The year is winding down. Only a few precious days are left.

Here in France, it is very cold...and very, very gray. We can barely see more than 50 yards in any direction; the fog is so thick.

"I woke up this morning and I looked out my window...and it was just gray. I couldn't see a thing," said our son, Jules.

So, we sit in our little office...wondering. How does it all work? What is going on? What's it all about?

No man with teenaged children can help but be a bit of a philosopher - it comes with the job. He can't help but wonder why people act the way they do.

We have four of our six children with us this Christmas. Our two oldest children are otherwise engaged - one as a ski instructor, the other in Florida, preparing to move house. But four is enough - combined with the season - to put us in a reflective mood.

But, reflection on personal matters we shall leave to late at night, dear reader....

During business hours, we reflect on your behalf.

We begin today's reflection with sad news.

James Brown didn't 'feel good' last week. He was hot in the '60s...but now, he's as cold as yesterday's hits. And poor Gerald Ford too. The man seemed like a decent president. We don't know of anyone arrested on the Ford Act. We don't remember any pre-emptive wars that Gerald Ford got us into. Nor do we recall any major domestic initiatives - no wars on poverty or drugs started by the man. As near as we can remember, Gerald Ford left the nation no worse off than he found it...something that few presidents could say.

Meanwhile, in the financial world, we continue to wonder how and when the present 'good times' will pass away. A boom must die too, like everything. Every period of tranquility and prosperity is followed by a period of doom and gloom...especially when the prosperity is based on a lie or on stealing from the future.

Today's frothy financial world bubbles on top of both lies and theft. The big lie is that you can create 'money' by printing up dollars and other paper currencies. The theft comes from spending the money now and pushing the bill into future years...onto future generations.

We don't mind using words like "theft" or "lies", but most economists would regard our way of looking at things as "moralistic." They imagine that they can just add up columns of numbers...and tinker with the economy as though it were a motor. After all, when a motor begins to malfunction, you don't wonder what it did wrong or why. You get out a screwdriver and a wrench and go to work on it.

The modern economist is Mr. Goodwrench. If the economy has a problem, he fixes it. Just tighten up on interest rates. Or, unscrew the reserve requirements. Turn that knob. Lift that lever.

If only the machine would do what it's supposed to do!

But, of course, the economy is not a machine. It is not made up of hard metal parts...but of soft human beings. And human beings do not react like copper and steel. They react like people, which is to say they don't always do what you want them to do. Instead, they react to their own expectations, their own hopes, their own illusions and prejudices.

For the moment, investors are fat and happy. They have enjoyed the great boom of the last quarter century. Now, they can imagine nothing else. But somehow, sometime...the summer has to give way to the winter. The day has to yield to the night. The good times have to be replaced by bad ones. And people who 'feel good' in the '60s...have to drop dead in the new century.

When? How? We don't know. But our job is to guess. That's what you don't pay us for, dear reader. So, coming up soon...our guesses for the year ahead....

*** Gold was our investment choice for 2006. Fortunately, it has gone up 20% during the year - substantially more than the S&P (up 13%). The only stocks that have done as well as gold are (surprise, surprise) defense companies. Weapons and finance are about the only industries in America that are still profitable and growing. The people in those industries are doing very well. Goldman Sachs, for example, is scheduled to give out $16.5 billion in bonuses this year.

We know how weapons companies make their money. And the weapons industry ought to be one that can resist foreign competition, since the United States is the world's only super-power. It buys far more weapons than any other nation. And it favors domestic manufacturers; for the obvious reason that it wishes not only to have the best weapons in the world, but to deny them to its competitors. Making weapons of mass destruction should be a good business to be in...and should remain a good business for many years.

But how does Goldman make money? Mergers, acquisitions, finance, lending...this too has been a good business. When the credit cycle expands phase, lending money is a growth industry. But when the credit cycle turns downward, lenders take losses. Not only are there fewer borrowers, many of yesterday's borrowers turn out to be worse credit risks than the lenders imagined.

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