Money...money...money...
We know it's a rich man's world, but how rich is the rich man these days?
What's happened in the world of money since we've been away from it?
Well, on one hand, the Dow has gone up, up, and up; we just hope someone is holding on to the string, or this balloon might get away...or pop! Right now, we're not sure. When we checked on Friday, the Dow had risen almost to 13,000.
The metals are soaring too, with many base metals hitting new records and gold back up to nearly USD$700.
On the other hand, a fund manager who'd come to South America to look for bargains (and whom, by an odd coincidence, we know from London) had this to say:
"Bargains? Ha! There aren't any. There's so much money in funds that the managers just have to take what they can get. But the investors don't seem to care. They're pouring cash in faster than the managers can put it to work. And, of course, they all only want to invest in the funds AFTER the funds have made a lot of money. The whole thing is absurd.
"I travel all over the globe. When I was raising money in about 2003, there were plenty of good investments around. But then, I had a hard time getting investors to put in any money. Now, the investments I had targeted are up 100%, 200% and more...and investors are still giving us more money than we can handle. The only problem is we can't find investments that are bargains anymore."
Hedge funds took in more than USD$60 billion in new money in the first quarter. The International Herald Tribune reports that that's not only making hedge fund managers rich, with all the legal work involved in the hedge business, it's making the lawyers rich too.
What a delightful, degenerate economy! AP reports that three million manufacturing jobs have been lost in the United States since George W. Bush came into the White House. But who cares about making anything anymore? Who cares about actually creating the things that really make people wealthier? The money is not in making things...but in shuffling paper around.
Everyone is getting rich - providing financial services to everyone else, like people on an island making their livings by taking in each other's laundry. Let's see, we'll lend you money to buy a house. Then, you refinance the house with our friendly rivals down the street...and then you place the money with a private equity firm...that uses it to take a company private...paying off the shareholders...who take their loot and put it into a hedge fund that buys the shares of the same company when it comes back onto the public market! Whew!
What does it take to keep this grand money machine spinning?
More credit (or cash)...and an incredible amount of naïveté...not to say, dumbness.
Bill Bonner
The Daily Reckoning Australia
Do you think that we live in a degenerate economy? Leave a comment below
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About the Author
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.
Comment by The Utilitarian on 25 April 2007:
It's sad you don't know how the financial markets really work. Go read "Capital Markets" by Mogdliani. Financiers make vast sums of money by efficiently allocating capital; that is, they accurately sense which companies need more money to produce more products, and take away money from companies who aren't serving their customers. And your "manufacturing jobs" issue is a canard. Who cares what the jobs are if they are replaced (which they HAVE, every year) by more jobs? And why should we care that it's manufacturing - if China can do it better, it's better not to have manufacturing jobs and rather have workers working office jobs, or retail jobs, or tech jobs. This is what capital markets do, and these people are compensated well for their services.