Mar 10, 2010 Garth Turner greaterfool.ca
By September it will be clear to everyone this movie ends badly.
Got your party hat on? It’s anniversary time.
Ten years ago today we were at the zenith of the dot-com age. Nortel ruled. Pimply-faced kids with no business plan and a cool domain name were making millions in IPOs. The Nasdaq crested at 5,048, profits were without limit, buyers could not get enough and it was ‘different this time’.
One year ago today we were on the cusp of depression, staring into a cauldron of fear. The Dow and the TSE had collapsed, losing half their values in just a matter of months. Wall Street banks were in crisis, TV newscasts were wall-to-wall with layoffs and investors were stampeding for the exits. Canadian investors dumped equity mutual funds in droves, leaving billions on the table.
So what do these two events have in common?
Everything, of course. They show without qualification that when the herd gets moving, it’s usually in the direction of a cliff.
Those who gulped tech stocks in 2000 went on to lose up to 70% of the value of their investments – in fact, 100% in some cases. And those dummies who dumpstered their stocks and funds last March took a giant paper loss and turned it into a real loss, only to miss a 58% upward trajectory.
Greed kills. Fear kills. But going with the crowd is the deadliest move of all. That’s roadkill.
This brings us to now.
As I keep telling people silly enough to come and listen to me, this is one unpredictable momma of a time. Volatility is always with us. A 20% market dive could be but a heartbeat away. Real estate has peaked with only one direction in which to travel. Ditto for interest rates and bond prices.
So how can we tell what lies ahead?
Easy. Look around you. Watch Global news. Read the daily paper. Wander through Best Buy. Spend an hour at mls.ca. Then do the opposite – because most people have absolutely no idea of the potential danger they’re walking into.
As I’ve tried to point out here, the economy is hopped up on government meth and will be coming down over the next few months. There can be no meaningful recovery without new jobs being created. Higher taxes, inflation and interest rates are 100% certainties. And families have been on a debt binge for months, sating themselves on houses, hi-def wallhangings and whatever it is Martha Stewart sells.
But that’s just the obvious danger. Governments are even more out of control than we are. For example, Washington last month spent almost $10 billion more – per day – than it collected in taxes, which is a record. The US deficit this year will be $1.6 trillion, and by the time Barack Obama finishes, more debt will have accumulated during his watch than under all previous presidents.
What this means: our biggest customer is imploding. How can that be good for us?
Meanwhile Ottawa and the numbies who run the provinces are also chalking up record deficits, which forecasts higher taxes and fewer services, just as inflation and gas prices are also rising. The end result of all this should be crystal: we hit a wall.
For much of the past year, since it looked like the world would end but didn’t, people have been consuming far beyond their means. Since salaries haven’t increased and jobs have been lost, the difference between income and consumption has been debt. By September it will be clear to everyone this movie ends badly.
So, be a seller, not a buyer. Trade your bonds for equities. Get your assets in a shelter. Lock in your rate. Trash your debt. Buy commodities.
And when you hear thundering hooves, run.
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