Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
Donald Trump Failing to Recover After 1st Debate Hillary Shimmy Loss - Betfair Betting Market - 30th Sept 16
BEA Revises Q2 2016 US GDP Growth Upward to 1.42% - 29th Sept 16
Could the OPEC deal set stage for the Next Stock Market Risk Rally? - 29th Sept 16
Why Trump Lost, Hillary Won the 1st U.S. Presidential Debate - 29th Sept 16
Is a Dollar Crash Imminent After the Senate Overrides Obama Veto on Saudi 9/11 Bill? - 29th Sept 16
2017: Gold and Silver's Year of "Public Recognition" - 29th Sept 16
Did Trump Win the 1st US Presidential Election Debate? - There's Something Happening Here... - 29th Sept 16
FED Goes from ZIRP to NIRP! - 29th Sept 16 - Chris_Vermeulen
Here’s Why You Should Be in Cash Right Now - 28th Sept 16
The Fed Put a 50% Tax on Your Retirement Plan - 28th Sept 16
Massive Chinese Debt And Why They Are On A Gold Buying Binge! - 28th Sept 16
Stocks Commodities and FX Markets Waiting Technically While Fundamental Data Neutral Poised - 28th Sept 16
This Commodity Has Perked Up its Investors' Portfolios - 27th Sept 16
Charting the Continuing Gold Market Correction - 27th Sept 16
Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - 27th Sept 16
Financial Markets and FX Setups 27th Sept - 27th Sept 16
Crude Oil, Forex and Stock Market Trend Forecasts - 27th Sept 16
Why There is Trump - 27th Sept 16
Save Up to 70% in Shopping Expenses for Daily Items - 27th Sept 16
Gold’s Moving Averages and Long-Term Outlook - 26th Sept 16
September Stock Market - The Not So Silent Demise of Deutsche Bank - 26th Sept 16
SPX sell signal confirmed - 26th Sept 16
SPX is testing the next level of support - 26th Sept 16
Outrageously Entertaining US Presidential Campaign Final Stages - What Happens Next? - 26th Sept 16
BoJ, FOMC and Where To Now? - 26th Sept 16
Stock Market New All Time Highs Next - 26th Sept 16
Why Trump Will Win US General Election 2016 Prediction Forecast - 26th Sept 16
Martial Law Rolls Out Across the US As Jubilee Nears - 26th Sept 16
Stock Market More Correction Likely - 25th Sept 16
US Presidential Election Forecast 2016 - Trump Riding BrExit Wave into the White House - 25th Sept 16
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

Stock Market Investors Mindset of Guaranteed Economic Destruction

Stock-Markets / Stock Market Sentiment May 30, 2009 - 12:36 PM GMT

By: LewRockwell

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleGary North writes: Most people will not change. Too radical. Not going with the flow. Not betting against the herd.

The best examples in the 20th century were Jews in Germany in 1933. They stayed. This included Jewish bankers, all of whom could have left. They thought they could deal with Hitler. They did not read Mein Kampf. They did not take it seriously.


About 7% did leave early: 38,000 out of 523,000. More left after 1938. By 1941, about 160,000 remained in Germany. Then emigration was closed by the Nazis. Earlier, it was encouraged. The data are here.

At some price, almost all could have left. There were countries that would have let them in. They would have had to learn a new language. They would have arrived in poverty. But Jews had faced those options ever since the Assyrian captivity in the eighth century B.C. So what?

They all would not have escaped the Nazis. Some would have moved to other European countries that were overrun by Germany after 1939. But they could have tried to get away. They stayed. They refused to acknowledge the warning signals. "It can't be that bad." It got worse.

Jews had an answer for worrywarts. "No problem. We can handle it."

The Armenians went through the same thing. The Turkish massacres of 1895 were a foretaste. Most stayed behind. Then came the genocide of 1915.

NO PROBLEM!

Look back at the economy in October 2007. The Dow was at 14,000. The banks were booming. Real estate was down a little, but the experts gave no warning. They were wrong. All of them.

The U.S. government is running a $1.8 trillion deficit this year. Federal tax receipts are down 34%, which means that the deficit will go above $2 trillion. No one cares. No one says, "This is the end. The American economy will never again be what it was."

Think "2007." Would you have believed that Chrysler and GM were both headed for bankruptcy? In October 2007 GM shares were at $43. Now they are at $1. There was an industry called investment banking. Bear Stearns, Lehman Brothers, and Goldman Sachs were not part of the commercial banking system. To survive, a few made the transition in September 2008. Some did not make the cut.

Merrill Lynch is gone. Bank of America and Citigroup were bailed out by the government. They would have gone under. They sell for a fraction of what they did in 2007.

And what do most people say? "No problem."

There is no problem for which their answer is not "no problem."

Medicare will go bust. Social Security will go bust. "No problem."

The unemployment rate keeps rising. "No problem."

When people refuse to face reality, because reality is going to be more painful than anything they have experienced, they look for signs that the problems they cannot avoid without changing are really not that bad. They look for offsetting good news.

They think the status quo ante will return. The U.S. government is about to spend another $30 billion to buy a dead carcass of a company. It has already spent $20 billion. "No problem."

The government will let the company stiff bondholders for $27 billion in exchange for 10% of the company, 72% owned by the government and 17% by the United Auto Workers medical insurance fund. "No problem."

Bondholders were originally told that it would take a 90% vote to authorize this. The government has changed the rules. It will determine after the May 30 vote by bondholders what percentage must approve. "No problem.

The company will never return to what it was. "No problem." People will not buy as many cars as before from a company run by the government and the United Auto Workers. "No problem."

The Dow rose 100 points on the rumor that the largest bondholders will accept the deal. The deal is a disaster, but investors are in "No problem" mode. Somehow, the wipeout is less of a wipeout.

Who is going to buy a GM car instead of a Japanese car? Here is a company that is about to break its contracts with thousands of its dealers. "No problem." Yet buyers are expected to trust a GM warranty.

Oldsmobile is gone. "No problem." Pontiac is going. "No problem." Cadillac sells its cars with an ad of a flash model putting the pedal to the medal. Hot stuff! The company thinks people with money will not see through this ad. The Cadillac division has lost its way. "No problem."

The price/earnings ratio for the S&P 500 is over 120. Traditionally, 20 was regarded a sell. The investor pays $120 on the hope that the stock will retain a dollar of earnings, and pay investors some minimal percentage of these earnings as dividends. "No problem."

We are watching the investment world adopting a lemming mentality that has always produced losses. "This time it's different. No problem."

CONSUMER CONFIDENCE

The Conference Board announced that consumer confidence is up to 55. The 50 figure is neutral. Yet consumer confidence is a lagging indicator historically. When it rises, the stock market usually falls.

The indicator is a reflection on what the stock market has done recently. To use consumer confidence as a justification for buying stocks is nonsense. This is like saying, "I will buy stocks because the public is confident, which based on the fact that stocks have risen." If that strategy worked, stocks would never stop rising.

Even hard-money newsletter readers are beginning to doubt that the recent good news is in fact "less worse than expected" bad news. This is the stuff of dreams that do not come true.

Readers look at the reports, and the reports look awful: falling home prices, rising unemployment, an astronomical Federal deficit. But the media say we are close to a bottom – the bottom of a crash that none of them forecasted.

Readers think, "by the standards of late 2007, what we are seeing daily was inconceivable." Optimists speak of a slow, weak recovery. Pessimists speak of hyperinflation and depression simultaneously. But as the chorus proclaims "No problem," the public mindlessly picks up this refrain.

"We have nothing to fear but . . . fear itself!" Yet as FDR delivered those words, Hitler was consolidating power in Germany. Stalin was beginning the purges. A quarter of the U.S. work force was unemployed. But Roosevelt began the refrain: "No problem." Four years later, unemployment was still 20%. The Federal deficit had ballooned. Happy days were not here again.

Your friends don't want to hear your pessimism anymore. They don't want to change. They will refuse to change.

In 1934, Ludwig von Mises realized that Hitler, an Austrian, would seek to bring Austria under German hegemony. He warned Jewish economists to leave. They had been his students at his famous seminar in Vienna. Fritz Machlup believed him, and came to the U.S. So did Gottfried Haberler. Mises went to Switzerland as a professor, leaving his great personal library behind. He fled to the U.S. in 1940, after France had fallen. He never got a full-time teaching job again.

A few listened. Most did not. "No problem."

HEARING, THEY WILL NOT HEAR

People count the costs of making a change. This is wise. Jesus taught:

For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish. Or what king, going to make war against another king, sitteth not down first, and consulteth whether he be able with ten thousand to meet him that cometh against him with twenty thousand? Or else, while the other is yet a great way off, he sendeth an ambassage [ambassador], and desireth conditions of peace (Luke 14:28–32).

In short, count the costs. This is what people have refused to do. They have counted the cost of doing something radical. It's high. They have counted the immediate cost of doing nothing new. It seems low. They prefer doing nothing.

But what about the long term? What about:

1. Retirement (no Social Security or Medicare)
2. The Federal Deficit ($1.8 trillion this year)
3. Federal Reserve's monetary base (doubled)
4. Falling house prices
5. Rising unemployment
6. The war in Afghanistan (forever, until our defeat)

"No problem!"

How do you reason with these people? Answer: you don't, if you value your time and your privacy. If you turn out to be wrong, you will be ridiculed or at least treated as a child. If you are correct, you will be hated. You will also be hit up for money. If you are a Christian, you will be told you are heartless. You will become a line of credit for those whose mantra was "No problem!"

They don't want to change. They will not change. They will not listen to you.

And when things turn out much worse than even most newsletter writers are forecasting, you will be hated. Are you prepared for this?

Do you have a real plan to deal with what is obviously an unfolding disaster: rising government ownership, massive deficits, rising unemployment, falling house prices, busted retirement pensions, rising interest rates (falling corporate bonds), and Federal Reserve inflation on a scale never seen in American history?

Or do you think you can delay. "No problem!"

CONCLUSION

We live in today's world. It's bad, but it's not a catastrophe. We must keep our heads above water.

A Tsunami is coming. In such a scenario, you have got to get out of the water and off the beach. But few people ever do, unless they have seen a tsunami. Few have.

Allocate some percent of your wealth to tsunami-avoidance. Do it quietly. Do not discuss this with your big-mouth brother-in-law.

What do you really think is likely to happen? Not what you would prefer will happen.

Think, "General Motors in October 2007"

Think Chrysler, Merrill Lynch, and Lehman Brothers.

No one saw it coming. It came.

Problems. Big, big problems.

    Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

    http://www.lewrockwell.com

    © 2009 Copyright Gary North - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife