BALTIMORE, MARYLAND – The last leaves are falling from the trees. And the last days of December are counting down, like the quiet moments before an execution.
Friday, the Dow fell nearly another 500 points.
Investors rushed out of U.S. equity funds in the second-biggest weekly exit on record, according to Bank of America Merrill Lynch, as the market sell-off pushed traders to seek safe havens.
U.S. stock funds bled $27.6 billion in the days through Dec. 12, which includes last Friday’s plunge in the S&P 500 Index that capped the worst week for the gauge since March, according to BofA’s note, which cited EPFR Global data. This is the second-biggest redemption since February’s spike in the VIX volatility measure, according to Jefferies Financial Group Inc.
Is this one of those rare times when the doom-mongers’ predictions understate the approaching danger?
Troy, circa 1184 BC: “You’re just a nervous nelly, Cassandra; the horse is a nice parting gift. Bring it into the city.”
Rome, 475: “We’ve heard these warnings over and over… But the barbarians will never cross the Po River. Our legions will soon have them on the run.”
Russia, 1918: “Don’t worry about it, Vassily. It will all blow over soon. These hotheads will soon be history.”
New York, 1929: “What? This is a great market…”
Germany 1933: “The Reichstag fire was an accident, Benjamin. And who would support these lunkhead Nazis? Things will go back to normal.”
Washington, 2018: “Unemployment is down. GDP growth is up. We’ve had a tax cut. Inflation is low. What’s to worry about?”
We don’t know. But since it is the Christmas season, we look on the bright side.
The Bright Side
If the stock market keeps sliding, a lot of problems will disappear (or at least get upstaged in the news ratings) – the trade war, the search for a chief of staff at the White House, the “shutdown”… Nancy Pelosi, Trump. Who will care about any of this when the Dow loses 10,000 points?
Besides, most of the leading new stories are just BS and claptrap. Phony wars. Fake “investigations.” Fake statistics. Most mean less than nothing.
After you learn about them, you know less that is honest and real than you did before.
But a serious bear market is real. Like a hurricane or a barbarian invasion, it gets people’s attention.
But keep looking on the bright side of it. Worried about inequality? Just let the correction do its work. The rich will be taken down a peg.
On Friday, for example, the selloff took stock prices down by more than 2%. Since the whole stock market is valued at about $30 trillion, a 2% drop shaves about $600 billion off balance sheets.
And that’s in addition to the 10% or so they were already down. Or about $3 trillion in all.
But hold on… there’s a long way to go.
By our estimate, the rich have gained about $30 trillion in total (from their investments in stocks, bonds, real estate, rare artwork, and collectibles) from the fake money system and the manipulation of interest rates by the Fed.
If the stock market gets cut in half (which we expect), that alone will take care of half the problem.
Alas, it’s not just stock owners who take a beating. Stocks represent real companies. Companies have owners, bankers, suppliers, employees… and creditors. All of them lose.
For example, Corporate America owes a record $9 trillion, give or take – 50% more than it did 10 years ago. When stock prices go down, sales and profits go down, too.
Employees are laid off. Bonuses are reconsidered. Expansion plans are shelved. Purchases are rescinded. Business implodes.
And the weakest companies are unable to pay their debts.
Then, of course, the whole credit industry gets the shakes. The weaker lenders collapse immediately. Stronger ones call in their loans – putting further pressure on the wobbly companies.
But heck… it’s supposed to work that way.
Panics, credit crises, and bear markets – like maggots on dead flesh – clean up market economies.
And, still looking on the bright side, we personally will lose millions; but it will be worth it to see the dumbbell rich get what is coming to them.
MARKET INSIGHT: MORE PAIN AHEAD FOR STOCKS
By Joe Withrow, Head of Research, Bonner & Partners
As Bill reported above, the S&P 500 is down in Q4. The index has fallen 10.8% since the start of October. Our editor expects stocks to fall further. And if history is any guide, he’ll be right.
Today’s chart maps the fourth quarters in which the S&P 500 fell more than 10% going back to 1931. And it tracks the S&P’s follow-on performance during the first quarter of the following year.
As you can see, in the past, when stocks fell more than 10% during the fourth quarter, they usually continued falling during the first quarter of the next year as well… and often, by more than 10%.
The S&P 500 had losses of 10% or more in Q4 of 1931, 1932, 1937, 1941, 1973, 1987, and 2008. The following first quarters almost always showed more losses… averaging 11.4% for the quarter.
The exception was Q4 1987, when the S&P fell 23.2%, but followed up with a 4.8% gain during Q1 1988.
If history is any guide, this suggests Bill will be proven right in 2019. The S&P 500 needs to rally to close out the quarter with less than a 10% loss… or else we can expect stocks to fall further to start the new year.
– Joe Withrow
How the World Lost $14.8 Trillion
As Bill wrote above, the world’s stock owners, primarily the ultra-wealthy, became a little less rich this year. All told, the world lost $14,889,930,106,680. That’s almost $15 trillion. And if the world’s “One Percent” are hoping for an about-face in 2019, they’re bound to be disappointed…
And read also…
You Won’t Believe What Outperformed Stocks
Stocks… bonds… real estate… bitcoin… broadly, almost every asset is down on the year. But there’s also a surprising winner.
Where to Put Your Money in 2019
It’s been a rough year for investors. But for those wondering what to do in 2019, we suggest you start right here. Dan Denning reveals what you should do with your money when doom awaits.
After Bill reported on what he told a group of D.C. insiders last week, dear readers offer their feedback…
“Beautiful words are not always truthful, and truthful words are not always beautiful.” I admire someone who has the balls to say it like it really is. The problem today is that truthful words are not beautiful, and so, they are sent to the forest, where no one is available to hear the sound of the trees falling.
– James B.
Japan has a larger debt than the U.S! Every country, with some exceptions, is afraid to say: The emperor has no clothes! It would be a domino effect after that!
– Jim C.
What you are saying is absolutely correct. However, you continue to spout the same line over and over. Why not simply say the game is rigged? The elite will ultimately pull their chips out of the game ahead of the masses of useful idiots, only to come back after the ultimate debacle and buy up everything with their ill-gotten gains. That’s the nature of exploitative, dishonest capitalism. I believe you know that.
– Fredrick C.
I read the responses to my mailbag entry about the causes of global warming with interest. I won’t bother to respond to or comment on those who took issue with my position. They are entitled to their opinions.
But what their responses screamed is the fact that some much-needed perspective is woefully overdue in regards to this subject.
There are two camps of thought when it comes to the global warming debate: The “Humans are responsible camp” and the “Mother Nature did it” camp. The first camp wants to end the burning of fossil fuels and move on to renewable energy, put a stop to industrial-scale livestock farming, plant more trees, etc. The second camp wants to “Drill, baby, drill,” mine more coal, and raze all the forests. Here’s where the perspective comes in…
Let’s say you just suffered a massive heart attack. Through the grace of God, the heroic efforts of the paramedics on the ambulance, and an emergency quadruple bypass, you survive. What was the cause of your heart attack? Is it your family history of heart disease or the fact that you eat bacon and eggs in the morning, three cheeseburgers for lunch every day, a family-sized pizza every night, and a rack of spare ribs on Saturday and Sunday, smoke like a chimney, and never exercise? Does it matter? If you want to continue living, once you get out of the hospital, you’re going to cut the salt and fat out of your diet, reduce your cholesterol, give up cigarettes, lose weight, and buy a membership to the gym. You’re going to change your lifestyle. You’re going to do something!
We need to do whatever is humanly possible to end it, or at least mitigate it as much as possible. That means transitioning to clean, renewable forms of energy; eating less meat, or giving it up entirely; re-planting forests on farmland left idle because we no longer need it to grow feed for cattle, hogs, chickens, etc.; and whatever else we can do to reduce the amounts of greenhouse gases in the atmosphere, regardless of whether we, or Nature, put them there. Because global warming is a threat to all life on Planet Earth.
– Dale A.
IN CASE YOU MISSED IT…
Something strange could be coming for America’s money…
In the inner circles of the financial and political elite, a plan is being discussed. The ultimate goal? To bring the money in your bank account directly under the control of the federal government.
As Bill’s coauthor on The Bill Bonner Letter, Dan Denning, says, if you believe in financial independence, you’re going to hate this.