"Marooned!"

"Marooned!"

by Bill Bonner

"We shall not cease from exploration,

And the end of all our exploring

Will be to arrive where we started

And know the place for the first time."

~ T.S. Eliot, from “Little Gidding”

Youghal, Ireland - "A storm named Eunice hit Ireland over the weekend. Winds of 122 mph were recorded in nearby Britain, the fastest ever. Gusts blew over trees by the thousands, including several at our place. One closed the road to the south of us… another fell over the road to the north…leaving us marooned.

Here in Ireland, it’s the property owner’s responsibility to keep his trees from blocking the road, so we made haste to cut them up – while watching the nearby trees in the hopes that none would fall upon us whilst we were working.

Something always goes wrong when you are cutting up fallen trees. They are puzzling, limbs tangled in other trees… and often, power lines; it’s not always clear in which direction they are sprung. So when you go to cut a branch, it can move in unexpected ways, either trapping your chainsaw or smashing you in the face. This occasion was no exception. “You never know which way they’re going to go,” said Tommy, a cigarette in his mouth and a chainsaw in his hands. He had just cut off a limb which, unexpectedly, fell on your editor, knocking him to the ground. But no harm was done… and overall, we had a jolly time of it.

To the north and south, roads were blocked.

Enough Rope: Meanwhile, the noose around the Fed’s neck grows tighter. Bloomberg: Federal Reserve Chair Jerome Powell and his colleagues in the coming week can expect to see their key inflation metric accelerate to a fresh four-decade high last seen when Paul Volcker led the U.S. central bank.

The personal consumption expenditures price index, which the Fed uses for its inflation target, probably jumped 6% in January from a year earlier, according to the median of a Bloomberg survey of economists. The core measure, which excludes food and fuel, is forecast to climb 5.2%. Less than a month before the Fed’s next policy meeting, a sharper-than-projected advance in the price gauge could turn up the heat for a half-point increase in the benchmark interest rate. January’s consumer-price index rose more than forecast, with broad advances in the costs of goods and services.

Inflate or Die. Either the Fed continues with its reckless money-printing. Or it ‘tightens up,’ in which case you can say goodbye to the bubble economy. Paul Volcker was the last competent Fed chief. He was also the last one to tighten the money supply in order to stifle inflation. That is not to say that he was always right about what was going on. But when push came to shove, Volcker pushed back… and stopped inflation. But that was 40 years ago.

On Friday, we were looking at the long cycles of the markets. In a nutshell, prices go up and down in patterns that last for decades. Why? Because markets are part of human life. And like almost everything else in life – we make an exception for science and technology, where real progress is possible – there are deeply imbedded patterns, models, and archetypes.

Why do we fall in love? Is there a law that tells us we must? And then, why do we get married? Love and marriage just seem to go together… well… like a horse and carriage. And then, we have children… and they have children… and life goes on. Good? Bad? We don’t know, but it’s been going on for a long time, following a template we recognize, but can never completely understand.

When winter comes, it does not keep getting colder and colder until the whole planet is an ice ball. After winter, comes spring… and then summer. So too are we beset by seasons of hope… followed by bleak despair… happy booms, followed by grim busts… war and peace… love and hate… sin and redemption.

We learn… and then re-learn… the same lessons, over and over. Storms come. Storms go.

Primary Trends: Markets merely reflect these seasons of delight and discomfort. And it is not surprising that the ‘long waves’ are so long. One generation learns. The next forgets. It has been roughly a generation since Paul Volcker tamed inflation. Since then, price inflation has been generally declining. We don’t think about fixing our roofs when the sun is shining. And we don’t worry about rising interest rates when yields have been going down as long as we can remember.

Bond yields hit a low after WWII (about the time your editor was born). Then, they rose for the next 30 + years… and then fell again for the next 40 + years. Now they seem to be rising again. The long trends – the ‘primary’ trends – in the stock market are long too. Stocks hit a high in 1929, after which investors waited 27 years (inflation adjusted) for a new high. Measured from the bottom, in 1932, prices rose for 34 years to reach the next top, in 1966.

Then, it was down again, with investors in a losing trade for the next 29 years. Finally, in 1995, the Dow traded once again (inflation adjusted) at levels last seen in 1966. And then, with the Dow at 5,300, it was off to the races with another huge bull market run, which took it over 36,000 in 2021. From the bottom of that cycle – which came in August 1982 to today – stocks have been going up for nearly 40 years.

So, what’s ahead? It is tempting to simply expect another big, long run to the downside. If the pattern holds, investors won’t see these highs again until 2047 – at least. Should you bail out now? As we showed on Friday, measured in gold, stocks have gone nowhere for the last 93 years. You could buy the entire group of Dow stocks for 18 ounces of gold in 1929. Those same 18 ounces will buy the Dow today.

So why bother? Dividends! Companies make goods and provide services. They are the source of real wealth – which they share with stockholders. The trick is to know when to hold ‘em… and know when to fold ‘em. Is that possible? No. Not exactly. But we might be able to give ourselves an edge. Stay tuned..."

- bonnerprivateresearch@substack.com