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World stock markets are extending their bear market rally, and there’s a possibility they could continue to do so for a while longer.
If so, don’t be fooled!
Why?
Because the drivers behind the rally are artificial, psychological and temporary — the government’s herculean efforts to ease credit conditions, the typical short-covering that comes after a big crash, and the hope, especially among overseas investors, that America’s new president-elect, Barack Obama, can somehow avert a deeper global recession.
But the forces behind the bear market are fundamental and long-term — an economy that’s coming unglued at the seams, a debt collapse that has barely begun, and the worst federal deficit of all time.
We join John McCain, defeated Republican candidates and all Americans in extending our sincere congratulations to Barack Obama and victorious Democrats in their resounding electoral victories yesterday!
Both parties must now recognize that no U.S. president, regardless of domestic or overseas popularity, can do much to change the dire economic realities of our time. Nor can he change the fact that …
The U.S. Treasury Is on the Verge of the
Biggest Borrowing Binge of All Time.
The facts:
- The Treasury has just announced it must borrow $550 billion in the October-December quarter.
- Goldman Sachs estimates that the government will soon have to borrow TWO TRILLION DOLLARS — to finance the $850 billion federal deficit … to buy $500 billion in bad assets … and roll over $561 billion in maturing Treasuries securities … plus more. And,
- We believe Goldman Sachs is underestimating the Treasury’s upcoming borrowing needs: As the U.S. economy continues to crater, as federal tax revenues continue to plunge, and as Washington runs amuck with bailouts, that $2 trillion could easily grow to $2.5 trillion, even $3 trillion!
The end result: A huge new supply of Treasury bonds, falling bond prices, surging interest and a new phase of the debt crisis coming soon.
Our recommendation: If stocks continue to rally in the days ahead, use it as another excellent SELLING opportunity.
Regardless of what the new administration may plan or do, the fact remains that the world’s massive speculative bubbles have burst — in housing, commercial real estate, stock markets, commodities, and, above all, debts.
But all the world’s leaders, with all their radical new measures, cannot put them back together again.
Even as the government commits new billions to be spent on financial rescues, trillions in wealth will be wiped out with a sinking economy, sinking real estate, falling stocks, bonds and commodities.
Even as the government sweeps piles of bad debts under the carpet, mountains of new debts will go bad — a new flood of mortgages that can’t be paid, a new raft of credit cards falling behind, an avalanche of companies going bankrupt.
Even as it throws life savers to a select group of large companies, countless small- and medium-size companies will drown.
Yes, for a while longer, governments all over the world will continue trying everything in their power to stop the fall. They will inject more money into bankrupt banks, broken brokerage firms, endangered insurers and any company they deem essential to the economy. They will pump more resources into real estate markets, credit markets and even stock markets. They will stimulate temporary rallies. They will buy some time.
But no government can repeal the law of gravity and stop investors from selling. No force on Earth can turn back the clock and undo decades of financial sins.
Best wishes,
Martin and Mike
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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