The Market's Yin and Yang
Bill Bonner - Fri 05 Feb, 2010
If tomorrow is another bad day – as it probably will be – then it will be clear that the last stage of the bear market has arrived.
Baltimore, Maryland
Here’s a cartoon sent by one of our dear readers. We have readers all over the world. But Pamela must be one of the most remote. She lives on a tiny island in the middle of the Pacific. We’ve seen the photos. It looks stunningly beautiful. A South Pacific paradise.
It’s a little surprising that someone who lives in such a paradise setting would trouble herself reading The Daily Reckoning and worrying about macroeconomics. But the world of money is fascinating. And probably a lot more entertaining if you’re not in the middle of it.
Yesterday, investors must have felt like they’d rather be somewhere else. The Dow registered a loss of 268 points. Gold took a $49 beating.
If today finishes as another bad day – as it probably will be – then it will be clear that the last stage of the bear market has arrived. This should be the final drop... when stocks should go down to their ultimate bear market low.
Where will that be? We don’t know. Maybe Dow 5,000. Maybe lower. One way or another every major bull market needs a major bear market. The two go together like yin and yang, Abbott and Costello, or gin and tonic. Take one out of the picture and the other one no longer makes any sense.
We’ve had our bull market. It took the Dow from under 1,000 to over 14,000 in the space of 26 years. We’ve had a bubble too. The party was a lot of fun for everyone...
Now, it’s time to clean up. It’s time for the bust in the economy... and the bear market in stocks. That’s just the way it works. Sorry.
If this bear market is going to correct the entire bull market from 1982 onward, it has to take prices back to the levels they were when it began.
Back then, you could buy the Dow (from memory) for about five times earnings. Now, (we’re not doing any research here... just broadly remembering the figures...) it’s at about 20 times earnings. If those numbers are correct, you’d expect the final low to come in about a quarter of where it is now... or about 2,500.
Another way to look at it is to ask ourselves what the Dow of ’82 would be today, adjusted for consumer price inflation. We don’t know the answer to that either... but we’ll guess that it would be about four times what it was then – or about 4,000.
So, now we have a range... We know roughly where this market could be headed – if it is the yang we’re expecting. And if that’s where it is going, a South Pacific island paradise would be a good place from which to watch it get there.
More thoughts after this important announcement...
Our London team at The Fleet Street Letter is working on something that Daily Reckoning readers have got to see. They’re about to release a set of economic predictions for 2010 which could shock you.
And they have a knack of getting these big calls right, as you may well know if you’ve been reading the Reckoning a while…
What they’re saying over at Fleet Street is that they’ve got the lowdown on a catastrophe worse than subprime and a deception so deep it could lay waste to the faltering UK economy.
There’s no doubt about it, these predictions could have a BIG say in your financial future, so we want to make sure you have the chance to access them as soon as possible.
Details are going to be released to all Fleet Street Publications readers next week. But there is a way for you to get this report ahead of most readers.
They’re putting together a “priority list” for readers who have an interest in getting this important report ahead of the game.
We’ll be sending you an email on Sunday that will tell you everything you need to know. If things are in place by then, you should be able to secure your place on this priority list.
And that way, you’ll jump the queue to access this important piece of work…
Be warned, though. The predictions the Fleet Street team is making are likely to shock you. You will not like what you read about their vision of the UK economy… the stock market… the Pound… and the property market.
Just be sure to get access to their solutions if you have the chance…
And back to today’s Reckoning...
*** The bust in the economy ain’t so bad either. Credit default swap spreads are widening. Bond yields are rising... especially in Europe.
The service sector in the US is performing below expectations.
Oh... and listen to this:
“More weigh walking away from mortgages,” says the New York Times. As anticipated, people are warming up to the idea of stiffing their mortgage lenders. Why not? Millions of houses are underwater; let the mortgage company deal with them.
Delinquent mortgage payments have risen to over 10%.
The Baltic Dry Index is dropping, too.
And Dr Copper is “set for catastrophe”, says a copper expert.
Copper, you’ll recall, is the metal with a PhD in economics. It’s the metal that you find in home wiring, refrigerators, offices, automobiles, cell phones – just about everything. So, when the price of copper goes down it means something. Usually, it means business is slowing down.
Copper has fallen more than 10% in 2010. It will probably go down a lot further. Chinese companies stockpiled the metal last year, causing its price to double. Now, they’ve got more than enough.
And if the world economy is still slowing down, which is what the Baltic Dry Index is probably telling us, you can expect the price of copper to collapse.
Stay tuned.
*** Washington is waiting for a big storm. They’ve been talking about it on the radio all week long. More than a foot of snow is expected.
School children look forward to a holiday... not to mention sledding and snowball battles. Adults are hoping for a little time off too... but dreading the drive home from work.
Here at The Daily Reckoning, we can’t help ourselves; we look at it like the onset of a bear market... or a depression. It’s going to be rough. They’ll be some wrecks along the highway. Some people will get stuck. Some will get hit by snowballs or slip on the sidewalk.
See, it’s going to be fun!
Until Monday,
Bill Bonner
For The Daily Reckoning
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