Ladies & Gentlemen; Bill Bonner:
___________________________________
"The boom years are over…"
Speaking was a spokesperson for Vienna tourism board…20% fewer Americans are visiting the city. But almost anyone might have said the same thing.
The boom in construction has been over for nearly two years…
The boom in the financial sector ended about 12 months ago…
The boom in the aviation industry died when oil went over $100…
The boom in commodities was killed when oil went under $100…
The boom is retail seems to have come to a halt more recently. This will be the first quarter in many years with declining consumer spending…
The boom in consumer borrowing seems to have come to an end too…
Yes, dear reader, what MUST happen, DOES happen. But it usually happens when you don't expect it…or in a way that surprises you. The big surprise has been the violence of the correction when it finally got going.
"Day of Reckoning," the Telegraph called it.
But we should be happy. Not only is the mainstream media picking up our themes, now both sides of our Trade of the Decade are working. Yesterday, the Dow went down another 189 points. Gold went up $29.
But instead of joy and satisfaction, we feel a sense of dread. It's all very well to have a few Krugerrands and gold louies stashed somewhere…but you can never have enough of them to brighten up a darkened world. As an insurance policy against a financial catastrophe, gold still works - perhaps better than anything. But who wants his house to burn down so he can collect the fire insurance?
Guess how much Americans have lost so far from the stock market decline? Almost $5 trillion. Stocks are down about 33% from their '07 peak - resulting in the destruction of wealth on an unprecedented scale.
Add to that the loss of wealth in the domestic property market, and you can't help but wonder…how do people keep going? The Wall Street Journal reports that one in six homeowners is "under water" - with more mortgage than house.
"About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com."
And house prices are still going down. Yes, that is something that MUST happen too - house prices have to go do to the point where people can buy them. The average house must be affordable to the average homeowner. And since incomes haven't gone up in the last eight years, we can presume that housing prices shouldn't have gone up either. So, we ask…how much more do houses have to fall before they are back to where they were 8 years ago…or merely to the multiple of income that buyers can afford? The answer…according to the numbers we've seen…is about 20%. That suggests that we are only about half way through this housing decline. It further suggests that when it is over one out of every three homeowners could be in serious trouble. He may not be under water, but he will definitely be up to his neck.
And now it gets worse. Because practically every businessman in America is waking up this morning thinking about how he can cut costs. His sales are going down. What choice does he have? He has to cut his payroll. And so, he begins making a list…which employees are essential to his business…which are not. Overtime is cut. Part-time workers are scaled back. Full time workers are let go. He knows the woman in the mailroom is a waste of money, but she's nice to look at. The fellow running the advertising is an idiot, but he can't stop advertising, can he? And how 'bout that driver…he seems to disappear for half the day; he's never where he's supposed to be…yes, he'll be fired immediately…
And then, the world's lights grow dimmer.
*** What to do?
The world's buffoons and hacks think they have the answers. In France, the leftist newspaper, Liberation asked a dozens of "intellectuals" and "artists" what they thought. None seemed to have any idea how markets work. And naturally, they had the usual claptrap solutions.
In Germany, people are posing "existential questions," says Handelsblatt, wondering about the "crisis of faith" that has overtaken capitalism. "Now we see that capitalism is nasty," says Die Zeit. "We need more government to bring it to heel."
And in America, too, the clowns and opportunists are working around the clock to take advantage of the situation.
Yesterday came word that the Fed will buy commercial paper. This means the Fed is now financing business ventures. What the Fed aims to do is to cut out the middleman - the banks. For their part, the banks are grabbing all the Fed cash they can - and socking it away. They don't lend it out…because they're afraid it might not come back. And they need it to remain solvent. But if banks don't lend, it defeats the whole purpose of giving them money. The government is famously 'pushing on a string,' as Keynes once put it - it sends money out, but the money doesn't end up where it is most needed. So, now the Fed lends directly to business…and now the business community depends on the government too. Not only will homeowners have to thank the government for the roofs over their heads…company executives and shareholders too will be beholden to the great gods of the Potomac. At this rate, soon the feds will be providing the bakers with flour.
Where this leads, we don't know…but we don't think we want to go there.
*** Thank God, the SEC is on the case. After sleeping through the biggest bank robbery in the history of mankind, the regulators are waking up and offering to clean up Dodge City.
And just who do you think they're aimin' for? 'Dirty Dick' Fuld - who drove the 158-year-old Lehman Bros. into the gulch…and made off with $480 million? Jack-eyed 'Jimmy' Cayne, who claimed to be playing cards the night they gunned down ol' Bear Stearns? Or how about that fast-talkin' Al "Bubbles" Greenspan - who controlled the whole territory until the Bernanke gang moved in?
Nah, the SEC has put out an arrest warrant for a Beverly Hills money manager whom no one ever heard of. He's public enemy number one, to hear the SEC tell it. His crime? Short selling. Not even naked short selling. He did it with his clothes on; he bought shares. And then he sold short against them. In so doing, he made the glorious sum of $207,000. Short selling is an ancient and hallowed practice in the financial markets. The SEC has made it illegal; though no one knows exactly why.
But now they've got their man. The desperado doesn't even deny it. Now, the SEC can make him do the perp walk and pretend that it is performing a useful function.
John K. Galbraith, in his book on the Great Depression, describes what is going on:
"As the ghosts of numerous tyrants from Julius Caesar to Benito Mussolini will testify, people are very hard on those who, having had power, lose it or are destroyed. Then anger at past arrogance is joined with contempt for the present weakness.
"The victim or his corpse is made to suffer all available indignities. Such were was the fate of the bankers. They were fair game for congressional committees, the courts, the press and comedians."
"The boom years are over…"
Speaking was a spokesperson for Vienna tourism board…20% fewer Americans are visiting the city. But almost anyone might have said the same thing.
The boom in construction has been over for nearly two years…
The boom in the financial sector ended about 12 months ago…
The boom in the aviation industry died when oil went over $100…
The boom in commodities was killed when oil went under $100…
The boom is retail seems to have come to a halt more recently. This will be the first quarter in many years with declining consumer spending…
The boom in consumer borrowing seems to have come to an end too…
Yes, dear reader, what MUST happen, DOES happen. But it usually happens when you don't expect it…or in a way that surprises you. The big surprise has been the violence of the correction when it finally got going.
"Day of Reckoning," the Telegraph called it.
But we should be happy. Not only is the mainstream media picking up our themes, now both sides of our Trade of the Decade are working. Yesterday, the Dow went down another 189 points. Gold went up $29.
But instead of joy and satisfaction, we feel a sense of dread. It's all very well to have a few Krugerrands and gold louies stashed somewhere…but you can never have enough of them to brighten up a darkened world. As an insurance policy against a financial catastrophe, gold still works - perhaps better than anything. But who wants his house to burn down so he can collect the fire insurance?
Guess how much Americans have lost so far from the stock market decline? Almost $5 trillion. Stocks are down about 33% from their '07 peak - resulting in the destruction of wealth on an unprecedented scale.
Add to that the loss of wealth in the domestic property market, and you can't help but wonder…how do people keep going? The Wall Street Journal reports that one in six homeowners is "under water" - with more mortgage than house.
"About 75.5 million U.S. households own the homes they live in. After a housing slump that has pushed values down 30% in some areas, roughly 12 million households, or 16%, owe more than their homes are worth, according to Moody's Economy.com."
And house prices are still going down. Yes, that is something that MUST happen too - house prices have to go do to the point where people can buy them. The average house must be affordable to the average homeowner. And since incomes haven't gone up in the last eight years, we can presume that housing prices shouldn't have gone up either. So, we ask…how much more do houses have to fall before they are back to where they were 8 years ago…or merely to the multiple of income that buyers can afford? The answer…according to the numbers we've seen…is about 20%. That suggests that we are only about half way through this housing decline. It further suggests that when it is over one out of every three homeowners could be in serious trouble. He may not be under water, but he will definitely be up to his neck.
And now it gets worse. Because practically every businessman in America is waking up this morning thinking about how he can cut costs. His sales are going down. What choice does he have? He has to cut his payroll. And so, he begins making a list…which employees are essential to his business…which are not. Overtime is cut. Part-time workers are scaled back. Full time workers are let go. He knows the woman in the mailroom is a waste of money, but she's nice to look at. The fellow running the advertising is an idiot, but he can't stop advertising, can he? And how 'bout that driver…he seems to disappear for half the day; he's never where he's supposed to be…yes, he'll be fired immediately…
And then, the world's lights grow dimmer.
*** What to do?
The world's buffoons and hacks think they have the answers. In France, the leftist newspaper, Liberation asked a dozens of "intellectuals" and "artists" what they thought. None seemed to have any idea how markets work. And naturally, they had the usual claptrap solutions.
In Germany, people are posing "existential questions," says Handelsblatt, wondering about the "crisis of faith" that has overtaken capitalism. "Now we see that capitalism is nasty," says Die Zeit. "We need more government to bring it to heel."
And in America, too, the clowns and opportunists are working around the clock to take advantage of the situation.
Yesterday came word that the Fed will buy commercial paper. This means the Fed is now financing business ventures. What the Fed aims to do is to cut out the middleman - the banks. For their part, the banks are grabbing all the Fed cash they can - and socking it away. They don't lend it out…because they're afraid it might not come back. And they need it to remain solvent. But if banks don't lend, it defeats the whole purpose of giving them money. The government is famously 'pushing on a string,' as Keynes once put it - it sends money out, but the money doesn't end up where it is most needed. So, now the Fed lends directly to business…and now the business community depends on the government too. Not only will homeowners have to thank the government for the roofs over their heads…company executives and shareholders too will be beholden to the great gods of the Potomac. At this rate, soon the feds will be providing the bakers with flour.
Where this leads, we don't know…but we don't think we want to go there.
*** Thank God, the SEC is on the case. After sleeping through the biggest bank robbery in the history of mankind, the regulators are waking up and offering to clean up Dodge City.
And just who do you think they're aimin' for? 'Dirty Dick' Fuld - who drove the 158-year-old Lehman Bros. into the gulch…and made off with $480 million? Jack-eyed 'Jimmy' Cayne, who claimed to be playing cards the night they gunned down ol' Bear Stearns? Or how about that fast-talkin' Al "Bubbles" Greenspan - who controlled the whole territory until the Bernanke gang moved in?
Nah, the SEC has put out an arrest warrant for a Beverly Hills money manager whom no one ever heard of. He's public enemy number one, to hear the SEC tell it. His crime? Short selling. Not even naked short selling. He did it with his clothes on; he bought shares. And then he sold short against them. In so doing, he made the glorious sum of $207,000. Short selling is an ancient and hallowed practice in the financial markets. The SEC has made it illegal; though no one knows exactly why.
But now they've got their man. The desperado doesn't even deny it. Now, the SEC can make him do the perp walk and pretend that it is performing a useful function.
John K. Galbraith, in his book on the Great Depression, describes what is going on:
"As the ghosts of numerous tyrants from Julius Caesar to Benito Mussolini will testify, people are very hard on those who, having had power, lose it or are destroyed. Then anger at past arrogance is joined with contempt for the present weakness.
"The victim or his corpse is made to suffer all available indignities. Such were was the fate of the bankers. They were fair game for congressional committees, the courts, the press and comedians."
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