Skip to comments.Former Reagan Budget Director Despairs: ‘I Wouldn’t Touch the Stock Market With a 100-Foot Pole’
Posted on 03/03/2012 2:52:46 PM PST by Lazlo in PA
He was an architect of one of the biggest tax cuts in U.S. history. He spent much of his career after politics using borrowed money to take over companies. He targeted the riskiest ones that most investors shunned car-parts makers, textile mills.
That is one image of David Stockman, the former White House budget director who, after resigning in protest over deficit spending, made a fortune in corporate buyouts.
Former Reagan Budget Director Despairs: I Wouldnt Touch the Stock Market With a 100 Foot Pole
But spend time with him and you discover this former wunderkind of the Reagan revolution is something else a scared investor who doesnt own a single stock for fear of another financial crisis.
Stockman suggests youd be crazy to hold anything but cash now, and maybe a few bars of gold. He thinks the Federal Reserves efforts to ease the pain from the collapse of our national leveraged buyout his term for decades of reckless, debt-fueled spending by government, citizens, and companies is pumping stock and bond markets to dangerous heights.
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I don't disagree, but there is an awful lot of cash on the sidelines waiting to be invested somewhere. If Obama loses and the economy starts to turn around, that cash will find its way into the market. That has to help push stock prices up.
Nudge Nudge Nudge....
“Douglass Gordon Gekko Is FBIs Latest Insider-Trading Crusader”
Wasn’t he the one who coined the phrase “voodoo economics” in response to Reagan’s “trickle down”?
When the dollar is no longer the reserve currency that cash will become firewood.
I thought it was H. W.
Not sure. He may have gotten it from Stockman. Stockman was definitely off the reservation as I recall...my recollections being, admittedly, suspect.
Before Reagan's election, supply side policy was considered unconventional by the moderate wing of the Republican Party. While running against Reagan for the Presidential nomination in 1980, George H. W. Bush had derided Reaganomics as "voodoo economics".
I’m not sure he was. I can’t find anywhere he said it. Bush coined the phrase during a debate with Reagan. By all measure, Stockman was a Supply Sider when he was OMB director.
“He was an architect of one of the biggest tax cuts in U.S. history.”
“architect” being the operative word. IIRC he was relatively unknown until “recanted”. Will research it later.
However,I am sequestering all the assets I can until after the election.
That cash was produced by Bernanke’s printing press.
by David Stockman. Says it all right there.
“The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing as suggested by last weeks news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, its a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach balanced budgets, sound money and financial discipline is needed more than ever.”
So how does he feel Obama nd the Democrats are doing? I think it is the Democrats who are embracing “Keynesianism”
ideas just ask Brney frank
A Republican win will bring out investors, a Democrat win will be economic halt in the preceding year.
The bet is the value of companies you own that don’t go out of business exceed the loss you will take with the ones that do go out of business.
13k should be around 9k except there’s no where else to go, and you get dividends for income.
You will have til into 1st quarter before the stocks value dissipates as the realization that consumers are turning into hoarders.
Two responses to your question:
First: It was George Herbert Walker Bush who disparaged Reagan’s advocacy of supply-side economics by calling it “voodoo economics”.
Second: “Trickle down” was the term coined by Democrats to disparage supply side economics. I challenge anybody to find a quote where Reagan used the phrase “trickle down”.
If Obama loses, I'd bet that the smoke and mirrors gets exposed in an instant and the house of cards tumbles from a purposeful gust. They're taking great pains to keep it up so it hides the real weakness of the dollar from all the QEs and other games. I don't think anypone can keep it from taking a serious tumble, it's just a question of the timing. If Obama wins a second term, he'll have no compunction about letting it crash to unveil the mother of all crises and the blatant power grab to subjugate us all.
Listen. The dollar will not tumble simply for the fact that it is the best currency in the world.
It’s very simple.
Oh, look what time it is at the Tick Tock Diner...
Does that mean that when most countries charge three wheelbarrows of cash for a loaf of bread, we will only have to pay one wheelbarrow's worth? It's not as noticable as it could be, but the 13,000 stock market is worth what 8,000 was worth a few years ago. Yet they claim there's no inflation. You cantake the best scotch in the world and water it down so much that it's worthless. We've been doing that to the dollar.
I can’t fully remember but wasn’t his point in the book that we didn’t slash spending enough? I may be mistaking that book for one of the other Supply Side guys from the 80’s.
Was at a presentation a couple days ago...conclusion was with inflation, house value dropping, etc., we’d need to have the Dow at 16,000 to equate to what we’ve lost.
I vowed never to own stock the day i signed a labor agreement that contained health and welfare and pension almost 50 years ago!
The market became a ponzi scheme on that day!
I still consider it the stupidest place to put money!
Fifty years ago the DJIA was at less than 600. Today its at roughly 13000. And you STILL consider it the stupidest place to put money? Where exactly have you found a better investment during that time period?
Granted... now might not be the best time to own stock, but long term, I’d call the US stock market a pretty good bet.
Over the last decade the US Stock Market returned nothing. At least with bonds you could stay even with inflation.
Real Estate, purchased without a mortgage!
Very Big Bumpity Bump Bump Bump.
Bookmarked for posterity. An utterly sane viewpoint uttered in an insane media propaganda storm.
This should be required reading, no required STUDY for everyone over 18.
You should have to read this article 3 times and write a 30,000 word rebuttal before you are allowed to purchase stocks.
I keep hearing there is a lot of cash on the sidelines.
Now, would this be real cash that was saved and stored from genuine business profits and private incomes, or are you talking about all the cash that is based on credit at 0.25% borrowing rates that would never have been borrowed if we had a proper prime rate of 4% (which means you would be borrowing at 7% and home loans would be running around 9%).
I am very skeptical about this huge bounty of cash on the sidelines being real savings rather than easy credit. Can you demonstrated that his horde of cash is real savings?
Your post triggered something I wanted to say, but this is not specifically aimed at you, as you do understand that the market does tend to go up over very long time periods and you agree that this may not be the best time to own stocks.
That said, and for general consumption:
The US stock market has been a very bad bet for the bulk of all buy-and-hold investors since 2000. The US stock market has been a terrible investment for 12 years. We are in a secular bear market.
Stock market investing was “no lose” from 1985 to 2000” when we were in a secular bull market that floated all boats. The world’s stupidest buy-and-hold investor couldn’t lose money. It was just a matter of how well you did during that very long secular bull market.
We are in a secular bear market that looks to last until at least 2020 and maybe longer if it takes longer to de-leverage from the massive debt Stockman refered to in the posted article.
Most people are clueless, and I mean that in the most basic sense. I do not mean to say this as an insult.
Just yesterday a co-worker grilled me as to why I am in all cash and not in the stock market. I told him that I got out in December 2006 and I was certain I had done much better than him being all in from then until present.
He opened up his 401k account and stated that he had made some 25% during that time, and I was wrong.
Here is why I say that even most intelligent people are “clueless” and make no mistake that my coworker is at least as intelligent as me, and we are both licensed California Registered Professional Engineers.
He said he had made 25% but he forgot to deduct his annual contribution made to his 401k all during the past 6 years. When he deducted his contribution, he LEARNED that he had lost $6,000 in his 401k, this despite the recent run-up from the March 2009 lows, and dollar cost averaging in all his gains from that time.
I had gotten out in December 2006 into all cash and I was only making 1.24% on my cash investment over the 6 years, but I still saved all my money and came out ahead, while he took a $6,000 haircut on his $85,000 account.
That is why I say people are clueless. In his case, a very bright college-educated, professionally licensed engineer just didn’t think through the steps needed to track if he had made or lost money in the stock market.
Millions upon millions of people think just like him. They are clueless. They may not even realize their losses since the 2008 market crash. Most certainly don’t have any clue that the markets have stayed absolutely flat overall since 2000.
This is why I fear for such people. If they put no thought into their gains or losses, or into the markets overall performance, how are these people qualified to assess future risk?
They aren’t. They are nice and they are smart, but they are clueless. They are not reading and studying with the appropriate skeptical critical thought needed to overcome their preconceived biases that the market is always good over the long term.
No, the market is good in secular bull markets. It is not good in secular bear markets and that is what we have today and what we will continue to have for many years to come. When we have de-leveraged from our debt, then the market will be poised for its next runup.
Of course, I could be somewhat wrong as I ALWAYS underestimate the ability of the US central government to create financial bubbles and push the market up, but each time the market collapses back down, so I tend to be right, but just too early on my ca
Can you imagine the run on the stock market (and probably the banks, too) if most people were NOT clueless?
Yes, the DOW would be under 6000.
I read something a few months back that mutual funds had pulled $690 billion out of stock market as money was pulled out.
opinions were that certain banks were putting in money to
elevate the stock market.
I met a bond trader, institutional dealer,& friend of my son.
He sold off nearly 90% stock holdings and put about 30 something % in property.
“I cant fully remember but wasnt his point in the book that we didnt slash spending enough?”
It was worse than that. People forget just how “off the reservation” he was. In his book, he claimed that Reagan was largely responsible for the massive deficits accumulated during his administration, because he didn’t push hard enough for the spending cuts.
“He was an architect of one of the biggest tax cuts in U.S. history. architect being the operative word. IIRC he was relatively unknown until recanted
Exactly. These days stockman is the liberal media’s most favorite Reagan administration employee. Thanks to his recantation of everything that is conservative economics. They can always count on him to help them trash republicans, all the while holding him up as the standard bearer of the Reagan administration. Otherwise the news media would have no use for him.
The original poster was talking about a 50 year period. Sorry, but over a random 50 year period (pick one... any one....), as an individual investor, you’re going to win if you buy and hold stocks. It’s not a “ponzi scheme”. Its betting on the ingenuity of the American people and American business.
Also, since 2000 you haven’t done too well... unless you bought AND HELD dividend paying stocks. In that case you’re likely doing just fine.
I don’t think it was Stockman who invented “voodoo economics.” He was an ardent supply sider and, as OMB director, worked hard to pass the Reagan Budget (the Gramm-Latta Budget).
What is interesting is that the markets are controlled by institutional investors...and they too, just small retail investors, appear to be clueless.
You can see their cluelessness when the markets rally over a prospective EU solution to the Greek conundrum. Any sensible person realizes, there is NO sense to any solution that tries to prop up socialism.
Socialism must die for any economy under its thumb to survive or to re-emerge.
Bookmarked for further study.
@kartographer - of possible ping interest?
1928-1968, when taking inflation into account, the market was flat.
Peak to trough from 1928-2008, was a gain from 5k to 6.2k, or about 20 percent.
Does that strike you as a particularly good return? That’s 80 years, returning 20 percent. Until 1995, the market was the same then as it was in 1928, so 67 years with a return of zero.
You’d have earned more money cashing out and letting compound interest do it’s work than investing in the stock market.
It is indeed scary.
1. MONEY CREATION The Federal Reserve creates money out of thin air, actually by simply entering digits on one of their special computers and making it available to investment bank members and others that they have given access.
2. US DEBT BONDS OR STOCK MARKETS The members in 1. above put the Fed’s thin air money into buying US Debt (T-Bills, Treasury Bonds etc.) OR into index stocks. The latter is done to pacify the retirement accounts, keep the boomers feeling somehow secure otherwise the political sh*t will hit the fan.
3. DEBT CEILING EFFECTS When the Tea Party gets uppity and opposes trillion dollar increases in US Debt, the members of 1. above react by shutting off the spigots of money to the index stocks causing the markets to spiral down and create panic. Boomer retirement accounts take a hit and boomers groan. The financial and state controlled press reacts by blaming the TP for causing the scare and making them the scapegoat for Boomer retirement account reactions.
4. TEA PARTY CAVES And the stock bubble resumes.
Right now any different action politically is suicide. If rational people formulated and implemented policy to stop this madness, then panic and mayhem would ensue. Such panic might be temporary, maybe a year or so but no one in politics with the exception of Ron Paul is willing to do anything about it and I am not sure Paul would do anything either but it does not matter, he will never get the chance.
Newt Gingrich could be clever and pick his fights strategically. I am sure he would chase a vision of growth first and then get the levers of the financial powers back into a responsible position. At least he would try.
As for me I see nothing short of Revolution, meaning people so much in a tizzy that they start radical movements such as Constitutional Conventions to effect needed changes.
Unfortunately in these situations those that have knowledge of history, know what must be done, are aware of what is wrong, such people can do nothing until it stinks so bad, I mean the height of stink so bad that even the Maxine Waters, the Shiela Jackson Lees and all these types run from the stink and sit it out.
Think of stink when Giulani defeated Dinkins or when Lingle nearly defeated Cayetano and ultimately won against Hirono. It doesn’t matter if the stink was or was not caused by the democrats, it matters that voters only react to it.
I believe Ronald Reagan would never have won the presidency if Carter had a better economy to run on, meaning less stink.
So stink is what we need, unfortunately.
[radical movements such as Constitutional Conventions to effect needed changes.]
Great idea. Let’s let the mob who elected comrade chairman Odumbo rewrite the constitution. NOT.
“Its betting on the ingenuity of the American people and American business.”
Which might not actually be a good bet anymore now that the people, the businessmen, the corporations, the innovators, the inventors and the the producers are all being crushed under the fascist heel of Obammunism. If Obama gets four more years, the United States will be unlikely to ever obtain the greatness that preceded Obama. We’ll slowly (or maybe not so slowly) decay into a lawless citizenry of poverty and despair until the entire edifice crashes in a multi-trillon dollar heap of borrowed dollars conjured out of thin air by the Federal Reserve and exchanged for equally large heaps of equally worthless Treasury bonds, for Congress, regardless of the party in power will be unable to restrain itself from spending impossible amounts of money that no one has.