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June 15, 2015

The Index of Evil

Today, we’re introducing our new Index of Evil …

But first a quick look at what our proprietary stock market indicator is telling us about future returns.

Our lead researcher, Stephen Jones, developed it for us. Stephen is a former stock market analyst at Value Line and the president of financial planning firm String Advisors.

The question today: When past stock market conditions have been similar to today’s, what have subsequent returns been like over the next 10 years?


variant of the “Buffett indicator” (stock market capitalization/nominal GDP) by Doug Short, using the the broader Wilshire 5000 index. Only a stone’s throw from the mania highs of 2000 – amazingly, they have blown the third bubble in succession, and it’s one of the biggest in history already 

Another Lost Decade

The indicator looks at the price of stocks relative to the economy that supports them. It’s like looking at real estate prices compared to household income. The two are connected, like a junkyard dog to a chain link fence. The dog can move around … but only inside the fence.

The biggest factor that determines long-term stock market returns is your entry price. High prices tend to leave little room for upside. Low prices tend to leave little else but room for upside. That means always looking at the stock market’s price-to-earnings ratio.

But over the long term, studies have uncovered two other factors that have a big influence on stock market returns: debt and demography. Old people and large debt loads rein in stock market returns.

more debt and GDP. Party on dudes, the central planners have it all under control … 

When we add those two factors into our model, we see that the most likely average annual rate of return during the next 10 years is – appallingly – negative 9.8% a year.

So, if you have money in the U.S. stock market … your prospects look bleak. There is very little chance of a satisfactory outcome over the next 10 years.

Bullies, Chiselers, and Zombies

We’ll come back to that soon. But now, let us finish our series, “The Good, the Bad, and the Ugly.” We’ve been looking at how, when everybody’s a lawbreaker, it’s hard to spot the real criminals. (To catch up, here’s Part I, Part II, Part III, and Part IV.)

You’ll recall that we imagined a conversation between two German soldiers on the Eastern Front in 1943.

“Klaus, are we the bad guys here?” one might have asked the other. Yesterday, we mentioned a few “bad guys.” It was no trouble to find them. Just check the lobby of the Four Seasons Hotel in Washington, D.C. But today we move on – beyond the two-bit bullies, chiselers, and zombies – to the really ugly guys.

Who are the evil ones? It’s easy to see evil in dead people. Stalin… Hitler… Pol Pot… people who tortured and killed just to feel good. The jaws of Hell must open especially wide to let them in. But who should go to the devil today?

Counting the Bodies

It is not for us to say. But we can make some recommendations: Paul Wolfowitz, Richard Perle, and Lindsey Graham come to mind, along with John McCain, Dick Cheney, George W. Bush, and all the other clownish warmongers.

Of course, we want to be fair and respectful. Each should definitely get an impartial hearing… and then his own lamppost. But everybody has his own idea about who should swing. So, let’s try to look at it objectively.

Things governments do are quantifiable. We can follow the money. We can count the bodies. We’re going to make it easy to tell the good from the bad and the ugly with our new Index of Evil.

Which are good? Which countries really are evil? Russia? Iran? North Korea? The Islamic State? How do we know? We put our trusty researcher, Kelly Green, on the case.

“Kelly,” we asked, “can you quantify ugliness? Can you help our readers figure out who is good and who is bad? Can you identify who really should be included in the Index of Evil?”

Kelly was not put off by the magnitude and gravity of the job. She went to work on it. What are the marks of evil in a nation? Murder. Assassination. Wars. Torture. False imprisonment.

We’ll forgive theft. All governments steal. (Some more than others.) But we’re talking about “ugly” not just “bad.” So let’s stick to capital crimes and mortal sins, not just venial sins and misdemeanors. Who kills? Who puts people behind bars? Who tortures?

Kelly added it up, creating the world’s first objective standard.


Global imprisonment… India and Iceland seem fairly safe… (for additional insights, see this NYT interactive page)

Who’s the Bad Guy Now?

Three decades after the U.N. Convention Against Torture, torture still happens in 141 countries. Alas, torture, says Kelly, is not reliably quantifiable. The CIA, for example, calls it “enhanced interrogation techniques.”

To his credit, Senator John McCain – a prisoner of war in Vietnam – has consistently opposed torture and introduced new legislation to ban it just this month.

We also had to take out countries for which data was unavailable. North Korea, for example, is a mystery. ISIS, too, is such a special case that the numbers won’t mean much.

You’ll notice that we included many numbers that were not clearly evil. Military spending, for example, is not necessarily a bad thing. And the homicide rate is not always the fault of an evil government. Nevertheless, the numbers are there; make of them what you will.

And we included the U.S. for comparison:

So, Klaus, who’s the bad guy?

Charts and tables by: Doug Short/advisorperspectives, St. Louis Federal Reserve Research, NYT, Bill Bonner & Partners

Courtesy Bill Bonner for Bonner & Partners via Acting-man.com 

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters. © EconMatters All Rights Reserved | Facebook | Twitter | Free Email | Kindle
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