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Cheerleaders Will Face Reality, EventuallyJohn Browne When listening to the typical, television-based, Wall Street cheerleaders work themselves up into a bull market frenzy, one is tempted to wonder if they ever bother to compare the movie that is rolling along in their heads to the one that is occurring in the outside world. Perhaps for those living in a media bubble, the only reality that matters is the one reflected in the camera lens. Over the past nine months, we have seen increasing signs of economic contraction and falling corporate earnings in America. Although the financials, airlines, auto manufacturers, and retailers have grabbed the headlines, few American sectors are immune from the pain. Meanwhile, the cheerleaders and market pundits have advised that recession fears are overblown and that investors should buy "unnecessarily" beaten down American stocks. Their advice is founded on some shallow mantras. We have all heard the droning:
The cry that "stocks are cheap" has been repeated almost daily. But surely, the price of any item is only cheap when the outlook is for the price to rise, not just because it has eroded. Investors who heeded such advice to buy the financials have been crucified. When faced with news of an unassailably bad character, we often see the pundits' smile as they assure us that the depths confirm that recovery is nigh. While the Dow Jones Industrials has slid nearly 17% since its October 2007 highs, they have consistently presented us with a series of occasions in which the "market bottom" has been proclaimed. Nevertheless, stocks have continued to slide. Don't look now, but it appears that Toyota looks set to replace GM as America's leading auto seller. In an effort to reduce the public's fear of inflation, cheerleaders have cited a reduced money supply. They make no mention of the way banks and derivatives have leveraged the money supply or the fact that the Fed no longer publishes M3 (the most widely recognized measure of money supply). While prices gallop out of control for tangible items in the real world, the cheerleaders point to the narrow yield spread shown by Treasury Inflation Protected Securities over classic U.S. Treasuries (TIPS Spread). They ignore that the TIPS spread is a wholly manipulated creation of the "politically cooked" CPI inflation figures. While the U.S. government has successfully hidden domestic inflation, the grossly debased U.S. dollar has exported inflation abroad to dollar surplus nations. Today, Europe is experiencing 3.5% inflation, China 6.7%, India 7.5% and Saudi Arabia more than 10%. Yet all of the cheerleaders proclaim that inflation fears are unfounded. The latest Case-Schiller index shows a fall of 15.3 percent in U.S. house prices. The magnitude of the drop can be appreciated when it is applied to the $23 trillion total value of U.S. housing stock. Doing so reveals that $3.52 trillion of the paper wealth has evaporated. This inconceivably vast figure dwarfs the $175 billion stimulus package in which the government and Wall Street cheerleaders have place so much hope. In announcing "no change" in rates today, the Fed pretends that its policy is perfectly calibrated to deal with the current economy. In reality however, the Fed is pinned down by a cross fire of inflation and recession. They see their best move as keeping their heads down and hoping that they emerge unscathed. Perhaps Alan Greenspan's best move as Fed Chairman was getting out when he did. The reality is that America is faced by stagflation, economic recession and financial inflation at the same time! Rank and file American investors are beginning to understand this. As a result, U.S. stock markets are looking decidedly nervous. The possibility exists for major falls in the months and years ahead. However, don't look for anyone on television to tell you this. They are too busy shaking their pom poms. *** For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff's book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to buy a copy today.
John Browne
321gold Ltd |
John
Browne is the Senior Market Strategist for Euro Pacific Capital,
Inc. Mr. Browne is a distinguished former member of Britain's
Parliament who served on the Treasury Select Committee, as Chairman
of the Conservative Small Business Committee, and as a close associate
of then-Prime Minister Margaret Thatcher. Among his many notable
assignments, John served as a principal advisor to Mrs. Thatcher's
government on issues related to the Soviet Union, and was the
first to convince Thatcher of the growing stature of then Agriculture
Minister Mikhail Gorbachev. As a partial result of Browne's advocacy,
Thatcher famously pronounced that Gorbachev was a man the West
"could do business with." A graduate of the Royal Military
Academy Sandhurst, Britain's version of West Point and retired
British army major, John served as a pilot, parachutist, and communications
specialist in the elite Grenadiers of the Royal Guard.