Warnings from the President: This Is a Bear Market Rally 83 comments
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Okay, well not the current President, but If you listen to our President from three decades ago, he would tell you that we are in a bear market rally that is going to come to an end very soon. It’s irrelevant to me even should U.S. markets rally for several more days or several more weeks because the fundamentals behind this rally are lousy. Though the speech found below is more than three decades old, history does have a way of repeating itself and one can use many of President Nixon’s points to illustrate what will happen in the future with our current economic crisis. Interestingly enough, given the comments in his speech, U.S. President Richard Nixon, also known as Tricky Dick for his deceitful ways, could have easily spotted the fundamental flaws in this current global stock market rally led by U.S. markets.
President Nixon hit the nail on the head with almost all of his observations in this particular speech save one huge deception. In this speech which dates back to 1971, the President repeatedly referred to international money speculators as the ones that caused great harm to the U.S. dollar, the American economy and the wealth of American families with the clear implication that these international money speculators were not American, but foreign elements. When I critically evaluate specific facets of his speech below, I’ll reveal exactly why President Nixon earned the moniker of “Tricky Dick”.
Here are what I believe to be the most relevant comments from Nixon’s speech to our current global monetary and financial crisis:
“We must protect the position of the American dollar as a pillar of monetary stability around the world. In the past 7 years, there has been an average of one international monetary crisis every year. Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them.”
In this case, President Nixon was correct that the international money speculators deliberately create crises for personal gain against the best interests of their fellow countrymen and also as a means to consolidate and increase their power. However, Tricky Dick failed to reveal that the biggest element of the “international monetary speculators” was (1) a domestic threat, the owners of the U.S. Federal Reserve; and (2) an allied threat, the owners of the Bank of England. Thus, he convinced the American people in 1971 that ending the Bretton Woods agreement was beneficial. Time has clearly proven this not to be the case.
“One of the cruelest legacies of the artificial prosperity produced by war is inflation. Inflation robs every American, every one of you. The 20 million who are retired and living on fixed incomes – they are particularly hard hit. Homemakers find it harder than ever to balance the family budget. And 80 million American wage earners have been on a treadmill. For example, in the 4 war years between 1965 and 1969, your wage increases were completely eaten up by price increases. Your paychecks were higher, but you were no better off.”
Again, very true. Everyone that understands how our fiat monetary system operates would never debate this point. In fact, the very same situation that manifested itself in 1979 will soon come true in the U.S.. The hardest hit by the monetary fraud imposed upon the world by the international money speculators will be the segment of the global population that is retired and living on fixed incomes unless they appropriately protect themselves now by utilizing insightful wealth creation strategies that incorporate a hedge against inflation. But let’s examine other parts of his speech in which Nixon was less than forthright in his revelations to the American public about his plans and intentions.
“America today has the best opportunity in this century to achieve two of its greatest ideals: to bring about a full generation of peace, and to create a new prosperity without war. This not only requires bold leadership ready to take bold action – it calls forth the greatness in a great people. Prosperity without war requires action on three fronts: We must create more and better jobs; we must stop the rise in the cost of living; we must protect the dollar from the attacks of international money speculators.”
“In full cooperation with the International Monetary Fund and those who trade with us, we will press for the necessary reforms to set up an urgently needed new international monetary system. Stability and equal treatment is in everybody’s best interest. I am determined that the American dollar must never again be a hostage in the hands of international speculators.”
Again, there is much truth in these above declarations by President Nixon. I 100% agree with President Nixon’s statement that with the implementation of a sound monetary system, America would have undoubtedly created a new global prosperity that fostered global economic stability and thus, much less incentive for war. I also 100% agree that prosperity is created by increasing sustainable economic growth and increasing real wealth, not by creating an illusion of wealth through inflation. But this is not what happened. Instead, President Nixon morphed into his “Tricky Dick” persona with the following two statements – “We will press for the necessary reforms to set up an urgently needed new international monetary system” that will “protect the dollar from the attacks of international monetary speculators” .
Back then, in 1971, President Nixon, under the guidance of then Undersecretary of the U.S. Treasury Paul Volcker (and present Chairman of President Obama’s Economic Recovery Advisory Board), stripped all Americans of the last remnants of a global monetary system that could protect them. Instead, when he ended the Bretton Woods agreement and the U.S. dollar’s link to gold, he deceitfully turned over absolute control of the global monetary system to the very “international money speculators” he continually attacked in his speech.
Though Nixon deliberately conjured up images of shady, backroom-dealing foreign interests attacking the strength of the U.S. dollar by coining the term “international money speculators”, in reality, his refusal to specifically identify these parties was due to the fact that the most powerful members of the “international money speculators” were the U.S. Federal Reserve and the Bank of England.
One of the most relevant statements in President Nixon’s above speech that every leading government economic adviser should heed in determining the monetary policies for their respective countries is the following - “the strength of a nation’s currency is based on the strength of that nation’s economy.” This is true. Given the huge fundamental weakness of the U.S. dollar, if one believes Nixon’s comment, then one can dismiss all the comments made by U.S. government and financial pundits that this crisis has finally bottomed.
Again, one of the clearest indicators of whether or not one should trust such public comments is to examine the ulterior motives of such people against the backdrop of their previous predictions. For example, when U.S. Federal Reserve Chairman Ben Bernanke recently stated that the economy was turning around, given that he has been grossly wrong innumerable times in his economic predictions within the past two years, why continue to assign any merit to his comments?
Remember, I warned that a big correction would likely be on the way in May in this article where I stated, it “would be best to heed the old investor cliché of Sell in May, Go Away.” If you still believe this is the start of a new bull market, then listen again to Tricky Dick’s good advice from three decades ago. If you understand Nixon’s comments about inflation, and somehow this rally continues for 6 more months, the gains in the stock markets, if induced by serious inflation, can still leave an investor with no gains in real wealth and will merely be a bigger bubble waiting to pop.
This is precisely why it is imperative to incorporate a deep understanding of today’s monetary system in any of your wealth creation strategies going forward. Since banks need more time to recapitalize with public secondary offerings at their artificially inflated share prices, it is more likely now that the end of this rally is a couple of weeks away rather than just days away. Sadly enough, in the end, history seems destined to repeat itself once again.
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On May 16 05:32 PM TLassen wrote:
> The Conference Board's Leading Indicators are still negative, ref
> globalindicators.org
> careful with any stats coming from ECRI
You know who.....
ps. This hasn't happened yet, but it will soon. Since so many here have been brainwashed into the buy gold cult, I thought I would post this before it happens so I can reference it and say I told you so.
On May 16 12:19 PM thiazole wrote:
> The original argument was whether or not they've ever been wrong
> in calling a business cycle turn (ie, what are the odds they are
> wrong this time), and since you can't find an example of them being
> wrong, you're trying to change the debate to "why aren't they faster
> at predicting". WHO CARES??? Everyone here is sure the end of the
> world is here and the ECRI has said the recovery is right around
> the corner, and you think they make predictions after everyone else
> has already figured it out? .
On May 16 09:59 PM rockingandrolling wrote:
> If ECRI is so good at predicting these cycles - why don't they just
> play the market to make their big money....instead of charging a
> pitance of 20K for Fortune 500 subscriptions? Seems like they could
> make a lot more money....
There is little data to support any recovery better than that following the 2001 contraction. The labor force has changed so much since 1992 and 1982 that comparisons have limited value. Lost jobs at GM and Chrysler will not be coming back. Construction employment and spending will not return to peak levels seen in recent years.
On May 16 09:38 PM thiazole wrote:
> Well, it looks like the buy gold leaders are starting to acknowledge
> the fact that we will see a V shaped recovery, so soon they will
> be alerting their mindless followers that all GDP growth during the
> second half of this year is just "monetary manipulation". When we
> do have an economic recovery and see very big GDP growth numbers,
> instead of admitting that they are wrong, they will just say that
> it is "fake" and deny it until the next recession hits.
>
> ps. This hasn't happened yet, but it will soon. Since so many here
> have been brainwashed into the buy gold cult, I thought I would post
> this before it happens so I can reference it and say I told you so.
On May 16 12:19 PM thiazole wrote:
> The original argument was whether or not they've ever been wrong
> in calling a business cycle turn (ie, what are the odds they are
> wrong this time), and since you can't find an example of them being
> wrong, you're trying to change the debate to "why aren't they faster
> at predicting". WHO CARES??? Everyone here is sure the end of the
> world is here and the ECRI has said the recovery is right around
> the corner, and you think they make predictions after everyone else
> has already figured it out? Do you really think knowing the 2001
> recession was real in April 2001 was too late? Really? Take another
> look at some index charts and tell me that again. And did everyone
> already know that recession had taken hold? There was a survey of
> economists from the summer of 2001, as I recall, that showed that
> 95% of economists didn't think we were in a recession yet.
>
> I don't really get most of your posts. It seems you are refuting
> things that can't be refuted. You say he won't predict whether or
> not this will be V shaped of not - first, he predicted in January
> 2002 that the recovery then would be a jobless recovery - in fact,
> I think he may have coined the term. Right now, he is saying there
> is an 80% chance of a V shaped recovery. But, admittedly, those
> are speculative calls - even though they are "usually right" about
> call like that, that isn't their bread and butter. Their job is
> to call turns in the business cycle, and they have called one and
> so you are trying to discredit them with petty nuances.
It also shows you how little you understand the actual economic numbers (or is it just the math?). The stimulus package is a LOT of why we'll see a V shaped recovery. So far, only a VERY small % of the stimulus package as been injected into the economy (something like $40 billion over the past 6 months). As I recall, starting this summer, they are planning on injecting $75 billion every quarter into the economy. How much is that? It seems very small, doesn't it? Well, the current GDP is about $11 trillion, so $75 billion is about 0.7% of $11 trillion. But the GDP isn't clicking at $11 trillion per quarter, but per year, so you need to multiply the stimulus by 4 quarters to see what impact it ALONE would have on the GDP: 0.7 X 4 = 2.8%. So the stimulus ALONE will account for 2.8% of the entire GDP in the 3rd quarter. That means if you were expecting to see negative 2.8% growth in the 3rd quarter, then you should be expecting 0%.
Now couple that with the fact that if you read the charts of things like month over month retail sales, industrial production, durable goods orders, that the rate of economic contraction is CLEARLY tapering off compared to what was happening during the last two quarters (I know, bears only like looking at YOY charts because it makes things look worse than they are - quarterly GDP growth could give a crap less about what was happening a year ago, though). It would be PESSIMISTIC to assume 4% GDP contraction for the 2nd quarter - probably more like 2%. Assuming the rate of trajectory, that would easily be 0% or even growth in the 3rd quarter. Now add in the 2.8% from the stimulus, and then think about what happens if the stimulus actually does what it is supposed to do - we'll have inventory shortages in no time and that is what causes a V shaped recovery. It will be just like 1975. Go look at the historical GDP and employment numbers for 1974-75 to see what a V shaped recovery looks like (or almost any deep recession like this one for that matter).
Another thing the ECRI has pointed out is that V shaped recoveries aren't all that they are cracked up to be - they usually create inflation, new bubbles, and are often followed by another recession in a shorter period of time than a U or L shaped recovery. So if you just get your jollies on pessimism, you can always look forward to that.
On May 15 09:53 AM thiazole wrote:
> **** I hate this forum. One more time:
>
> home.comcast.net
> /~thiazole/
> 1974vs2008DowChart
> Recentered1.JPG
On May 17 10:54 AM thiazole wrote:
> Well, now you guys have shown your hands. If I said something ridiculous
> like "democrats are better for the economy, and that is why it will
> be V shaped", they you'd think I just didn't know what I was talking
> about and dismiss me outright. Unfortunately, your latest posts
> are the equivalent of that and show how little you guys have actually
> studies previous recessions. The reason the ECRI said "80%" is because
> 80% of very deep recessions like this one in the past have been followed
> by a V shaped recovery, while mild recessions like the last two are
> usually followed by L or U shaped recoveries. It just goes to show
> you why guys are so out of touch with what is going on, since you
> don't realize this indisputable fact of history.
>
> It also shows you how little you understand the actual economic numbers
> (or is it just the math?). The stimulus package is a LOT of why
> we'll see a V shaped recovery. So far, only a VERY small % of the
> stimulus package as been injected into the economy (something like
> $40 billion over the past 6 months). As I recall, starting this
> summer, they are planning on injecting $75 billion every quarter
> into the economy. How much is that? It seems very small, doesn't
> it? Well, the current GDP is about $11 trillion, so $75 billion
> is about 0.7% of $11 trillion. But the GDP isn't clicking at $11
> trillion per quarter, but per year, so you need to multiply the stimulus
> by 4 quarters to see what impact it ALONE would have on the GDP:
> 0.7 X 4 = 2.8%. So the stimulus ALONE will account for 2.8% of the
> entire GDP in the 3rd quarter. That means if you were expecting
> to see negative 2.8% growth in the 3rd quarter, then you should be
> expecting 0%.
>
> Now couple that with the fact that if you read the charts of things
> like month over month retail sales, industrial production, durable
> goods orders, that the rate of economic contraction is CLEARLY tapering
> off compared to what was happening during the last two quarters (I
> know, bears only like looking at YOY charts because it makes things
> look worse than they are - quarterly GDP growth could give a crap
> less about what was happening a year ago, though). It would be PESSIMISTIC
> to assume 4% GDP contraction for the 2nd quarter - probably more
> like 2%. Assuming the rate of trajectory, that would easily be 0%
> or even growth in the 3rd quarter. Now add in the 2.8% from the
> stimulus, and then think about what happens if the stimulus actually
> does what it is supposed to do - we'll have inventory shortages in
> no time and that is what causes a V shaped recovery. It will be
> just like 1975. Go look at the historical GDP and employment numbers
> for 1974-75 to see what a V shaped recovery looks like (or almost
> any deep recession like this one for that matter).
>
> Another thing the ECRI has pointed out is that V shaped recoveries
> aren't all that they are cracked up to be - they usually create inflation,
> new bubbles, and are often followed by another recession in a shorter
> period of time than a U or L shaped recovery. So if you just get
> your jollies on pessimism, you can always look forward to that.
On May 17 09:12 PM Chickenpookie wrote:
> thiazole - You need to visit tiny.com , this will fix the
> problem.
Real progress? None at all. We are going downhill and can only speculate on the very unpleasant end point.
On May 15 10:01 AM Sunnsea wrote:
> Good article, Dr. Kim. It all began with that speech and it has been
> downhill for the country, the economy and the American middle class
> since. Through 401ks,etc., increasing dependence on foreign oil starting
> with the '73 embargo, real wealth has been eroding except for the
> upper 1% who know how to abscond with every Fed interest rate cut
> and pump. Less and less of the Fed money goes to the anyone other
> than the upper 1%.
>
> Nixon's actions had the effect of immediately devaluing the dollar.
> This was the beginning of the great slide downward in the middle
> class in the US. Prior to August 1971 a person could buy a house
> and it would not cost 10 times salary and one person in a two person
> household could afford to stay home if they so chose. Now everyone
> in the family has to work and McMansions rule.
I personally just bought a rental property in the Phoenix area for about my yearly salary and am renting it out for a 40% profit margin. I can't complain about that. I also purchased the house I'm living in right now shortly before the rental property (my first house - I'd been waiting for this crash for the past 5 years) for less than my and my wife's combined income.
On May 18 02:08 PM bobbobwhite wrote:
> In 1971 I bought my first home for about what I made in salary for
> a year. Today, that very same house costs 4 times what I make in
> a year. My parents together made 5-6 times less per year(50s,60s,70s)
> than I do now and they lived better, all things considered. What's
> it all mean?
>
> Real progress? None at all. We are going downhill and can only speculate
> on the very unpleasant end point.
>
On May 15 11:25 AM debtacid wrote:
> Reasonable investors should expect the market to drop any day now
> but if reason prevailed, the dow would be under 1000. Political imperatives
> are driving the market now, not economic realities.
What is even more shocking is that he has 9 thumbs up for that statement and only 3 thumbs down. It just goes to show you the irrational pessimism on this forum when 3/4 of the people think the Dow should be at the same level it was back in 1973 when the GDP was only $1.3 trillion! It certainly makes me feel better about all the thumbs down I get - if I have to say something like that to get a thumbs up, then give me the thumbs down!
On May 18 03:37 PM punk_ash wrote:
> Dow at 1000</SPAN>?? Now that is ridiculous. I think 6000 may be
> a better target worse case.
Or maybe you're right about irrational pessimism.
On May 18 04:39 PM thiazole wrote:
>
> What is even more shocking is that he has 9 thumbs up for that statement
> and only 3 thumbs down. It just goes to show you the irrational pessimism
> on this forum when 3/4 of the people think the Dow should be at the
> same level it was back in 1973 when the GDP was only $1.3 trillion!
> It certainly makes me feel better about all the thumbs down I get
> - if I have to say something like that to get a thumbs up, then give
> me the thumbs down!
>
> On May 18 03:37 PM punk_ash wrote:
tinyurl.com/pelltm