By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) – Mr. Buffett, “do you think there will be another bubble leading to a huge recession?” asked the interviewer. Oh yes, in fact, “I can guarantee it.” Guarantee it.
The interviewer shook his head: “Why can’t we learn the lessons of the last recession? Look where greed has gotten us.” Then with one of his familiar impish grins, the great master replied, “Greed is fun for a while. People can’t resist it.” But “however far human beings have come, we haven’t grown up emotionally at all. We remain the same.”
Deepak Chopra mentions Buffett’s on-air prediction in the “Shadow Effect,” a brilliant bit of psychology that helps explain why the investor’s brain is trapped in denial, incapable of hearing a warning of a market and economic collapse.
Uncle Warren must be chomping at the bit, sitting on a cash hoard, more than $20 billion, waiting to rush in, buy when the bottom drops, exposing millions of investors lulled back by those pre-2008 delusions about a new long-term bull market.
In another era, Buffett would rival Freud and Jung in diagnosing human behavior accurately. But today, he’s using his psychological genius to outwit Wall Street’s perennial bulls and America’s 95 million gullible Main Street investors.
Buffett’s prediction “guaranteeing another huge recession” was actually a no-brainer. Read William J. O’Neil’s bestseller “How to Make Money in Stocks.” The publisher of the Investors Business Daily is one of the best numbers guys in the world. In his first edition he says: “During the last 50 years, we have had 12 bull markets and 11 bear markets … The bull markets averaged going up about 100% and the bear markets, on the average, declined 25% to 30%.” And “the typical bull market lasted 3.75 years and the classic bear market lingered only nine months.”
Warning, while Wall Street assumes these bull/bear cycles will continue ad infinitum, they may be coming to a slow, painful end by 2050.
Stock market’s long bull-bear—cycle ending, long painful bear ahead
Plan for no growth or zero growth. Or worse, wake up, see why Wall Street, America and the world economy are in the early stages of a long era of “de-growth,” a reversal of economic growth and reduction in market growth as population growth puts increasing new stresses on natural resources, commodity inflation, unemployment, social unrest, disasters, wars.
And it’ll get worse. Fast. More and more savvy guys like Buffett agree.
Bottom line: Earnings growth is in a long macroeconomic downtrend. Economies headed down. Earnings down. Stocks down. Trading down. Solution, shift your focus to the long-term, to history, look way past the fiscal cliffs noise, congressional insanity.
An economic “perfect storm” is building: That’s bad news for markets, spells danger for your future income, your family’s security. Start planning ahead for an era of low returns and austerity as these macroeconomic trends build to critical mass, primed to ignite, explode.
1. Post-industrial revolution — economic growth on long-term decline
The latest issue of Bloomberg Markets has yet another warning of declining growth from economist Richard Gordon’s disturbing research study: “Is U.S. Economic Growth Over?” The IMF warns that global growth “will slip below 2% in 2013.” History tells us that for five centuries before the 18th century, per capita growth rate was only 0.2% annually. Then during the Industrial Revolution, U.S. growth rate “shot up” to 2.5% till 1930. Endless innovations: Steam engine. Railroads. Electricity. More. But “it’s been downhill since 1950,” with growth averaging 2.1% Gordon warns: On this trajectory, the American economy will be back where it started by 2100, at annual growth of just 0.2%.
2. Stock traders bubble — Wall Street is repeating pre-2008 mind-set
Bloomberg-BusinessWeek once said 15 minutes is an “eternity” for traders. Forbes now sees the high-frequency trader’s brain narrowing “eternity” to the “20 milliseconds it can take quotes to travel from Chicago to Nasdaq’s market site in New Jersey.” Traders simply ignore long-term macroeconomic trends. Unfortunately, the trader’s myopia is repeating 2008, blowing a new bubble destined to backfire, melt down. Buffett’s right.
3. Perpetual growth — economists in denial, delusional about growth
Perpetual Growth is the basic theory for all business economists in banks, corporations, academia and the Fed. Economic growth is driven by population increases: The Chamber of Commerce claims global energy supplies will last hundreds of years, five times what the planet needs. But environmental economist Bill McKibben says that’s a huge problem: If we use more than 20% of these supplies, we’ll be dumping so much carbon dioxide into the atmosphere it will kill the planet faster. Big Oil dismisses environmentalists concerns.
4. Poverty/food mismatch — planet resources can’t feed 10 billion
Money manager Jeremy Grantham says it is “impossible to feed the 10 billion people” the U.N. predicts will live on Planet Earth. That there is an “inevitable mismatch between finite resources and exponential population growth.” Expect growing commodity shortages, triggering disasters: “As the population continues to grow, we will be stressed by recurrent shortages of hydrocarbons, metals, water, and, especially, fertilizer. Our global agriculture, though, will clearly bear the greatest stresses,” triggering more wars.
5. Birth control — billionaires want to cap population at 8.3 billion
Bill Gates, Buffett, Ted Turner and other billionaire agree overpopulation is the world’s No. 1 problem. Gates outlined a birth-control system to scale back and “cap the world’s population at 8.3 billion people, less than the U.N.’s forecasts. Gates has been funding research to develop cheap contraceptions for low-income nations in an effort to reduce infant mortality, slow population. Environmental economists warn Earth can’t support even 8.3 billion. But will we even slow growth soon enough?
6. Crowded planet — too many exhausting resources too fast
In his “Common Wealth: Economics for a Crowded Planet,” Jeffrey Sachs, director of Columbia’s Earth Institute, warns that our planet can support a maximum of five billion people. Today we have seven billion, two billion too many. And we’re consuming natural resources as if we have “1.5 Earths” says the Global Footprint Network group of scientists and economists.
Sachs solution: End world poverty: Doing nothing means billions more people demanding improved lifestyles, adding 300% more stress per person on our scarce resources, pushing demand to equivalent of six planets. But with seven billion today, exploding to 10 billion by 2050, can we ever cut back to five billion people?
7. De-growth warnings — WorldWatch warns of global disasters ahead
A recent WorldWatch Institute report says: “If everyone lived like the average American, the Earth could sustain only 1.7 billion people — a quarter of today’s population.” Their de-growth is a scary new economic prediction. WorldWatch anticipates “a future scenario not only incompatible with perpetual economic growth but likely to lead to economic and societal decline,” mass starvation, wars, pandemics.
8. Below zero growth — decade of decline now in progress, 2013-2022
Economist Gary Shilling came to a similar conclusion in Forbes, warning readers to expect “markets to nose-dive.” But like Buffett says, investors are deaf, exposed: “There’s a ‘grand disconnect’ … in global markets … weakening economies worldwide are driving optimism in markets.” All across the world investors have become dependent on government bailouts, more stimulus. Expect “less than zero growth.”
9. Many worst-case scenarios — bubbles, wars, starvation, pandemics
A decade ago the Pentagon warned that “by 2020 warfare would define human life on the planet.” InvestmentNews is warning that commodity-price inflation raises “bubble fears,” increasing war threats. More recently, a USA Today editorial warned that a “silent tsunami of hunger washes over poor nations” triggering food riots and political unrest worldwide. “Prices are spiraling out of control in fuel, energy and food … Global grain prices were up 250% since 2002, starvation threatens millions living on as little as a dollar a day.” Euphemisms aside, war is the dominant gene in America’s DNA, defining our character.
Whether we like it or not, America is edging toward bigger, costlier global wars. We learned nothing from two exhausting wars the past twelve years, at a cost in excess of $29.7 trillion new debt, 2.3 million boots in Iraq, Afghanistan,. Those two wars have not made America safer, put us more at risk, made us more vulnerable.
Yes, all scenarios are growth killers. No, you can’t count on Bill O’Neil’s endless bull/bear cycles. And yet we’re addicted to them, can’t stop our insanity … without a wake-up call. It’s coming.
Warning to all investors. Reread Buffett’s warning: “There will be another bubble leading to a huge recession … I guarantee it.” But worse, this time, global macroeconomic trends threaten no-growth recovery, a long bear market, and long-term austerity. Start planning now.