The Great Depression Online

Great Depression Online Archive Issue:

Give Halfwits a Chance

Great Depression Online
Long Beach, CA
June 29, 2010

Inside This Issue You Will Discover…

*** Stocks Could Fall Off a Cliff
*** It’s a Depression
*** Give Halfwits a Chance
*** And More

Stocks Could Fall Off a Cliff

The stock market use to be such a grand place.  All you had to do was put 10-percent of your income into the market, say an S&P500 Index fund, and you’d retire a millionaire.  During the 1980s and 1990s it worked like a charm.  Buy and hold was the sure fire way to get rich.

Regrettably, this essential insight wasn’t largely known until the late 1990s…about the time it stopped working.  How times have changed.  Nowadays the stock market is a great way to lose your savings.

Richard Russell of Dow Theory Letters says, “Holding stocks here is a sure ticket to a smaller bank account.”  We wouldn’t bet against him, for he has a 50-year track record of being right.


Our friends over at Elliott Wave International employ the largest team of technical analysts in the world.  They recognize that optimism peaks before market tops and pessimism troughs before market bottoms.  They use powerful and sometimes unconventional tools to help identify psychological extremes that signal high-probability turning points.

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Here at the GDO we’ve been saying for at least a year that any day now the stock market could fall off a cliff.  We’ve never been more certain of this than we are right now.  But it’s not only stocks that could fall off a cliff; the entire economy is perilously poised for a great fall too…

It’s a Depression

John Mauldin, editor of Thoughts from the Frontline, thinks there’s a 50-50 chance we slip back into a recession in 2011.  Technically, he’s right.  After GDP turned positive in late 2009, the economy could again shrink in 2011.

But to the average citizen, does it feel like the recession that began in late 2007 ever ended?  Not if they’ve tried looking for a job or lost their home.

The fact that the economy was granted a small reprieve from its slide into the abyss in 2010 is but a trifling detail.  The experience for many is that the recession never ended at all.  What’s becoming obvious to more and more, is what we’ve been saying all along, this is not a recession at all; but rather it’s a depression.  We’re in it.  We’ve been in it.  And we’ll be in it for some time.

The drastic fiscal and monetary measures taken by the U.S. Treasury and Federal Reserve merely masked the economy’s malaise.  But aside from puffing up the stock market, what did the bank bailouts, zero interest rate policy, and quantitative easing really accomplish?

Not much of anything that we’ve seen.  Except, of course, several trillion – or more – of new public debt.  Perhaps if the government goons had stood back and let the whole shebang fall as it may, the depression would now be behind us. 

Enterprising fellows would have picked up the pieces and fabricated new, profitable, and self supporting ventures.  Instead we have a developing sovereign debt crisis on our hands and a depression extending out years into the future.

Give Halfwits a Chance

Making a mess of things is what the government does.  It’s what they’re good at.  Government payrolls are enormous, as thousands of busybodies run ragged preparing plans, studies, and reports to regulate, control, and manage the economy.

For example, in New York City they want to tax soda pop.  The State of California wants to ban the use of the common light bulb.  And in San Francisco, the city council just passed a law requiring all retailers to disclose and display, in at least 11 point type, how much radiation a particular cell phone emits.

Over in DC the latest hubbub making its way into law is the financial reform bill…

“The premise from which this bill starts is that the contemporary economy, not just in the United States but around the world, has shown itself to have some propensity to destabilizing behavior on both the upside and downside,” says Lawrence Summers, President Obama’s top economic adviser. “Financial institutions need to be regulated in a more systemic and comprehensive way.”

Remember, the latest financial crisis originated from the Federal Reserve keeping the federal funds rate below the rate of inflation for several years in the early-to-mid 2000s.  The cheap money blew its way into the housing market, and the financial industry exploited the bubble with every gimmick they could dream of.  So now the government is enacting reforms to fix the problems their own policies created to begin with.

Here’s a modest proposal.  Eliminate the Federal Reserve and institute a stable money supply.  Sure banks who loan money out to too many folks who aren’t good for it could still go bust.  Nonetheless, the entire world economy couldn’t be financialized into one mammoth bubble.

But wouldn’t this mean turning control of the price of money over from a Princeton Professor to the millions of halfwits bumbling about their daily business?  If you believe in free markets and individual liberties, there’s only one honest response…

Give halfwits a chance.


M.N. Gordon
Great Depression Online

P.S.  Past performance is not indicative of future results -- and that’s where fundamental analysis goes wrong.  It fails to factor in the psychology that not only moves markets up and down but also leads analysts to extrapolate the current or past trend into the future.  That’s why fundamental analysts almost always miss major tops and bottoms.

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