How to Get Paid to Watch Seinfeld Reruns
By Tom Dyson
November 12, 2008
My friend works at a big European bank. Last month, the government took it over.
My friend is in the funding department. Basically, his job is to bring in the money the bank uses to make its mortgage loans. But now the bank is nationalized and out of business. Obviously, there's nothing for his department to do.
He says they all sit around surfing the web all day.
(I spoke to him the other day. He was taking the day off to spend it on the couch, which is why we were able to have this conversation.)
My friend says the government wants to fire most of his bank's employees... but European law won't allow that until next spring. So until then, my friend will be paid for watching Seinfeld reruns on YouTube.
Recessions should be good for the economy. They fix the mistakes investors and businesspeople made in the boom. Consumers cut back on spending and build up savings again. Businesses lower prices to bring consumers back into the market. Liquidations release money from bad investments and make it available for new production. Employees work harder because they're afraid of losing their jobs. Companies strive to improve their products and their strategies... or they go out of business.
And above all, people who were prudent during the boom can now pick up bargains. Balance restores itself, and the economy can increase production.
But when government intervenes in the market, it denies the economy of these benefits. Waste results. The recession lasts longer.
We can see this clearly at my friend's firm...
For one thing, the government will keep paying my friend and his staff for the next six months, even though they aren't doing any work. My friend's not creating any wealth. And he won't look for a new job until the government fires him. Meanwhile, he delays cutting his living expenses and saving more money.
And what about all the loans the government took over when they nationalized his bank's portfolio? The bank shouldn't have made these mortgages and business loans in the first place. The market needs to liquidate these loans, but the government's intervention stops this. So house prices don't correct to their true levels.
In other words, the malinvestment lingers.
For the past 50 years, malinvestment hasn't mattered. That's because governments have cranked up inflation every time a recession came along. Essentially, governments produce a boom to escape from recession.
Artificial booms are bad for the economy. They saddle it with debt. They misdirect consumption and production. When later recessions hit, businesses find themselves stuck with even more redundant capacity, inventory, and workers. And inflationary booms destroy the value of money, so people favor consumption over saving.
Right now, governments all over the world are trying to create an artificial boom. They're pumping money into the system, propping up failed insurance, banking, and auto businesses. This weekend, China announced a $586 billion infrastructure spending package to reignite its economy.
The big question everyone's asking is, will world governments be able to reignite the credit bubble?
Here's the answer: The market's desire to liquidate investment mistakes is too strong this time. We've hit the wall. The credit bubble can't be inflated anymore. I expect prices to fall in all assets that were built on credit... And right now, that means everything.
So at this point, I'm focusing on investments that are popular in depressions. That's gold, short-term T-bills, cash, and the highest quality dividend-paying businesses. The next bubble will be in safe investments.
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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COPPER: YOU CAN BET YOUR LIFE WE'RE IN A RECESSION
Copper has already crossed our "line in the sand"... Now, it's digging a hole.
Longtime readers know one of our favorite "armchair economist" indicators is the price of copper. Copper is used in everything – from cars and power lines to appliances and plumbing. So it rises and falls with global economic activity. If folks aren't buying and building, copper declines.
Before the commodity and stock markets plummeted, we said copper's $2.40 per pound level was a line in the sand for the global economy. This was the lowest price the metal traded for in 2007.
Signaling the global economy is horrid right now, copper hurdled over our line in early October. Yesterday, it began digging a hole in the beach. Copper is going for less than $1.65 per pound right now. As you can see from today's chart, it's a stupendous fall. This is why we laugh at politicians who say, "We're close to being in a recession." Copper is far wiser... and he's saying, "You can bet your life we're in a recession."
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Copper fell in London [Tuesday] on speculation China's $586 billion spending to support its economy will take months to spur demand for the metal used in cars and homes.
China's copper use will probably slow to 3 or 4 percent growth next year from 8 percent this year, Barclays Capital forecasts. Copper jumped 3.2 percent [Monday] after China pledged "fast and heavy-handed investment" in housing and roads and other infrastructure.
"It is definitely going to be a good thing for metals consumption but just not immediately," said Gayle Berry, an analyst at Barclays in London. "The export market is deteriorating so sharply that they need some stimulus."
Stockpiles of the metal in warehouses monitored by the LME gained 4,625 tons, or 1.8 percent, to 265,475 tons, the 15th consecutive increase. Inventories are at their highest since March 2004.
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Enjoy it while it lasts. Gasoline prices fell another 17.6 cents the past week, with average prices in three states dipping below $2 a gallon.
The nationwide average price for a gallon of regular gasoline was $2.22 Monday, down 17.6 cents from last week and 43 cents the past two weeks, according to the Energy Information Administration's weekly survey. Pump prices haven't been so low since February 2007.
The West Coast had the highest prices, at $2.53 a gallon. Gas was cheapest in the Midwest, at $2.06.
Gas prices have now fallen $1.61 since Sept. 15 and $1.89 since setting a record at $4.11 on July 7. Since Friday, average prices have slipped below $2 to $1.97 in Ohio, $1.96 in Oklahoma and $1.93 in Missouri, according to AAA.
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