Wednesday,
April 10, 2013
The Little Boys Who Can’t
By Harry S. Dent, Jr., Editor, Survive & Prosper
Dear Al,
‘Have you heard the story about the little
Dutch boy who saved Holland?
He was walking past an old dike one day when
he noticed a leak. Worried that the leak would only get worse, and eventually
flood his town, he stuck his finger into the hole. But then he couldn’t move
because, if he removed his finger, the leak would just start up again.
After some time, the town Burgomaster walked
past and saw the boy standing with his finger in the dike. When he found out
what the boy was doing, he praised him and then told him to stay there while he
called a council meeting.
The council thought the boy a hero and
decided that he’d solved the problem of the wall. Rather than fix it, the boy
could just continue to use his finger to keep the North Sea at bay.
Now, to alter the story ever so slightly…
When a second leak sprang up, the boy
reached out with his other arm and valiantly stuck another finger into the
wall. There he stood, spread-eagled up against the wall, the sea pushing with
all its might to get through.
Then a third leak began. Bigger this time.
Off came the boy’s shoe and into the new hole his toe went.
Then
a fourth leak further away… and a fifth… water breaking through the old wall
faster and faster. But the boy was already over extended and couldn’t do anything
about the other leaks. He was having enough trouble containing the ones at his
fingertips and toes…
And
then, just to add insult to injury, yet another leak broke through the wall,
spraying water right in the kid’s face.
Did I say he was a Dutch boy? Maybe I would
be more accurate calling him the ECB chairman… and that gush of water pouring
onto his face… well, that’s Cyprus.
In fairness though, I could just as easily
call him Ben Bernanke… or any other central banker in the world. They’re all
trying to hold back the tide of debt. In doing so, nothing is being done to fix
the leaking wall. In fact, it just keeps deteriorating. And in the end, they
can’t win. That wall’s coming down sooner or later.
The problem is, in central banks’ and
governments’ stubborn refusal to make the hard choices… to allow this winter
economic season to run its painful course so we can grow again… they are
hurting the average household.
They’re simply keeping the boom bubble that
benefited financial institutions and the top 1% to 20% going. And during this
so-called “recovery,” it’s those SAME players who are benefitting.
Surveys of households show that 78% don’t
feel we ever recovered from the great recession. That’s because most households
don’t have much of their assets in stocks (where most of the “recovery” has
taken place). Their inflation-adjusted wages are still going down. And a
quarter of all homes are still underwater. If anything, most people are still
feeling the bite of this economic season.
Ah… but more cracks are appearing… more
leaks springing up…
In their misguided, idiotic attempts to save
the economic world, governments are now starting to go after the rich people.
The U.S. is steadily increasing taxes on the top 1% to help balance the budget.
Cyprus is taxing international depositors 75% of their accounts over €100,000.
Both are stealing from their own citizens as
well. Cyprus is doing it blatantly by withholding people’s money. It’s in the
banks, they can see it, they just can’t have it. The U.S. is being more subtle,
keeping short-term interest rates at 0%, 10-year Treasury bond yields below 2%
and T-bills at zero. Over the last four years, this has taken away almost 10%
from American savers.
Unfortunately,
none of it is enough to even make a Dent (Yes! I just used my name in vain).
Get
ready for another downturn, despite massive stimulus. While most economists and
analysts warn you not to fight the Fed, that “they have your backs,” they
cannot continue to stimulate forever.
Think of it this way… if you keep pouring
sand on a flat surface, it will build a nice mound. Keep pouring and at some
point just one sand pebble will land the wrong way, in the wrong place, and set
in motion an avalanche.
An avalanche in this debt and demographic
crisis is inevitable and likely to occur between late 2014 and 2020 as
demographic and other cycles we measure worsen.
Protect yourself by getting more defensive
in your investments, especially by this summer, and through smart financial
planning that will protect you against rising taxes in the years ahead.
Harry
P.S.
With the euro zone wall practically a sieve, and the U.S., China and Japanese
walls deteriorating fast, we don’t expect the Dow to continue its upward moment
for much longer. Read our more detailed analysis of what we forecast for the
Dow, here.
Ahead of the
Curve with Adam O'Dell
Fighting Fire with Fire Burns All
The problem: too much debt.
The solution: less debt.
It’s really that simple.
Yet the Fed and ECB continue to fight fire with more fire. That is, they’re
fighting a private balance sheet recession (read: too much debt on the balance
sheet) with a public balance sheet explosion (read: even more debt on the balance sheet).
For now, it seems to be working…
This chart shows how the S&P 500 goes
higher when the Fed and ECB expand their balance sheets… and how the market
drops when central banks don’t stimulate.
Don’t be fooled.
The private sector took on as much debt as it possibly could through 2007
(pushing the markets higher)… then it stopped. Now, the Fed and ECB are taking
on as much debt as they possibly can so the music doesn’t stop. The problem is,
eventually, central banks must stop amassing debt. They too will need to
deleverage…’