Economic Downturn in the Face of Infallible Markets

Posted by Bill Bonner - The Daily Reckoning

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1/20/10 Waterford, Ireland – Does the stock market know something we don’t? Yesterday, investors bid up prices on the Dow stocks to a new high. The index rose 115 points.

According to theory, the markets know more than any single investor, analyst or economist. In theory, the markets know everything there is to know. In theory, the markets are always right.

But what the heck? This is the same stock market that signaled clear sailing ahead ten years ago. Soon after, equities hit an iceberg. They sank for the next decade.

Here at The Daily Reckoning, we had our own views. At the beginning of the ’00s, we told readers to sell their stocks. We were right. The stock market was wrong. Heh heh.

So, who ya gonna trust now? The stock market… Or, The Daily Reckoning?

Who knows… Maybe we’re wrong this time, but we see another 10 years of trouble coming. Two years ago, the credit cycle peaked out. After half a century of adding debt, the private sector had had enough. Borrowing turned down. Last November, it registered its 10th month in a row of declines, something that had never happened since they began keeping records after WWII.

Consumer spending has held up surprisingly well. But with credit contracting and unemployment high and rising, it can’t continue.

Small businesses create jobs. But who wants to take the risk of funding a small business now? Not the banks. And the capital markets are closed off to small businesses. You have to have a big business – preferably one that is dying… Then, you can get all the money you want from Wall Street and the…

……read more HERE.