A Rally in a Bull Costume

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Yesterday marked the one-year anniversary of the rally. The Dow rose a piddly 11 points. Gold sold off $1.

This rally has gone on for so long most people think it is not a rally at all, but a new bull market. Worldwide, it has taken equities up some 73%…making it one of the greatest rallies ever.

What are we to think? Are we alone in thinking it’s still a trap? What happened to the problems that led to the crisis of ’07-’09?

If you don’t think about it too much you might think everything is fine. Stocks are up. Business profits are up. GDP is up. Housing and unemployment seem to be stabilized. What’s not to like?

The recovery is a done deal as far as most people see it. The rescue efforts, initiated by the feds, were a big success…or so they believe. It has been 12 months since the bottom…and the world still has not ended. Everything is back to normal…isn’t it?

The problem in ’07-’09 was that too many people owed too much money.

And what has happened to change that? The net level of indebtedness in the US has actually gone up since ’07!

Huh? How’s that? We’re in a de-leveraging phase, aren’t we?

Well…yes…but only in the private sector. The feds are still adding debt.

Let’s look at the private sector first. There, we find unemployment still around 10%. Adult males in their prime working years, however, have fewer jobs than ever before. One figure we saw shows that only 4 out of 5 of them are working.

That is just the beginning of the problem for these fellows. They’re getting fewer college degrees, compared to women, than ever before. They’re earning less money too – again, compared to women. Fewer are the chief breadwinners in their households. And fewer are even in a household at all – more are alone.

Let’s not get distracted by the suffering of the masculine part of the population…

..we’re looking at what is going on in the broader economy. Is it healthy and growing? Or is the stock market just a honey trap…a bear market trap for the unwary investor?

The private sector is de-leveraging. Not only is the unemployment rate high, the typical family also lost a lot of money when its house went down in price. And since the typical householder is also in his 40s or 50s, he has to consider his retirement and how he’s going to fund it.

Stocks? While they’ve bounced back nicely, the stock market is still well below its highs…and still in a losing position over the last ten years. A 73% gain sounds nice, but it would take a 100% gain to recover the losses of the ’07-’09 bear market.

Houses? One out of four mortgaged houses is still underwater. In some new developments, the figure is as high as one out of two. And there is little likelihood that the owners will be high and dry anytime soon. People no longer expect to retire on the gains from their houses.

This leaves the middle-aged householder without much choice. He has to save money. Remember, the boom of the 2003-2007 period was caused by dis-saving. Now, a higher savings rate will mean less spending for many, many years. This is a fundamental and important change of direction for the economy. It will restrict business growth and restrain profit growth too.

So, is it possible to slough off the crisis and return to business as usual? Nope. Not possible. You can pretend that things are back to normal. You can act as if they are back to normal. You can invest as though they are back to normal. But you can also lose your money.

But they’re not normal at all. They’re different. The 1982 to 2007 period was…mostly…a boom time, caused by rapid increases in debt, asset prices, and consumer spending. The next period is…mostly…a bust time – when asset prices, private debt, and consumer spending go down.

Sooner or later, but probably sooner, the stock market will realize it. Our Crash Alert flag – tattered and faded – is still flying.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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79 Comments on "A Rally in a Bull Costume"

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Jim brown
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Is there any one out there that can help.I am nearing retirement and have my own DIY fund. All the financial advisers i have used have profited at my expense and they advise only for their own benefit. I therefore abandoned advisers and turned to my bank, alas, they to advised for their own benefit. I was then left with no choice but to go it alone and decided to invest in the stock market only to lose 20% over the last 2 years. Now i have reverted to term bank deposits, while waiting for things to settle. Can you… Read more »
Joe
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Late last year (as a regular reader of this site), there was a recommendation that investors should be piling their cash into Uranium miners. Specifically the article identified the following with their 12th Nov 2009 prices: TOE 14c AGS 63c THX 44c BMN 114c EXT 818c PNN 20c UTO 13c Today these are priced at: TOE 12.5c down 1.5c AGS 47c down 16c THX 45c up 1c BMN 47.5c down 66.5c EXT 711c down 106c PNN 18c down 2c UTO 11.5c down 1.5c Can DailyReckoning revisit this with a view to providing guidance on when I should pile my cash… Read more »
Ross
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Jim, there are cash at call rates available from Rabobank (AAA) that aren’t too bad right now. Many might say don’t lock your cash in too long and be at least AA rated. Read widely but at the end it is your call. Look at the sectors on the ASX (you can use the 3 letter sector code on the ASX site and graph them for the past few years). Health and consumer staples were the run and hide sectors when fear beat risk. Banks that had lost half their value became it when govt said taxpayers would take all… Read more »
Biker Pete
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We’re in a very similar position, Jim. Our current mood is to sell off some property; keep some in Super (but switch from cash to ASX); and commit a significant sum into high-yield bank interest. To our disgust our son locked up a large sum with _WorstPac_ at 6.8%. That’s earning him another full income, but he’ll be hit with a large tax bill. Beyond your $48K tax-free allowance per couple once retired, tax _will_ be an issue… Crazy, when you think we can pull _double that_ tax-free through TTRs, now, on top of our salaries… and our realty returns…… Read more »
Ned S
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Those experienced old tax accountants who lived through stagflation and have seen how every type of investment known to man and structured through all the various entity types in all sorts of changing family situations over many years (who AREN’T interested in peddling any investment products at all) and WILL get off their bums and go and look at businesses and investments first hand with a client, are very handy people to know. I got one about a decade ago. Hey, he isn’t going to be dishing out any stock tips – But he’s a real handy bloke to be… Read more »
Biker Pete
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I’ve known our accountant for fifty years, Ned. We’ve only been using his services for the last twenty or so. Our mistake was to also employ two different FAs during the last 25. What a waste of time and money! We let both go when we realised the missus knew far more… and, as Jim suggests, above, they were acting in _their_ own best interest, not ours. One of these clowns wanted $10K a year from us; the other spruiked tree plantations(!) New duty of disclosure laws on commissions quickly put an end to that con. I think the losses… Read more »
Steve
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Biker Pete:
Our current mood is to sell off some property…

Why is that Biker?

Christina
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As well as all our other investments, I think that a great investment is food like baked beans stashed away in the cupboard. The way I see it, when inflation hits, we will need food. When deflation hits, we will need food. When the whole global economy collapses, food is still number 1 on the list of what we need. So we may as well buy some food and stash it away now. Because when the whole economy goes belly up I can only imagine how long the lines at the shops will be to buy food, that’s if they… Read more »
prozak
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here is some advice for anyone who has or is pretending to have any mid to high level of assets or income. You get tax planning from a law firm or lawyer or whatever they call themselves these days in australia….. Or at the very least an accountant who has a barrister on tap. Accountants are number crunchers they follow the rules… they do not know all the relevent legislation well enough to find the loopholes. Here is the reason why. There is one structure where the “advisor” gets 5% of ALL revenue passed through his set-up. Sounds expensive right?… Read more »
Stillgotshoeson
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@Comment by Steve on 12 March 2010: Biker Pete: Our current mood is to sell off some property… Why is that Biker? Well it is kind of obvious to me that the property that is in good locations, beach, lakeside, with good tenants paying a nice fortnightly rental and strong demand in the WA resource sector indicates that it is good time to be off loading said low geared high quality assets even though one has other assets/investment mix to support any short term drop.. yeah makes perfect sense…. Or the other option, maybe, have finally conceded that there may… Read more »
Biker Pete
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“Our current mood is to sell off some property…”

Diversification, Steve. I’m about to take a _shipload of Super._ Your view… and that of the bears, is that interest rates will rise to 10%.

Biker Pete
Guest

Prozak: “You get tax planning from a law firm or lawyer or whatever they call themselves these days in australia…..”

Gotta laugh. My accountant charges us $700 per year, Prozak Pete.
You’re advising a fella who _digs up his own septic wells_ to pay a barrister(?) You really don’t know how ‘The Comfortable’ get that way… or stay that way, do you?!~

And you’re unlikely to… . ;)

Biker Pete
Guest
OK, let’s see… who’s next? Shoes: “Our current mood is to sell off some property…” I think I’ve answered that one, but the post that was ‘knocked back’ last night, before Steve’s/your question was asked, is relevant. In that post I argued that when DRA was poised to push realty, it was probably time to get out!~ :) Your advice about shares seems well-meant… and I appreciate that. My experience in the stock market between 1999-2006 was, at best, poor. I made _pocket-money_. The only real win was iinet, during the Tech Wreck. I lost _every cent of gain_ when… Read more »
Stillgotshoeson
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@Comment by Biker Pete on 12 March 2010: “Our current mood is to sell off some property…” Diversification, Steve. I’m about to take a _shipload of Super._ Your view… and that of the bears, is that interest rates will rise to 10%. So now I am a little confused… Comment by Biker Pete on 1 February 2010: Australian Bureau of Statistics has some interesting stats, released today. “The Australian house price index rose 5.2 per cent in the December quarter, the Australian Bureau of Statistics said today. This compares with an upwardly revised 4.4 per cent in the September quarter.… Read more »
Biker Pete
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Christina: “…the only thing you REALLY need really is food. And water… ”

I agree. After _shelter_ come food, water, warmth. Our ten acres supply all that… and it has been our best investment. Four fireplaces, solar and more wood that we can consume in a lifetime provide warmth, hot water and cooking.

We probably achieved that goal too early in life to really appreciate it; but, as we age… and watch others’ utility costs rise… we’ve come to realise our very good fortune… .

Biker Pete
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“..and all of a sudden because of a few peoples posts in a forum that say they think interest rates might/will go 10% and you have suddenly thought to re-evaluate your self made multi million dollar property portfolio (implied) that you have accrued over time…” As I also mentioned once, Shoes, I married into a deeper gene pool. (That should be fairly obvious!~ :) ) Watching our two sons achieve in their twenties, what took me two more decades, I’m learning fairly rapidly. Remember, I’m 63. I’ll spare you the gritty details of our current income, but I’m about to… Read more »
Ned S
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Lots of younger bloggers don’t necessarily think in terms of retirement planning perhaps?

Biker Pete
Guest

“Lots of younger bloggers don’t necessarily think in terms of retirement planning perhaps?”

So it surprises me how much one of our kids already has in Super, Ned. Could be he’s looked at our payout figure and thought: “Jeez, dad got _that_ one right!”

I can recommend the book “How to Retire Happy, Wild and Free” (Retirement Wisdom That You Won’t Get from Your Financial Advisor (9781580085786): Ernie J. Zelinski.) Picked it up in Canada… and couldn’t put it down. Brings that phase of our lives into real focus… . :)

Ned S
Guest

The other one to consider is that some pressure is now starting to come on state and local governments to address housing affordability issues. (Certainly in QLD, VIC and NSW anyway.) With more higher density stuff clustered around transport nodes presumably being one end result. How that will affect the prices of traditional detached housing is a bit of a wildcard in the deck perhaps? And as such, not a bad thing to hedge against a little bit if one owns lots of traditional detached housing. Just depending where it is.

Plus the KHR is another wildcard in the deck.

Rob CA
Guest
Interesting and positive comments about accountants in general. I’ve been in practice as a CA for 30 years and have seen it all in terms of clients being drawn into schemes that invariably fail. Problem is for the vast majority of accountants is that we are not allowed as unlicensed investment advisors to give advice about specific investment products. This means if, for example, a retired tax client asks us about a get-rich-quick scheme being touted by a “licensed” financial advisor which has all the hallmarks of being a rip-off or too risky for the profile of the client we… Read more »
Biker Pete
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“Plus the KHR is another wildcard in the deck.”

You said it, Ned. For us, timing will be critical, possibly more-so than at any other time in our lives. ;)

Biker Pete
Guest

Rob: “…the licensed financial advisor who has more than likely pocketed a nice bag of fees and trails out of our client… ”

Thanks for putting that into perspective, Rob. Until Duty of Disclosure laws came into practice, we knew _nothing_ of trailing commissions at all. That information, a real revelation, saved us literally hundreds of thousands.
Much more, had we taken the advice of two separate, independent FAs… .

Matto
Guest

@Comment by Biker Pete on 12 March 2010:

“Our current mood is to sell off some property…”

i told you it was coming within a few weeks…

Biker Pete
Guest

Months, if it happens, Matto. Depends on the KHR. First to go will be the larger homes, which are returning lower percentage gains. We’re getting inquiries, _daily_. Pretty hard to resist a man with a cheque book, son.
Not a bad idea to take profits from time-to-time. :)

I may sell options-to-buy, post KHR / July 2010. That has paid off in the past… . One such deal, which the ‘buyer’ decided not to exercise, paid for four months in Europe… .

Biker Pete
Guest

Thanks, Ned.
Hadn’t heard the “Where’s Henry?” catcalls… although I follow parliamentary debate with some interest… and oft-times, disgust… .

The closing line says a great deal: “…to evaluate that and present our initial response to those recommendations to us…” Without a strong initial response to the recommendations, Abbott’s popularity might get another shot-in-the-arm(!)

The KHR may backfire on Labor… or, alternatively, see them romp back in, depending upon that ‘initial response’. No wonder Rudd has kept it under wraps!

Stillgotshoeson
Guest
RE: the australian KHR article.. “What we are doing is thoroughly evaluating this review from an independent tax committee chaired by Dr Henry,” Mr Swan said. “The responsible thing to do is to take our time to evaluate that and present our initial response to those recommendations to us.” In laymans terms.. What we the government hope to do is cherry pick the more popular options from the review and ignore the other options, how ever good they may be for the future of the country, so as not to get thrown out on our arses for implementing tough but… Read more »
Ned S
Guest

A bit cynical Shoes – But undoubtedly realistic! :) (Whatever other euphemisms PM Blah Blah may be remembered by history as, “Kev the Courageous” will not be one of them.)

Biker Pete
Guest
“What we the government hope to do is cherry pick the more popular options from the review and ignore the other options, how ever good they may be for the future of the country, so as not to get thrown out on our arses for implementing tough but yet well needed taxation reform… ” Yeah, I know, I know… what’s good for the country is to let it _all_ collapse… a thorough cleanout… crashed ASX, crashed property market, crashed Oz industry, high unemployment, ship everywhere, right? As one of Bill’s disciples, I guess that’s your script, Shoes. And you’ll have… Read more »
Ned S
Guest

After having a panic over my cash in bank while Bush was trying to convince our retard mate Rudd that all was not well with the world (I was and still am about 60% Oz housing and 40% cash with no job), I had a look down the neck of that Great Deflationary Depression II thing Biker and reckoned it sucked!
Of course, Great Inflationary Global Depression I sounds like even less fun? So Yep, if our evil central bank mates can somehow or other avoid catastrophe, I won’t be heartbroken.

Stillgotshoeson
Guest

It is quite simple and obvious.. the KHR will have in it recommendations on tax reform that will/would be beneficial to the long term financial security of the country, those recommendations would/will be unpopular and have severe backlash to them so even though beneficial they will be dismissed to appease to the “popular” vote..

Ned S
Guest

That’s right Shoes – Took us a while to get the GST but it eventually happened – View the KHR and view your future! :) IMO

Ned S
Guest

I’m decades early is my guess … But that said, the West is screwed – Possibly. Take your cashflow young Western man and buy some stuff the East wants … Or will eventually want! :) :) :)

prozak
Guest
“Gotta laugh. My accountant charges us $700 per year, Prozak Pete. You’re advising a fella who _digs up his own septic wells_ to pay a barrister(?) You really don’t know how ‘The Comfortable’ get that way… or stay that way, do you?!” Liar Pete. I know. You do have to laugh. I’ve never believed that you did generate enough income nor have enough assets to make anything other than the local ITP worthwhile for you. Glad you finally admit it. So perhaps now you can tone down the bragging. — The deal that I outlined above is only open to… Read more »
prozak
Guest

one last point….

It is your DUTY as a living breathing human being to pay as little tax as legally possible.

AVOID hadinging your hard earned to the government. They will waste it!

prozak
Guest

Shoes…

“and you have suddenly thought to re-evaluate your self made multi million dollar property portfolio (implied) that you have accrued over time… doesn’t add up….”

Well its actually very simple. If your property portfolio only exists in your mind or on the monopoly board such whims are easily executed.

Biker Pete
Guest
As I say, ‘the icing on the gingerbread’ is your complete ignorance of my situation. I’ve been deliberate in my refusal to elaborate our circumstances, including matters of taxation. Your comment: “An accountant follows the rules and works WITHIN the legislation. All they can do is help you pay tax…” indicates your naivety, Prozak. Your belief that Australians with money must employ ‘barristers’ (or “whatever you call them”… your comment, BTW) to “AVOID tax” is further proof of your naivety, your lack of familiarity with Australian practice… and probably the fluoxetine talking. You know _nothing_ about Australian accountants or our… Read more »
Biker Pete
Guest

Prozak Pete: “AVOID hadinging your hard earned to the government. They will waste it!”

Can’t let that one go by! :) So, _how much tax_ did you pay during the last financial year, hotshot? Did you _pay_ tax?

prozak
Guest
Liar Pete, Good Morning! UP in the morning to post on here Pete? Well Well aren’t we wound up….. very amusing… “As I say, ‘the icing on the gingerbread’ is your complete ignorance of my situation. I’ve been deliberate in my refusal to elaborate our circumstances, including matters of taxation” Going all shy Liar Pete? You’ve never been so before. Short memory perhaps? You are getting on a bit after all. You said only the other day how much interest your son was earning. You have imp…lied on a few occassions that you have millions in property. “(or “whatever you… Read more »
prozak
Guest

Pete,

about 0630 there at present isn’t it?

You truly must have your ticker working over time.

To answer your question.

I paid as much tax as I legally had to. I have a double benefit in the UK. I am resident but non domociled.

google it if you care to. you will see well enough what it means.

Biker Pete
Guest

As I thought. You paid tax… .
“You truly must have your ticker working over time.” You paid tax.
No ‘barrister’, chum(p)? ;)

Good to see your SHOUTING has ceased. Reread your confused, disorganised post to see what other anxiety issues you’re projecting, you classic prescription druggie. :)

Greg Atkinson
Guest
Well I just popped back to have a quick look at what is happening on DR and it seems not much has changed :) Gold is still being talked up, the housing discussion still drags on and it seems there is plenty of friendly banter between those making comments. Anyway the rally is wearing a bull costume because the next bull market is already underway, that’s what generally happens after bear markets…markets rally. I know it is hard for the doom crowd to accept but planet earth did not stop rotating. Get on plane, travel to Asia and you will… Read more »
prozak
Guest

Liar Pete,

Of course I paid tax. It is illegal not to. As I said above Avoidance is legal Evasion is not. There is no way possible I can live in the countries i wish to live and pay zero tax. Simply cannot be done. Even my non-dom status is a lot more complex these days.

But nice try Liar Pete.

Go have some breakfast pete. Happy to chat here with you as I’m just sitting up watching a film…..

Fancy getting up at 0630 to post on the DR.

tick tick tick boom!

Biker Pete
Guest
“Get on a plane, travel to Asia and you will see business deals are still being done, major projects kicked off the the middle class is still growing.” Funny that, Greg. I was just thinking I should probably send young Ned a ticket, so he can spend a few days in our guest chalet, report back to the group and forever relegate our slimy POM mate to the septic tank of online history. Yes, you were right about the ASX. At the moment we don’t have a cent riding there, but our eldest is fairly committed. I sent him a… Read more »
Biker Pete
Guest

Prozak Pete: “Go have some breakfast pete. Happy to chat here with you as I’m just sitting up watching a film….. Fancy getting up at 0630 to post on the DR.”

I can picture you now, Prozak, sitting in your little squalid London bedsit, totally mesmerised by Alice in Wonderland, as you blog on DRA. Has to be DRA, of course. L-o-n-g ago Daily Reckoning UK cancelled your troll(ing) rights there. :)

prozak
Guest

Liar Pete,

as ever the vivid imagination…..

Now what was the last piece in your empire??… oh yes… You landed on those blue ones….. bought mayfair and passed go….

Tell us again how many you’ve got again?

A whole set yet or are you still going around the board?

aww go on Liar pete. Tell us again how much cash your son has sitting around and oops just duh plain forgot to plan for it….. what a brainiac he must be…..

prozak
Guest

oops sorry.. must apologise… you’re proud of your brainiac son as he achieved in his twenties what took you decades…

yeah.. like that was a challenge…..

Not very hard to do better than the old man who digs the odd hole and has to boost his ego by lying about his wealth on a websit now is it Liar Pete?

Biker Pete
Guest

More from Prozak in Wonderland… . Don’t get so caught up in the plot, son. Too many of those blue ones and you’ll do yourself a nasty injury.

Sounds like you have a _great_ social life… a young bloke like you… .
I imagine you’re just as charming in the flesh as you are online.
(Shudderrrr…. .)

prozak
Guest

Liar Pete,

aww c’mon you can do better than that.

You’ve got almost 30 years on me. Surely you’re not beaten already.

You’re getting boring now Pete….

c’mon tell me again how you are so much more wealthy than I’ll ever be and how you go on your little bike on trips to all the blue oyster bars around the world….

Biker Pete
Guest

Look into your psyche, Prozak. I think “Shudderrrr” probably says it all…

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