Stocks Have a Rendezvous with Destiny

Stocks couldn’t decide where to go yesterday. Up? Down? So, they went nowhere.

Nowhere is about as good as it gets in this market. Because signs of an impending slowdown are arriving in the news every day.

The latest item was a sharp drop in the Purchasing Managers’ Index (PMI), which measures the vitality of the industrial sector. The April PMI dropped back to levels not seen in nearly 10 years, with the first falloff in new orders since August 2009.

This comes as Treasury yields — another sign of a weakening economy — continue to slump.

Big picture

But this approaching recession has been approaching for a long time…and it never seems to arrive. So, we will just let it take its time as we return to the bigger picture.

And the big picture shows the average American slipping and sliding for the last 20 years.

The only reason this has not been more obvious to everyone is thanks to the Chinese and other low-cost producers, whose ‘Everyday Low Prices’ have helped Americans continue to live in the style to which they had become accustomed…even as their real incomes fell.

As we pointed out yesterday, 2016 was supposed to be the seventh year of a great recovery. Voters should have been feeling good — about their country, their economy, and their leaders.

Instead, they turned sour; they voted — narrowly — to throw out the bums of both parties and elect a long-shot outsider, Donald J Trump.

Why?

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Phony boom

The boom was phony. A few people got rich. But most people got poorer. If you take the real GDP of the US and divide it by the population, it shows a gain of about $10,000 per person during the 21st century.

But where’s the money? According to Pew Research, the average wage was about $21 an hour in 1999. And it’s about $22 today — in constant 2018 dollars.

But even this grim picture isn’t grim enough. Earnings diverged in the 21st century.

At the top, salaries got much fatter, which moved the average figure higher. A number of reports tell us that the rich are the only people to have made any financial progress in this century; 100% of the gains went to them.

When you take out the outsized earnings of the top 10%, the typical guy is left with less than what he earned 20 years ago.

Also, the numbers are distorted — and flattered — by fraudulent inflation numbers.

A pickup truck, for example, may cost twice as much as it did 30 years ago. But the data crunchers insist that it’s twice as good. Therefore, they say, it really doesn’t cost more.

Try telling that to the dealer. As we’ve shown, the average guy now has to work twice as many hours to afford the average pickup truck…or the average house.

John Williams of Shadowstats.com calculates inflation the way the feds did in 1990 — without the tricks and statistical bamboozles they’ve employed more recently.

Officially, the consumer price index (CPI) has been about 2% per year for the entire 21st century. But Williams shows the real figure is about 5%.

And if you applied this 5% figure to GDP, deflating the figures properly, you’d see that the whole economy has been in retreat for at least the last two decades.

Peak greed

This is what the Greed/Fear ratio is telling us.

You’ll recall that the Greed/Fear ratio — the ratio of the Dow to gold — measures the underlying zeitgeist of a society.

Like every natural thing, a society breathes in and out. Sometimes, it is bold. And sometimes, it is fearful. Sometimes, it gets richer with open trade and win-win deals…and sometimes, it closes the door and wants protection.

Greed, or ‘optimism,’ reached its peak in 1999. That was already 54 years after the Allies won World War II, 20 years after China abandoned Full Retard communism, eight years after the Berlin Wall came down, and six years after the creation of the European Union.

At that point — Peak Greed — it took 41 ounces of gold to buy the 30 Dow stocks…up from just 1 ounce in 1980.

‘Sell stocks; Buy gold,’ we told dear readers. Not that we had any special insight into the future. But the Dow-to-Gold ratio had gotten so far out of whack, it was just a matter of time before it headed back into whack.

And for a while, that’s what happened. Stocks fell. Gold climbed. The Dow-to-Gold ratio very nearly hit 5 in 2009, the point at which we would sell gold and buy stocks.

But it never got there. Instead, in 2008/2009, the feds rode into town, guns blazing with the troubled asset relief programme (TARP), quantitative easing (QE), and zero interest rate policy (ZIRP).

If we’re right, the runup in asset prices since 2009 was just a fake-out. Fake money created a fake boom and a fake bull market.

Asset holders — mostly, the top 10% — made money. Everyone else lost ground. The rising tide of renewed optimism was an illusion. All of the downward, fear-inspiring trends continued throughout the 21st century:

Federal debt grew every year; never had we seen such deficits in peacetime…

…Consumer and business debt grew, too — even while profits were supposed to be rising…

…Savings rates sank to all-time lows…

…The velocity of money dropped to Depression levels…

…GDP growth declined to half of the 20th-century levels…

…Home ownership fell…

…The number of those with breadwinning jobs fell…

…The total number of work hours per person fell…

…The number of idle men in their prime working years rose…

…The cost of living went up 50%, officially. For most people, it probably doubled…

…Life expectancies fell…

…The power of the Deep State grew…

…Capitalism became less capitalistic…with more government intervention, supported by both conservatives and liberals…

All the major trends went against a prosperous, free, win-win world.

Rendezvous with destiny

In September 2018, the feds bounced the Greed/Fear ratio back up to 22. But there it stopped…and then began to sink again. Twice since then, it has tried to rally. Twice it has failed.

Now, the Greed/Fear ratio is about 19. Gold is trading at a three-month high. Stocks are under pressure. If we’re right, the Greed/Fear index will continue to fall…

…until it finally makes its historic rendezvous with destiny somewhere below 5.

Stay tuned…

Regards,

Bill Bonner


Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.


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