"People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome." -George Orwell
I try my very best not to get locked into an overly biased viewpoint. Too many people stubbornly stick to a particular viewpoint and refuse to see the other side or even hear reasonable arguments that contradict their own beliefs (political affiliation, gold bugs, etc.). So while I have been very cautious on the stock market for some time (most recently HERE) due to what I see is poor valuation, I took note when Martin Armstrong noted the following last week:
JUST when you thought it couldn’t get worse, surprise – THE BEST IS YET TO COME! Yes, the sentiment is going to change. But the change on the horizon for the next 4.3 years is going to be very different. We are entering a phase of the Private Wave where confidence in government sinks lower still. The irony of these types of moves is that the economic decline continues, but the financial markets recover with a twist. Capital becomes leery of government debt and thus the private sector rebounds in the face of rising unemployment and worsening economic statistics.
It is absolutely critical to understand International Capital Flows. The Dow rose between 1932 and 1937 and unemployment exploded to 25% going into 1935, the Dust Bowl tore the economy apart, and the economy was far from booming. There was a lift due to the devaluation of the dollar. This is also the famous bank holiday. Much of the news between 1932 and 1937 was BEARISH. Yet the stock market rallied as a HEDGE AGAINST untrustworthy public debt. Even the city of Detroit suspended all payment on its debt. It made good in 1963 with the help of inflation. We face similar crisis in the state and local governments. Unemployment will rise as the local governments (WHO CANNOT PRINT MONEY LIKE THE FEDS NOR BORROW FROM THEM) are forced into reality.
Now, it's important to remember that future stock market returns are a direct function of how cheap stocks are today. While I respect Armstrong and his unique point of view, in my opinion it's vital to realize that valuations in 1932 based on the Shiller P/E were in the 5-7 range vs. the over 20 now. So even though the economy was terrible throughout the 1930's, stocks were very cheap in 1932, forecasting solid long-term returns even in a poor economy. That is not all all the case today. Still, it's an interesting concept and might be a tailwind for stocks (or at least to help with a floor).
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