By Bill Bonner
07/31/09 Paris, France
It’s time for summer vacation in France.
“You can forget about getting anything done in the month of August,” said colleague Simone Wapler. “The French are busy with serious things…real things…like painting shutters and picking green beans…fixing curtains and making strawberry jam. They don’t want to hear about economics or markets…”
France begins its summer vacation today. We’ve come to join them…
But we will keep an eye on the money anyways…because it’s just getting interesting…
Two interesting things are happening. First, the feds are facing a showdown with the vigilantes…you know, the people with money – $2 trillion worth of reserves, $1.5 trillion of it in U.S. Treasury paper. They’ve got to convince them that they’ll protect their investment. If they fail, the vigilantes sell their bonds…cause the dollar to collapse…and force up U.S. interest rates – which will come down like Round-Up on those green shoots of recovery.
Meanwhile, stocks are not only anticipating a recovery, they’re counting on it. And for that, they depend on stimulus from the feds. But what Bernanke gives in stimulus, the vigilantes are likely to take away…
More on that in a minute…
The other big thing that is going on is the rally in the worlds’ stock markets. On Wall Street, for example, the Dow rose 96 points yesterday. How far will this rally go? Should you try to take advantage of it?
As a rough rule of thumb, a bounce can be expected to recover half of the…Read more…
By Ian Mathias
07/31/09 Baltimore, Maryland
“We recommend taking some risk units off the table,” Jeremy Grantham begins today. Largely written off as just another alarmist “perma bear,” Grantham has developed this strange habit of being right quarter after quarter after quarter. In 1998, he said the S&P 500 would return a negative 1.1% annualized over the next 10 years… which was exactly correct. In May 2007, he called for the pop of a “truly global bubble”… right again. Then at the end of the first quarter this year, he told his GMO investors to buy… yet again, nailed it.
This week, he’s telling you to get out.
“A year ago, equities globally — and everything else, for that matter — were very overpriced, particularly if they were risky,” reads his quarterly letter to investors. “A quarter ago, in mid-March, prices everywhere were cheap. Now they have all — or almost all — converged for a few unusual moments at fair value… It’s difficult to be inspired at fair value.
“Given our view that we are in for seven lean years in which the market will be looking for an excuse to be cheap, we recommend taking some risk units off the table, including becoming underweight in equities — between 1,000-1,100 on the S&P, if it gets there this year. Around 880, you should continue to move slowly to fair value, twiddle your thumbs and wait to see what happens. Boring!”…Read more…
By Bill Bonner
07/31/09 Paris, France
For whatever reason, the French newspaper, Liberation, chose to recall a grim event last week. On February 4, 1912 Franz Reichelt, also known as the ‘flying tailor,’ put on his contraption – a homemade outfit designed to work like a parachute – went up to the first observation level of the Eiffel Tower, hesitated…then stepped over the rail and jumped.
Alas, he did not fly. Nor even float. He fell “like a stone,” the paper reported.
Immortality was achieved, but not the way he had hoped. His stunt was captured by the new motion picture technology of the time. That silent film inspired the very popular Jackass videos, which show people engaged in reckless acts of mischief and mortality.
But we do not have to go to Youtube to enjoy the Jackass genre. We have only to read the news. All over the world the authorities are strapping on their absurd parachutes…and climbing to very high places. In Europe, banks borrowed 442 billion euros last month from the European Central Bank. Much of it is lent back to European governments. In America, stimulus funds are used to fix public toilets, as well as to repair Wall Street’s balance sheets. Trillions of dollars have been put at risk in these adventures – $23 trillion in the United States alone. And yet, despite the most daring experiment in stimulus ever, by the end of June, the British economy was 5.6% smaller than it had been a year before, paralleling the decline that followed the crash of ‘29. As for the United States…we await the figures…
On…Read more…
