11/11/09 Beunos Aires, Argentina – We did some thinking yesterday, on our trip to Uruguay. Why Uruguay? We thought we should have a look around. Montevideo is a cheap place to live. It’s on the sea, with beaches near the downtown area. It is an old town, with many fine buildings. It is clean. It is safe. It has history too. When the English invaded Buenos Aires, the Spaniards launched a counterattack from the fortress at Montevideo and got it back.
“It looks like a nice place,” we said to our local contact. “But it seems a little like a resort town out of season; it’s very quiet.”
We were having dinner in the best restaurant in town, next to the opera house. The restaurant was large and well fitted out. But it was almost empty. A French group sat at one table. An American group sat at another. The only other diners were sitting with your editor. Outside on the street, it was as if everyone else had been warned of an approaching tsunami; there was no one.
We write every day. Occasionally, we think too.
We did some thinking yesterday, on our trip to Uruguay. Why Uruguay? We thought we should have a look around. Montevideo is a cheap place to live. It’s on the sea, with beaches near the downtown area. It is an old town, with many fine buildings. It is clean. It is safe. It has history too. When the English invaded Buenos Aires, the Spaniards launched a counterattack from the fortress at Montevideo and got it back.
“It looks like a nice place,” we said to our local contact. “But it seems a little like a resort town out of season; it’s very quiet.”
We were having dinner in the best restaurant in town, next to the opera house. The restaurant was large and well fitted out. But it was almost empty. A French group sat at one table. An American group sat at another. The only other diners were sitting with your editor. Outside on the street, it was as if everyone else had been warned of an approaching tsunami; there was no one.
“Well, it’s out of season all year round,” our host replied. “It’s a nice place to live. But it’s not very lively.
“Montevideo used to be a lot richer. You can tell that just by looking at the public buildings. They’re very grand. We couldn’t build those places today. We don’t have the money. But during the war years, Uruguay was booming. We were leading exporters of beef and grains. We’re still leading exporters…but the margins are no longer there. You can make money in farming, but not enough to get rich.”
We wonder what people are going to be saying a century from now.
“Yeah, Manhattan used to have the richest real estate in America…back in the financial boom. Wall Street was the center of the financial industry. People made fortunes from high-margin financial products. But then, the financial industry went into decline…and new financial centers in Shanghai and Singapore took the business.”
Could New York have already passed its peak? Perhaps not quite. The papers are reporting record bonuses on Wall Street. But the story has an undertone of desperation about it…like the wild parties in Berlin in 1945, just before the Soviet Army arrived. Maybe that’s why the bonuses are so high. Get it while you can! This could be the last hurrah for the US financial industry.
Private sector credit is still contracting. In fact, it’s shrinking faster than at any time in the last 35 years. And this trend is not likely to change. As we keep saying – you’re probably getting tired of hearing it – the private sector has 7 to 15 years of de-leveraging to do. The financial industry will be forced to downsize, along with the economy.
Wall Street’s leveraged debt bombs are still blowing up. Banks are going under. As we reported yesterday, the ‘second wave’ of residential mortgage defaults may be just beginning. Commercial real estate debt isn’t far behind…with no Fannie Mae to help the wounded or pick up the dead.
And how about all those private equity deals Wall Street financed? Of the top 10 deals from the bubble years, 6 are in trouble…and 4 have already defaulted.
The idea of private equity was that the hotshots were so smart they could take over a company, re-organize it, restructure it, and sell it back to the public market at a higher price. What they actually did was merely to load up the company with debt – using the money to pay themselves lavish fees.
And as we know…and maybe we alone know it…debt hurts. Run up enough debt and sooner or later bad things will happen. But not necessarily to the borrower!
Right now, the dollar is at a 15-month low. The speculators borrow dollars. Then, it doesn’t matter what they do with them. Everything is going up against the greenback.
But that’s why our Crash Alert flag is flying. Mr. Market doesn’t like it when morons make money. We wouldn’t be at all surprised to see these carry trades go bad in a big, big way. All of a sudden, stocks…bonds…emerging markets…commodities…and even gold…could go down against the dollar. Watch out!
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Where the heck is Mogambo?
Bubbles don’t burst until the central banks raise short term rates.
You can put the crash alert flag stored away for a while.
Yeah, where the heck is Mogambo. I miss the smock.
Ahhh, where I live the weather people issue a tornado WATCH and a tornado WARNING. A WATCH is the same as an alert…weather conditions indicate a strong possibility of a twister.
A tornado WARNING is when a tornado is sighted, the sirens blow and anybody with brains heads for the cellar.
Keep the crash alert flag flying, BB.
The guy above said it correctly, well the second part anyway about putting the crash flag away for a while. The first part about a bubble is wrong. This is not a bubble. Why is it when we are seeing manufacturing up, consumer spending up, unemployment easing, housing bottoming, everyone here jumps on the “must be a bubble bandwagon”. Sorry, kids, it’s real. No bubble, just the return of growth.
“And as we know…and maybe we alone know it…debt hurts.”
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On this count, you are not possessed of exclusive knowledge.
Ditto: Where the MoGu????
Harry and Rush Limbaugh will be screaming “Everything is fine and/or it’s Obama’s fault” as the nation’s finances collapse and we run out of oil. Your ancestors must have played in the band as the Titanic sank. Awesome.
Chris: Don’t be silly. Think about it? How is the economy going to keep “contracting” as Bonner says when clearly consumers are spending on everything from homes to discretionary goods?
Did you bother to look into the last employment report? It was a seasonal adjustment that took the rate up. In reality with prior months revisions, the report was way better than even the most optimistic could have foreseen. That’s why the market’s continue upward. Employment is coming back in line, spending is up more than expected and corporate earnings are improving dramatically.
Those are the facts. This doom stuff here is ridiculous!
corporate earnings are improving as they don’t have to abide by historically reliable accounting standards
Harry,
If the doom stuff here is ridiculous, why are you here day in and day out????
About that unemployment, ask the 200,000+ people that lost those jobs how they feel about the unemployment number coming back in line. Go to the mainstream websites and pat everyone on the back over there. If you’re above the intelligence level here then spread your “knowledge” where it will be taken seriously.
“But that’s why our Crash Alert flag is still flying. Mr. Market doesn’t like it when morons make money.”
Bill, you are so tongue-in-cheek. Great line.
Yes, keep the flag flying! I’m reading through the DR archives and am up to July 2000. BB was predicting the tech bubble burst at that time, and there were the same people saying, “No, won’t happen.”
Go back and read these archives, and then compare to what is happening today. There are real economic laws at play here, and BB is being as consistent then as he is now.
Yeah I was just wondering the same thing what the hell happend to the mogambo… he must be locked away in his bunker hiding from the economy and his wife and kids
Harry said:
Employment is coming back in line, spending is up more than expected and corporate earnings are improving dramatically.
LaRRRRy says:
Corporate earnings and productivity are improving because of cost cutting and layoffs, not revenue growth.
FOLKS: Mogambo retired. Didn’t you hear?