A Strong Market Rebound
BALTIMORE – Wow! Stocks flew up on Tuesday. The Dow was up more than 350 points – or more than 2%. What’s behind it? Is it the beginning of a real comeback? Is the market telling us that Janet Yellen was right after all?
The stock market rebound continues – and is approaching resistance. As we noted in this pages last Friday: “[W]e believe that the current market rebound could easily go further. Not only are there a number of historical patterns which suggest that market weakness in January is usually followed by a multi-week recovery, but the current positioning and sentiment backdrop also indicates that stocks should manage to trade firmer for a while.” – click to enlarge.
Maybe the economy really is stronger than we think. At the start of the year, it looked as though the stock market was signaling trouble ahead. Over the last 50 years, every time U.S. stocks have gone down by 15% or more, there was about a 60% chance of recession.
We thought we saw recession coming anyway; the stock market seemed to confirm it. But who knows? We’ll wait to find out.
In the meantime, we take a look at the rise of the Deep State… the “shadow government” that really calls the shots.
The Chosen People
After China’s leader Deng Xiaoping announced that to get rich was “glorious”… the Berlin Wall fell… and political scientist Francis Fukuyama proclaimed the “end of history,” Americans naively believed that the world was evolving in the same direction – toward us.
Francis Fukuyama once wrote a book proclaiming “the end of history” – history promptly decided to continue.
Photo credit: AFP / Getty Images
We were the Chosen People… the exceptional country… the nation the rest of the world looked up to, aspired to be, and couldn’t live without. For example, we had little doubt that it was just a matter of time before China – in the relentless grip of globalized capitalism… and infested with graduates from Wharton and Harvard Business School – would surely become more like the U.S.
Soon, the Chinese would be watching inane TV shows, too. There would be eight-lane highways connecting major cities… and billboards advertising ambulance-chasing shyster lawyers. There would be McMansions… bought with 110% loan-to-value mortgages… and Chicken McNuggets on every street corner.
Auto loans, student loans, and payday loans wouldn’t be far behind. And corporate chiefs would brazenly manipulate the market to give themselves undeserved bonuses… using unreal money borrowed at unreal rates from unscrupulous bankers.
The Chinese would certainly soon develop a confident Fourth Estate too – a free press that would dig the dirt on the politicians and bureaucrats… and then quietly sweep it back under the carpet. And democracy?
The flame under the pot of liberty was burning in China as in America. It would be only a matter of time before it bubbled up into elections… with fatuous candidates, pledging more and more of other peoples’ money… until the voters were completely cooked.
But what a shock! Instead of the Chinese becoming more like us, we’re becoming more like them. And here, we focus on the one critical aspect: They have the Communist Party running the show. We have the Deep State in command.
People always want to get wealth and power in the easiest possible way. And the easiest way is to take it from other people. That is the role of government – the only institution that can steal and kill legally (it’s amazing what you can get away with when you make the laws!).
The gun smoke of the American and French Revolutions obscured this brutal reality. They showed that you really can fool most of the people most of the time. Just convince the plain people that they can play a role in government. Not only will they stand in line at polling stations before dawn… as they did in Virginia yesterday during the Super Tuesday presidential primaries.
Also, they will send their sons to die in your wars… and pay more tax, believing it is for their own good! Germany’s first chancellor, Otto von Bismarck, explained how to keep the little people in line: Promise to take care of them from cradle to grave. You tax them… then give back some of their tax money in the form of social welfare programs.
Otto von Bismarck – advisor to several Prussian / German rulers, the man who united Germany and promptly invented the welfare state.
A New Power
Until the 19th century, the main source of wealth was land. In Europe, it was owned by a few rich “rentiers” and farmed by many poor farmers. But after the farmers got the vote, the big landowners found themselves at a political disadvantage. They didn’t have enough votes to protect their wealth at the ballot box. And they didn’t have enough wealth to protect it in the back corridors and smoke-filled rooms behind them.
A new power and new wealth was rising in cities and factories. “Unearned wealth” or unfair “rents” couldn’t keep up. It got a bad reputation. The new thing was “free enterprise.” And it was making society rich.
The advent of manufacturing – mass-production for the masses – changed everything
Image via Wikimedia Commons
This was a different kind of wealth. It came from work, skill, and investment. You had to earn it. The new rich were adding new wealth. They weren’t just taking wealth away from the laboring masses. The old rich – rattling around in their big, unheated piles, with holes in their sweaters and zeros in their bank accounts – added nothing.
The landowners lost power. Gradually, the big estates – many of which could be traced to larcenies and conquests from the medieval era – were broken up and taxed away. And for a while – when it was fresh and new – democracy seemed to work. The “dead hand” of the past fell away. The old rentiers were left behind.
But government was still in business. Smart people soon discovered how to use it…and a new class of rentier arose…
More to come.
Chart by: StockCharts
Chart and 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.
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