Our poor mother.
Living with us for the last 10 years seems to have taken the spunk out of her. She’s decided to return to the United States. This morning, I’ll drive her to the airport.
With no time to write, we nevertheless pass along the following, adapted from a speech given last week in Vancouver:
Watching the news is a bit like watching a bad opera. You can tell from all the shrieking that something very important is supposed to be happening; but you don’t quite know what it is. What you’re missing is the plot.
Let us begin by noticing that this is a comic opera that seems as though it might veer into tragedy at any moment. The characters on stage are familiar to us — consumers, economists, politicians, investors, and businessmen. They are the same hustlers, clowns, rubes and dumbbells that we always see before us. But in today’s performance they are doing something extraordinary. They are the richest people on the planet, but they have come to rely on the savings of the world’s poorest people just to pay their bills. They routinely spend more than they make — and think they can continue doing so indefinitely. So do they go deeper and deeper in debt, believing they will never have to settle up. They buy houses and then mortgage them out — room by room, until they have almost nothing left. They invade foreign countries in the belief that they are spreading freedom and democracy — and depend on lending from Communist China to pay for it.
But people come to believe whatever they must believe when they must believe it. All these conceits and illusions — which we find so amusing — come not from thinking, but from circumstances. As they say on Wall Street, “markets make opinions,” not the other way around. The circumstance that makes sense of this strange performance is that the U.S.A. is an empire — whether we like it or not. It must play a well-known role on the world stage, just as you and I must play our roles — not because we have thought our way to them…but simply because of who we are, where we are, and when we are. Primitive people play primitive roles. They are no less intelligent than the rest of us. But they would be out of character if they began doing calculus. They have their parts to play just as we do. Sophisticated people play sophisticated roles. They are no smarter than anyone else…but you still don’t expect them to wear bones through their noses. We, citizens of the last, great empire, have our roles to play, too. And the empire itself, must do what an empire must do.
Now, if you deny that the United States is an empire, you are as big a fool as we are. For a very long time we resisted the concept. We did not want the United States to be an empire. We thought it was a political choice. We liked the old republic of Jefferson, Washington, the U.S. Constitution…the humble nation of hard money and soft heads; we didn’t want to give it up. We thought that if the U.S. acted as though it was an empire it was making an error.
What morons we were. We missed the point completely. It didn’t matter what we wanted. There was no more choice in the matter than a caterpillar has a choice about whether to become a butterfly.
At the end of last week, some of our faith in humanity was restored…
Addison Wiggin’s new book, The Demise of the Dollar (and why it’s great for your investments) was Amazon’s number one top seller, knocking Harry Potter off of his throne. (And thanks to LRC for highlighting it.)
Finally, we thought to ourselves, people have started to open their eyes to the truths about the state of our economy and the trouble with the U.S. currency. We breathed a sigh of relief.
Unfortunately, over the weekend, The Demise of the Dollar was pushed to number three — the boy wizard resumed his spot, and in second place is Why Do Men Have Nipples? (We swear that’s the real title.)
Now, while it may be a valid query, why men have nipples cannot possibly be more important than the fall of the U.S. So, dear reader, if you have yet to purchase your copy of The Demise of the Dollar, you can help get the book back to number one — where it belongs.
If there is a mean, things will regress to it. You can expect, relatively speaking, Asian incomes to rise and American incomes to fall. That is, of course, just what is happening now. In India, for example, real incomes have more than doubled in the last 10 years. In America there is some dispute about the numbers, but if there has been any income growth at all it has been slight.
Just to introduce a gloomy remark, we note that we are personally and individually regressing to the mean. The mean for a human being is death…or non-existence. A person walks the earth for only 3-score and ten, as it says in the Bible. The rest of the time, he is only a potential person…or a former person. For millions of years, he is either in the future…or in the grave. All of us in this room, happily, are enjoying that ever-so-brief period of exaggeration…of hyperbole…of extraordinary, mean-busting usualness we call ‘life.’ It is not for us to know the time or place when it comes to an end. But like all mean-reverting phenomena, only a fool would bet that it would never end.
For our own part, we do not particularly care when or how we meet our end. We just wish to know where, so we can avoid the place.
But betting against the end is just what most Americans are doing. They are borrowing and spending as if there were no tomorrow. And they are investing as though there were no yesterday. All they would have to do would be to look at the patterns of the past; they would see that it doesn’t make sense to buy at high prices — you can’t make money that way. The way people have always made money is by buying low and selling high. Doing it the other way around doesn’t work. Nor does borrowing and spending make you rich. Tomorrow always comes — at least it always has up until now — and you have to pay your debts.
Over time, prices go up and down. So do a lot of other things ebb and flow…boom and bust…bloom and wither. All of these phenomena go through predictable cycles that can be roughly modeled. Analysts study the cycles to try to figure out where in the habitual pattern we are currently. It is often frustrating work, because the patterns are rarely quite as regular and well-defined in the present as they appear to have been in the past. Still, it is a question worth asking: where in the cycle are we?
One of the ways you can tell where you are in the cycle is to look at what your friends and neighbors believe. Markets make opinions. When people you know are all of the opinion that stocks will rise 15% per year — indefinitely — you can be sure you are nearer to a top than a bottom. When people believe the opposite — that stocks will never go up — most likely, you are near a bottom.
Beliefs give us a clue to the larger cycles too. People play the comic roles that have been thrust upon them. They are bullish near the end of a bull market; they are bearish near the end of the bear market. If it were otherwise, the market could never fully express itself. If investors grew suddenly cautious while nearing an epic bull market peak, they would sell their stocks; the peak would never be reached. Or, suppose that after several years of soaring house prices homeowners came to believe that housing prices would fall? How could you have a proper housing bubble? How can you have a rip-roaring party without anyone getting drunk, in other words? How can people make fools of themselves if they are unwilling to take leave of their senses?
These are deep, philosophical questions, we understand. But they help us recognize where we may be in the cycle. As prices reach a loony excess, peoples’ ideas are loony too. Ergo, the loonier the ideas the more likely it is that a turning point is near; the wilder the party, the more likely someone will call the police.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.