$7 Trillion!

September 13, 2002

The most wonderful thing has happened! The recovery has arrived. The recession is over, and there are sunny skies ahead. Ask anyone on CNBC, if you don't believe me. Ask Sir Greenspan, and he'll tell you. Isn't it great to know that the storm has passed, and the "all clear" has sounded? It gives one a sense of relief and delight to realize that the crisis has passed, and all will be easy from now on. Don't worry about protecting yourself with gold or silver, because the stocks will rise, and dollars are safe.

My question is a simple one, and it has nothing to do with waves of any kind, nor charts, moving averages, head and shoulders formations, and all the gibberish that makes up market predictions. How is it possible, that when $7 trillion has been lost in the stock market, and hundreds of thousands have been laid off, all is now OK? Some say $10 trillion has been lost. It has evaporated. Hundreds of thousands of retirement nest eggs have been wiped out. Hundreds of thousands of IRA's and other retirement devices have been brought down to pennies on the dollar. Hundreds of thousands of the elderly will have to work to survive, as their rosy plans for golf and sun are gone.

How can anyone say, when possibly as much as $10 trillion has evaporated, and when there are hundreds of thousands of jobless, that the crisis has passed? The stock market goes up a hundred, and then goes down a hundred, and millions of shares are traded every day, but who is doing the trading? Is it mom and pop, or gramps, like it was during the run-up? Or is it computers and big trading firms, which trade thousands of shares at a time, and go in and out dozens of times a day, making a few bucks on each small increase or decrease? Did Mom, Pop, and Gramps know how to "short the market?" There are many firms that do nothing but have a slew of stock traders that trade all day for their companies. These have nothing to do with the masses of people who lost their shirts and skirts. A hundred million shares can easily trade in and out with the flick of a few computer keys by large firms, or the PPT. I am certain the Plunge Protection Team has been very busy. The volume may sound encouraging, but don't be fooled. I wonder just how many stocks the fed owns, thanks to the PPT.

Saying that all is well, is like saying that since the tow trucks have towed the wrecked vehicles away, and the insurance company and police have been called… the crisis is over. Not true. If the stock market crash can be compared to an auto crash, the collision is only the beginning. The repairs, lost time, anguish, injuries, and miscellaneous costs and worries are going to continue for a long time…maybe years or a lifetime, if injuries are severe. Like an unfortunate auto accident, no one was prepared for it. Did the people who lost the $7 trillion, plan on it, any more than one plans for an accident or fire? The fire department extinguishing the fire, could be comparable to the stock market dumping, but that is far from the end of the story. When there is a fire, accident, or stock market crash, the end of grief and suffering is a long way off into the future. If you have lost $7-10 trillion, as America has, where is the capital to get going again? The capital is gone, vamoosed, vanished, kaput. It is a long, tortuous, row to hoe to regain lost capital, with nothing or little to work with.

Think about it, and decide if I am correct or not. Suppose you are 65 years old, as are a few people I know and deal with, and suddenly your retirement funds are reduced from $500,000 to $75,000. Suppose you are 30, and have been laid off from a really good job, and you can't find another other than for a steep cut in salary. Is big volume computer, PPT, and large firm trading, which runs the market up a hundred points for a brief instant, a true indication of the problem being licked? Hardly. Suppose your stock broker had you heavily into Enron or Global Crossing? Billions of shares and hundreds of thousands of retirement funds and IRA'S were in them. Enron went to 9 cents from over $60, if I remember correctly.

What's holding up the economy? Real estate? We've been into that already. Job creation? The feds gleefully announced that tens of thousands of new jobs had been created in the airport security area. Whoopee! Now Grandma can be frisked by a fed stooge. We're doing our own laundry again, and thinking it is recovery. How many jobs have been created in the manufacturing fields? How many jobs have been created in the transportation fields, which delivers the things made? Consolidated Freightways is gone. Consolidated Freightways had 15% of the domestic, long haul freight market. "Over the past two years, as manufacturing stalled, more than 7,000 trucking companies have declared bankruptcy," said Bob Costello, trucking industry economist with the American Trucking Association. A hundred thousand laid off from trucking alone? Companies are laying off, to try to recover. Is this recovery? Maybe for the firms that lay off, but when people get laid off, they can't buy stuff, and skimp and struggle merely to exist. This means that hundreds of thousands can't buy. This results in layoffs from the places that sell things that are no longer bought. The makers of things no longer bought, then lay off. The chain reaction can go on for many years, as it did in the 1930's. FDR got us into World War II, because after ten years of pump priming, telling everyone all was fine, and starting government programs galore, nothing seemed to work. When people get laid off, they postpone a trip to the dentist, vacation, the car oil change, or a carpet shampoo. When people are broke, they don't buy luxury items any longer, such as jewelry, gourmet foods, and expensive clothes. More layoffs from the firms that supply these, and those laid off, in a chain reaction, also cease buying things not absolutely necessary for bare existence.

Chain reactions can be cut off for a brief period, as the auto industry has done with interest free financing. However, this has filled the used car lots to overflowing, and reduced the prices of used cars. When the new car market is saturated, and it is close, the come down of the auto industry will be steep and sad. More layoffs in the auto industry will come soon, and you can bet your last dollar on it. Ford has announced 35,000 layoffs worldwide. Colleges are suffering from reduced attendance and registration, due to the "recovering economy," as has the tourist industry all summer. Motels, hotels, and amusement parks are not nearly as full as they are in good times, and airlines are declaring bankruptcy. The back to school business, which is second only to Christmas, was terrible this year, even for China Mart, and last Saturday, in a major department store near me, the Christmas trees and stuff were out already. If that isn't indicative of something other than "recovery," I am grossly mistaken.

But you have mutual funds, so you are OK, correct? Janus' largest equity mutual funds have seen assets shrink by more than half since March 31, 2000. But we are in a recovery state, and the trouble is over. We can all look forward to bright times ahead. Not to worry about that $7 trillion lost, and hundreds of thousands laid off. Or is it $10 trillion? All's well, because the stock market volume of shares traded is hefty day after day. I'll bet you're glad you read this, because you may have mistakenly believed things were bad. They're wonderful! At least according to CNBC and Sir Greenspin. If you can't believe them who else is there to trust? Besides, the dollar is backed by "The full faith and credit of the federal government." What more could one ask for? Don't bother protecting yourself, we have Uncle Sam doing it for us. See? I am not a pessimist…not much. Protect yourself anyway.

Gold is one of the most recycled substances in the world.

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