches its debt ceiling.
We would have already done so, except Treasury Secretary Tim Geithner borrowed some $200 billion from emergency funds to buy a few weeks’ time (announcing that he’d be leaving his post before the actual ceiling was breached).
The “solutions” to the debt ceiling discussions range from outright insane ($1 trillion coins) to just staggeringly irresponsible (just get rid of any oversight and grow the debt without restriction).
Let us consider the facts.
The only reason the US is even having these discussions is because we’ve added $1+ trillion in debt to our balance sheet every year since 2008. The reason we were able to get away with this was because Congress hasn’t even implemented a budget since that time. Indeed, the last time a budget was even proposed (by President Obama in that case) it was rejected 97-0.
Let’s say a US family spent all of its savings and income and so began using credit cards to fund its purchases. Then, instead of implementing reforms and a budget, these folks decide to abandon any kind of tracking of their expenses and start spending even more. Eventually this family would begin to stop paying its bills.
What would you tell these folks if their proposed solution to this situation was to stop opening their mail?
At the core of this entire situation is a total lack of financial discipline. Indeed, at this point, the only thing the political class in the developed world seems to pay attention to is the bond markets: only when their bonds collapse and interest rates spike is there any sense of urgency to do anything (with massive debt loads, any increase in interest rates means hundreds of billions of dollars in more interest expenses).
On that note, the US 30-year Treasury appears to just have taken out its trendline:
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9th January 2013 at 2:57 pm
Administrator says:
PJ
Bernanke’s money printing has created a bubble in bonds and stocks at the same time. There will be no place to hide when rates start to rise. Corporate earnings are already falling and rates have gone up 50 basis points in the last few months. It will be a perfect storm when it hits.
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9th January 2013 at 2:59 pm
Administrator says:
Average investor
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9th January 2013 at 3:06 pm
AWD says:
Trust your stock broker and the banksters. They have your best interests in mind….
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9th January 2013 at 3:14 pm
Celtic Tiger says:
Better yet, the brilliant CEOs often BORROW money to finance those high-priced stock buybacks. They escape in their multi-million dollar lifeboats, leaving the workers and shareholders behind frantically trying (and often failing) to keep their leaking ship afloat.
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9th January 2013 at 3:57 pm
Spaceman says:
“Bernanke’s money printing has created a bubble in bonds and stocks at the same time. There will be no place to hide when rates start to rise”.
Sad, but so very, very, true.
What’s an honest man to do…?
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9th January 2013 at 10:37 pm