Does the stock market upswing mean anything?
What happened on Friday? A 鈥渕oment of truth鈥� arrived for Europe. But what is the truth? We鈥檒l have to wait to find out.
The Dow rose 259 points. Gold was up $28.
But who cares? Up, down鈥p, down鈥� Every day brings more 鈥榯ruth.鈥� But what we want is a truth with legs. We鈥檙e not day traders. Not week traders. Not even year traders. We want a long, sure鈥ega trend. We want the Dow at 900 in 1983. Or gold at 260 in 1998.
What is there today that is equivalent? How about 10-year US bonds at 2.20% yield? For upside, we can鈥檛 think of a single other thing. US bonds have been in a long, long uptrend 鈥� basically 鈥� since they鈥檝e existed. From 1791 to the present, they鈥檝e gone up. Of course, there have been some major problems along the way, notably in the 鈥�70s when it looked like the Fed had lost control of inflation. Otherwise, bond yields have gone down as prices have gone up.
Is it time for a turnaround? Maybe not just yet. We鈥檙e still in a Great Correction. Bonds should continue to go up 鈥� for a while. But just wait鈥his is a truth that won鈥檛 go away: US debt is expanding鈥s its ability to pay declines.
Meanwhile, the big trend for the US stock market is probably down too. Just a guess, mind you. Why? We鈥檝e given you the reasons鈥ut since you seem to have forgotten, we鈥檒l give them to you again:
鈥fter 60 years of credit expansion, credit is contracting. That means less household spending, which means lower sales and fewer profits
鈥 bear market began in January 2000. It never reached its rendezvous with a real bottom. Ergo, the ultimate bottom still lies ahead鈥�
鈥tocks rose since 1982鈥ince 2000, they鈥檝e been going nowhere. Now, it鈥檚 time for them to go down.
鈥ost of the 鈥榞rowth鈥� in the last 20 years has come from more and more debt at the household level. Now that debt is shrinking鈥rowth should shrink too鈥�
鈥here are 70 million baby boomers who desperately need to save money for their retirements. They used to borrow and spend鈥ow, they will have to pay back and save.
鈥s credit grew, it took more and more credit to produce an extra unit of output. Adding more credit now will not help the real economy expand鈥�
鈥he feds can鈥檛 engineer a recovery, because unlike a recession, the problem is not that debt is too expensive, but that they have too much of it already鈥�
鈥s the economy softens, the feds take more and more of it into custody. The feds invest badly, leading to less real output鈥hich must supports more and more zombies鈥�
鈥he European economy is sliding towards another recession; this will hurt the US economy too鈥�
鈥he whole world economy is weakening; it could drop into a worldwide depression鈥�
鈥igher, persistent unemployment undermines consumer spending鈥�
鈥ouse prices are still falling, which will further reduce household net worth and reduce both spending and risk-taking鈥�
鈥nergy use in the US is falling鈥ore inputs of energy do not produce enough extra output to pay for themselves鈥�
鈥ut energy use in the emerging markets is increasing, supporting energy prices and putting more pressure on US household budgets鈥�
鈥hat else? Want more reasons? Stay tuned鈥�
Bill Bonner
听蹿辞谤 The Daily Reckoning
