A Lehman Moment for Commodities?
LONDON – Today, we continue our philosophical look at what you should do if you are running out of time and money. (You can catch up on Part I here.)
Where do we begin? With how to add wealth? Or how to lose it? The way to lose it is simple. You buy something that is not worth the money you paid for it. You are instantly poorer, whether you know it or not.
The pleasingly plump.
Illustration by jdeer69
That is what is happening today to stock market investors. The stocks they bought were not worth the money; now Mr. Market is letting them know. On Monday, the Dow dropped almost 2% to 16,002 points. Next stop: 15,000.
“It’s a bear market,” says Jim Cramer. It will be a “bloodbath,” says billionaire investor Carl Icahn. We don’t know. But our guess is that 10 years from now your stocks will be worth no more than they are today.
The biggest losers on Monday were in the commodities and biotech sectors. Well, Glencore – one of the world’s largest resource companies – is one of the companies not buying them.
Glencore shares have lost 75% of their value so far this year. If commodities prices stay at these low levels, it could be worth nothing by the end of the year. Glencore could be headed the way of Lehman Brothers…
Biotechs dragged the Nasdaq down yesterday. But the sector is still up more than 425% since 2009. Plenty of room left on the downside, in other words. Icahn, by the way, seems to have signed on as an advisor to Donald Trump. This is a good thing. The presidential hopeful needs advice.
Trump unveiled his tax plan yesterday. It looked good to us, with a top rate of 25%. You have to give him credit. Few career politicians, aspiring to the Oval Office, would dare a major overhaul of the tax code.
Over the years, every pig in America has muscled up to that trough. A more conventional candidate wouldn’t take them on. But Mr. Trump is refreshingly naïve in many ways. He often doesn’t know what he’s talking about; he hasn’t been thoroughly coached by the cronies.
Trump: yet to receive crony instructions.
Cartoon by Mike Luckovich
A Necessary Philosophy
But let us turn from how to lose money to how to make it. We left Paris early this morning. It was still dark. It’s that time of year. The days grow short… and damp… and dwindle down. The sidewalk was slick with decaying leaves. The hint of approaching death makes the dying autumn days especially rich, like the last bites of a favorite dessert.
And over Paris this morning shone a “super moon” that must have set hearts yearning for something. But what? Romance? Love? Pity the poor tin heart – like an empty trash bin – that looked at that full moon lighting up the slate roofs of Paris and wished for money.
Super-moon over Paris – a money moon?
Photo credit: Charles Platiau / Reuters
But money is our beat at the Diary. We will stick with it. But money means nothing without philosophy. Beyond what we need to survive, money has no importance. Is it good? It is bad? It depends.
We need a simple philosophy to make sense of it – to guide us past the Gucci bags… past cable TV… and past the million-euro apartments of the 16th arrondissement. Not that there is anything wrong with them. But they are expensive.
And if you don’t have money, you need to be able to pass up luxury, gluttony, and self-indulgence with your nose in the air… not with your shoulders bent in defeat and self-disgust. And for that you need philosophy. Or at least aesthetics.
All people – unless they are saints or mental defectives – want to feel good about themselves. That is their primary aim in life and the only reason they are interested in money (save the minimal amount for survival). Since we are a competitive species, we feel good about ourselves in direct measure as we feel superior to those around us.
If we are trim, it does no good unless those around us are not. If we are smart, we get no advantage from it unless others are dumb. And if we are rich, it is only meaningful to the extent that others are less rich.
But so clever is our race that we are able to find superiority almost everywhere. If we are fat, we redefine the corpulent spectrum so that we are “pleasingly plump,” while others are “unhealthy” and “too thin.”
If we are dumb, we focus on our “common sense,” as opposed to the uncommon nonsense of the “pointy-headed intellectuals” (to borrow a phrase from George Wallace).
And what if we have no money? Then spending money is vulgar, shallow, and pointless!
Pity the Rich
One person feels superior because of what he owns. Another for what he does not. Still another for what he knows. And another for what he knows not. And one feels superior from who he is, while another measures his stature by who he is not.
But the one who feels superior to them all is the one who owns nothing, knows nothing, and is a complete nobody. He is free from the vanities that clutter others’ lives!
In 10th-century Europe having little became fashionable. People gave up their possessions in search of a life of contemplation. They wanted to get away from the distractions and temptations of everyday life, so they could live in a purer way… in simplicity and godliness.
St. Benedict handing his rulebook (“ora et labora”) to his monks at the monastery of St. Gilles, AD 1129
So great was the demand for poverty that the monasteries and convents could scarcely keep up with it. They had to build new ones all over the continent. But there is no need to insist. We just need to recognize that there are people with little or no money who live well. And there are people with a lot of money who live badly.
Our goal will be to live better. We will take as a challenge and a point of pride to do so without spending money. We will have less, but we will treasure our frugality as a man might value a collection of old cars or well-developed biceps.
Then – as our days decline, our appetite wanes, and our energy subsides with the tide of life – our treasure of nothing increases, for we will need less and less. A bed. A book. A candle. What more could we want?
Yes, we are talking about a program of radical deprivation and happy pennilessness. Our goal would be to feel superior to rich people… without having any money. We will wear our new-found love of poverty as a badge of honor… and use it to get rich!
Already, we pity the rich. In our empty coffer, we have the greatest treasure of all – the hope of happiness. Yes, dear reader: Blessed be the poor. For they enjoy the gift of ignorance. They still believe that they could be happy… if only they had more money!
There’s always the lottery …
Cartoon by Mark Hughes
This, of course, is an illusion that only the poor can afford. Rich people know better. They have too much money. They know it cannot buy them happiness. That’s why the suicide rate in Aspen is three times the national average.
But how lucky are the poor! They still have hope! They might win the lottery. They might get a raise or a better job. They might inherit money from a rich uncle. Money is always close at hand.
So, happiness must be too… only a funeral or a lottery ticket away. More to come… including the practicalities. How DO you get more money?
Charts by: StockCharts, BigCharts
Image captions by PT
The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Gold Price Skyrockets in India after Currency Ban – Part III
When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days. Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
- Gold Price Skyrockets in India after Currency Ban – Part II
Chaos in the Wake of the Ban Here is a link to Part 1, about what happened in the first two days after India's government made Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes illegal. They can now only be converted to Rs 100 (~$1.50) or lower denomination notes, at bank branches or post offices. Banks were closed the first day after the decision. What follows is the crux of what has happened over the subsequent four days. India's prime minister Nahendra Modi, author of the...
- Gold Price Skyrockets in India after Currency Ban – Part IV
A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost. Indian jewelry...
- A Note on Gold and India – What is Driving the Gold Price?
Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption. Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
- Will Trump Do What Reagan Couldn’t?
Depravity and Degeneration BALTIMORE – Finally, it’s over. We were both delighted and appalled by the news. A smile spread over our face... and our steps lightened... as we looked ahead to four years without Hillary Clinton’s know-it-all mug in the news. Praise be! This mug will be largely missing from the airwaves and the intertubes in coming years. And your caption scribbler PT won't have to look for a fall-out shelter! We thank the Lord and the American public for...
- India's Currency Debacle – An Interview with Jayant Bhandari
A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details). Banned 500 rupee banknotes The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
- Inflation Expectations Rise Sharply
Mini-Panic Over Inflation After Trump's Election Victory We have witnessed truly astonishing short term market conniptions following the Donald Trump's election victory. In this post we want to focus on one aspect that seems to be exercising people quite a bit at present, namely the recent surge in inflation expectations reflected in the markets. Will we have to get those WIN buttons out again? A 1970s “whip inflation now” button. The only thing that was actually needed...
- Will the Swamp Swallow Trump?
Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle. Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
- There Are Two Types of Credit — One of Them Leads to Booms and Busts
Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs. What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
- All Aboard! Trump’s Express Train to the Future
Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999. Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
- Gold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then. Initially, gold rallied sharply...
- Too Early for “Inflation Bets”?
The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!” The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc. We have...