Yesterday brought mixed news. The Dow dropped 120 points. The dollar
rose slightly, leaving the euro above $1.57. Gold remained a little
below $950.
The Wall Street Journal calls the last ten years a "lost decade" for
stockholders. The S&P is now about where it was in 1999. Stock market
investors are ten years older and wiser; but not a penny richer.
And now they're beginning to wonder about the whole scheme of things.
The stock market was supposed to make them rich. "Stocks for the long
run," was the mantra of the late '90s. Buy...hold...you can't go
wrong. But 10 years seems like a long time. If they don't go up in a
one decade, what makes buyers think they'll go up in the next? Plus,
even now, the S&P still trades at a P/E over 18 - which isn't cheap.
It seems as likely that stocks will go down in the next 10 years as
up.
And, of course, there's the housing market. Ten years ago few people
doubted that if they just put money into property and left it there,
they would make a good profit. For quite a while, it seemed to be
true. But now, for the first time in U.S. history, housing prices are
falling nationwide. They're down about 11% from the peak...and leading
economists think they have another 20% - 30% to go. What's worse,
Americans are realizing that it costs a lot of money to hold onto a
position in property. There are bills to pay - taxes, utilities,
maintenance...all of which seem to be going up.
You could add to those things the growing realization that wages in
the United States are not going up. This inconvenient truth was masked
- for more than 30 years - by rising household incomes and increasing
debt. Real wages per hour didn't go up, but more Americans worked and
put in more hours. Then, they turned to credit cards and housing
finance to increase their spending power. Both of those avenues have
come to dead ends recently.
But here's a little bright spot. According to a Bloomberg re****t, the
Fed's efforts to loosen credit really have done the job. Mortgage
resets have been much less of a problem than anticipated - because the
resets are linked to Libor, which has been pushed down by central bank
action.
Of course, people are still losing their homes in record numbers - but
it's not necessarily because of the mortgage resets.
Also, the feds are looking at various plans to bail out homeowners in
advance of the upcoming elections. Neither party wants long lines of
angry, homeless voters lining up at the polls in November.
But the malaise that is spreading over America is more than just a
matter of numbers. Ten years ago, America seemed invulnerable. Its
money was on top of the world. Its military could take on the entire
rest of the planet, if necessary. Its stocks were flying. Its houses
were rising. Its financial institutions were the most dynamic,
innovative and solid on earth. Nothing could stop it.
We argued then that when nothing can stop you, everything will. And,
in the event, everything did. Ten years later, stocks have gone
nowhere...housing is on its way down...the Pentagon is gummed up in a
trillion-dollar war it can never win...and Wall Street has revealed
itself not as cunningly cupid, but as blunderingly stupid.
More than that, the fantasy failed. Americans permitted themselves
such an extravagant conceit that they practically begged the gods to
punish them. "They sweat; we think," was the gist of it. They allowed
themselves the illusion that their new, post-Reagan, Internet-savvy
capitalism would make them rich without saving money...and without
actually producing anything. They thought the rest of the world would
extend them boundless credit - forever. Now the scales are falling
from their eyes...they're beginning to see things more clearly. As a
result, consumer confidence has dropped to the lowest level more than
30 years. Most people think things are bad...and few think they will
get better. In the history of such surveys, never have so few people
expected their incomes to increase over the next six months - less
than 15% of those polled.
By Bill Bonner
The Daily Reckoning
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