GOLD-EAGLE.com is not a political site, but the elections have a very interesting economic effect on all of us. On Tuesday, the Dow was way up initially. Then the exit polls leaked out, and the Dow dumped into negative territory. Why? Because those with assets realized that if Kerry won, the economy would go into the dumps. His proposed trillion dollars in new spending and no way to pay for it, was illogical. They sold stocks. They worried. Understandably. Most of the rich, prosperous, and at least moderately affluent, are the ones buying stocks, gold, silver, and other investments, with which to preserve their assets.
Now, after Bush won, on Wednesday the stock market zoomed up, as if to breathe a sigh of relief. Thursday, as I write this, the same thing is happening. The people with surplus assets, bought a lot of stocks. Isn’t this grand? I think not, and the reasons are not difficult to fathom, if you are a thinker, rather than one who goes along with the crowd. For one reason, with all the stock purchases, the P/E ratios went up a bit more. Profits didn’t increase, when billions of stocks were bought. Did Delta Airlines make more money because the stock market went up, and people bought billions of shares? Did Ford or GM place a few million into their retirement plans, which are hundreds of billions in arrears, because billions of shares were bought? Because a few billion shares were bought, driving up their prices, did Wal mart shut down any of their 700 factories in China, and re-open a few here? The answer is an absolute NO.
The P/E ratio is what supposedly makes a stock valuable, plus the dividends it pays as a reward for buying it. P/E (price-earnings) isn’t a really good way to measure a stock’s value anyway, as far as I am concerned. Who cares what it “earned,” if all the “earnings” go back to pay off huge debts or to pad a CEO’s multi million dollar a year salary? There should be a P/D ratio, as far as I am concerned. This would be “Price-Dividends,” which is what the shareholder should be concerned with, if they had any sense of value. If I bought a share of the local hardware store for a hundred thousand dollars, and I get no return, of what value is it to me? I am delighted that it made a profit, but if it didn’t make enough to give me a return on my investment, how was it a good investment?
The average P/E ratios have been in the 30’sh range for a long time, or a bit below. This means that stock is showing “earnings” of maybe 3% of its selling price. No dividends. You’re supposed to be happy your stock made a few bucks, but not enough to pay you anything. Mass buying, and the resulting splurge in the market and for no good reason other than that Bush won, is a sad thing which will surely correct. When Bunker Hunt attempted to corner the world’s supply of silver, and prices started up, everyone wanted to get in on the bandwagon. Prices fed on themselves, and this is why stock markets go up when there are lousy P/E ratios and no dividends. The masses of affluent people often follow the leader, just like sheep follow their leader off a cliff. Sheep are absolutely the dumbest animals on earth. They will follow the leader to ridiculous ends, and literally off a cliff. Far too many investors do the same, as witness the NASDAQ. “If everyone is doing it, it must be OK,” is the rationale. Actually, the majority is usually wrong. It doesn’t take too much of an investigation into history to bear out this fact.
Now that Bush has won, are the hundreds of billions spent, and more required, lessened the Iraq appetite? Have the government’s debts decreased, now that Bush has won, and the stock market has gone up? Has real estate stopped going down in many places, now that Bush has won? Has the estimated $30 trillion in government debt decreased, now that Bush has won? Have the baby-boomers stopped aging and placing pressure on the Social Security system, which hasn’t a dime in its coffers? Have the presses slowed in their adding a billion dollars a day to the money supply? Have record personal bankruptcies slowed, now that Bush has won? Have new car sales increased? Has industrial production increased? Have government deficits decreased?
In no way am I sorry that Bush won! I’m glad, and I predicted that if he won, stocks would go up. They have. I knew they would, but I also knew that if Bush won, none of the basics would have changed, other than a certain mentality in the nation. I also knew that gold and silver would not go down, because an ever-increasing number of people are buying them. I was correct again. On Wednesday, gold was up a few dollars, and silver was up a few cents. Thursday, gold broke the $430 resistance point, and silver was up above $7.40, headed for $8. Did the dollar rebound when Bush won? No way, as it plunged a bit more. As I write this it is at 84.46, meaning ever weaker. Dollars, are literally being dumped by the Russians, and more US paper is being sold, than is being bought by foreign nations. Even Castro has said that he will take no more dollars. Why? Foreign nations, whom the US government depends on to continually finance its wild spending, have about had enough of us. America is a bad investment for foreign nations. If they buy US paper, denominated in dollars, and with low interest, and the dollar loses value, why buy it? As a matter of fact, they’re selling, but not too fast, as it may make the market plunge, and they’d lose far more.
Mass selling of stocks, makes stocks go down. Mass selling of gold makes gold go down. Mass selling of real estate, makes real estate go down, because there are more sellers than buyers. When one wants to unload something, and one has a lot of it, whatever it is, one shouldn’t attempt to sell it all at once. Makes markets crash. So, even though Bush won, foreign nations are still selling their US debt as fast as they can, without causing a market panic. They’re not buying much either. Just a little, so as also not to cause a panic by not buying any.
I suspect that the point of this is really quite simple. Bush wins, and the stock market goes up. The stock market had been going down for weeks, because there were few profits, high P/E/ ratios, and few dividends. Oil was and still is, over $50 a barrel, China’s share of trade was, and still is increasing, and jobs were, and are still being lost. I called American Express to dispute a charge, and I was answered by a gal in India. It all looks very glum for the economy. Nothing has changed for the good. Bush wins, and the stock market gallops up instantly. Did those buying stocks invest wisely? Have any of the fundamentals changed? Even one? I think not. Everyone gets cheery because Kerry didn’t win, but nothing basic has changed.
Gold and silver are still real money. Dollars continue to plunge. Stocks are still over-priced. Social Security still hasn’t anything in the so-called “trust fund,” other than trillions of IOU’s. Baby boomers are still retiring, and applying for it. The national debt is still about $30 trillion, and there is no known way to pay it. Dollars are still increasing by a billion a day. Oil is still expensive, and of limited quantities. Iraq is still killing and requiring hundreds of billions of paper dollars. The sun keeps rising and setting. Is there anything new under the American sun? Not much, if anything. Protect yourself.