Are the corrections over? Or just beginning? Who can know?

Both the Dow and gold bounced yesterday. Not persuasively. Not conclusively. But just enough to keep us guessing.

Everywhere we look we see more signs that it is late season for the great imperial economy. There may be fruit still on the tree, but it is going bad. In a healthy, young economy, money is spent to increase productive capacity. Savings are put to use to build factories...offices...and businesses. These robust new ventures flower and fill the air, like St. James Park in the month of May, with the rich aroma of fecundity. But as the season turns, the fruit ripens and then begins to rot and attract bugs. Productive investment turns to speculation. People no longer make money by making things, but by spinning money around. The rich are no longer the captains of industry - the railroad builders and steel-mongers, for example. No, the new filthy rich are the fast-talking Sergeant Bilkos of the credit boom...not steel mongers, but money mongers...who promise huge rewards to investors and, occasionally, deliver.

Twenty-six top hedge-fund managers earned an average of $363 million last year, according to yesterday's press reports. That was up 45% from the year before. Two of them - James Simons of Renaissance Technologies and T. Boone Pickens, Jr., of BP Capital Management - earned more than $1 billion a piece. Each one of the 26 money shufflers earned about as much as all of the United States' national and regional airlines put together. Forget the major airlines; they lost more than $2 billion. It would take Simons and Pickens together to bail them out.

We stop in our tracks. Our mouth drops. Are we jealous? Are we envious? Are we impressed? No, we are merely dumbfounded. Who would be so thickheaded as to pay a man more than $1 billion to guess about which way the wind will blow? Why doesn't he make his own guesses?

Oh, but the money is actually "earned" by the manager, you say? That is, a large portion of what the fund manager gets comes from his share of the profits he has brought in. Mr. Simons, for example, takes an incredible fee of 5% of capital plus 44% of the profits. The normal larceny is two and 20 or 2% of capital plus 20% of profits. Mr. Simons is said to use "mathematically driven models" to produce such profits for himself and his customers. As near as we can tell, he is doing to the financial markets what card counters do to Las Vegas.

But where are the goons? There must be people on the other side of the trade. Have they no calculators, no yellow pads, no number-two pencils? Do they not realize they are losing billions? Do they not care?

We have nothing but questions. It is all too amazing. Too absurd.

If Mr. Simons really could earn a billion dollars in one year using his models, you wonder why he'd want to go to the trouble of running a hedge fund. Think of all the regulatory hassles, the customers, the office work. Rather than earn 50% on the client's money, why not earn 100% on his own?

We know the answer. Because 100% on your own money is an honest speculation; 50% on clients' money is a swindle. Speculation is inherently a risky business. Sometimes you will guess right. Sometimes you will guess wrong. One day's speculation begets profits, while another begets losses that take away the profits that yesterday's speculation begat. But what if you could only win? What if, when a speculation went well, you got, say, 50% of the profit? And when it went bad, you took no part of the loss? Well, welcome to the hedge-fund business.

Mr. Pickens made his money in the commodity/energy boom. No boom, no profits. But commodities and energy are famously cyclical. When they go up and down, they go way up and way down. Hedge funds operating in the commodity area are money-making machines in the up cycle. In the down cycle, they are money-losing machines...at least for the clients.

And thus, the rotten fruit finally falls from the tree.

Mundus vult decipi, ergo decipiatur. Which is all right with us.

*** Ryland Homes, one of the nation's top builders, says it will have to adjust its 2006 earnings forecast downward for a second time. Houses just aren't selling like they used to. In San Diego County, foreclosures are running at almost double the rate of a year ago. The Twin Cities area of Minnesota reports a record inventory of unsold houses. Other reports say the record is nationwide, with more houses for sale than at any time in history.

*** "As far as I am concerned you have never bought any gold," says a dear reader. "You are always waiting for the price correction. This time 550, last time 450. You are waiting and watching; it never hits your support level. Never buying - always waiting and watching. Let us know when you pull the trigger!"

Yes, as we confessed yesterday, when the price went over $500, our cautious approach to buying gold seemed inadequate. We haven't been able to buy for a long time because gold refused to hit our buying targets.

Fortunately, we have been under no great pressure to buy. A couple of real estate investments - one in France, the other in Argentina - have done for our personal liquidity what the Royal Air Force did to Dresden. But our advice to readers remains the same: buy gold at the best price you can get. There, how's that for advice!

What's the best price you're likely to get? While the bull market still has far to go, we think it is likely that the price of gold will fall below $600 in this correction. But if we really knew, we'd be managing a hedge fund!

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