Waiting and Watching for the Global Economic Implosion

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“The Spanish property market is collapsing!” announced colleague Merryn Somerset Webb this morning.

“Only three countries in the world have a serious subprime problem – the U.S., Britain…and Spain. But no country has taken more advantage of low interest rates to build more houses and sell them at prices they don’t deserve to more people who can’t afford them. They just built too many new houses…

“One building company had gone up 1,000% since it listed only a few months ago. It got whacked yesterday…so did the other builders.”

Today our question is, “How much is too much?”

Many people thought you couldn’t build too many holiday homes in Spain… just as you couldn’t build too many hotel rooms in Las Vegas… or pay too much for Chinese stocks… or pay too much to hedge fund managers… or have too much money in private equity… or too many dollars at large in the world financial system.

Since the expression ‘too much’ has been extant in the English language for a very long time, we assume it must mean something. What we’ve been waiting… and waiting… and waiting… to find out is what it means in financial affairs.

The latest figures show that hedge fund manager Jim Simons earned $1.7 billion last year. Is that too much? He takes an unbelievable 5% of his clients’ assets each year, in payment for his services – plus, and even more unbelievable, 44% of profit. Is that too much?

Readers will remark that his $6 billion Medallion fund rose 84% last year (Simons is good with figures). Investors came out ahead more than 40% even after paying the outrageous fees.

Or what about Ed Lampert or Kenneth Griffin, each of whom also earned more than $1 billion last year. Was that too much? We don’t know. But we came back from our vacation, opened our eyes, and thought we saw ‘too much’ everywhere we looked.

Money streams into new investment funds. Even Brian Hunter, who lost $6 billion trading energy for Amaranth, is starting up a new fund. And John Arnold, formerly of the Enron energy-trading desk, earned more than $240 million last year – partly by taking the other side of Hunter’s trades.

Over on the Las Vegas Strip, Goldman Sachs (NYSE: GS) is buying Carl Icahn’s four casinos…for $1.3 billion. Is that too much? Again, we don’t know; but when it comes to excess, what Las Vegas doesn’t already know probably isn’t worth knowing. The place had a total of 35,000 hotel rooms in the 1970s, which seemed like too many to us. Now, it has five times as many – 151,000 – which seems like more than enough.

But ‘too much’ has dropped from the English vocabulary in Nevada… and perhaps the rest of the world, too. The Venetian alone is adding 3,200 new rooms. And over at the old Stardust Casino, the owners judged it too small, so they blew the place up last month… to build a new development, Echelon Place, with more than 5,000 rooms.

Meanwhile, MGM is spending $7 billion putting up the City Center development – the most expensive development in Las Vegas history. Isn’t that a little too much?

Who knows? All we know is that throughout the world, a great boom is on.

Bill Bonner
The Daily Reckoning Australia
 

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Comments

  1. The great boom started in 1982 and it is far from over. It has at least five more years to go (if not longer). The writer of this article (Mr Bonner) should set a year on which he is ready to admit that his eternal warnings were all wrong if it turns out that the US economy as well as the world economy will still be going strong in 2012.

    The world will collapse eventually, but it makes a big difference whether this will happen now or 10 years later.

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  2. Well Robert, don’t you look like a big jackass today, 16 August 2007. The US economy may very well be going strong in 2012, but only because of Black Swan events like the one currently ripping the guts out of the credit market. Gold gold?

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  3. I think it is the beginning of the end. The tipping point is probably 2010 when petroleum peaks.It is worth preparing for it right away. I live in India, on an organic farm without electricity. So it is not so bad for us here. Start improving the efficiency of vegetable oil based lamps! Let me know the results.

    T. Vijayendra
    August 18, 2007
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  4. I have been wondering how a deficit economy could work since I was in grade 9, 1969, and thought that it will eventually tank. Now I know as I am watching it ” tank ” every day when I turn on the TV or listen to the market reports on the radio.
    Two years ago I was helping my daughter buy a house in Napa Valley California. I could not believe what people were paying for a house and commented to the realtor that this was unsustainable, I live in Alberta Canada, and predicted it will crash as the people there simply do not earn enough money to buy a house. He laughed and said that property was cheap and will double in 5 years. Now he is renting three blocks from where my daughter lives and lost his house and “investment” property and is working in a flower shop.
    Dave

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  5. This implosion will happen much faster than expected. There is absolutely no way we as a nation can sustain this, I was in Cali last year and seen the signs last year Jan.. Now our gov is doing everything it can to accelerate the implosion, is this on purpose? I believe so. I am not a conspiracy theorist, but look at the governmnent expansion over the last 30 years and its accelerating. Can anyone tell me why and why our people have not rebelled. It is not a dem or repub problem but both as if it was completely planned. There is absolutely no difference in either parties policies since JFK was shot. JFK WAS SHOT-absolutely no difference! As of today may 27 09 our dollar is almost worthless and my family members response THERE IS NOTHING WE CAN DO. All of there retirement funds are gone. I warned them to pull their money out. Oh you don’t know what you are talking about. Look at what happened in the great depression. The market dropped and in came the saviours Morgan, Rothschilds etc. oh we’ll help inspire by buying. The same has happened again but now by our own government funding with our taxes to who knows who. Do you know where the money went because our government does’nt know. And we all just say-THERE IS NOTHING WE CAN DO. We keep listening to the same 2 party line that the other side is at fault instead of HANGING THESE TRAITORS (after a fair trial). We keep listening to their bull**** and how these other evil empires and terrorists are our biggest enemies and they must be stopped. I can see their viewpoint-HOW DARE WE-know better than them how to run their own lives-WE MUST STOP ALL INTERNATIONAL INTERVENTIONS AND MANIPULATION and worry about our own lives (meaning individual lives) and set our government to doing its main purpose of keeping out of our lives and other peoples lives. OR WE SHALL WAKE UP TO 1984 OR ARE WE ALREADY THERE. Starting today I DAVID JOSEPH KRAMER citizen of the USA file my writ THE DECLARATION OF INDEPENDENCE AND THE CONSTITUTION OF THE UNITED STATES OF AMERICA IS THE ONLY TWO DOCUMENTS I FEEL I AM SUBJECT TO AND ANY OTHER LAW, REGULATION OR DECREE IS AGAINST MY RIGHTS AS A FREE MAN and attempting to enforce any other, against me, is a declaration of WAR, and shall be enterpreted as so.

    David Joseph Kramer
    May 28, 2009
    Reply

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