The farther you get from the big city, or the international press…the closer you get to reality.
The myth and claptrap disappears as distance shortens. Imagination gives way to fact.
The War on Moles
Gone is global warming, for instance.
Instead, you find — as we did when we drove to Nova Scotia for a summer holiday in the 1990s — that it will be ‘…75 degrees in Halifax again today… No relief in sight.’
The local papers forget that there is a War on Terror, too.
Instead, there is a War on Moles, which have been making a mess of lawns and gardens. Or there is a War on Roadside Trash…or a War on Loud Music and Late-Night Parties.
We are sitting at our farm in the French countryside, reading the local newspaper.
The pond in summer
Source: Bonner and Partners
[Click to enlarge]
We find that: 15 kilos of cannabis were seized in Poitiers. A couple from Italy are enjoying a vacation in the Poitou area. The annual donkey race took place in Moncontour.
But the big news was in the headline: ‘The state says yes to 1,200 calves.’
Yes, we are following up on our anecdotes on farming…with real news from the local papers.
But first, let’s turn to the financial news.
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Party like it’s 1999
Not since 1999 did all three major US stock market indices — the Dow, the S&P 500, and the NASDAQ — hit record levels, as they did last week.
Of course, 1999 proved to be the worst time to buy stocks in 30 years. After a few more months of lollygagging around, the NASDAQ crashed and the Dow and the S&P 500 sold off hard.
NASDAQ investors didn’t get back to breakeven for another 15 years.
By our rough calculations, the stock market is about twice as high as it ‘ought’ to be.
We put ‘ought’ in quotations as a nod to readers who will hit the reply button mere seconds after reading it.
Of course, we have no idea where the stock market ought to be. Or where it will be. We only know where it has been. And it has been at these levels only rarely.
Major market movements take time. It takes many years to form a proper bubble…and many years more to forget it.
Take Nobel prize winner Robert Shiller’s CAPE ratio — a valuation measure designed to smooth out the effects of yearly swings in corporate earnings.
By this measure, the S&P 500 has only been more expensive in 2007, 1999, and 1929.
Each time, prices reached a peak. And investors celebrated with a big party. Then they suffered a hangover for years later.
After 1929, for example, investors waited until 1953 to recover.
Bourbon and branch water
Lately, the recovery times have been foreshortened.
Each time the market turned down, the feds arrived on the scene in minutes, with aspirin and a Bloody Mary. Then it was vodka tonics.
Months after the Dot-com plunge in 2000, stocks (outside of the flaky, tech-heavy NASDAQ) rebounded. Same thing in 2009.
And now…bourbon and branch water in hand…investors celebrate new record highs, confident that no matter how great the hangover, the quacks at the Fed will have a remedy.
But watch out. By our calculations, stocks are selling for nearly twice as much as they ‘ought’ to.
Come the next big plunge, we could see prices sawed in half…with no recovery until 2036.
Meanwhile, back in the dirt of the real world…
Au revoir, free market
‘They are CAFOs,’ explained one of our sons, who is still visiting. Of all the family and friends who were here last week, only two sons remain.
‘Concentrated animal-feeding operations,’ he went on, ‘that’s what the article in the local paper is talking about. They’re all over in the US.’
The article informed us that a local farmer, Pierre Liot, had braved the fury of animal rights groups, environmentalists, and his fellow animal husbandmen to try something different.
In three large barns, he will house and feed 1,200 four-legged critters, far more than the typical farm in the area.
Some of our fat, happy Limousin cattle
Source: Bonner and Partners
[Click to enlarge]
The reason for this innovation was explained, unintentionally, on page five of the article.
‘Farmers are on the edge of an implosion,’ said the headline.
‘Dominique Marchand, president of the [state farmers’ group] has not slept well since the catastrophic harvest on his land,’ we are told. ‘I’m going to lose €100,000,’ he says.
Mr Marchand quickly gets down to brass tacks: ‘We need an income protection system.’
Everybody loves capitalism when he is making a profit. But as we showed yesterday, farm prices have been falling for five years.
And after a year of disastrous weather, there is hardly a free-market guy left in France’s agricultural sector.
For The Daily Reckoning, Australia