“It’s just money; it’s made up. Pieces of paper with pictures on it… And it’s certainly no different today than it’s ever been. 1637, 1797, 1819, ’37, ’57, ’84, 1901, ’07, ’29, 1937, 1974, 1987 — and whatever we want to call this. It’s all just the same thing over and over; we can’t help ourselves.” — Wall Street CEO John Tuld (played by Jeremy Irons) in the 2011 movie “Margin Call”
A man grabs milk from his fridge. He takes a slug. He says, “Still sour.” He puts the milk back in the fridge.
That sums up my philosophy on investing and pretty much every other human endeavor. People tend to be suckers. How else can you explain why so many of us repeatedly make mistakes that would make a 5-year-old scream, “Stop, stove hot!”?
Not making the same mistakes over and over is something we lose in our teenage years.
As Voltaire observed, “Common sense is not so common.”
A titanic example is the Titanic itself. A year ago, it was announced that a new HMS Titanic — the old one is apparently rusted — is going to set sail in 2016. More than 40,000 people, some willing to pay $1 million, have already signed up for its maiden — whoops, second from maiden — voyage. It sounds like a joke, but Australian billionaire Clive Palmer unveiled his plan to build the Titanic II and add to his “for suckers” assets, which he calls his tourism business.
Palmer said his company Blue Star Line has commissioned the state-owned Chinese company CSC Jinling Shipyard to build a near replica of the ill-fated Titanic. I say near because I suspect this one will have more lifeboats.
At my age, I, too, am nostalgic. But really, the Titanic? I understand why people might pay a million dollars to fly on a replica of the Spirit of St. Louis. It never crashed. But the Titanic sunk, taking with it the lives of more than 1,500 people. For a century, it has been recognized as one of the pinnacles of human stupidity.
What’s next, a trip on the Hindenburg? I believe thousands of people would sign on for that, too.
Billionaires like Palmer don’t make many mistakes. (It is interesting that most of his wealth is tied to hard assets through his mining empire.) But most of the rest of us do make mistakes.
There is another kind of Titanic that is currently sailing at breakneck speed through iceberg fields. It is called the stock market.
A Constant Rebirth Of Old Pains
My family is no stranger to stock market crashes. In 1929, my father was 17 and was working on the homestead with my grandparents, who had managed to tuck away money with a Calgary feedlot. My grandmother was a tough and skeptical woman, but even she was caught up in the irrational market exuberance that marked the last three years of the 1920s.
According to my uncle, bad news came to their farm in 1930. The feedlot was under foreclosure. When my grandparents arrived in the city, they discovered that one of the largest feedlots in Southern Alberta had been shuttered and permanently closed. They hired a lawyer but to no avail. Creditors during the earliest stages of the Great Depression had foreclosed on the feedlot and taken her and my granddad’s $10,000. That equates to $80,000 in today’s money: a lifetime of savings for my grandparents.
My grandparents owned the land they farmed, so they barely squeezed by during those depression years. But never again would she trust her life to the fortunes of others. She hid cash and was suspicious of banks, a tradition that was passed on to my dad and his children. I know my children don’t share that sentiment because they are willing to buy Big Board stocks even though I have tried to discourage them. I can understand their willingness for risk. I’ve witnessed six bear markets in my time, and they have not experienced any (as of this writing).
My father told me how he remembered the stock market crashing in 1929 and that there was a final washout in 1937. It took four decades for the next bear market to beset U.S. stocks. It is understandable that investors in the early 1970s thought risk had been eliminated from the stock market. What is amazing is that right now investors can’t even remember the crash that happened five years ago.
The Dow Jones industrial average’s rise above 14,000 points is incredible when you consider that since President Barack Obama was elected to his first term the Dow was 9,000. In fact, the Dow has climbed 15 percent since Thanksgiving. And the charts also show that the Dow is likely hitting a triple top. The first two were in 2000 and 2007.
American stock prices have not soared on bedrock fundamentals. Consider the following:
- On Friday, the Federal government was forced to implement its $85 billion “sequester” spending cuts, which are already impacting jobs and confidence in the economy.
- The unprecedented easing by the Federal Reserve (Fed Chairman Ben Bernanke’s idea of priming the pump at your house would be to run Niagara Falls over your property).
- An intractable unemployment rate hovering just below 8 percent or not far from where it was when the Dow started to take off. (Consider the chart below, which shows the price of the Dow measured on the left and the U.S. unemployment rate on the right.)
How is it even possible that these fundamentals don’t add up? The truth is, it wouldn’t be possible with even a modicum of common sense. This bubble exists because investors have become speculators and are rabid to profit off the last dollar — a dollar whose value, by the way, is eroding considerably each and every year for the past 12 years.
When I was in my early 20s, I was at a party with all my old friends from high school. One of our buddies thought he could drink with impunity. That was until he stepped around the bar and tripped over an ice chest, falling flat on his face. In the 35 years since, I have never seen him drink in excess again. So there is hope.
On the other hand, Wall Street is nothing right now but excess. My fear is that when Wall Street trips, it is going to take the rest of us down with it.
Yours in good times and bad,
Editor, Myers’ Energy & Gold Report