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The Saturday/Sunday (June 13-14) Wall Street Journal has a "must read" article, and I am not saying that because the Journal is agreeing with the thesis that I have been propounding on this blog and in columns for some time. The article begins on page 1 with the headline, "Stocks in the Black on Gusher of Cash." Basically, it tells how a "bailout bubble" has been created. Commodities and stocks are zooming around the world because of the biggest combined multi-government stimulus the world has seen in modern times. "All that money that was printed has to go somewhere," says one analyst, and commodities and stocks are getting it. Silver is up 59% from December lows. Copper is up 90%, corn 45%, crude oil 113%. Stock markets in the Ukraine and Vietnam are up more than 100%. Analysts predict that markets around the world could go higher, floating on all this liquidity.

Consumers are 70% of the U.S. economy, and they are deleveraging and cutting their spending -- a red flag. The bailout bubble could end badly, warns the Journal. Personally, I see no meaningful recovery signs in U.S. residential and commercial real estate, capital spending and exports. Thus, the U.S. commodity and stock markets are ONLY floating on government liquidity. Stocks have never been more than 30% of my portfolio. In economics, you can see something horrendous coming, but you don't know when it will come, and what form the bubble-bursting will take. Now I am only 20% stocks (mostly dividend-paying utilities) and the rest is in bonds (mostly munis) of short and intermediate maturities. The bailout bubble is certain to burst. But when? I still think the Dow will end the year at 9,000, but it will be entirely because of liquidity. The recession won't end this year, in my judgment.

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Comments

JustWondering June 14, 2009 @ 1:20 p.m.

Just as I was beginning to believe it was safe to go back into the water Don says there's a shark in the bay and no lifeguards on duty. Maybe it time to think about retiring, putting up my feet and opening a cold one.

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Don Bauder June 14, 2009 @ 3:24 p.m.

Response to post #1: The Dow could go back to 14,000 by yearend, or it could recede below 6,500, roughly where it was when this rally ensued. A liquidity-induced rally, not backed by meaningful economic recovery, could go either way. Since that is the case, I prefer to have very little in stocks and nothing in commodities. Definitely, it is not SAFE to go back in the market, as you suggest. It never is when the market is riding on artificially-created liquidity. If you see the economy ACTUALLY starting to improve, you might think about stocks. But we haven't seen that yet. The idea that the economy is bottoming is a mirage. Best, Don Bauder

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SurfPuppy619 June 14, 2009 @ 3:59 p.m.

The Dow could go back to 14,000 by yearend.............

Surely you jest with sarcasm Oh Great One.

Don, the chances of the DJIA hitting 14K in 6 months are 0 (even w/o GM in it).

I don't even think 9K will be in the cards.

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Don Bauder June 14, 2009 @ 7:07 p.m.

Response to post #3: I think the odds of Dow 14,000 are quite slim, but they are not, as you say, zero. You never know where a liquidity bubble will carry some asset classes. In the U.S., the government and Federal Reserve have pumped more than $12 trillion into this mess. The government is cooking the numbers -- witness the prestidigitation involved in reducing the number of jobs lost. The media are trying to talk it up -- jumping on every bit of news that is slightly less miserable than last year's and pronouncing an imminent recovery. There is a lot of money on the sidelines. It could happen. But as I said, it could go back to 6,500, too. Most likely, it will not do much from here. Best, Don Bauder

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SurfPuppy619 June 14, 2009 @ 7:31 p.m.

OK, the odds of the DJIA hitting 14K may not be zero, but they are certainly less than 1%!

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Anon92107 June 15, 2009 @ 2:23 a.m.

“In economics, you can see something horrendous coming.” Wow, the inevitable Gloom and Doom - The End is Near scenario produced by Greed and Corruption is upon us!

That’s some Sunday Sermon on the Mount by you Don.

Sooooo, what Don Bauder and the WSJ are admitting is the ultimate collapse of American Capitalism due to uncontrolled Wall Street greed enabled by overwhelming corruption of our elected representatives who are “cooking the numbers” like governments always do?

In that case there really can be no “safe haven” because both stocks and bonds will be valueless, especially government bonds with values depending corrupt politicians.

When are you planning on switching to good old reliable gold Don?

The greatest lesson of history is that we never learn from it and it always repeat itself as long as greed and corruption dominate our economic and political institutions.

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Don Bauder June 15, 2009 @ 6:31 a.m.

Response to post #5: Let's say less than 1% or 2%. The odds of going back to 6,500 are less than 10%, roughly. But let me repeat my point: when a market is riding on an artificial bubble, have most of your money (75-80%, depending on your age) safe on the sidelines. You know the bubble is going to burst (what's happened since 2000 tells us plenty), but you don't know WHEN and you don't know WHAT FORM the crash will take. So play it safe. Best, Don Bauder

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Don Bauder June 15, 2009 @ 6:39 a.m.

Response to post #6: I am not predicting the ultimate collapse of American capitalism. But I do say that strong (perhaps radical) reforms are in order. Bonds will drop in price if inflation roars, but if you have short to intermediate maturities in quality instruments, you should be able to survive. In the stock market, utilities that have stuck to their knitting (those that haven't gone crazy with diversification) should do OK, and sport good yields. Consumer staples companies such as Procter & Gamble and Johnson & Johnson should survive. I know all the arguments for gold. I have been writing on it for 36 years. But I have never owned it; there is no yield, and in some cases you have to pay to store it. Also, the world's central banks are conspiring -- and I mean "conspiring" -- to knock down gold. Best, Don Bauder

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Anon92107 June 15, 2009 @ 12:26 p.m.

Response to post #6: Don, it is always interesting to watch WSJ types manipulate the stock market to maximize their good old boy profits by making predictions that drive down stock prices while they sell short and/or safely stash their cash like bottom feeding bloodsuckers they are.

Then they wait like vultures to ride the updraft/suck-up winds to maximize their avarice when they finally let the market recover after the middle class has been fleeced to our limit of pain again and again.

After all, the true motto of WSJ and their Washington politicians is “Screw unto others before they can screw unto you.”

You know better than anyone that "strong (perhaps radical) reforms are in order" are never going to happen because both political parties are subservient to Wall Street special interests and the latest "recession" proves they all live to screw Americans, and as many of the rest of the world as possible with their Great Wall Street Screw The World Monopoly game.

Thus it is time for “The Second Coming” to attack the 20th century version of money changers. This can be the subject of your next Sunday sermon.

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Don Bauder June 15, 2009 @ 12:43 p.m.

Response to post #9: It it no doubt true that the media attempt to manipulate the market -- almost always up, not down. The talking heads on TV are guiltiest. On its news pages, the Wall Street Journal plays it straight, in my judgment. The editorial page is wacky, although I don't see it manipulating stocks. This is coming from someone (me) who drives 20 miles a day to get the Wall Street Journal and NY Times. I agree that Wall Street runs both parties. Some other industries have great influence in Washington, too. Best, Don Bauder

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Anon92107 June 15, 2009 @ 1:27 p.m.

Response to post #10: Don, I have spent my lifetime dedicated to hard work, along with firm belief that American Democracy and Capitalism will make the best things happen for all Americans and the world, but the latest Wall Street/Washington "recession" has been the last straw that has destroyed my beliefs.

I still believe in hard work, but I now most firmly believe that hard working labor unions are the only way to get America back on track to making the best things happen for all Americans and the world. The greatest truth is that American labor built America, while Wall Street and Washington have been destroying the American Way of Life, Liberty and the Pursuit of Happiness.

Wall Street and Washington sold out American labor and the middle class and it's time for labor unions to take control of corporations and the government to make America greater than ever before.

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SanDiegoParrothead June 15, 2009 @ 3:02 p.m.

Doing my best Jim Mora impersonation ...

Labor Unions?! Labor Unions??? LABOR UNIONS ???!!!

You must be kidding me. They're half the problem nowadays, with their bloated member salaries, payoffs to politicians, and pension money grabs that are way out of proportion to their worth & value that the individual provides ....

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Anon92107 June 15, 2009 @ 3:15 p.m.

Response to post #12:

Yes SanDiegoParrothead, Labor Unions because the number one fact is that millions of American Heroes and Patriots sacrificed everything to protect American Democracy from communism in Korea and Nam only to have their sacrifices betrayed by Wall Street and Washington who sold out the Wealth of America to communist china ever since.

So it is once again time for hard working American labor and middle class to rededicate ourselves to the spirit of the Declaration of Independence by separating ourselves from the corrupt Wall Street controlled republican and democratic party leaders who sold America out to communist china, time once again to institute a new government by electing hard working American labor to boards of directors and congress using Democracy as it was designed to be used by our Founders to provide new guards for our future security like they sacrificed everything to create in the first place.

A “Bubble” has indeed burst already, it is the bubble of greed and corruption, and it is time to fight back to save what is left of the Wealth of America, by rededicating Washington and Wall Street to rebuilding American Democracy and Capitalism, to restore the Wealth of America that hard working American labor made possible.

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Don Bauder June 15, 2009 @ 4:46 p.m.

Response to post #11: Well, the unions now have GM. Let's see what they do with it. I am afraid both the government and the unions will make a mess of GM -- although perhaps not as much as prior managements did. Best, Don Bauder

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Don Bauder June 15, 2009 @ 4:49 p.m.

Response to post #12: That's certainly true with the City of San Diego's government unions. However, the unions in industries facing foreign competition -- autos, steel, rubber, etc. -- have had to take big cuts, and have done so. Government unions generally don't have to do that, because they aren't affected by foreign competition. Best, Don Bauder

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Don Bauder June 15, 2009 @ 5:06 p.m.

Response to post #13: Wall Street has certainly sold us out. And politicians of both parties taking funds from Wall Street have sold us out. If you know how to do anything about this, please state it. We need Teddy Roosevelt. Best, Don Bauder

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SurfPuppy619 June 15, 2009 @ 7:44 p.m.

Labor Unions?! Labor Unions??? LABOR UNIONS ???!!!

You must be kidding me. They're half the problem nowadays, with their bloated member salaries, payoffs to politicians, and pension money grabs that are way out of proportion to their worth & value that the individual provides ....

By SanDiegoParrothead

You should be referring to PUBLIC labor unions.

Nothing wrong with unions in the private sector-because if they over reach they go BK- like GM and the UAW.

The problem lies in the PUBLIC sector unions which now account for 75% of all union membership.

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Don Bauder June 15, 2009 @ 7:58 p.m.

Response to post #17: Agreed, as above. Municipal unions can pull what they do because of the lack of foreign competition, and also the absence of politicians' backbone. Best, Don Bauder

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Anon92107 June 16, 2009 @ 5:09 a.m.

Response to posts #14 & 16:

Re “If you know how to do anything about this, please state it.”

OK Don, we appear to agree that the number one root cause of the economic failures America is experiencing today is that politicians and corporate executives have been so corrupt and greedy that they have betrayed and damned near destroyed everything that The Greatest Generation sacrificed and built for America.

Thus we must overcome the culture of greed and corruption that our elected representatives have totally failed to protect We The People from.

Union labor has proven far too many times that they know how to fight back to obtain pay and benefits security for their members, things that every hard working American have a right to expect. But our politicians have enabled corporate executives to export far too many American jobs, manufacturing, and expertise to communist china in the meantime.

Unions have proven to be the only current American institution that fights back effectively so far against politicians and executives who have sold out America for far too long now.

Thus labor unions are the only way we can “do anything about this” at the present time.

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Anon92107 June 16, 2009 @ 5:50 a.m.

Response to post #18 P.S:

Don, let's face the fact that Congress, the CA Legislature and San Diego City Council function first and foremost as labor unions who protect their own elite membership as if they are an aristocracy that is entitled to plunder the Wealth of America, California and San Diego for their own personal wealth and power as their highest priority regardless of consequences to all hard working Americans, Californians and San Diegans.

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Don Bauder June 16, 2009 @ 9:02 a.m.

Response to post #19: Remember, too, that the main reason for the U.S. exporting so many jobs was to jack up profits, permitting top executives to rake in obscene pay. The uneven distribution of wealth and income is one of our most serious social and economic problems, and big business has no one to blame but itself. Best, Don Bauder

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Don Bauder June 16, 2009 @ 9:04 a.m.

Response to post #20: The most important motivation of politicians at all levels is to keep themselves in office, so the manna can continue to flow from the lobbyists. This is axiomatic. Best, Don Bauder

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Anon92107 June 16, 2009 @ 11:42 a.m.

Response to posts #21 & 22:

Actually Don, corporate boards of directors really function as labor unions for America’s most elite aristocracy, and their imperial impunity is further guaranteed with bailout rewards bestowed by their vassal politicians, and protected by a corrupt judicial system that has overthrown the Rule of Law for political purposes. American Democracy has now returned to the BC days of Athens before Archon Solon created Democracy and the Rule of Law to prevent revolution against the aristocracy in Greece.

And the worst fact is that politicians in both parties get huge bonuses every time they enable their corporate masters to ship another million American jobs to communist china.

So it has become imperative for the rest of us to form our own union to protect ourselves from politicians and their corporate masters who have now totally destroyed the “Buy American” cultural value that The Greatest Generation fought and died for to create and protect.

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Don Bauder June 16, 2009 @ 2:03 p.m.

Response to post #23: I look upon corporate boards of directors as toadies doing top management's bidding. After all, top management chose those on the board, who get paid very well to show up at a few meetings. Corporate board members have to realize what they are doing to America by permitting top management salaries to soar to ridiculous heights, while watching worker pay stagnate as jobs are shipped overseas. But I fear that very few board members have the vision to realize that they are contributing to the ruination of capitalism. Best, Don Bauder

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SurfPuppy619 June 16, 2009 @ 8 p.m.

I look upon corporate boards of directors as toadies doing top management's bidding. After all, top management chose those on the board, who get paid very well to show up at a few meetings. ==================

Paid very well is an understatement.

Those "board" directors at Fortune 500 companies get paid $200K, $300K for a few hours of work.

The real problem is the "board" is made up of almost exclusively other Fortune 500 CEO's. It is pure cronyism where these Yahoo's are greasing each other.

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Don Bauder June 16, 2009 @ 9:53 p.m.

Response to post #25: Yes, other CEOs are on the board. But so are lawyers, accountants, and consultants working for the company, and selected by the CEO. It's an inside racket -- a pernicious one. Best, Don Bauder

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Anon92107 June 18, 2009 @ 4:29 a.m.

Response to posts #24 & #26: Indeed Don, the "inside racket" is a root cause of the bailout bubble that is accelerating the primary failure mode "contributing to the ruination of capitalism."

Even worse, during the last 8 years the Cheney-Bush Autocracy redefined GOP = CRAP (Communist Republican Anti-American Party) for their betrayals of America while they sold out millions of American jobs and the Wealth of America to communist china.

At least we have the best possible President during this time of greatest need for such a leader, but current democratic congressional leaders have a horrendous record of screwing things so badly that they may very well end up negating President Obama's best efforts.

The first imperative in Washington is to replace the leaders of both parties ASAP with a new breed of true leaders who are totally dedicated to the concept of We The People once again.

It is up to the newest generations of voters to take the repair of their world into their own hands using their laptops and wireless Internet connections to the worldwide web to enable them to perform many voters-to-many voters communications to make the right things happen again with the required sense of urgency, just like the Declaration of Independence was used to create American Democracy in the first place, but this time with www.AmericanRevolution using the worldwide web.

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Don Bauder June 18, 2009 @ 6:20 a.m.

Response to post #27: Good luck finding a politician who is more interested in serving the people than in getting reelected. In San Diego, Donna Frye is one. But such pols are few and far between. Best, Don Bauder

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Anon92107 June 18, 2009 @ 12:58 p.m.

Response to post #28:

Well I guess that all us older generations can do at this point is to pray for the younger generations because our older generations were fat, dumb and happy for far too long while our political, economic and social systems kept getting further and further out of control.

No longer can older generations say "the younger generations act like they are going to hell." As of now, it is our older generations that definitely screwed the future for the younger generations and put them in hell.

That's why I must emphasize most strongly that it is up to the newest generations of voters to take the repair of their world into their own hands using their laptops and wireless Internet connections to the worldwide web to enable them to perform many voters-to-many voters communications to make the right things happen again with the required sense of urgency.

However, I wouldn't blame them for telling us to go to hell for anything we tell them to do at this point.

How ironic, when I went to college our motto of life was "Never trust anyone over 30" and we sure proved that point.

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Don Bauder June 18, 2009 @ 9:49 p.m.

Response to post #29: Agreed: our generation went to hell. And will put future generations through it. Best, Don Bauder

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chillblaine June 20, 2009 @ 8:55 p.m.

politicians should face re-election every year...that way there would be no 'election cycle,' and a frantic president would not be insisting that every colossus of a bill be passed yesterday...there is no political will to impose austerity measures, because the most important thing is always to stay on top of the polls

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Don Bauder June 21, 2009 @ 3:03 p.m.

Response to post #31: Would you want to go through a presidential election every year? Isn't every four years enough? Think of the money it would drain from the economy. Best, Don Bauder

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David Dodd June 21, 2009 @ 3:10 p.m.

All elected officials should serve one term of six years, and that's it. They should be paid a modest salary and not receive benefits beyond their elected service (they can go back into the private sector and do as they wish). This would save billions of dollars, we would get public servants rather than career politicians, and they would be forced to concentrate on the job they were elected to perform rather than on re-election.

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Don Bauder June 21, 2009 @ 3:17 p.m.

Response to post #33: But they would all go into the lobbying business after their six years. Best, Don Bauder

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Frank114 June 29, 2009 @ 8:54 p.m.

The entire system needs an overhaul. But how does one get through to the average Joe six pack who has become fat and lazy in America. Our citizens on the average are not very involved in the political process and have allowed officials to run wild with little or no accountability. We the people must demand more and take responsibility as a whole it's our money they are throwing around.

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Don Bauder July 4, 2009 @ 1:41 p.m.

Response to post #35: You are right, and you have described why so many people go into politics. It's remunerative. You get paid under the table while in office. After you are defeated for reelection or termed out, you get a lobbying job for fat pay. As long as the public remains apathetic, you have it made. Best, Don Bauder

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