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it's about as fast as stock markets ever decline I remember seeing that the first four months was the fastest decline in the S&P since 1939 when I was one year old and they were preparing for World War I so that's a pretty good excuse to go down and this was the fastest decline this is about as fast as markets go down they always have good rallies there's nothing as quick and spectacular as a bare Market rally they had one in late 1929 to early 1930 an absolute dooy of 45% and of course with historical hindsight they signify very little but at the time they've fr the pan off bears and they give hope that all is over all is forgotten and it's back to the races and I suspect we may very well have a pretty decent bare Market rally as we sit I wouldn't be surprised if this went on for at least another month in terms of the entire bare Market it would be unusual for it to bottom out anywhere near this High I I would expect that by the load that the S&P would have declined by 50% from the peak in real terms so you do have to adjust the stock market for inflation and also the trend the trend in the market is a little over 4% a year and as time passes you should put that into the fair value so a year from now when the bare Market might end trend line value would be almost 3,000 on the S&P of course there's no rule that says you stop at fair by the typically in previous big bubbles breaking they go down below that they went down below of course in the housing bust of 09 and they went down in every great bare Market break they went below Trend except Alan Greenspan's specialty in 2000 in 200000 the S&P was heroically overpriced it came down 50% but at 50% decline it was only fair value it only hit the trend and then bounced as the FED raced to restimulate the NASDAQ went down 82 that's a lot of pain and it's possible that would do that again but you do have to adjust for inflation there was very little inflation around in 2000 but this time with inflation running at 809 it does move the nominal value of the S&P upwards one should even been sign up that the second shoe is going to drop which is profits so you have even a mild recession you get a big whack from profit market and the p goes down but also the earnings you're multiplying it goes down it is quite likely and plausible that earnings will drop in reception I don't include classic FS as being in the super psych category I think you could throw Tesla in at its peak that was super speculative great company but uh a bit of a silly price there but the others like Amazon and so on they're great companies but I would have included to them as Su SPS and you us they down quite a lot it's hard in a bull market to get your brain around what happen in the bad Market let me go back to Amazon in the 2000 bust didn't just come down as as its sales continued to grow of course in those days it didn't have earnings because it was running on borrowed resources it didn't have to it was still growing like the week it came down 92% 92% with strongly Rising sales a brilliant successful new idea that went on to own the world and be worth the fortune how is it possible it came down 97 92 think about that sometimes as you go to bed I like to say 80% of the time the market is is pretty sensible and doing a possibly good job of estimating value for all the companies a little under 15% of the time it gets carried away with optimism and by the end of that time has nothing to do with actual earnings it's all in the head projecting out hundreds of years into the future assuming the perfect conditions will stay perfect forever every bubble takes place with near perfect conditions at huge profit margins and the market runs with that and assumes it will stay there forever and of course conditions May in revert profit marins May revert and Good Times become bad times and that is a problem and the remaining 5% the market gets carried away on the downside and starts to uh be completely irrational as it was beginning to be in March of 2009 it was getting pretty silly pessimistic I wrote a piece reinvesting went terrified that by sheer luck came out the day the market hit its loow and it said get a policy get a plan present it to your committee or yourself and start to throw your money back into the market you still paralyzed everyone always does and Now's the Time to wake up the market is cheap and of course that happened in 1974 and 82 which were classic lows and the market got down 7p and what I call terminal paralysis sets in where you're so frightened you can hardly move you can hardly get to work forget buy stops and that's of course as Warren buffer would have said that's exactly the time you had to do it and it's only 5% of the time they're much quicker than the crazy ball markets if I'd been asked bet would the FED get inflation wrong when inflation came along at any time I would have said of course they'll miss it they'll be late their responses will be pretty ill judged the fed's record is terrible what is impressive is how much room they have being cut by the market I mean the market is incredibly forgiving to the fed the FED happened for 20 years 25 years to benefit from that amazing era as 500 million Chinese raced into the big cities and were plugged from marginal farming into highly profitable industrial system and then they joined the World Trade Association and made everybody's stuffed dogs and everybody's iPhones for that matter during that phase 500 million extra Chinese 200 million Eastern Europeans plugging into away from communism into capitalism that was a golden the Goldilocks if ever there was one and the FED got to take credit for them it's done nothing in terms of increasing the growth rate but superficially it felt like a golden age because asset prices went up because inflation came down and rates were allowed to come down and in the end rates were forced down and low rates made leverage cheap make private Equity deals wonderfully easy and profitable and they push up the price of real estate and they push up the price of stocks and that's the way it was and this time if you adjust for the passage of time the price of oil is not as high but it's still multiplied recently by three times so that is imposing pain on consumption and is imposing inflationary pressure we also have because of the invasion of Ukraine we have had some extra spikes in the price of food fertilizer and natural gas particularly in Europe interestingly they are now almost all of them lower in price than the day before The Invasion and this is a lovely example of how the stock market works the stock market is saying whats there's so much damage from commodity price Rises Etc Etc we're going to have a recession but the recession isn't valad years because the recession is going to get the said back in in our camp of lowering interest rates again and helping stock prices and we're looking out into the future and therefore that's a good news so the fear of a recession becomes a wishful thinking about due to interest rates and so the market gets a repri for a while it's quite remarkable but it's fairly typal and that's what we're having now and that's why we might have a bit of a rally for a few weeks I think in the longer term to get the next few quarters who knows what happens really but in the longer term we are really running the risk that this is back to the 70s we have problems with the availability of plentiful cheap resources and uh we have problems with plentiful cheap labor the birth rate has crunched in every developed country except Israel and China that's a very very important segment of the global economy to say the least and every one of them has lower than replacement level so in the end after accumulating lots of older people as a higher and higher percentage we start to actually have the population drop secondly we're 10 and 20 years in depending on the country into having smaller baby cobots so we know with absolute certainty since they're alive already the 20year olds arriving in the market will be fewer and fewer for the next 20 years and we have not experienced this before this has happened incredibly fast China has gone from Plenty of babies to a baby crunch almost overnight their fertility rate that needs to be 2.1 is probably running about 1.4 but even in the US the UK we're running about 1.7 we've never seen levels like this so we're going to have a hard time getting enough labor we're going to accumulate old people who are very resource intensive they need a lot of medical care they need a lot of people care and we're not going to have all that many people there there Supply people to look after as all fogies is dropping steadily from now on for the rest of your life for sure and at the same time I believe a correct interpretation of the commodity data is that it wasn't only China shot the rapid growth rate for 30 years in China but it was also showing signs that the best and cheapest most plantable resources have simply been mined or pumped and that we are running down into the second tier if you look at the trend the trend has been pretty reversal Z up since sou too and my guess is it will continue to rise and that will pose a real stagflationary pressure for a couple of decades and that's why I fear this is re-entering the 70s and ' 80s if you prefer it re-entering the 20th century once again so inflation will always be part of the discussion sometimes it will be low sometimes it will be higher but it will always be on the agenda the same with station there will be pressure on growth that we have not had we have had a glorious honeymoon period for 20 years where rids always came down and where chinesee workers were always available and inflation was a thing of the past and it is no longer a thing of the past and unless we're lucky and have some sensible behavior from governments around the world this inflation will go in little waves and will become moderately embedded at best and really embedded at worst the risks of destabilizing the whole global system have risen and continue to rise it is quite scary the risks are in the develop world too but the speed with which Sri Lanka went from jogging along okay to complete chaos I mean that is that is shocking isn't it a whole system it took less than two years to go from to an outsider anyway looking pretty stable to looking out of control it doesn't take much and when you mess with food the Tera Square days of the Arab Spring they chanted bread Freedom dignity bread Freedom dignity but bread was first and that was just based on a temporary 150% increase in the price of wheat well we just had another one that was 150% increase in the price of Wheat and there's likely to be pretty powerful repercussions around the whole of Africa Middle East and who knows where the thing about these pressure points is it's often unexpected like Sri Lanka things you didn't have on your radar screen suddenly blow up bad things can happen anywhere in the US you'd have to say our democracy looks to be in the worst shape for 8800 years or more through my eyes with attempts to overthrow democracy as far as one can tell it's dangerous times without a wall and ironically the wall May uh improve some things but it certainly increases the aggregate risk of some terrible mistake being made in the end resources will become more important as I L to say it doesn't take much for the four loaves of bread for a haircut to become four haircuts for a loaf of bread in the end a loaf of bread is more important than a haircut and they have a lot of the world's resources out there in the emerging World maybe that will turn out to be a trump card we still haven't reached the utilization rate the percentage of people working is way down from 2000 in 2000 we had about as high a participation rate as anyone on the planet and since then ours has come down the Italians and so on have gone out we have one of the lower participation rates which is really the definition of unemployment how many people do you have what frag and are working and the rest are in a sense unemployed and we do not equal the EU the way we stake the unemployment rate we're always very proud but we have more people not working than Europe they seem to have um found a new willingness to resign if the job is crumming and they're not paid enough and they have been treated diabolically badly since that 1975 and they get paid a ton more money than they used to and we do not
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