Nice factual reasoned analysis from Comstock Partners on why this bear market has a long way to go. People tend to focus on the day to day fluctuations of the market rather than stepping back and looking at the big picture. The world runs in long term cycles. The stock market also operates in long term cycles going from undervaluation to overvaluation and back. The markets experience alternating secular bull and bear markets that generally last for 15 to 20 years at a time. Investors get fooled by the cyclical bear and bull markets that las one or two years within a secular trend.
We had a secular bear market that lasted from 1966 to 1982. We then had a secular bull market that lasted from 1982 to 2000. We are now 11 years into a secular bear market, with stock prices lower than they were in 1998. We have at least five years left. Valuations are still extremely high. We have just completed a cyclical bull market from the March 2009 lows. The artificial stimulus is wearing off and the economy is headed into the tank. Corporate profits will crash and the stock market will drop at least 30% from here.
Ignore CNBC and concentate on valuations and the long term cycles.
Bear Market Far From Over
What is currently happening in the market and the economy was predictable and is following the sequence we have long expected. Households accumulated enormous debts in the past decade, leading to the credit crisis and recession of 2007-2009. The government stepped in with massive monetary ease and fiscal expansion that produced only a weak recovery and a vast increase in government debt. The market erroneously assumed that the recovery would follow the pattern of typical post-war expansions and rallied strongly from the early 2009 bottom to the recent highs.
A similar pattern developed in Europe where sovereign debt of the weaker EU members has become a serious problem that EU leaders have been unable to solve. Now we are undergoing the aftershocks of the crisis.
As we have repeatedly stated, crisis recoveries are characterized by short sub-par recoveries and numerous recessions as household debt burdens dampen consumer spending for long periods. We did see the short sub-par recovery and now it seems to be ending at a time when the Fed has already used its best weapons and fiscal policy is due to become more restrictive. First half GDP was revised down sharply. Housing has continued to weaken. Consumer spending has been sluggish. Initial jobless claims for the latest period jumped back over 400,000. The ECRI leading index has declined to 127.9 from its April peak of 131.1.
Even more shocking was the plunge in the August Philly Fed Index to minus 30.7 from 3.2 in July. The drop was the weakest since October 2008. In addition, the August University of Michigan Consumer Confidence Index dropped to 54.9, lower than any level during the recession and the lowest in 31 years. These are the types of readings seen only in recessions. Although the Fed only recently lowered its economic outlook for the second half of this year and 2012 these projections already seem outdated. Today the New York Fed lowered its outlook while numerous brokerage firms and banks have belatedly been scrambling to cut their forecasts as well.
If anything the situation looks even worse in Europe. Germany reported second quarter GDP growth of 0.1% and growth in France was zero. Moreover European banks with exposure to PIIGS debt have been turning to the ECB for emergency loans. Today the ECB reported that one bank (not named) has borrowed 500 million Euros a day for seven days.
The remaining areas of the world cannot stop global GDP growth from shrinking. Japan is in a recession. China is still tightening to dampen inflation. China as well as the other emerging nations are export-driven economies that depend heavily on American and European consumers.
We, therefore, believe that the market has now entered a major downtrend. It is a mistake to dismiss the slide we’ve seen to date as mindless and devoid of fundamentals as many strategists maintain. These are not just scary headlines—-they are scary fundamentals. As usual, there will undoubtedly be some more sharp rallies that will be interpreted as new bull markets. In our view, however, the bear market has only begun, and has a long way to go.
My guess is Societe Generale is in deep deep shit.
Behind The Scenes Liquidity Scramble In Europe? One Bank Borrows $500MM In Emergency Cash From ECB
Submitted by Tyler Durden on 08/17/2011 09:31 -0400
So the conventional herd wisdom is that following last week’s near implosion, Europe is now suddenly supposed to be fixed? Perhaps. Perhaps not. According to the just released results of the ECB’s tender operation for emergency 7 day liquidity, arguably the closest the ECB has to a dollar denominated discount window (and the associated stigmata upon borrowing), just one bank borrowed $500 million in a 7 day liquidity providing operation at a 1.1% rate. Why is this notable? Because as the chart below indicates, there had been no borrowing under this facility since March 2011, and the last time there was a sizable borrowing under the 7 Day OT was back in May 2010, when Europe was blowing up for the first time and the ECB was scrambling like a headless chicken to contain the contagion fires. So the question now is which (French? Italian?) bank is still caught with its pants down and is crawling to the ECB for what is a quite sizable $-based capital injection (this same bank is certainly using the ECB’s various other liquidity providing lines of credit).
Societe Generale is in deep deep shit!
By the time the Fed and Bernake get done devaluing the dollar and causing hyper-inflation, is the stock market is going to be an afterthought? It’s all paper value, supposedly supporting profit and real value. Just wondering.
Leave it to the French to bring the house down. Fucking frogs.
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WALL STREET PRICKS
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Take these 3 data points and apply critical reasoning.
1) $700 trillion unregulated derivatives market based on debt and leverage
2) $58 trillion Global GDP
3) Debt that CANNOT be repaid WILL NOT.
Now look at what’s happening with Gold and Silver, connected the dots yet?
I have a feeling this is a no brainer but I’d like to ask anyway. My wife and I have no children. We are both gainfully employed. We live below our means and prep continuously for the impending collapse. Our debt consists of a first mortgage of $63k, HELOC line of $50k with $12k owed and about $20k in student loans used to obtain a now largely useless degree. Total debt=$95k.
We did not begin contributing to our 401k’s until late so there is only $40k total that we cannot access. No more contributions are being made. That $ is now buying physical. We started buying silver in the $6 range and gold at about $600. We could easily sell part of our stack today to be debt free but payments are easily made out of our paychecks and as long as creditors will accept fiat that is what they’ll get.
Last summer we decided to go “all in” on silver and literally put every spare penny into it including short term savings. I have never regretted a minute of it even when I bought at $46 in May and watched it fall to $33. I bought all the way up and down and now back up.
For several years now I have wanted to tap the home equity to buy PM’s but we are very debt averse. We did go through with the HELOC loan which closed last month and used $12k to purchase physical and a used scooter for $1400 that gets 105mpg for my wife to commute to work instead of driving a V6 ford truck. Our intent was to go “stupid in” on silver with the HELOC but now that we have it I’m apprehensive.
I’m certain that PM’s are going higher and had I cashed the equity out when I could have got $125k I would have already been up nearly $200k, debt free AND had a much nicer stack of physical. So, the million dollar question is, given the parameters outlined would you go “stupid in” with the rest of the HELOC ($38k) at this time?
I_S
Indentured Servant
I’d never go all in with anything. Precious metals are going higher, but not in a straight line. The authorities will knock them back with margin hikes and other manipulation. When there is a pullback you could start to average in with smaller increments. Cash will be useful for awhile longer.
You sound like you are more prepared than most.
Admin and all,
You may like this hottie talking with Bill Bonner,
The great cycle of debt – some 25 mins of top quality opinions.
Now that the other thread is gone, I’ll ask again. What will you buy with your gold/silver, when the government says owning it is illegal?
Dave
I answered you once. I can’t help it that you didn’t buy gold. I’ve expanded my wealth and security dramatically by buying gold and gold mining stocks since 2003. You can keep questioning the value of gold until your fiat dollars are worthless. You should pay attention to what I write.
80 million baby boomers have begun exiting their prime earnings years. Just that fact in and of itself should should scare you down to your skivies.
This group of people partied and worked hard while accumulating debt to finance “lifstyles of the rich and famous” dreams. And just who was it that fell in love with stocks starting in the 1980s after they finally detoxed from the water-bongs and hash pipes?
That ship has sailed and its time to pay the piper. I fully expect them to be sellers of stocks to fund their dreary retirement of broken hips, lungs and pocket-books.
Dont discount this group for they have been the drivers of this economy since the 1960s, but they are getting closer to dumping all their assets including real estate to fund their entrance to the Stairway To Heaven nursing home which probably does not exist yet, but surely will.
I already know people in my baby-boomer age group who have kids who moved back home after college while at the same time having to come up with cash to help with parents who are still alive.
Nothing against todays kids – they are very polite and seem to be dutifull – but they were so coddled as youngsters by the helicopter-parents that they seem lost without mommy and daddy baby-boomer to help them. Dont count on gen y to bail out this economy.
Those hacks and scam artists on business tv trying to get you to buy the dips don’t understand what is happening in the real world since they are still hungover on fed QE crack. Kress cycles predict a huge crash in stocks at some point between now and 2014.
I_S
I think you have to keep the silver valuation pegged to the concept of ‘impending collapse’ and not worry about the price in fiat.
Here in Australia, we had the vintage round 50-cent coin of 1966 — 0.800 silver, 0.3416 troy oz. A silver bug not long ago came up with the excellent valuation — that in the year of issue, it would about buy you a lunch. And today, it still does. That says much about the worth of fiat.
My friend and neighbor was a gold bug from the days of $300/oz. and never paid attention to silver. I was late in the game but realized in post-collapse, you aren’t going to find someone making change for a gold coin proffered for a bag of potatoes. Following that epiphany, I started buying silver and only later went up-market. And I keep a good stash of cash, two currencies also. In the transition period, most people will know nothing else.
Maybe one should go long on wheelbarrows, think Weimar, for fiat will descend to its intrinsic worth. And then your silver will represent sound money.
Meanwhile, there will be great volatility. BTFD! for peace of mind. In the long run, silver will reveal its true value and you’ll be ahead of most.
In light of the current economic wreck I think this is a valid and interesting point of view: http://dont-tread-on.me/honest-work-for-honest-silver-pay/
Dave,
The idea that it may become illegal to own PM’s has crossed my mind. I have done a bit of research on the the subject which has had the effect of calming those concerns. I’ll agree that no one can ever predict what the govt will do in a given situation. When FDR made the “hoarding of precious metals” illegal he offered a premium of 3% for all bullion turned in. There were also options in place to allow collectors of “rare and unusual coins” to keep those. I already hedge my gold and silver collection by purchasing proof and uncirculated PM coins directly from the US Mint. These coins are made specifically for collectors. So, in the event of similar legislation, options may still exist to acquire PM’s. I could also buy both forested and agricultural land or residential rental property.
Since govts can be unpredictable a look at some real numbers helps to further allay fears. At current spot prices there is approximately $52 billion dollars worth of silver WORLDWIDE. There is an additional $8.7 trillion dollars of gold WORLDWIDE. I consistently read that only 1%-3% of Americans own physical PM’s. Compared to to total worldwide supply, the amount held by Americans is so trivial that writing the legislation would be more expensive than the proposed gain of confiscation.
In the end it is a no brainer for me. Compare a ten year dollar chart to ten year charts for gold and silver and you’ll find they are nearly the exact inverse of each other. As the dollar falls PM’s are doing exactly what they should do……maintaining the purchasing power of my wealth. (I use that term loosely.)
I have a question for you Dave. What will you use to purchase ANYTHING once the dollar is toast?
I_S
Jim: You answered something about civil war. I’m not questioning the “value” of gold in dollar terms. I’m asking you, when the government says you can’t keep it and you and others say you’ll hide it or shoot when they come for it, I’ll ask again, WHAT CAN YOU BUY WITH YOUR GOLD WHEN IT BECOMES ILLEGAL TO HOLD/OWN? I don’t care, in dollar terms, if it’s worth $50,000 per ounce, you won’t be able to buy food, clothing, shelter, gas, a car, or anything else with it.
You should pay attention to what I’m asking.
Dave
You think if it gets to the point where the government outlaws gold it will matter what the government thinks? There will be anarchy old man. People will develop their own exchange system for goods and services. Gold has functioned in that environment for thousands of years. It will function like that long after your paper dollars are worthless. It doesn’t matter what the government thinks.
You should try thinking for a change.
Indentured servant says…”When FDR made the “hoarding of precious metals” illegal he offered a premium of 3% for all bullion turned in. There were also options in place to allow collectors of “rare and unusual coins” to keep those. I already hedge my gold and silver collection by purchasing proof and uncirculated PM coins directly from the US Mint. These coins are made specifically for collectors. So, in the event of similar legislation, options may still exist to acquire PM’s. I could also buy both forested and agricultural land or residential rental property.:
The key phrase….”similar legislation”. Don’t count on it.
Indentured servant says: “I have a question for you Dave. What will you use to purchase ANYTHING once the dollar is toast?”
I_S
WE(that means me AND you) will be allowed to have whatever the government wants us to have.
Jim says “:People will develop their own exchange system for goods and services.”
People have their own exchange system for drugs, but I notice that not only do alot of them get arrested and wind up in jail, but I’m willing to bet that a lot of them get turned in by people who don’t belong to the exchange system, especially when you’re getting the goods and services and they aren’t. I think it’s rather a stretch to believe that you can involve so many millions of people in an illegal exchange of something and expect all those people to remain un-noticed.
“There will be anarchy old man”
Anarchy? Oh, ok I’ll crank up my tanks and F-17’s. I’d say that anarchy would have worked 200 years ago. Not today. Not here. Libya, Syria, Egypt, maybe, but not here.
“It doesn’t matter what the government thinks.”
You are right. It doesn’t matter what the government thinks. IT’S WHAT THE GOVERNMENT ACTUALLY WILL DO THAT SHOULD SCARE THE SHIT OUT OF YOU.
Dave
I hope you do well with your fiat dollars.
You are quite irrational on this subject matter.
I guess your just angry you haven’t bought any gold.
And Jim….the gold and silver I have will be as useless as yours if the order comes.
If the farmer down the road thinks silver and gold have value and will sell me a chicken or corn, then it will have value. It won’t matter what Washington DC thinks. So simple even you can understand it.
I have no idea how a PM/barter economy might work in the big cities (and I have no interest in finding out). But in my neck of the woods, we have a well-established history of just that, and I suspect it is increasing. All you need is like minded folks, and my town has plenty and the numbers are growing.
Did I mention that the city mayor is also my dealer (rare coins & PMs)? No records of minor transactions. He is also a fair to middlin’ guitar player.
Admin is again correct
I have a small farm and that’s my plan to exchange what I grow for things of value which will include gold and silver. In the depression 22 bullets where used as money.
@AkAnon
There will be no big cities only burned out shells. FSA will take care of that.
Please do not take this as a statement in fact.
Okay so….
Admin and his lovely bride drive up my road looking for chickens.
They get out and ask if I have any chickens for sale. They then gush that they can pay in gold.
I say “Sure I got chickens- I’ll take your gold and you can go behind that shed there and catchem your self.
Admin hesitates as he fumbles for his biefcase and asks whether he wll get his gold back if they can’t catch a couple of chickens.
I say “No.”
After they left in a huff… I had time to reflect.
What kind of asshole am I going to encounter when I need to convert a bar to something tangible?
Actionable information
If you live in a big city and you are of modest means. Get out in the country and befriend some farmers, ranchers.
Volunteer to help out never met one yet that didn’t need a hand. And when the SHTF you will have a place to go. I have a friend that’s a Doctor his plan is to come to my place as well as a few other families. My neighbor and friend has a thousand acres and about 150 black angus heifers, our plan is to start a community of like minded people.
No man is an island, so there’s farmers right outside your town that needs a hand right now. A little networking might pay huge dividends and you might make a valuable friend
Sensetti
@ crazy
I m talking about a barter system, when the fiat currency falls something will take its place. Where I live I dont think you will see alot of gold in circulation. I will trade for what i need
sensetti
It must be a comfort to you to pick and chose such specific details regarding what WILL come to pass from an entire ocean of possible details. Terrifying too I imagine.
I prefer to keep an open mind to the myriad possibilities that may come to pass as this shit falls apart. You can be no more certain about how it will play out than I can. The key is to make reasonable preparations for uncertain times. For now, stacking physical, having a few months cash and food handy are more than reasonable preparations IMO. My physical stack, in terms of dollar price has appreciated enough that I can pay off nearly $100k in debt and I’ll still have my original investment. Of course I’d have to sell physical to accomplish that but it could be done. If the govt takes it away from me I’ll be in the same boat as you but at least I’ll have tried. If they don’t then I’ll be ahead in a small way.
Will the future you envision BE the future you want to exist in? I said exist because you won’t be livin’.
Human beings, regardless of age, religion, race, nationality or station in life have a nearly instinctual affinity for barter. Simple things like ladies stockings and perfume became valuable barter items during the depression and WWII rationing. They could even be used to bribe so low level govt official to get what you need. The same will happen again.
You don’t seem like an ignorant person but you would do well to broaden your perspective a bit. Step away from the eternally negative news and economic destruction blogs for a few days and think about the things YOU might desire during the hard times ahead. Chances are they will be valuable to someone else as well. If not, you’ll have a treat tucked away for yourself. Lay in the grass on a warm day and watch clouds soar overhead while you think about it over. It will be good for you.
I_S
That last post was meant to be addressed to Dave.
Dave…ever heard of the black market ?
(Different Dave)
My question is how they’re going to try and goose the market so as to flush as much money out of the “dumb” money as possible.
I’m still 30% Gold, 10% Silver, 10% SH (Short ETF), 50 % Cash. Still seems like a pretty safe place to be.
Jesse (best PM Site I know of) still thinks they’ll attack gold and silver through market manipulation.
Fireworks will probably last until next July 4th.
When the US defaults it may not be good for anyone anywhere. On the other hand it may be the best thing that happened to the country. I don’t think anyone here has really thought deeply seriously about the consequences; and I don’t blame them. It is too depressing to contemplate.
When the money fails and the government comes around looking for the gold I don’t think their agents will be well recieved. This is not 1929 when the people still had morals and trusted in the government. When the banks go under this time; and when they do people will get used to doing without them. Quick books will also become a thing of the past and that means by by taxman.
What do you think the Chinese will do? Possibly lob a few missles at us? The Chinese government will not like being stiffed. Of course they will have their own social problems with social unrest with the massive factory closures and sky rocketing unemployment.
But the biggest problems with social unrest will be here in the States when people will lose their cell phone, internet, and television communications because of no money to pay. This is going to drive most people nuts. And many older people will probably die when their air conditioning and heating is cut off because of no money to pay. And many people will starve because of no food trucked in to the super markets because of no money to pay.
I would say that gold and silver coins won’t be of much use because people are not familiar with how to value them and the major stores all use computers for cash registers.
Yes, a default and failure of the money will be worse than a Katrina in all the areas of the country. People are going to find out how helpless the government really is in a depression. It will be a time of much distress. Many will be commiting suicide.
So you are looking for the ” Not too hot, Not too cold, Just right” collapse of civilization? Good luck with that.
When you glow in the dark and huddle for shelter in a burnt out public restroom with 26 strangers because we got nuked, let me know how your tidy stack works out.
In my opinion the value for holding gold is that AFTER we begin rebuilding you have transported wealth and value from the fruits of your labors under the DEAD system into the emerging system. In light of that I keep a modest amount of 1oz Gold Maple Leafs and a few 100oz Silver bars on hand. I even keep a 2.5 kilo gold coin taped under the fleshy part of my scrotum “Just In Case”
The bottom line is that it is not the Euro or Europe in its entirety. It’s all about our national debt. This will remain in focus whether European countries solve their on-going problems or not. The truth is that we will keep spinning Europe’s problems till kingdom come or until we figure the appropriate approach to solve our national debt once and for all. In fact, the cold hard truth is that, as once was heard on TV, if the Dow were at 25K, all the problems will be resolved, and they would be nonessential issues. The monies are there to do this, but the major players on Wall St., namely, Johnson of Fidelity Investments, the players at Janus Mutual Funds, American Funds, Rodgers of Trow Price, Fink/Doll of Blackrock, the Great Vanguard Series, just to name a few, have made an executive decision a while back that there will be hell on Earth if the national debt is not done their way, period end of discussion. In fact, Bob Doll has made the statement that the S&P will vacillate between 1150 to 1250 until things are resolved to his and his cohorts liking. Otherwise, we will continue to struggle and suffer as time goes by. It’s too bad that these major players have not been able to solve our national debt problems since they truly can if they really wanted to, but they don’t; so we won’t, but we will continue to merely struggle and suffer. In fact, because I am clearly discontent with this whole charade debacle of our national debt, I have cancelled Thanksgiving and every other holiday that follows it because what is the freaking point? We merely spin things temporary for a short time as we fall flat on our faces as the major players won’t have it any other way. It ‘s no wonder that back on September 30, 2011 when the statements went out to investors, they made sure they look awful as the bear trap was well-laid on October 4th, 2011 because they knew this will be continuing come December 31, 2011. Surprised anyone? I’m surely not and never will be since I know how things get done on Wall and Main!