Wall Street Physics

This past week we saw more outrageous behavior from our government. The Federal Reserve and “Bailout” Ben Bernanke refused to give the details of the $2 trillion that they have “loaned” to financial institutions. I only wish I could get in on that gravy train!

Even more outrageous was a speech this past week by Treasury secretary “Handout” Hank Paulson. He  basically said that the US is not at the heart of the global economic problems and that all countries are equally to blame. I didn’t know whether to laugh or cry.

Should I laugh? Is he really that dumb? I doubt it. I decided to cry instead. With his Wall Street background, Hank Paulson was just expressing the amazing arrogance and the sense of entitlement that pervades people in the American financial system.

A good example of that sense of entitlement is the Wall Street reaction to the proposed bailout of General Motors. They are fighting it tooth and nail. Wall Street has completely twisted the old saying “Millions for defense, but not one cent for tribute.”  It now reads “Billions for Wall Street, but not one cent for Main Street!”

I come from a background in science. As I look at Wall Street today, it reminds me of how people looked at the universe before Copernicus. Everyone thought the Earth was the center of the universe before Copernicus showed them that it was not. Likewise today Wall Street thinks itself as the center of the financial universe. It is no longer. The power is flowing rapidly to the countries who actually have money and actually make things, such as China. Too bad Copernicus isn’t around today to show Wall Street the folly of their thinking.

China Stimulus

Speaking of China, I was very amused by the response to the announced stimulus plan by China on CNBC and other media outlets. The ignorance is overwhelming. If you know nothing about a subject, why would you go on national TV and show everyone how ignorant you are?

Everything you heard about the China stimulus plan was negative and that it was just a lot of old, previously announced programs packaged together. That is true to an extent. But as usual no one in the media bothered to do any digging or follow-up. Everyone in Asia knows that there is another Chinese stimulus plan coming in the next month or so. It will be huge and it will be mainly “new” money.

Yet everyone on Wall Street, CNBC, etc. seems unaware of that. Why is that? Again, it’s arrogance. Who cares what happens in China? After all, it’s only Wall Street that matters!

2009 Surprise

I believe that this blind arrogance will catch up with Wall Street in 2009. Right now, everything is fine and dandy for the holders of US Treasuries and the US dollar as US financial institutions de-leverage and bring the money home to park in Treasuries.

But in 2009 the Treasury will be looking for an incredible amount of money to fund all the bailouts and other government programs. The US will desperately need very large purchases of Treasuries by foreign buyers. It’s not going to happen. The normal foreign purchasers of US debt will be too busy buying debt at home as their own countries face massive funding needs.

Yet right now the powers that be in the US continue to exude their arrogance. They assume that other countries will just blindly fund our needs. The attitude seems to be that “hey, they will tell their people to live in mud huts and eat dirt and gladly give us all the money we need.” Sorry, won’t happen. 2009 will be the year that Wall Street threw a party and none of the guests showed up.

Ignorance Is Bliss

I continue to strongly express the view that the US Treasury and the US dollar markets are the last two remaining bubbles of the American financial system. I was ridiculed this past week by someone who read my article last week which stated that the Treasury market is a bubble. This person emphatically   told me that the Treasury market was not a bubble.

He said that it was not a bubble, just a market that was driven higher by fear. Thanks for stating the obvious, Einstein. My point is that greed and fear are two sides of the same coin of human emotions. I don’t care whether a market has been driven to irrational bubble levels by greed or fear. A bubble is still a bubble and when it bursts, it will be messy.

I was also ridiculed by someone who read my article last week in which I expressed long-term bullishness (3 to 5 year) on industrial companies, metals companies, energy companies, companies that actually make or produce real things, in other words – real assets. I feel investors should build positions slowly ( 5% – 10% a month) in these type of companies. He said, “Metals? You must be one of those nutty gold bugs.”

I do like gold as part of every portfolio, but I’m not a gold bug. I thought maybe that I was talking to some perma-bear who thinks everything is going down forever. As I probed further, I found that he wasn’t a bear. He was a bull that was trapped in a time warp. He was uber-bullish on all non-real assets. His portfolio, or what was left of it, apparently consisted of only American financial and technology stocks! He was 100% into companies that push paper and ideas that may or may not ever bear fruit.

When he said “C’mon, the future of America is Intel, Cisco, BankAmerica, etc.”, I couldn’t help myself – I busted out laughing. I incredulously asked, “Don’t you know that the tech bubble burst at the turn of the century?” But then I felt bad. I shouldn’t have laughed at a mentally ill person. Maybe he was a relative of Larry Kudlow, who still believes in Goldilocks, and the poor guy’s mental illness is hereditary.

Here was a man who had been completely brainwashed by CNBC! Is it any wonder that Wall Street can so easily separate some people from their wealth? I didn’t know whether to phone the American Psychiatric Association to try and get him help or to phone the American Institute of Physics to report my amazing discovery – that I had actually found someone who was trapped in a 1990s time warp. I wonder what Einstein would have thought of my discovery.

Regards,

Tony D’Altorio
Analyst, Bourbon & Bayonets