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The Daily Reckoning | Wednesday, March 9, 2011 Happy Birthday...(long, breathy pause)...Mr. Bull Market... The Daily Reckoning Financial Darwin Awards' Second Runner-Up, Plus, Bill Bonner on the bond market mayhem and the middle class pinch... ------------------------------------------------------- Uncovered: A Way to Tap into an "Other" Pool of Government-Backed Income Potential... ..that only a handful of Americans know about. And with Social Security becoming less and less of a guarantee, now is the time to act. Click here now and discover a way to protect your retirement from the uncertainties surrounding Social Security. A Birthday for the Bull Market Two Years Old and Still Kicking...For Now Eric Fry Reporting from Laguna Beach, California... Welcome to today's very special "Birthday Party Edition" of The Daily Reckoning! Our little bull market is two years old today... They grow up so fast! To begin the festivities, please put on your party hats and click on the following link: Two years old and just as cute a button!... Yessirree, that's our little bull market! As of today, the S&P 500 Index has produced a dazzling total return of 103% during the last 24 months. The NASDAQ, for its part, has delivered a total return of 121%. Those are some great, big numbers for an itty- bitty bull market. In fact, as The Wall Street Journal recently observed, the S&P 500 Index doubled from its March 2009 low in just 707 days - the fastest doubling of the S&P since 1936. Back then, it took a mere 501 days. The Dow Jones Industrial Average has not quite doubled, but almost: "The chart above looks eerily similar to a chart of the Dow from September 1934 through October 1936," our colleagues at The 5-Minute Forecast relate. "In just over two years, the Dow doubled from 87 to 174: "What the Journal failed to note was what happened after that 100% climb in 1936. Let's widen the scope a bit. "Ugh... After reaching that double in October 1936, the Dow topped out in March 1937 at 194...pulled back...came within about 5% of that top again in August 1937...and then plunged by March 1938 back to where it was three years before. "This was the infamous 'Depression within the Depression.' As went the stock market, so went the economy. Whatever gains had been goosed by New Deal spending evaporated. By 1939, Treasury Secretary Henry Morgenthau conceded to Congress: 'We are spending more money than we have ever spent before, and it does not work... After eight years of this administration, we have just as much unemployment as when we started...and an enormous debt, to boot.'" But the stock market's tale of woe did not end in 1939. By April of 1942, the Dow had surrendered more than half its value from the 1937 top. Shortly after World War II ended, the Dow briefly revisited its 1937 high, before slumping anew and languishing for several more years. Bottom line: The Dow did not break above its 1937 high, for good, until December 1949! We're not saying history is destined to repeat itself. But the parallels are pretty obvious, and ominous. Happy Birthday, Bull Market! Advertisement Retire Overseas! Learn about the world's 6 best places to live or retire. Live well on $30 a Day Own an exotic beachfront getaway for $35,000. Or romantic pied-a-terre for under $60,000. Enjoy fine restaurant dining for $7 per person. Employ a maid or gardener for $6 a day. Buy comprehensive health insurance for $20 per month. Get the details in your FREE report now. The Second Runner-Up In This Year’s Financial Darwin Awards Joel Bowman A quick announcement before today's column... We've been talking a lot about the state of the state this week. The state, as a viable political concept, seems to be breaking down. At the very least, it is beginning to be called into question. Take a look at states in Africa...states in the Middle East...in Europe...even states within "The States." From toppled state governments in the MENA region to insolvent nation states across Europe's periphery and flat broke states back in the US. Whether ruled by tyrannical, autocratic minority or tyrannical, democratically elected majority, the model of The State just doesn't seem to work. The reason is simple enough: violence doesn't work. Voluntary trade does. The state - being, by definition, an agent of force - is always and everywhere a net detractor from a market's productive capacity. This rule holds equally true in the Libyan Desert as it does in fifty different state capitols scattered across the US. Which brings us to the main reason for this little interjection... The Second Runner-Up in this year's Daily Reckoning Financial Darwin Awards: The States Edition. Let's see... First we had ten finalists. We read them out over the weekend, in alphabetical order - California, Connecticut, Illinois, Louisiana, Massachusetts, Mississippi, New Jersey, New York, Ohio and Wisconsin. Then, on Monday, we announced fifth place: Connecticut. We just couldn't resist recognizing a state with the sometimes moniker of "The State of the Steady Habits" for out of control spending that saw it's debt/GDP ratio soar to within a fraction of a percent of Greece's. Great stuff, really. Yesterday, we gave a tip of the hat for New Jersey. Although the Tax Foundation has found that New Jersey homeowners pay three and a half times the national median, the state is still on schedule to deliver a $10.5 billion budget shortfall for the year. Then there's the union-won benefits, unfunded pension and healthcare liabilities, soaring debt/GDP level. Yep, Jersey for fourth. Today we raise a glass to this year's Second Runner-Up... Writes one reader from today's state: "I am appalled at the continued political patronage hiring here. A recently retired State Senator was, at 75 years old, just handed a job at the local community college...paying $120,000 per year! And we are laying off teachers, police, and firefighters. "Also, politicians refuse to give a Civil Service exam to fill state jobs, as required by law. They say there is no money for this. They then hire based strictly on political connections, disregarding any qualifications. They end up having to hire additional people to actually do the job. Budgets for some departments were actually higher than requested in exchange for political jobs - see the ongoing scandal in the Probation Dept. Some politicos may actually go to jail over this one." The state our Fellow Reckoner is referring to suffers under one of the highest debt/GDP ratios in all the land...a whopping 20.53%. Maybe you'll guess it from this email, from another local resident: "Our state and its 'Big Dig' has retired this dubious trophy years ago. When Tip O'Neil announced that he had 90% financing on our downtown boondoggle and we would only have to pay 100 million of the 1 billion cost, little did he know (or did he?) that the final cost would be $14 billion. Oh wait... We forgot the interest...dooooh... Make that $22 billion. And the screw-ups continue, whether it's the Big Dig, our caddy driving governor giving freebies to a company that left for China, drunken pols, druken firefighters, pols sticking cash down their bras that only the feds can seem to find while our AG is clueless, three consecutive speakers of the house that have been convicted of felonies or are awaiting trial and grossly incompetent judges and pols that come from a one party state." Couldn't guess? Here's our Reckoner again, with the answer in slogan form: "The new state slogan should be 'Massachusetts: Incompetence, corruption, criminal behavior... We've got it all!'" Congratulations go to Massachusetts, "The Bay State." You've earned this year's Second Runner-Up in our Daily Reckoning Financial Darwin Awards: The State Edition. That means there are still two more prizes up for grabs...and seven finalists still in the running. More tomorrow... A Volcano of Blood - The "New" War That Could Rocket Oil Past $220 Before 2011 This shocking conflict is eight times bigger than the wars in Iraq or Afghanistan. It's also lethal enough to at least DOUBLE the price of gas and oil before 2011... Bunker down against soaring energy costs with the ONE "safe haven" financial plan that could pay you gains up to 668%. Learn more here. The Daily Reckoning Presents The Death of Treasury Bonds Bill Bonner Gold is an all-purpose, evergreen haven. Got a personal problem? Have a drink. Relax. Talk to your priest or your bartender. Got a financial problem? Buy gold. And here's Bill Gross of PIMCO, commenting on one of the things gold is a haven from. A Yahoo! Finance headline cautions, "No Way Out of Debt Trap, Gross Says: US Living Standards Doomed to Fall." "Debt, debt and more mounting debt," the Yahoo! story begins. "In the US, states across the country face a collective $125 billion shortfall for fiscal 2012, while Congress is facing a budget gap nearly 10 times that size. "PIMCO founder Bill Gross - one of the world's largest mutual funds managers, who focuses mostly on bonds - has previously said that if the United States were a corporation, no one in their right mind would lend us money. For the last decade, we've been 'relying on the kindness of strangers' to help cover our debts... "After years of reckless spending," Yahoo! Finance continues, "America's debt level is nearing a breaking point and can no longer rely on foreign capital as a last resort. 'When a country reaches a certain debt level, confidence in that country's ability to repay that debt becomes jeopardized,' says Gross, 'There is really no way out of this trap and this conundrum at this point.' "From an investment perspective," the Yahoo! story concludes, "Gross' advice is to stay clear of 'bonds in dollar denominated terms' and to be 'wary of higher interest rates going forward.'" According to the market scuttlebutt circulating this morning, Gross is putting his (clients') money precisely where his mouth is. "Based on still to be publicly reported data by Pimco's flagship Total Return Fund, the world's largest bond fund, in the month of January, has taken its [Treasury] bond holdings to zero," writes Tyler Durden at Zerohedge. "The offset, not surprisingly, is cash. After sporting $28.6 billion in 'government related' securities, [Pimco's Total Return Fund] dropped this category to $0.0, while its cash holdings surged from $11.9 billion to a whopping $54.5 billion (based on total holdings of $236.9 billion as of February 28). "This is the most cash the flagship fund has ever held," Durden continues, "and the lowest amount in Treasury holdings since January 2009... PIMCO's Treasury holdings peaked in June 2010 at $147.4 billion and have declined consistently ever since... Gross has explained that he thinks the end of quantitative easing would punch a huge hold in the market for US debt." Meanwhile, the debt trap hole gets deeper and deeper. "The federal government posted its largest monthly deficit in history in February, a $223 billion shortfall," The Washington Timesreports. "That one-month figure, which came in a preliminary report from the Congressional Budget Office, dwarfs even the most robust cuts being talked about on the Hill, and underscores just how much work lawmakers have to do to get the government's finances in balance again. "The Senate plans to vote Tuesday on competing proposals to cut spending," continues theTimes, "but Democrats have rejected GOP-backed cuts of more than $50 billion, and Republicans have ruled out Democrats' cuts of less than $10 billion, meaning neither plan will draw the 60 votes needed to overcome a filibuster and pass. "The two sides are facing a March 18 deadline, which is when the current stopgap funding bill expires. Without a new spending agreement by then, the government would shut down." Let's see. A shut down? Yes, seems like a good idea. Close the doors. Turn out the lights. Send the zombies home. But wait...the FBI and Homeland Security would shut down too. And the IRS. Well, great... What an opportunity! Want to cheat on your taxes, murder someone, rob a bank, or blow up a federal building? Get ready... The coast will be clear. But why bother? The feds are going to cause enough mayhem on their own. The feds spent $223 billion more than they took in last month. Multiply by 12. Hey wait. We don't even need a calculator. That's more than $2 trillion. Come to think of it, a shut down may be the only way to save us. Yes, $2 trillion annual budget deficits can't be far away. Because tax revenues are depressed by the Great Correction in the private sector, while the feds try to goose up the economy with hot money. As usual the road to Hell is the best-paved highway on the map. Hot money has already toppled two governments and put one more, Libya, in grave jeopardy. In addition to record-breaking gold prices, it has put up food prices to all-time highs. And it has investors speculating on $200 oil. Check this out, from Bloomberg: March 7 (Bloomberg) - Options traders are betting more than ever that crude oil is heading to $200 a barrel as some websites call for a "Day of Rage" in Saudi Arabia and anti-government protests spread in the Middle East and North Africa. Saudi Arabia produced 9.71 million barrels a day in 2009, one-third of OPEC output and almost six times as much as Libya, according to BP Plc's Statistical Review of World Energy. Websites have called for a nationwide "Day of Rage" on March 11 and March 20... "The price of oil is going to go up, whether you like it to or don't," said Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore. "If Saudi Arabia fails, then I say you have a fire in the house." Higher oil...higher food - ouch! - middle and lower classes are pinched badly. Food stamps are setting records too. They're now being sent to more than 44 million people. And another 15 million qualify - one out of every 5 Americans. But living on food stamps is not exactly like eating at the Prime Rib. The average allowance is only $130 per month per person. Not enough to buy a good bottle of wine at Smith & Wollensky's...or a bad bottle at La Tour d'Argent. Daily Reckoning readers are urged to raise chickens. And plant gardens. For those who want to be fed by at government expense will soon want bread. Regards, Bill Bonner, for The Daily Reckoning