I stuck my neck out here yesterday, calling the top of a bear rally that for two years has kept the nation from facing economic reality. Here is what I wrote: “Stocks fell not because of fears over the spread of violence in the Middle East, as the pundits asserted, but because it was time for the Mother of All Bear Rallies, now almost two years old, to keel over and die.” Of course, one can never be absolutely certain about such things, and that’s why I struggled briefly with the temptation to rephrase that sentence as follows: “Stocks fell not because of fears over the spread of violence in the Middle East, as the pundits asserted, but perhaps because it was time for the Mother of All Bear Rallies, now almost two years old, to keel over and die.” I’ll let my bearish call ride for now, however, because the market’s recent highs came within inches of longstanding, major Hidden Pivot targets. But I’m not going to chisel the prediction in stone as I did a “hula prediction” that Goldman Sachs would ultimately trade below $30 during the bank-stock
collapse of 2007-08. Goldman shares actually bottomed around $40, and that’s why I am making arrangements, finally, to deliver on a pledge to don a grass skirt and dance the hula in Times Square in the dead of winter. I will provide further details shortly for those of you who want to witness this sorry spectacle. The irony is that Goldman probably will trade below $30 by the time the world’s $800 trillion derivatives bubble has completely deflated. I’ve also predicted – no hula dance riding on this one — that a $10 million co-op on Central Park West will eventually change hands for $250,000; and that the damage will be even worse for vacation properties.
Reason to Be Gleeful
Someone noted in the Rick’s Picks forum the other day that it is unseemly for me to act so gleeful about the prospect of a market collapse. In fact, few things that I can imagine would be healthier for the economy. Otherwise, as long as we keep telling ourselves that things can’t really be that bad with the Dow Industrials trading above 12000, we will be unable to do what needs to be done to put the economy back on track. My hunch is that very few Americans actually view the stock market’s robust performance over the last two years as a sign of economic health or imminent recovery. In fact, the U.S. Treasury really and truly is bankrupt, having issued $14 trillion of bogus paper that will never be redeemed in hard cash. The banks are broke too, since the bogus paper they’ve been warehousing at the Fed remains a liability of the banking system as a whole, not of some virtual dumping ground called ”the Fed.” We are indeed broke, and anyone who tries to argue otherwise deserves to be scorned. As for the blip in corporate profits that the Wall Street Journal et al. have enthused over, it came at the expense of the labor force, and the sums involved cannot begin to compensate for the fleeting “wealth” we thought we possessed just a few years ago. Nearly all of it came from a financial sector that was able to gin up nearly a quadrillion dollars of leveraged financial instruments. In comparison, as an engine of job and “wealth” creation, our $2.5 trillion manufacturing economy is insignificant.
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Just to follow on with a further thought regarding Mario’s point above: I have believed for quite some time the smartest move for the average person to make in positioning oneself economically today is to figure out employment that caters to the high earners, who are clearly doing well. Yes…I’m aware that’s no novel insight. But the why is.
Besides the immediate benefit of higher real–and secure–income, there is a second angle even more critical if some of Rick’s darker scenarios play out…I happen to think he’s correct about those. It will go much better for you to be seen as working class and catering to the wealthy than to be wealthy yourself. Populist policies can morph into mob mentality easily, and being branded as rich in those circumstances could be a death sentence, either metaphorically or in reality.
Much better to be a well paid window washer for the king now than to be a courtesan in those days.