The Dow got a break yesterday - up 270. Oil closed at $46. Gold rose $6 to $783.
The recession, says Bloomberg, is just beginning.
And a group of economists working for the UN says the dollar is likely to fall hard.
Meanwhile, shopping may be a patriotic duty in America...in Britain it's "Christmas every day," says the Prime Minister.
Where do they get these ideas? What makes anyone think you can solve the problem of excess debt by lending people more money? Who is dumb enough to think that you can cure the problem caused by too much spending...by spending more?
Who's that dumb? Well, most of the world's leaders and top economists...or so it appears.
They have their claptrap theories, of course. But theories don't really count for anything. We've seen that. They all believed in the free-market...right up to the moment the free-market seemed to be failing. Then, they believed they had to "do something" to protect people. Protect them from what? Protect them from getting what they deserved!
Take Wall Street, for example.
This week, the geniuses at Goldman got another hard whack. Their stock sold off after rumors of a loss of $2.5 billion for the third quarter began making the rounds. That puts Goldman stock down 70% this year.
But what did they expect? What they deserve? This is the company that Hank Paulson put on steroids...with a whole financial engineering department, designing the kind of investment bridges you wouldn't want to drive over.
Or how about Detroit? The automakers are still haunting Washington. They don't have any money of their own, so they're looking for taxpayer's money. GM says it needs $18 billion - bad.
If they don't get taxpayers' money, they say they'll be forced to turn to the Swedes or worse...the Chinese!
We suspect they'll get a bailout. But what do they deserve?
Here are companies that have been around for an entire century - plenty of time to learn their trade. And they've been in the center of the best auto market in the world - the United States of America. If you couldn't make it in the car business in the U.S....you had to be hopeless. Nobody bought more cars than Americans.
And these companies had every advantage - they had capital, they had the sales and service networks reaching into every Middlesex, village and farm in the nation. They knew their customers better than any of their foreign competitors. And they didn't have to ship their cars across an ocean to sell them.
For a half century, it was downhill driving for America's automakers. But it's very hard to recover from success. And Detroit couldn't quite do it. They squandered their money...they missed their market target...they saddled themselves with costs that gave them a disadvantage and hobbled them so greatly it was almost impossible for them to compete - even with the playing field tilted in their favor.
Then, even when asking for a handout, Detroit's executives couldn't seem to get its signals straight. They flew into Washington on their private jets...apparently unaware that anyone would notice.
What do they deserve? They deserve to go broke.
*** We're in South Africa...with little time to write.
What's going on in South Africa? Near as we can tell the place is still booming. The restaurants are full. Shopping malls are busy. There are cranes and backhoes blocking the roads.
The local paper tells us that the economy is going flat...with zero GDP growth expected for 2009.
Curiously, you can put your money in a bank and get 12%.
"That sounds like a very good deal," says an American colleague. "It's not such a good deal for people in South Africa because inflation is about 12% too. You don't actually come out ahead. But if you don't live in South Africa and don't pay your expenses in rand, you don't care about inflation. What you care about is the exchange rate. So, I ask myself...which is most likely to go down? The South African rand? Or the US dollar? I don't know. But I'd guess that the dollar is a bigger risk than rand. South Africa is a resource economy, so the rand has gotten hit hard. And the dollar has gone up because so many people want the safety of Treasury bonds. But at some point, the dollar is bound to fall. So, I figure I can collect high rates of interest on South African investments at very little real risk."
Of course...we'll see.
Until tomorrow,
Bill Bonner
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Detroit Wants Bailout
- Who Makes the Best Cars?
- Inflation Protection at 1%
- Ford Chief Doubts a Return to Old Times
- Cars Could be Designed by Congress
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 Coffee Addict on 4 December 2008:
"There is no shame in going bankrupt. There is only shame in being owed money by a bankrupt": a quote from the past.
Clearly, the "re-arranged bankruptcy" for GM and Chrysler which is now being mooted by Alan Gover and others in today's Bloomberg is the only viable compromise. Lets just get-it-done!
Concerning the other bit of Bill's post on South Africa, the key to success or failure is political governance. Is it still an each way bet or have things improved?
Comment by Charles Norville on 8 December 2008:
When man kind moved out of the great ice thaw some 11k years ago our brains started to challenge further our surrounding and we developed technology at an accelerating rate.
Where man perceives an imbalance it is viewed as challenge, we cannot help our innate genetic behaviour to event things - those with less talent invent bubbles.
It has always come down to energy-materials per capita ratio. If a society does not have enough of this ratio to that of an adjoining society, then an application of military or/and economic solution occurs, a process that has advanced superior armies (not necessarily societal). War technology is king.
The rest of the world view Aus with contempt because of our high em-c ratio. The UN is corrupt, a crude extravagance, and based in the US.
Aus cannot defend itself because our defence systems are designed to help allies like US, pathetically and inevitably we will be challenged, we are non aligned economically and militarily (ANZUS is a joke).
Inventing cannot stop nanotechnology will make the cost of labour irrelevant, with low me-c ratio countries like China and India etc doomed to fail, unless a way is found to justify, geopolitically, the merging of individual sovereignties. European Union is way out in front here, BRIC is new.
I think the me-c ratio is irrefutable, enough water and food are only part of the equation.
Will the rest of the world tolerate the continuance of the Aus sun worshipping cult? Do you think that China would tolerate giving Aus dolees A$12k/yr at the expense of Chines working for A$5k/yr, oh oh! there go the interest rates again.
What the hell have we done? Yea follow the US down the gurgle.
I have two sons born and breed in Aus, what do I do, allow the Aus Govt to send them off to war, or do we allow the Aus Govt and say the US Govt to broker (create distractions, change the focus, what ever) on a merger of China with Aus?…………Hmm a way out for the US and the world?
Comment by Jon Bain on 9 December 2008:
Welcome to Africa, Bill. The rand lost value recently because Americans were pulling out their profits from the stock market to shore up their investments back home, so rands were freely available. It was a misguided sense of patriotism, that means they are throwing good money after bad. But that just means there is an opportunity here for someone else.
If you take a look at the buying power of the rand, it is so undervalued, its ridiculous. The value of a currency, is of course determined by what you can buy for it. The 'official' exchange rates are a joke. Anyone investing here will double their money in 5 years. If you actually move here, you will double your buying power OVERNIGHT. AT least!
South Africa is in the same position that America was 100 to 200 years ago. Take a look at how much MTN has made, because they invested in the rest of africa. Many white people are scared of black people, and some are not, those that are not, can reap the harvest.
By investing in poor people, as they get richer, so does your investment. The Western world is saturated. Nobody wants any more than they have. Its an old tree, with old tired fruit rotting on it. Africa is a young tree in its first season.
If only we could beat you guys at cricket, then all would be peachy.