Reply #12: Snippets from DailyReckoning.Com [View All]

[Demeter]

(Wednes)day, the markets were ready for a countertrend. The dead cats had been tossed out of a 10th floor window. It was time they bounced.

U.S. stocks have lost about $1.5 trillion from their high in October, ’07. Worldwide, stocks are off about $5 trillion. Financials...builders...shippers and retailers...one by one, the sectors are getting hit. And the news is almost all bad: foreclosures, house sales, unemployment, consumer confidence, inflation...losses...declines. In fact, MarketWatch reports this morning, “For all of 2007, the median sales price of an existing single-family home fell for the first time in the 40-year history of the data.” Dun, dun, dunnnnnnn!

“Pain goes through the roof,” said a headline in the LA Times . We don’t know what the piece was about but it recalled the “pain index” figures of the ’70s and ’80s. You just added the inflation rate and the unemployment rate together; the result was a good measure of how people were suffering.

The last 25 years or so have produced falling pain index numbers. Inflation went down, generally. And unemployment declined to such low levels that economists didn’t think it was possible for it to go lower. “Full employment” they pronounced it. But now the inflation rate is back to levels that caused Richard Nixon and Arthur Burns to panic in the early ’70s. They imposed price controls with a CPI of 4.4% – almost the same level it is today.

Today, the pain index is nearly 10, by our calculation...not close to the levels of the ’70s, but rising. (The misery index hit an all-time high under Jimmy Carter at 21.98.) But this time, it is not inflation that is causing the Fed to panic...it’s recession and deflation.

The 1970s were marked by largely symbolic attempts to control inflation. After Richard Nixon’s misbegotten price controls came Gerald Ford’s woebegone “Whip Inflation Now” buttons. Later, Jimmy Carter would say that the cause of inflation was largely a mystery.

But now, the years ahead are likely to be marked by largely symbolic and fraudulent attempts to control deflation – stay tuned.

“I would say that we’re already in a recession,” Jack Rivkin, who oversees $126 billion in New York as chief investment officer at Neuberger Berman, said in an interview with Bloomberg Television. “Odds are earnings are going to be down for 2008.”

Even memories are being downgraded.

“Worries that the good times were a mirage,” comes a headline from the New York Times . Ah ha...the mainstream press is finally catching on to what we’ve been saying for the last five years. The boom was a phony...a fraud...a scam...a mountebank and a humbug. It was a like a polished flim-flam artist who flattered the middle classes with cash and credit – only to pick their pockets. People thought they were getting richer – that’s the illusion that soft money policies are intended to create – so they increased their expenses and went deeper into debt. Now they’re facing a serious recession in the worst financial shape of any generation in history.

Meanwhile, gold and oil had been shooting up like geysers!

“In my view, the commodities and energy bull markets are far from over,” Strategic Short Report ’s Dan Amoss tells us.

“China is on the verge of being a net importer of key strategic minerals, including iron ore and aluminum. I think that these factors – along with the global oil supply challenges – will be important in the stock market by the end of 2008.

“Right now, traders are adjusting to the reality that U.S. consumption is slowing. But the world is not ending. Instead, it’s adjusting to the fact that the U.S. is losing its position as consumer of last resort. This will play out over the next decade and be very painful for certain industries, but the most strategically positioned companies should weather the storm just fine.”