Agora Financial’s Rude Awakening

Jump to Comments

Ouzilly, France

• 172 million American shoppers help retailers continue the dream,
• $30 trillion wiped off the global balance sheet…and counting,
• The age old mistake of only considering recent history and more…

Joel Bowman, reporting from Dubai in the Persian Gulf…

“Your Retailers Need You!”

We can just imagine the signs hung in the poor shopkeeper’s window, adorned with last year’s decorations (he can’t afford new ones) and complete with a finger-pointing Uncle Sam, reminding customers of their duty to the great consumer nation.

There’s nothing quite as patriotic as splashing out on a big ticket item you don’t really need with money you don’t really have in order to jump start your flailing economy, right?

Well, no…but never mind all that, it’s the holiday season!

Across the Empire, 172 million shoppers hit the stores (both actual and virtual) over the four-day weekend, up from 147 million last year, according to the National Retail Federation. Figures released by ShopperTrak RCT Corp. revealed that day-after-Thanksgiving retail sales alone rose 3% over last year to $10.6 billion. That’s a lot of big screen TVs and Abercrombie & Fitch sweaters for a nation with a negative savings rate.

“It was a retail manager’s dream,” Marissa Marks, store manager at the Beverly Center’s L’Occitane boutique told the LA Times. Unfortunately, banks aren’t cashing dreams these days and, eventually, the dreamer must awaken to face reality.

The world’s savers - mostly those across the Pacific with nationalities ending in “ese” – must be wondering where the spenders over in the United States of Consumerica are getting all their money. “Aren’t they in a recession?” the ‘ese ask. “Haven’t they cut 1.2 million jobs this year alone?” they ponder.

But American’s don’t save; they print. Just look at the example set by those presiding over the biggest budget in the nation, the federal government. Jim Rogers offers some back of the envelope math.

 “Here’s how this bonanza breaks down:

• $29 billion for Bear Stearns
• $143.8 billion for AIG (thus far, it keeps growing)
• $100 billion for Fannie Mae
• $100 billion for Freddie Mac
• $700 billion for Wall Street, including Bank of America (Merrill Lynch), Citigroup, JP Morgan (WaMu), Wells Fargo (Wachovia), Morgan Stanley, Goldman Sachs, and a lot more . On top of  $45 billion for Citibank, comes a guarantee of $306 billion in bad loans.$800 billion to buy mortgages issued or backed by Fannie Mae, Freddie Mac, Ginnie Mae and Federal Home Loan Banks.
• $200 billion for the auto industry
• $200 billion to buy securities tied to student loans, car-loans, credit card debt and small business loans.
• $8 billion for IndyMac
• $700 billion to $1 trillion stimulus package (from January)
• $50 billion for money market funds
• $138 billion for Lehman Bros. (post bankruptcy) through JP Morgan
• $620 billion for general currency swaps from the Fed

“The numbers change so fast, it is hard to even add them up. Rough total: $3,651,800,000,000 .00

“Note: This list will almost assuredly be out-of-date when you read it.”

Mr. Rogers was right, of course. The federal government didn’t even need a full week in office to slap another $800 billion on top of the ghastly figure. Where does all this money come from? Who cares, say the government offices, it’s holiday season!

In the column below, Bill Bonner looks at the charges against such blatant profligacy. As a taxpayer who is, perhaps unwillingly, funding these shenanigans, we thought you might like to know where it’s all going. Enjoy…

— Energy & Scarcity Investor Insider’s Report —

Urgent Notice For American Energy Users: Introducing…

The Breakthrough That Could Put Oil Refineries Out of Business

This tiny company’s private technology refines crude oil as it’s pulled out of the ground…And you can get in on it today for a potential 250% gain this year . Click here for the rest of this must-read report.

—————————————–

Inevitable and Disgraceful…but still Unpredictable
by Bill Bonner

Who’s to blame for the worldwide financial meltdown, a crisis that has so far wiped out a notional $30 trillion dollars…give or take a trillion or so?

“Lax central bankers…reckless investment bankers…the hubristic quants,” says Niall Ferguson, writing in Vanity Fair.  “Regulate them,” is the universal cry.  “Tax them,” say the politicians.  “Hang them,” say investors.  

First, let us look at the charges:

They skinned millions of investors – with their outrageous bonuses, spreads, fees, incentive shares, performance charges, salaries, and “profits” – leaving the financial industry severely under-capitalized…and unprotected.

Guilty as charged.

They ginned up “securities” that no one really understood and sold them to unsuspecting investors, including widows, orphans, colleges, pension funds and municipal governments.

Uh…guilty again.

They put the whole financial world in a spin – churning positions back and forth between each other in order to collect commissions… leveraging… flipping… stripping assets… securitizing… derivatizing… making wild bets based on flim flam mathematics….

No point in going on about it…guilty.

Yes, the financial hotshots did all these things.  And more.  They sold the world on ‘finance,’ rather than making and selling things.  Then, it was off to the races.  Everybody wanted to bet.  Perfecta, place bets, odds-on…double or nothing.  Of course, investors would have been better off at the race track.  The track takes about 20%.  In the financial races, Wall Street took 50% to 80% of all the profits.

Before 1987, only about one of every 10 dollars of corporate profits made its way to the financial industry – in payment for arranging financing, banking and other services.  By the end of the bubble years, the cost of ‘finance’ had grown to more than 3 out of every 10 dollars.  Total profits in the United States reached about $6 trillion last year; about $2 trillion was Wall Street’s share.  What happened to this money?  Other industries use profits to build factors and create jobs.  But the financial industry paid it out in salaries and bonuses – as much as $10 trillion during the whole Bubble Period.  And now that the sector finds itself a few trillion short, it waits for the government to open its purse.

But Wall Street’s critics have missed the point.  Yes, the financial industry exaggerates.  But so does the whole financial world.  Both coming and going.  It’s madness on the way up; madness on the way down.  Investors pay too much for “finance” when the going is good.  And then, when the going isn’t so good, they regret it.  This regret doesn’t mean the system is in need of repair; instead, it means it is working. 

The financial industry was just doing what it always does – separating fools from their money.  What was extraordinary about the Bubble Years was that there were so many of them.  There is always smart money in a marketplace…and dumb money.  But in 2007 there were trillions of dollars so retarded they practically cried out for court-ordered sterilization.   What other kind of money would pay Alan Fishman $19 million for 3 weeks work helping Washington Mutual go bust?

Whence cometh this dumb money?  And here we find more worthy villains.  For here we find the theoreticians, the ideologues…and the regulators, themselves, who now offer to save capitalism from itself.  Here is where we find the bogus statistics, the claptrap theories and the swindle science.  Here is where we find  the former head of the Princeton economics department, too, Ben Bernanke… and both Hank Paulson and his replacement, Tim Geithner.  Here, we find the intellectuals and the regulators – notably, the SEC – who told the world that the playing field was level…when everyone could see that it was an uphill slog for the private investor.

 “Six Nobel prizes were handed out to people whose work was nothing but BS,” says Nassim Taleb, author of The Black Swan.  “They convinced the financial world that it had nothing to fear.” 

All the BS followed from two frauds.  First, that economic man had a brain but not a heart.  He was supposed to always act logically and never emotionally.  But there’s the rub, right there; they had the wrong guy.  The second was that you could predict the future simply by looking at the recent past. If the geniuses had looked back to the fall of Rome, they would have seen property prices in decline for the next 1000 years.  If they had looked back 700 or even 100 years…they would have seen wars, plagues, famines, bankruptcies, hyperinflation, crashes, and depressions galore.  Instead, they looked back only a few years and found nothing not to like.

If they had just looked back 10 years, says Taleb, they would have seen that their “value at risk” models didn’t work.  The math was put to the test in the LongTerm Capital Management crisis…and failed.  Their models went sour faster than milk.  Things they said wouldn’t happen in a trillion years actually happened while Bill Clinton was in still in office.

In the real world, Taleb explains, things are stable for a long time.  Then, they blow up.  Then, all the theories and regulators prove worthless. These blow ups are inevitable, but unpredictable…and too rare to be modeled or predicted statistically.  “And they are almost always much worse than you expect.”

Joel’s Note: So how bad will “worse” get? Bad enough for gold to rise to the price it hit in 1980, $850? Bad enough for it to set an inflation-adjusted record, about $2,300? Or will worse be even “worser?” Here’s a report that might interest you if you like to prepare for the worst…even if you still hope for the best.

Until next time…

Cheers,

Joel Bowman

The Rude Awakening
aussiejoel@the-rude-awakening.com