No Growth Means Market Crash, Regardless of Fiscal Cliff Deal



By Charles Biderman


There is no way sustainable economic growth is at all possible in the United States, Europe and Japan over the near term under current government policies of providing citizens with all sorts of economically unfeasible cradle-to-grave entitlement programs. And without sustainable growth there is no way stock prices will remain as high as they are for very much longer.


However, I am long term bullish on the global economy. The short and medium term problem is that the present governments and the voters who put them into office are unwilling or too ignorant to accept the simple reality that you can’t get something for nothing.


That brings me to the fiscal cliff. It now seems as if most of Wall Street believes that any sort of deal will save the market from collapse. Even if the deal is to kick the can down the road a few months. This is magical thinking.


If there is a deal, what kind of deal is even possible? At best, I expect the 2% payroll tax cut will be eliminated and that will reduce US after tax income by $100 billion compared with this year. How much more will after tax income go down as taxes go up as a result of a deal? Some. But who knows? If there is no deal taxes could go up by $500 billion.


Look at it this way. After tax income will grow about $200 to $250 billion this year compared with last year. If taxes go up by $500 billion next year, after tax income will decline by $250 to $300 billion, a drop of as much as 4% from this year’s take home pay. My definition of a recession is a year over year drop in after tax income and 3% to 4% drop is big.


Meanwhile CNBC keeps running these Rise Above infomercials that are truly a joke. Today’s was if we go off the fiscal cliff, cutting healthcare by $490 million would mean no cancer screenings for 33,000 women. Do you think CNBC realizes that number means it costs $15,000 for a cancer screening? Why is nobody on CNBC questioning how much the government wastes when providing services?


Another joke, NY Times nitwit Paul Krugman says government deficits do not matter because bond buyers have not stopped buying bonds. But what happens if something totally unexpected happens. What happens to bond buying if interest rates surge. Now I know no one believes interest rates will surge anytime soon. And Yes, I know California single family home prices will never go down and the Nasdaq should still be at 5000.


Imagine, if interest rates surge to 10%. Interest on the $16 trillion federal debt would spike to $1.6 trillion. Compare that $1.6 trillion potential interest expense with total current US revenues of $2.5 trillion? No much less.


Paul Krugman is supposed to be an economist. He should know that only God can prophesize interest rates. If interest rates do shockingly surge, will bond buyers still be lining up to buy US government, Paul?


I started today by saying I am long term bullish. Right now Biderman’s Market Picks model portfolio is short four ETFS, Europe (EFZ) the Euro (EUO), the big banks (SEF) and the emerging markets (EUM), after the next market plunge, I will add to model portfolio longs by buying more Apple (AAPL), (AMZN), TrimTabs Float Shrink ETF (TTFS) (CRM)


And of course in today’s money printing world, the model portfolios largest holding is gold. I recommend buying one ounce gold bars from a reputable dealer as close to spot as possible.



4 Responses to No Growth Means Market Crash, Regardless of Fiscal Cliff Deal

  1. Ed_B on November 29, 2012 at 4:59 pm

    The fiscal cliff (bring up the Phantom of the Opera music here)… elicits the ideas of something that is big, dangerous, and just plain scary. After all, falling off a cliff is rarely ever considered a good thing. But what does this event REALLY mean? Well, it pretty much means that there is an automated method for forcing the US Government closer to living within its means. Note that I said “closer” and not actually living within its means. My, what a terrible ordeal it will be to actually have a sustainable government funding process and a government that is matched to the productivity of the US economy. As you can probably guess, I am not sanguine about a possible deal that will save us from ourselves and allow us to continue spending like drunken sailors. I would not dishonor our fine Navy folks by comparing them to profligate politicians! At least when sailors run out of money, THEY QUIT SPENDING!

    • Ed_B on November 29, 2012 at 5:17 pm


      Unfortunately, our erstwhile politicians cannot seem to learn this lesson and continue spending money we do not have on the cradle to grave goodies that many non-productive voters seem addicted to having.

      All this talk about the politics of the situation is irrelevant because we left the realm of politics a ways back and have entered the even more esoteric realm of mathematics. Unfortunately, our dumb-them-down education policies for the past 30 or so years has resulted in a generation of touchy-feely folks who know how to put a condom on a cucumber but not how to add, subtract, multiply, or divide.

      The current situation is not sustainable and an effort to make it so via continuing to spend considerably more than we actually have will not work. In fact, this is terribly destructive to a real economy but perhaps just the thing for the house-of-cards fake economy that now exists.

      I agree with Charles’ assessment and his recommendation to add a significant gold position to today’s portfolio. I would also add silver, an under-valued metal of considerable industrial as well as historical monetary importance. It is likely to continue to out-perform gold, which is has over the past decade, rising in dollar price by about 700% to about 500% for gold.

      The current economy does not look good to me and I am currently about 70% in cash, 10% in precious metals, and the rest in a few low cost core mutual funds. The primary reason why this economy looks poor to me is that Bernanke does not seem to recognize the difference between real growth and inflation as well as between deflation and the air coming out of the now deflating government bubble. When a bubble forms and then shrinks it does not mean that it needs to be artificially re-inflated. It really means that the market has recognized it for what it is and is causing the bubble to lose air and return to sustainability. This is a good thing and not anything that the Fed should panic over and attempt to correct via massive money printing schemes that only succeed in reducing the value of the US dollar. Savers are getting royally screwed by Bernanke’s policies and the time has more than come to end this Keynesian fantasy and get back to reality.

  2. Kavanna on December 2, 2012 at 5:41 am

    The Fed keeps buying more and more Federal debt, as China and Japan buy less. But the Fed’s credibility will break down at some point, once the size of the problem, its intractability, and the Fed’s lack of an exit become clear — probably in a couple years.

    Krugman is not an economist, but an unequivocal ranter and nitwit. The Princeton economics department’s (Krugman, Bernanke, Blinder, et al.) fantasy about Japan and deflation is about to be overturned. Will that end the false analogizing and bad policies?

  3. ying on January 3, 2013 at 7:45 pm

    While not objecting to the long term (a decade or so) here, is this blog too biased to the short side? Would prefer charlie’s directional call with past recession and stock market cycle to confirm if his call is correct. After all, nobody really knows the will gov wants to prolong the music play.
    At least today’s call is not that accurate in the new year. Let’s wait for another 2 month to see how it behaves.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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