Page 1 of 2 A nasty blizzard
By Julian Delasantellis
Every so often, US local TV news broadcasts, continuing their monomaniacal
obsession to show everything that their viewers will watch except real news, go
out after a blizzard to interview little children enjoying their day off from
school.
A microphone will be thrust into a little pink face peeking out from behind the
hat, muffler and snowsuit hood.
"What do you think of the snow, young fellow?"
"Golly! This is the worst snowstorm I've ever seen! It must the worst that's
ever been!"
And that's a lot like what you're hearing from the stock peddlers in
the brokerage business, along with their well-paid flacks in the business
media, concerning the world stock market selloff these days.
The lyrics may change a bit over time, but as Led Zeppelin sang three decades
ago, the song remains the same. Just a few months ago, stock peddlers and their
fellow travelers were advising one and all to hit their mouse buttons and buy
until their fingers bled dry, for all the blather about this so-called
"subprime crisis" that everybody was talking about was just press-generated
palaver, all of it a pure invented castle in the sky from the grubby fingers of
ink-stained socialist media wretches, green-eyed with jealousy that they
weren't borrowing and making millions in the great and bountiful leveraged
markets like everybody else.
As you can imagine, this tune has certainly changed. Now, it's not that things
won't get bad; it's just that they can't get much worse. If you still have any
money left (like if you did not follow their advice to buy up when stock prices
were a lot higher than now) now's the time to buy, buy, buy!
Even Warren Buffett, the pontiff of America's worship of money, got into the
act. In an October 16 New York Times op-ed, delivered ex cathedra from his Holy
See in Omaha, Nebraska, he told those in the pews that "I've been buying
American stocks. This is my personal account I'm talking about, in which I
previously owned nothing but United States government bonds. (This description
leaves aside my Berkshire Hathaway holdings, which are all committed to
philanthropy.) If prices keep looking attractive, my non-Berkshire net worth
will soon be 100% in United States equities."
Well, if Buffett says so, it must be true, right? This must be the time to buy
- do it now, why wait until this afternoon following lunch, when there are so
many great bargains to be had right now?
By any measure, across any time period of analysis, stocks are having a
horrible time. Japan's Nikkei index, after falling 6.4% on Monday, has lost 53%
of its value this year; it is now back to where it was last in 1982, when the
Western public's conception of a Japanese car was not a big, meaty-engined,
leather-wrapped Lexus but a little 1.2 litre Toyota Corolla.
The previously hot BRIC (Brazil-Russia-India-China) stock axis, just last year
the sizzling investment pick with everyone from Greenwich hedge fund managers
managing billions to Indiana stock-club housewives loading up on ETFs, have
found their comeuppance as well. According to Michael Mackenzie in the
Financial Times, just this year these four countries' stock markets are off an
average of 61%. London's FTSE index is down 21% just this month, 40% year to
date. In the United States, the Dow Jones Industrial Average, S&P 500 Index
and NASDAQ composite are down 24%, 27% and 28% respectively this month to
Monday, 38%, 41% and 37% in the year to date.
Some commentators are even saying that October 2008 will be the worst month in
stock market history (Oh, do they have data from the Carthage Stock Exchange
after Scipio Aemilianus sacked the city in 146 BC? Were there commentators who
watched the live feed of Odysseus' delivery of the Trojan Horse and then put
out a sell recommendation on the Troy Stock Exchange?) If the purported worst
month in stock market history is not an occasion to buy, what is?
Maybe yes, maybe no-no-no.
Many of the buy-now crowd point out that, if you search through the history of
the bear markets the US stock exchange has suffered since the end of World War
ll, current circumstances are particularly nasty.
America's first postwar bear market commenced in the middle of 1946, as worries
grew that the nation would have difficulty transitioning from a wartime to
civilian economy. Peak to trough, it generated a 23% decline in the Dow, but by
the early 1950s stocks were firmly back in rally mode. A tightening in monetary
policy in 1957 led to a bear market that year, with stocks falling 19%. A 27%
bear market greeted president John F Kennedy from 1961-1962; a 25% bear market
from 1966 to 1967 accompanied the fears that mobilizations for the Vietnam War
would stoke inflation.
The surge of inflation that caused president Richard Nixon to close the gold
window and impose wage and price controls led to a 38% selloff in the early
1970's, The economic displacements of the first OPEC oil shock led to a
two-year, 45% decline that bottomed out in 1975; Jimmy Carter's inflation led
to a 26% decline in 1978. The second oil shock led to a 16% decline to 1980,
and Paul Volcker's punitive short-term interest rates, intended to bleed the
economy of its 1970s inflation, led to a 24% bear market that only ended with
the demands of the 1982 Mexican financial crisis forcing Volcker to cut rates,
and, in doing so, ignite the great boom of the last quarter century.
A 15% selloff accompanied the return to interest rate hikes in 1984, then, late
summer and early fall of 1987 saw a 36% stock market selloff, with 22% of that
on Black Monday, October 19. The late 1980's savings & loans crisis caused
a 21% pullback that coincided with Saddam Hussein's August 1990 invasion of
Kuwait. Then it was nothing but blue skies from there, as then Federal Reserve
chairman Alan Greenspan's record low interest rates kicked in. Between 1990 and
the next significant pullback, the 1998 selloff spurred by the LTCM hedge-fund
fiasco, the Dow rose by a factor of four; the 19% selloff that followed was
quickly gained back, and then off went the market, destined for the great
dot-com blow off top of summer, 2000.
From its peak in the summer of 2000 to the lows in mid-2002, the Dow was down
32%. The NASDAQ was down 78% - that index has never really recovered. Then came
Greenspan's even lower interest rates of 2002-03; the subsequent boom, and the
crash that so bedevils all our waking hours today.
You can see the thinking of those who contend that stocks have fallen so far
that it's time for them to rally. Only the first oil shock induced by the
Organization of Petroleum Exporting Countries in 1973 engendered a selloff even
near the current wretchedness, If the wisest counsel as regards to stocks is to
"buy low-sell high", by these measures, US stocks are lower than they've been
in over 60 years.
But why are these analysts only commencing their investigation in 1945? They
would probably say that it's because that only comparing current events to
recent history makes any sense. But what if current circumstances more closely
resemble a further off past then the recent past?
Let's say, sometime in the near future, a Western industrial democracy is taken
over by revolutionaries, fire-breathing radicals, maybe even anarchists, who
value absolute human freedom in all matters of life, superceding any other
interest of society.
How far does this passion for freedom extend? Well, these guys don't even want
to be constricted by society's mandate to flush the toilet after use. No, they
want the freedom to just fling their fresh detritus out the open window
following its generation, and no collection of hidebound social mores is going
to stop them.
Of course, like many revolutionary ideologies, this brave new world of sewerage
disposal is just harkening society back to a place back before living memory.
This revolution's new paradigm is very much how most Western urban areas
handled their waste issues up to the industrial revolution. In many areas of
Africa, it continues to be the unfortunate and unhealthy standard operating
procedure.
Plus ca change, plus c'est la meme chose, say the French; the more
things change, the more they stay the same. It's the epitaph that should be put
on the headstone of every revolutionary. Or, as The Who in 1971 sang in their Won't
Get Fooled Again - "meet the new boss - same as the old boss."
Besides the absolutely obvious fact of a whole new experience when walking down
the street, the citizens of the new, liberated epoch experience a few other
things they were previously unfamiliar with. One would be the return of
diseases the society had dealt with and thought it had conquered many years
previously, maladies such as typhus, cholera, bacillary dysentery, even bubonic
plague.
"Gee", the people might wonder. "If the post revolutionary world is so great,
why are we so beset by miseries previous generations had disposed of so many
years previously?"
Well, starting around 1980, a group of fire-breathing radicals actually did
impose a new, revolutionary regime on the financial
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