The Bear's Broken Clock

It’s Finally Right Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] If there’s anything you’ve missed as part of your membership to The Daily Reckoning, make sure you check out our website where you can find archives, updates, and everything else that's included in your subscription. You can access it by [clicking here now](. The Bear's Broken Clock - “It looks like the Bear's broken clock is finally right”… - Bears also suffer in bear markets… - The only way to restore broad prosperity… Recommended Link [Urgent Note From Jim Rickards: “You’re Running Out Of Time!”]( [Read more here...]( Your exclusive “Pro level” upgrade to Strategic Intelligence is ready to be claimed. This is your chance to claim 3 exciting new benefits along with a whole new level of service. Hurry… you only have until the timer hits 0 to act. After the timer runs out, you’ll forfeit your chance to upgrade… and you may miss out. Please don’t waste any time. Just click below to see how to confirm your upgrade: [Yes, I'd Like To Claim My Upgrade]( San Francisco, California January 29, 2022 Editor’s note: The bears have largely been proven wrong many times over the past several years, overpowered by the Fed’s easy money. But are the bears finally right? Today, Charles Hugh Smith says yes. [Charles Hugh Smith]Dear Reader, It looks like the bear's broken clock is finally right. Those clock hands stuck at midnight – well, it's finally midnight. Bear markets are tough, not just for bulls but for bears, too. Bear markets are treacherous because they are famously punctuated with rip-your-face-off rallies (RYFORs) that shred bears' lavish profits and handsomely reward buy-the-dip bulls. Then the markets suddenly roll over to new lows and the anguished cries of margin call-impaled bulls rise eerily from the depths. Newly enriched bears – the few who weren't thrown off the Bear Bus by the repeated RYFORs – rejoice, only to be ejected from the Happy Seat by the next rip-your-face-off counter-rally. Those playing both sides are wrung out by the churn, and while a few make fortunes, the majority are whipsawed off the Bear Bus and the Bull Bus by the volatility and the soul-crushing anxiety of being wrong yet again. Bear markets excel at sucking in bulls at the peaks and bears at the lows. When the move you've been praying for finally manifests, the temptation to go all in and reap the gains for being right is irresistible. Right when greed triumphs, the market reverses and fear rushes in to crush the euphoria. Bears may know they're right over the long term, but it's dishearteningly difficult to stay the course as profits vanish in rallies and the really big crash that mints fortunes remains maddenly elusive. False Dawns Bulls see every support level and bit of good news as the much-anticipated turning point where the bad news and the decline finally end. But the turning point is just as elusive as the penultimate capitulation crash. Everyone wants a clear signal that the bear market is over and the moment to buy, buy, buy is finally at hand. But bear markets aren't quite so generous. The bear is generous with false signals, false bottoms and false rallies, and remarkably stingy with the-real-deal, this-is-it capitulations. All the confidence gained in long market melt-ups where buy-the-dip paid off 100% of the time is slowly eroded by bear markets. Buy the dip works for a few hours or a few days, but only the nimble reap the gains. Those playing with leverage find the gains from 10 successful trades are erased by one trade that got away. The bear loves to toy with hope – hope for a turning point, for vindication, for capitulation and for life-changing profits. The bear market loves teasing not just the vulnerable roller coaster-riding emotional traders but also the pros and even the algo-trading machines. Recommended Link [$512 Credit Available For First 500 People Today]( I am pleased to announce that you've got a $512 credit for our research you can take immediate advantage of… Please click here immediately to learn how to claim this credit. **DISCLAIMER: Please note, this offer is limited to the first 500 people today** This situation is urgent… So don't waste another minute. [Click Here To Learn More]( Broken and Beaten The teeming hordes who beat the indexes in the bull market are reduced to a handful of stragglers in the waning days of a bear market. Napoleon's decimated, starving remnants of a once-great army hobbling out of Russia come to mind. The number of traders who beat the indexes soundly over both bull and bear markets are very few in number. Bull markets are easy, bear markets are hard. They require an entirely different experiential skill set than buy-the-dip bull markets. Looking back with the luxury of hindsight, bear markets look like Paradise for the active trader: Look how much moola could have been reaped by buying low and selling high, again and again and again. Easier said than done. What's easy is being whipsawed and thrown off the bus. That grizzled old wreck of a trader who mumbles incoherently about the ’70s, 1987, 2002 and 2008? Listen to the ramblings, and ponder the runes and wanderings of the shattered mind. Therein lie the secrets to emerging not as a shell-shocked survivor but as the rare victor. The next bear market will hurt a lot of people who are used to relying on the “Fed put,” the fact that the Fed has had their backs for so long. Here’s where things stand… Fear of the Taper 1. Every time the Federal Reserve began to taper quantitative easing/open spigot of liquidity over the past decade, reduce its balance sheet or raise rates from near-zero, the market plummeted ("taper tantrum") and the Fed stopped tightening and returned to easy-money expansion. 2. Now the Fed is boxed in by inflation – it can't continue the bubblicious easy-money policies, nor does it have any room left to lower rates due to its pinning interest rates to near-zero for years. 3. So market participants (aka punters) are nervously wondering: Can the U.S. economy and the Fed's asset bubbles survive higher rates and the spigot of liquidity being turned off? 4. The market is also wondering if the economy can survive the pricking of the "everything" asset bubbles in stocks, bonds, real estate, etc. as interest rates rise and liquidity is withdrawn. What's left of "growth" once the top 10% no longer see their wealth expand every month like clockwork? 5. The unprecedented expansion of asset valuations driven by expansions of credit and liquidity (i.e., low-cost credit chasing scarce assets) has greatly increased the wealth of the top 10% (especially the wealth of the top 0.1% and top 1%). Since the top 10% collect about half of all income and account for roughly half of all consumer spending, the "wealth effect" generated by ever-rising asset valuations has underpinned "growth" in both asset purchases and consumption. If assets actually decline in value and the wealth effect reverses (i.e., punters feel poorer), then what will drive expansion of capital and spending going forward? Moral Hazard 6. The Federal Reserve and U.S. Treasury have institutionalized moral hazard, the disconnect of risk and consequence, for America's financial elite: Rather than force those who gambled and lost to absorb the losses in 2008-09, the Fed and Treasury bailed out the too big to fail, too big to jail financial elite, establishing an unspoken policy of encouraging the wealthiest individuals and enterprises to borrow and gamble freely, knowing they could keep any winnings and transfer any losses to the Fed and/or taxpayers. Recommended Link [URGENT: Your New Crypto Book Is Awaiting Shipment]( [Read more here...]( If you’ve kicked yourself for not investing in cryptocurrency… Watching Bitcoin go from $61… To $1,000… To over $60,000… Then pay close attention. Famous crypto millionaire James Altucher just released a brand-new book on crypto… [And he’s releasing a limited number of books to folks who click here now.]( We have a copy reserved in your name, and we just need to hear back from you. [Click Here To Claim Your Copy]( 7. This institutionalization of moral hazard combined with zero interest rate policy (ZIRP) and an open spigot of liquidity have driven wealth and income inequality to extremes that are economically, politically and socially destabilizing. Insider trading in the Fed and Congress has finally leached out into the public sphere, and the cozy enrichment of the already super-wealthy has now reached extremes that invite destabilizing blowback. 8. Inflation is now embedded due to structural, cyclical changes in supply chains and the labor market: Rather than importing deflation, global supply chains now import inflation (higher costs) and scarcities. After being stripmined of $50 trillion over the past 45 years, labor has finally gained some leverage to claw back a bit of the purchasing power that has been surrendered to corporations and finance over the past two generations. 9. Inflation spirals out of control if the costs of credit (interest rates) don't rise to reward capital with inflation-adjusted income: If inflation is 6% annually, a bond paying 1% loses 5%. This is not sustainable, for it distorts the pricing of risk. What Will Keep Markets Aloft? 10. As rates rise, lower-risk bonds become more attractive than risky stocks, and capital leaves stocks for income-producing securities. Rising rates are historically bad for stocks, so what will keep stock markets lofting higher if rates rise, liquidity is reduced and capital exists risky stocks? 11. The stock market is overvalued by traditional measures of value, and any mean reversion will lower the market significantly. So what's left to push risk assets higher? The only answers with any substance are: A) Rising profits due to companies having pricing power in an inflationary environment and workers getting more purchasing power so they can afford to pay higher prices, and B) massive inflows of global capital due to perceptions of lower risk and higher returns in U.S. dollar-denominated assets. If neither transpires, there's no real support for stocks to continue lofting ever higher. 12. The equity, real estate and bond markets all rode the coattails of the Fed's ZIRP and easy-money liquidity tsunami for the past 13 years. As those subside, what's left to drive assets higher? It's an open question, and so skittishness is rational and prudent. In summary: By rewarding financialization and the largest concentrations of capital at the expense of labor, small business and productivity, the Federal Reserve and federal/state governments have made the economy and society precariously dependent on asset bubbles, corruption (pay-to-play politics) and financial trickery. The only real foundation for growth is to widen the distribution of gains in productivity, shift the gains from capital to labor and reward small-scale investment in productivity gains rather than funnel all the gains into asset bubbles and financialized casinos that enrich the top 0.1% at the expense of the nation and its people. Unfortunately, the existing system has all but destroyed that foundation. Regards, Charles Hugh Smith for The Daily Reckoning Editor’s note: America’s No.1 futurist, George Gilder, recently returned from Atlanta with an [exciting new discovery]( regarding his foundational thesis, the “Cryptocosm.” Specifically… One of George’s colleagues has uncovered a brand-new way to profit from this world-changing technology revolution. In fact, he’s identified a small handful of explosive investment speculations that he believes could soar for [life-changing profit potential]( – as soon as this upcoming week. [Click here for more...]( George was so excited about this fast-moving opportunity, that he put together a three-minute video clip to explain everything. We urge you to watch it as soon as possible. It won’t take you long. And yet, it might be the most important idea you see in 2022. [Go here now.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Charles Hugh Smith][Charles Hugh Smith]( is an American writer and blogger, and serves as the chief writer for the blog "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites, and his commentary is featured on a number of sites including Zerohedge.com, The American Conservative, and Peak Prosperity. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. 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