Jubilee Prosperity

Borrowing worked so well on the way up that too many are again tempted to employ leverage at what seems to be a bottom. These bottoms may turn out to be yet another stairstep down. We doubt we have yet seen the generational low in real terms.

The last Great Depression lasted in terms of the nominal Dow from 1929 to 1949. The GD included a World War II that took the lives and property of 72 million people. In real psychological terms, it took a long time for the Greatest Generation to stop saving and start borrowing to consume as their children did. That is why the prosperity lasted so long.

Now the lesson of saving for a rainy day was forgotten by the Baby Boomers, who borrowed their way to consumer purgatory. It may take two or three decades for people to begin to produce and save again, creating what may turn out to be the Greatest Depression. The consumer society is dead.

While we were called the opposite of Pollyanna, we remind our readers that in 1974 we were correctly bullish. In 1982 we publicly proclaimed at our Seminars the Dawning of a Bull Market that would at least quintuple based on economic history. In fact, the Dow Blue Chips went from 777 to 13,930, up some 17.9 times in a little over two decades, plus dividends.

Zero coupon bonds in retirement plans like the tax-exempt 13% XOM and Treasury Tigers, did even better. Once closely-held companies like BEN, WMT, MSFT, DELL and GOOG gave truly life-enhancing total returns.

Now the worm turned. The big picture is no longer Inflation of the Sixties and Seventies, nor disinflation of the Eighties and Nineties, but Deflation since the Jubilee Year of 2000.

Government fiscal TARPS, Budget Busters, Spending like there’s no tomorrow and Zero Monetary interest rates can temporarily distort things like the recent +6.3% PPI. They cannot long hide the 22% real rate of unemployment, and real GDP Growth winding down since 1984.

http://www.shadowstats.com/alternate_data

As we saw with Japan’s two lost decades, people can run from deflation, but they cannot ere long hide. Leverage becomes a deadly samurai sword of Damocles, particularly in the USA with $106 Trillion unfounded Agency Ponzi Liabilities including FDIC, FHA, Medicare, Pension Guarantees and the raided Social Security Trust. In addition to IOUSA, there are $684 Trillion of hidden derivatives crushing and poisoning the life out of the economy like so many deadly snakes.

Pages: 1 2 3 4 5

This entry was posted on Sunday, December 20th, 2009 at 11:27 am and is filed under Market Psychology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.