Well, the days are dwindling down. September. November. Tomorrow it will be December.
This bubbly bounce must not have much time left.
And it is surrounded by 10,000 pins.
Last week, one of those pins looked as if it might pop it.
While Americans enjoyed their turkey dinners, Dubai announced that it would ‘postpone’ payments on its debt. The world was left to wonder: what’s going on? Is Dubai broke?
Dubai was the great success story of the Near East. With nothing but rich sheiks behind it, it had set itself the goal of becoming a major financial and tourism centre.
And for a while, it looked like the sheiks might just pull it off. Skyscrapers soared into the air. Manmade islands rose up out of the sea. You could ski indoors – and then go swimming in the warm waters of the Sea of Araby. They were even planning to put up the world’s tallest building...
But the whole place was built on debt and sand.
And as the debts mounted, the sands washed away.
On Friday, US markets reacted. The Dow lost 154 points. Gold lost $14. Oil slipped to $76.
Our crash flag is still flying. But that was not a crash. Just a bad day. And today’s news tells us that other Gulf states are rallying around Dubai, ready to extend a helping hand and lend a buck or two. Oil is rallying on the news.
Does that mean this bubbly trend is stronger than we thought?
Is this a bubble made of Kevlar? Will it resist other pins?
We wouldn’t count on it.
Remember, China is “ Dubai times 1,000”, as James Chanos put it.
When China pops, we’ll see US stocks down a lot more than 154 points.
In fact, we expect to see the Dow in 5,000-ish territory when this bounce is over.
And when that happens, emerging markets will probably be hit even harder.
Dubai was a “wake up call”, for investors in emerging markets, says the New York Times today.
But the pin that pricks recovery hopes won’t necessarily be imported. There are plenty of sharp objects in the homeland too. There is, for example, the growing realisation that the recovery is a fraud.
“Half a recovery,” says a New York Times columnist, may be all we get.
Today, the press will concentrate on analysing Black Friday sales results. Already, the Wall Street Journal has rendered its verdict: more shoppers, fewer sales.
If the initial reports are correct, the traffic wasn’t bad on Friday. But retail outlets were only able to snag sales by offering discounts. It’s a deflationary world, after all.
Shoppers want lower prices to make up for the fact that they have less money to spend. And they’ll get lower prices too. Because this is a de-leveraging cycle.
The world has too much debt, too many factories and too many workers... at least for the real, available purchasing power. Prices will go down naturally until excesses are absorbed... dismantled... or converted to other uses.
But wait... there are also unnatural forces at work. Governments are bailing out bungled companies. They’re supplying zombie industries with fresh blood from the taxpayers.
They’re standing in the way of de-leveraging progress.
They’re creating ‘money’ out of thin air.
It’s this last point that is most explosive. As long as government is just stalling the correction, it doesn’t cause too much distortion or volatility. But when it fiddles with the money... oh la la: that’s where it gets interesting.
Traditionally, people buy gold when they think the monetary authorities are up to something. Throughout the world, investors are getting edgy... they’re wondering how it is possible to add so much cash and credit to the economy without sending prices to the moon.
We’ll tell you how it’s possible: there’s a depression.
In a depression, the flow of cash and credit coagulates.
Even if you increase the cash in bank vaults, it doesn’t circulate into the real economy. Banks don’t lend. People don’t borrow. Consumers don’t consume.
It just sits there... waiting for the end of the depression... like a teenager waiting for Friday...
*** What goes around...
America flourished because its people believed in free enterprise and controlled public spending. Now, they seem to believe the exact opposite.
Now, they seem to believe that business must be carefully controlled... and the feds can spend however much they want.
But check this out.
Now, people in communist China have more faith in free enterprise than Americans do.
“I could understand why George Bush did such dumb things,”
“He had a chip on his shoulder and an inferiority complex. And he wasn’t a deep thinker. So he played the decisive, tough guy.
“But Obama is completely different.
And yet, he’s doing the same things.
He just extended Bush’s 9/11 wiretaps and other unconstitutional measures. And he says he’s going to finish the job in Afghanistan.
“What job is he talking about? I’ve got a friend who is a hospital administrator in the reserves. He’s got two small children. And now he’s being called up to go to Afghanistan. What a waste.
“I feel sorry for him. He signed up for the reserves and it paid for his education, so he can’t complain. But he signed up to defend the country. Now, he’s being sent off to take part in an unwinnable, hopeless war. It goes on forever.
“In Iraq, by the way... the same story. Obama just continues the policies that Bush gave him. And I thought we voted for change.”
Our contractor friend explained to us how it works:
“Look, they put out the call for bids on a project. Who’s going to ask if the project really makes sense? Not Congress. Nobody wants to get the reputation of the enemy of the military.
“The contractors have lobbyists all over the capital. And every congressman wants to get the project for his district. And, of course, the contractors have employees... and local newspapers... and so forth.
“The project goes forward. And then, it doesn’t work. I mean, either it just doesn’t work, like a lot of the computer systems the Pentagon buys... or it just doesn’t do anything worth doing.
“But who’s going to say anything? Nobody. Instead, they all rally around another project.”
Even a smart, well-meaning new president is helpless against the power of the military machine. Stop the war in Afghanistan? Are you kidding?
It would mean the loss of billions... hundreds of billions... in federal spending.
And there are surely a whole clique of ‘experts’ to tell him that strategically and geopolitically the war is critical to maintaining stability in the region.
*** But how are the feds able to get away with such rough handling of their own citizens... not to mention the foreigners?
Thank Napoleon Bonaparte’s great nephew, Charles Joseph Bonaparte, of Baltimore, Maryland.
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