Investors Must Remain Properly Diversified in this Boom

Hot, hot, hot. When the markets are hot enough, money flows. And now, the whole world is coated with molasses. Sweet, gooey… we can’t seem to get enough.

From the United States comes news that auto giant Chrysler (NYSE: DCX) has been bought – by a private equity fund! Isn’t that great? You don’t have to know anything about making cars to play this game. You just have to have enough of that sugary, sticky cash.

And Bloomberg reports – from Moscow:

“Within a mile of the tomb of Vladimir Lenin, who vowed to destroy capitalists, investment bankers in Moscow are now earning double the pay of their counterparts anywhere else.

“Dealmakers such as Ed Kaufman, who left UBS AG in March for Alfa Bank, and Nicholas Jordan, who will run Lehman Brothers Holdings Inc.’s new Moscow office, are offered $7 million and more a year, industry recruiters said. In New York, managing directors who arrange corporate mergers and stock and bond sales typically get $2 million to $3 million, according to estimates from headhunters at Options Group and Napier Scott Executive Search Ltd.

“‘This market is hot, hot, hot, and if you want to keep top talent, you have to pay big,’ said Peter Necarsulmer, chief executive officer of PBN Co., which advises foreign companies investing in Russia including BP Plc and Merrill Lynch & Co.”

Deals… deals… deals. Where does the money come from to fund all these deals?

China’s money supply is growing at a 17% rate, says the latest report. Japan’s trade surplus is growing at a 37% rate.

And here, Reuters connects the dots:

 “It may sound like a precarious state of affairs, but the fate of the global economy rests squarely on whether or not Americans keep shopping.

“They don’t call it an imbalance for nothing. For better or worse, highly indebted U.S. consumers have been the primary engine of world economic growth for some time.

“Even the success of Asian giants like China and India, touted as model globalizers, has been predicated on exporting goods that end up on the bountiful shelves of U.S. retailers.”

America’s consumers spend more than they can afford…which puts dollars in the hands of Chinese and Japanese businessmen. Then, the dollars are turned into the Central Bank for local currency… forcing the Bank of China and Bank of Japan to increase their own money supplies in order to buy the dollars. Liquidity… liquidity… now the whole world is drenched in it.

Get out the hip boots. The tide of molasses is rising.

The San Diego Union-Tribune tells us that Chinese investors are practically drowning in it:

“After watching Chinese stock prices gallop upward for months, Ding Xiurui wanted a piece of the action.

“The 45-year-old office worker stood in line at a bustling brokerage Friday to open her first trading account. She brought her sister, who opened an account too. They joined millions of other novice investors who are jumping into a market that has soared to dizzying heights, with prices up nearly 50 percent this year.

“China is in the grip of stock market fever. Shares are changing hands in record numbers as first-timers pour in new money. Some are mortgaging their homes or dipping into retirement savings to finance a frenzy of trading known as ‘chao gu,’ or ‘stir-frying stocks.’

“On Wednesday, the Shanghai index passed the 4,000-point mark.”

What could go wrong? Well, the Shanghai Composite Index could blow up. Or, the source of this big flush of cash and credit could piddle out. Either way, investors that aren’t properly positioned could lose their shirts.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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