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Daily Reckoning for November 30
By Bill Bonner | Published  11/30/2005 | Stocks | Unrated
Daily Reckoning for November 30

We continue to read the story of the U.S. economy as a tale that is only half told. We see it as if a man had put a bullet in the firing chamber without pulling the trigger. It is like a sunrise without a sunset…a yin without a yang...a shilly without a shally...a drunk without a hangover…a boom without a bust. 

In short, it is either unnatural…or incomplete. We lean towards “incomplete” as an explanation.

Bonuses at Goldman are said to total $40 million this year. 

“In every war the victors get the spoils,” writes Paul Farrell. “Same here, as Wall Street doles out more than $20 billion in bonus money to its army. Huge bonuses: $105,000 to first-year associates right out of business school. Imagine some 25-year-old with an MBA gets a bonus three times bigger than the average American's income.”

“Worse yet, Wall Street's top generals get one-time bonuses bigger than most Americans make in their lifetime, $6 million or more from the Wall Street Greed Machine. How do they justify those huge bonuses? By being greedy all year long, playing with your money while secretly siphoning big bucks off the top.

“Look at Wall Street's rotten performance since the 2000 crash. Wall Street's a big loser. Seriously, have you checked the Wilshire 5000 or the S&P 500 indexes lately? Both are in negative territory, below where they were five years ago.”

Farrell is indignant. He needs to step back, take a deep breath and smile. Wall Street is a business, just like any other. It offers a service: separating people from their money. This year it has done a good job of it. Why shouldn't it celebrate?

Wall Street offers to help people make money without working. It is such an attractive bamboozle, few people can resist. Google at $400? Gimme some right away…before it goes to $500! 

We take the bonuses on Wall Street, and high salaries throughout corporate America (G.M. may have cut 30,000 employees, but it still spreads good cheer through the ranks of top management), as more evidence that we have reached a late, degenerate stage of our imperial economy. The sun has not set yet, but the decaying serenity of late afternoon hangs in the air, like the perfume of an old woman. The companies that make the most money are those that shuffle money - not those that make things people want to buy. And throughout the entire society, everyone participates in what has become an orgy of swindle and delusion. Consumers earn less and less each year (for the last two years), but they spend more anyway. We read estimates this morning that next year will be no different. Average wages are expected to rise 3.5%. But after increases in energy and health care, the typical wage earner is likely to have less money in his pocket in 2006 than he did in 2005, or 2004, or 2003. 

In the third quarter of '05 alone, Paul Kasriel of Northern Trust reports, U.S. households spent $531 billion more than their after-tax earnings. About half of that money came from “equity extraction.” Consumer spending has risen to 76% of the economy; before 2000, it was only two-thirds. 

Bankers are eager to lend the money. They get a friendly appraiser to over-value their houses, and then slip the loans into a package to be sold off to investors (let them take the losses!). And foreigners continue to lend to America; the country may be a mess - they figure - but not as big a mess as their own countries.

The U.S. government jiggles and jives the figures so no one knows what is really going on. The last 12 months have seen a spike up in residential real estate prices - a 17% increase, the biggest increase in many, many years. That, combined with soaring costs for energy, property taxes, insurance and upkeep, has greatly increased the cost of shelter to the average family. Still, the government's statistical hacks conveniently figure that the cost of housing rose only 2.3%. Likewise, they come up with a cost of living figure only 3% higher than the year before, despite the fact that the typical family is spending far more than that just to stay even.

The poor householders don't have a clue. They think they really can get rich by buying and selling each other's houses, or by putting their money with Wall Street. They really believe you can have a yin without a yang, and that after the sun rises, it stays up forever.

We shall see...

*** And what's this? Goldman's peak must be coming soon. Today's news tells us that the money shufflers are building a new headquarters in Manhattan, at a cost of $2.4 billion.  One of two things usually marks the top for major companies: either they get onto the cover of a magazine, or they build a flashy new headquarters. 

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.