Are our worst days behind us? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 1 August 2014
Are our worst days behind us? A  A  A

Paris, France

Dear Diary,

What was that sound? Did you feel a little bump?

Nah...don't worry about it. Go back to your cabin and have a good sleep.

Just when things were going so well! With all that GDP growth! All those new jobs! We were all set to believe that the US economy really had recovered from the shock of '08-'09.

What does the stock market know that these happy numbers aren't telling us?

Yesterday, the Dow dropped more than 300 points. Gold fell $14. There may be nothing more to this than a case of the jitters. Or, could it be something more?

Remember, if we could just avoid our worst days...the ensemble of our lives would be much, much better. Think how nice Julius Caesar's life might have been if he had just stayed home on the Ides of March, as his wife, Calpurnia, advised. Think how much better the passengers would have enjoyed their cruise if they could just forget the night the Titanic hit an iceberg. As for investors, had they just stayed in cash for the 10 worst days in the last 25 years, their annual rate of return would have been about 60% higher.

--- Advertisement ---
Are You Worrying More About Investing Than Actually Investing?

We are sure you're no stranger to the concept of diversifying investments.

The thing is no matter how simple it sounds, it can be a really tedious task.

Sure, you know what Blue Chips are... Maybe you can list out a couple of Mid Cap stocks too.

And you probably even remember hearing about some obscure Small Cap stocks.

But can you truly say that you understand the stocks that you're buying with the little information that you get from business channels or newspapers?

If you're serious about investing, you need to roll up your sleeves and do some ground work.

Analyze the financials of these stocks, assess economic and business conditions, and then pick the best ones for your portfolio.

Sounds like a lot of work? Alternatively, you can leave all that to us.

While you focus only on that which matters to you the most... investing to grow your wealth! Click here for full details...

Don't worry. Yesterday was hardly one of the 10 worst days. It wasn't a good day. But it wasn't terrible. Just a bump. Which makes us wonder. Are our worst days behind us, like icebergs astern? Or ahead? If so, where?

The news this morning mentions two proximate causes of the sell-off. The sanctions on Russia...and the default by Argentina.

As to the default by Argentina, anyone who claims surprise must not be paying attention. Argentina has always been a poor credit risk. The gauchos have a whole different attitude towards paying their bills.

Down on the pampas, when you stiff your creditors, you don't hide your head in shame and look for a loaded revolver. No, you go on TV and explain why you are a national hero. That's what Axel Kicillof did. He's the economy minister. And he's angling to become the next president of Argentina. Cristina Fernandez de Kirchner, the present office-holder, is desperate to help him. Because if she can get Mr. Kicillof to fill her shoes, she can retain a bit of power herself...maybe enough to keep herself out of jail.

The story is complicated by a report that suggests the default was more a result of incompetence than of political posturing. Mr. Kicillof said he made the payment, as required. The transfer, however, was not received by the deadline, and has been blocked in the custodian bank, New York Mellon.

All of which makes us wonder if a single investor was really surprised by the default...and whether it really had anything to do with yesterday's stock market sell-off.

The same thing could be said for sanctions against Russia. Who didn't see that iceberg? Who thinks his US stock - IBM, GE, AMZN, whatever - is worth less today than it was yesterday because Russian firms now face a less friendly world?

Our guess is that these news items have little effect on the real value of US stocks. Instead, investors are worried about something else. Perhaps they fear that the outlook for the economy is not as bright as they had believed. Maybe they ask themselves why they pay so much money for companies whose profits must already be peaking out and whose growth is in doubt. After all, even with ZIRP, TALF, the Twist, and every other stimulus measure the feds could think of, the real growth of the US economy has been only 0.9% per year for the last 7 years. What will happen when it is 'normalized?' And isn't normalization on the way?

"If the labor market continues to improve more quickly than anticipated," says Ms. Yellen, "then increases in the federal funds rate likely would occur sooner and be more rapid than currently envisioned."

In the White Sea...the South Atlantic...? We don't know where the iceberg is, but we have no doubt that this market will find it.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Get The Daily Reckoning directly
in your mail box.
Just enter your e-mail address » 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "Are our worst days behind us?". Click here!


Recent Articles:
Will They Haul Off Trump's Statue, Too?
August 16, 2017
All across the country, the old gods become devils. New, gluten-free gods take their places...
Farm Loan Waivers: Why Bad Economics Makes for Good Politics
August 14, 2017
It is because the negative effects of the waivers aren't clearly visible.
The Most Important Innovation in Finance Since Gold Coins
August 10, 2017
Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.
The Most Profitable Investment in the History of the World
August 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'