Follow the Leader
No, today's missive is not an admonition to respect authority, nor a suggestion to kiss up to your boss, nor unsolicited advice to follow your wife around the mall with a canine devotion. All of these things, especially the last, may be wise things, but the title refers to the recent action in the bond market and its implications for equities. I know, I know. "You've been all over the map recently in regards to the bond market!", I hear you say. Fair enough, but I have advised patience and caution and I think that these have served those who have listened well. And going forward, the same traits will be useful, especially as it applies to the stock market. You see, my friends, I believe that the large rally, bull market or whatever label you wish to apply to the last two years has been a larage countertrend move which is now coming to an end. When the main trend exerts itself, we will see the destructive power of the mother of all bear markets unleashed. It will not be pretty. It will be brutal. It will be punishing. It will be relentless. It will be a grinding, drawn-out affair. In short, it will be fun! That is, it will be if you are prepared for it. For those who are not, who buy into all this nonsense about "the new-era", Fed-managed equilibria, supply-side, globalist, "consume now and pay later", "big deficits don't matter", "growth at any cost", this will be brutally frustrating, maybe even financially fatal time. Bonds will drop 25%, stocks will drop 50% or more and the dollar will drop 50% or more. Who knows how much real estate prices will drop. It will depend on where you live. But count on greater than 50% losses in the " hot spots " of today.
In regards to timing, that is the important information that is being given to us by the bond market. Now that the direction of long rates is clear, it is only a matter of time before the stock market follows suit. Since it is my belief that stocks follow bonds with a three to six month lag, I expect to see stock prices broadly declining starting sometime in the next two to five months. It is prudent to start trimming positions now if this has not already been done. 2005 will be a year of transition, 2006 will probably show the full brunt force of the trauma that will be inflicted. The Fed and the central banks will try to fight it, but it is my belief that they will be powerless to stop it, only slow it down, since it seems to me that the Fed is no longer controlling monetary developments, but merely responding to them. Such is the nature of irresponsible, asset-based, fiat-currency finance. The markets have been pumped up on the steroids of "easy money" and soon the "roid rage" will turn into financial breakdown.
Sports and corruption:
Speaking of steroids, baseball continues to stick its collective head in the sand and collect the "easy money" of steroid-enhanced ticket revenues. It is obvious that we live in a corrupt age, not because there are corrupt people, such is always the case. But our institutions have become complicit in this corruption, as Major League Baseball's defiant attitude towards the steroid "scandal" attests. It would be refreshing to see someone come totally clean about what has happened without the promise of immunity, without having a book to sell and without regard for their contract or career. But I am not holding my breath. Years hence, just as the excesses of the markets will seem mind-boggling, we will wonder how these guys got away with it for so long and how ignorant or apathetic the public was to these abuses.
Of Life and Art:
Finally, I need to say a work about the corrupt soul of our modern culture. Any people who embrace a culture of death as much as ours has will not be great for long. Abortion and euthanasia are becoming not only acceptable, but seemingly trendly with the Acadamey Award for Best Picture going to "Million Dollar Baby". Let me sum up the attitude of this movie: Life is only worth living if you can do something "important or worthwhile" (it is OK if this something is antisocial and degrading) and if you end up in the position where this is no longer the case, you might as well give it up and end your own life (or have someone else do the deed if you are incapable of doing it yourself). Also, those intolerant jerks of organized religion, specifically, the Catholic Church are narrow-minded and mean-spiriied clods and anyone who agrees with them is probably a lowlife trailer-trash hick. Of course, this is totally upside down from real life. In real life, a woman who takes up boxing is trashy and the men who facilitate such a career are the lowlifes. For any civilized society protects and shields its "weaker sex", since they are the life carriers, who will raise the next generation. So it is now surprising in a society of abortion on demand, where women are allowed into combat positions in our military, that such upside-down, dark and destructive "art" is hailed as the greatest that is offered. The Academy even overlooked ham-handed direction by Clint Eastwood, an overworked and recycled performance from Morgan Freeman and uneven pacing to make its point. It is a sad day indeed. Hillary Swank gave a fine performance, but a work of career advice. If you are an actress who wins two awards for playing a teenage boy and a female boxer, your days at the top of the celluloid heap are probably numbered. Just ask a previous year's undeserving winner: Halle Berry.
In regards to timing, that is the important information that is being given to us by the bond market. Now that the direction of long rates is clear, it is only a matter of time before the stock market follows suit. Since it is my belief that stocks follow bonds with a three to six month lag, I expect to see stock prices broadly declining starting sometime in the next two to five months. It is prudent to start trimming positions now if this has not already been done. 2005 will be a year of transition, 2006 will probably show the full brunt force of the trauma that will be inflicted. The Fed and the central banks will try to fight it, but it is my belief that they will be powerless to stop it, only slow it down, since it seems to me that the Fed is no longer controlling monetary developments, but merely responding to them. Such is the nature of irresponsible, asset-based, fiat-currency finance. The markets have been pumped up on the steroids of "easy money" and soon the "roid rage" will turn into financial breakdown.
Sports and corruption:
Speaking of steroids, baseball continues to stick its collective head in the sand and collect the "easy money" of steroid-enhanced ticket revenues. It is obvious that we live in a corrupt age, not because there are corrupt people, such is always the case. But our institutions have become complicit in this corruption, as Major League Baseball's defiant attitude towards the steroid "scandal" attests. It would be refreshing to see someone come totally clean about what has happened without the promise of immunity, without having a book to sell and without regard for their contract or career. But I am not holding my breath. Years hence, just as the excesses of the markets will seem mind-boggling, we will wonder how these guys got away with it for so long and how ignorant or apathetic the public was to these abuses.
Of Life and Art:
Finally, I need to say a work about the corrupt soul of our modern culture. Any people who embrace a culture of death as much as ours has will not be great for long. Abortion and euthanasia are becoming not only acceptable, but seemingly trendly with the Acadamey Award for Best Picture going to "Million Dollar Baby". Let me sum up the attitude of this movie: Life is only worth living if you can do something "important or worthwhile" (it is OK if this something is antisocial and degrading) and if you end up in the position where this is no longer the case, you might as well give it up and end your own life (or have someone else do the deed if you are incapable of doing it yourself). Also, those intolerant jerks of organized religion, specifically, the Catholic Church are narrow-minded and mean-spiriied clods and anyone who agrees with them is probably a lowlife trailer-trash hick. Of course, this is totally upside down from real life. In real life, a woman who takes up boxing is trashy and the men who facilitate such a career are the lowlifes. For any civilized society protects and shields its "weaker sex", since they are the life carriers, who will raise the next generation. So it is now surprising in a society of abortion on demand, where women are allowed into combat positions in our military, that such upside-down, dark and destructive "art" is hailed as the greatest that is offered. The Academy even overlooked ham-handed direction by Clint Eastwood, an overworked and recycled performance from Morgan Freeman and uneven pacing to make its point. It is a sad day indeed. Hillary Swank gave a fine performance, but a work of career advice. If you are an actress who wins two awards for playing a teenage boy and a female boxer, your days at the top of the celluloid heap are probably numbered. Just ask a previous year's undeserving winner: Halle Berry.
posted by Matt Butler at 1:25 PM
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