Great Depression Online Archive Issue:

A Question of Character

Great Depression Online
Long Beach, CA
January 04, 2011

Inside This Issue You Will Discover…

*** Fear Not
*** Stomaching Gas
*** A Question of Character
*** And More

Fear Not

Prospects are always brighter in January than December.  For in January the possibilities of the New Year are limitless.  New goals.  New dreams.  New resolutions.  Anything’s possible…and everything’s possible too…

This will be the year, we’re telling you.  Just you wait and see.

Yesterday the stock market opened the New Year with all the optimism a New Year brings; the S&P 500 jumped 1.13 percent.  After a month like December, why not?

“The S&P 500 […] extend[ed] its biggest December rally since 1991 and boosting its 2010 gain to 13 percent after a 23 percent rise in 2009, the biggest two-year advance since the Internet boom in 1998 and 1999,” reported Bloomberg after markets closed last Friday.

~~~~~~Keep Ahead of the Herd on 2011~~~~~~

This new year, resolve to look at the world in a different light, and learn to anticipate changes that will keep you ahead of the herd with an understanding of socionomics and the Elliott Wave Principle.  Get Robert Prechter’s Landmark Free Report, Popular Culture and the Stock Market…

Keep Ahead of the Herd in 2011 

~~~~~~~~~~~~~~~~~~~~~~~~~

Here at the GDO we read that statement and feel not reassurance, but rather warning.  If you remember, after the Internet boom in 1998 and 1999, and after opening the new millennium at 1469.25, the S&P 500 crashed 47 percent over the next two and a half years.  Now, eleven years later, the S&P 500 sits 14 percent lower than it did when the millennium began.

But fear not.  If you wait long enough you’ll eventually get your money back, and, perhaps, some profits too.  Plus, with all Bernanke’s funny money flooding into financial markets, stocks may rise sooner rather than later…who knows?

What is certain is that inflation will be a major theme in the year ahead…

Stomaching Gas

We’ve been harping on inflation lately and it’s a trend we think will continue onward and upward in 2011.  Taking a brief look back at 2010 we see that the CRB index of raw materials gained 17 percent in 2010, beating the stock market.  Of course, some raw materials gained more than others…

“Gains in the CRB were led by cotton, which surged 92 percent last year, reaching a record Dec. 21, on speculation that supply would fail to keep pace with rising demand in China,” reported Bloomberg.  “Silver, the precious metal most used in industry, jumped 84 percent as it attracted investors betting on both faster and slower economic growth.  Corn added 52 percent and coffee climbed to a 13-year high as inventories shrunk and bad weather threatened crops in South America.”

The only two of the 19 commodities tracked by the CRB that didn’t go up were natural gas, which fell 21 percent, and cocoa, which dropped 7.7 percent.  Yet, while cocoa was flat at the end of the year, natural gas began trending upward.  Is now the time to buy?  We think it is.

One way to tap into rising natural gas prices is the First Trust ISE-Revere Natural Gas Index ETF (FCG).  Since late-August it’s up over 33 percent.  This could be a heck of a speculation if you’ve the stomach for it.

A Question of Character

No doubt, with governments across the planet having taken experimental actions to spur growth and improve the economy, all markets are a speculation these days.

In the U.S. alone, between December 2008 and March 2010, the Federal Reserve bought $1.7 trillion dollars of Treasuries and mortgage-backed securities.  Then, in November, Ben Bernanke announced the Fed would be buying another $600 billion dollars in Treasuries.  Don’t ask where the money comes from to make these purchases.  Moreover, who really knows why it’s being done to start with?

From what we gather quantitative easing is somehow supposed to lower unemployment and create economic growth.  But, alas, the experience has proved to bear little fruit.  Instead, the freshly printed money flows into the financial system and distorts prices, creates inflation, and encourages market speculation.

Yet inflation is what Bernanke wants.  It’s his solution to deflation.  He thinks he can create moderate inflation and control it from really getting out of hand.  Back when he was an academic he wrote papers on what he called “inflation targeting.”  More recently he appeared on 60-Minutes and told the world he’s “one hundred percent” confident he can control inflation.

Last year former Federal Reserve Chairman Paul Volcker called a possible IMF inflation targeting proposal “simply nonsense.”  The year before that he criticized the Fed’s 2 percent inflation objective, stating the Fed is “telling people in a generation they’re going to be losing half their purchasing power.”

What Bernanke doesn’t grasp is being “one hundred percent” confident he can control inflation and having the will to go through with it – particularly when unemployment’s near 10-percent – are two entirely different things.  Ultimately, it’s a question of character…

Volcker had it.  Bernanke doesn’t.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  “Popular Culture and the Stock Market” walks you through the ups and downs of the DJIA -- our most sensitive meter of social mood -- and analyzes trends in popular culture through periods of positive and negative social mood over the past century to reveal how social mood trends actually define popular culture.

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