We’re attending a financial conference here in Vancouver. Yesterday was actually the tenth anniversary of Markets and Money. A group of readers took your editor to dinner and roasted him.
He was flattered…and grateful for the attention.
But we’re not kidding ourselves. Readers come up to us at conferences and tell how much they enjoy reading the DR. We wait for questions about Quantitative Easing, the Trade of the Decade, Empire of Debt or any of our other important themes. Instead, what they want to know about is:
“How’s your gardener doing? What’s Maria doing in Los Angeles? Did you ever figure out what happened to your missing cows…?”
Readers know what’s important. They want to know more about what really matters.
Still, we are foot soldiers in the lonely battle against economic claptrap; we must march on!
Yesterday, came more evidence that the depression is over. The Dow shot up 188 points. From a technical point of view, if you believe that kind of thing, it looks as though the rally has farther to go. We recall setting a target of Dow 10,000. Perhaps we will get there.
Oil traded at $67 yesterday. Gold rose to $954 and bond yields on the 10-year T-note rose to 3.7%.
All of this sounds vaguely inflationary…and vaguely bullish. Besides, Goldman stock is rising. And as we all know, what’s good for Goldman is good for the country.
Yes, we are kidding. What’s good for Goldman is generally bad for the country. Goldman makes money by separating investors from their money. Nothing wrong with that; someone has to do it. But the big banks are most profitable when speculation is rampant and debt is growing. That is, when people are going further and further into debt…and speculating on rising asset prices. We know you don’t really prosper by borrowing and gambling. But that doesn’t make casinos unpopular, or lenders unlawful. Bankers, like undertakers, benefit from human frailty. At least, they benefit as long as the government bails them out. Otherwise, they fall victim to their own human frailty.
But this is a minority opinion. Most economists disagree with us. And there are so many of them…if all the economists who disagreed with us were laid end-to-end…it would be a good thing. They believe that the economy is stabilizing…and on its way back to normal. Trouble is, ‘normal’ ain’t what it used to be.
Wall Street banks are making money, ’tis true. But they’re not financing new businesses…or factories. They’re not aiding the process of capital formation nor allocating capital in ways that will result in new jobs and new industries. Instead, they are refinancing old debts…and speculating on zombie assets. This will not increase the real wealth of the planet. Instead, money just changes pockets. Which, of course, raises an interesting question; where did all this money come from?
If Goldman’s pockets are fatter, whose are thinner? If the four biggest banks earned a combined $11 billion in the last quarter…who did they take the money from? Who’s got that kind of money?
Meanwhile, we found out this week that the feds have wagered an amount equal to 170% of GDP in their attempt to bailout the world (more below). Part of that money was used to buy Wall Street out of the investments that they didn’t want. Which ones were those?
Well, the ones that didn’t work out.
No wonder the banks are making money.
But while the banks are making billions, cometh another report from another sector – manufacturing. Caterpillar announced its results for the second quarter too. Profits were down 66%. In other words, while the banks were making money speculating with taxpayer’s money, Caterpillar was trying to make things and selling them to customers. Caterpillar not only makes things; it makes things that help other companies make things. Things with motors…big things…things that make noise and give off exhaust…things you use to dig holes and move dirt…things you need if you’re going to have a real economic recovery. Unfortunately for CAT, these things aren’t selling.
So what does this tell us? Well…it suggests that there is no real economic recovery at all. The real economy is suffering…sinking…and shutting down.
The banks are not earning their money helping Caterpillar expand. They’re making their money not because of a recovery, but because there isn’t one. In other words, they’re profiting from the financial stress of the early stages of a depression. There’s a post-crash bounce…and the government is sending a lot of money their way.
for Markets and Money