Masters Series: Why We'd Welcome a Depression
Editor's note: A stock market crash would be a good thing.
Agora founder Bill Bonner says we're headed for a steep correction. But as he explains, that's something to look forward to…
In today's Masters Series essay – excerpted from the January 7 edition of Bill Bonner's Diary – Bill explains his argument… and shares the one safe haven where you can stick your money today…
Why We'd Welcome a Depression
By Bill Bonner, editor, The Bill Bonner Letter
So far this year, the Dow has lost 10% of its value.
Let's see… We believe it is headed for a 50% loss. So, at this rate… we'll be there by July!
Readers frequently accuse us of being "negative" or "depressing."
Recently, one even charged us with fanning the fires of fear and fright to sell newsletter services. We deny it. Fear doesn't sell financial services.
Ask Goldman. Wall Street sells greed, not fear. It promises profits, not losses. It offers dreams of wealth, not nightmares of poverty.
Besides, when you see prices falling, you just go to cash. You don't need expensive trading advice.
We monger neither fear nor greed. Our only mission is to try – feebly… humbly… uncertainly – to connect the dots.
Of course, the dots are many… and they are everywhere. Like a Rorschach test, we risk seeing only what we want to see.
But you can't see anything if you don't look. So, we squint… we strain our eyes. And what do we see?
A top!
And then what?
A secular downturn, when stocks will go down – or nowhere – for the next 10 years. If we're right, a lot of fortunes, jobs, reputations, and mojos will be lost. Defaults, depressions, disruptions, deflation – we'll probably see a little of them (or a lot!).
Many dear readers find this unappealing; and they mistrust our motives. They seem to think that because we see clouds on the horizon, we must want it to rain!
But wait… They are right. That is the pattern we've been looking for!
This parched earth needs a good soaking… and a healthy wash. But if readers think this is "negative," they should blame themselves, not us.
They are looking at the glass as half empty – but we only see the part that is full of Saint-Emilion Grand Cru 2006.
Debt and Claptrap
Look on the bright side…
If we're right, you'll get a lot more for your money in the stock market 10 years from now. Not only that, but also much of the debt and claptrap that now strangles the system will have been purged.
Greenspan, Bernanke, and Yellen will finally be regarded as the rascals and flimflam artists they really are. Businesses that should have gone bust in 2008 will finally hit the wall. And the speculators, bankers, and bamboozlers who should have been bankrupted in the last crisis will finally get what's coming to them in the next one.
Yes, some investors will feel the pain. The economy will suffer. It will be bent by bitter fate and outrageous fortune… but into a better shape!
A stock market correction is not something to be feared. It is something to look forward to… something to be embraced, like a plumber who has come to unclog your bathroom drain.
It may get messy – but what a relief it will be to have the toilet working again.
We saw a headline recently that recommended that investors short – that is, bet against – U.S. stocks.
That will probably turn out to be good advice. But it suggests a level of confidence we don't have. Getting out is good enough for us.
Cash Is (Still) King
But get out of stocks and into what?
Cash, dear reader… cash. No financial services needed. Cash is king now. And it will be until we come to the next major pivot point.
Study those dots…
The Fed has favored easy credit for at least the last 20 years – quickly cutting rates in the face of even the smallest signs of adversity and dragging its feet when it was time to raise them.
Each time a contraction of credit begins, the Fed reacts with even lower short-term interest rates. And each time it drops the price of credit… it creates another bubble.
The Nasdaq bubble in the late 1990s… the housing bubble that followed… and now the nascent bubble in student debt, corporate debt, sovereign debt… and a small group of tech stocks that has raised U.S. stock market indexes to rare and dangerous highs.
And now, the Fed imagines that it is going to return to "normal"!
That was the way the dots looked when 2015 adjourned. In 2016, there are new dots appearing… and old patterns are coming into sharper focus.
What do we see now?
Uh-oh…
Nobel Prize winner Robert Shiller's cyclically adjusted price-to-earnings ratio – or CAPE ratio – tries to get a truer picture of value by looking at the average of the past 10 years of earnings and adjusting for inflation. And by this measure, only three times in the last 135 years has the S&P 500 been more expensive – in 1929, 2000, and 2007.
All three times were followed by major market crashes.
Some excitement is coming… Stay tuned.
Regards,
Bill Bonner
Editor's note: Bill isn't alone in his predictions… Regular readers know that Porter, too, has been calling for a massive correction in stocks. Bill recently published a presentation explaining how the crash will unfold… and detailed how an unusual monetary event will affect you and your bank account personally. Get the full details here.