Get it on. Get it over with...

Bill Bonner - Wed 25 Nov, 2009

A DEPRESSION – de-leveraging, working out loans, defaulting on debt

London , England

One turkey turns to the other...

“Things were pretty rough there for a while... what with the recession and all. But now there’s a recovery. Business is picking up.”

“Yeah, this is great... no more hanging around this place waiting... finally, the boss says we’re all shipping out today... ”

“I wonder what we’re going to be doing... ”

“I don’t know... I’m going to some place called ‘Butter Ball Birds’...”

“Hey, sounds like it might be fun... maybe it’s some kind of theme park. I’m going to work for a fellow named Bernard Matthews...”

As our friend Nassim Taleb says, a turkey’s life is very agreeable... until the very last day. Until then, his whole life is a bull market. Everything looks good. Good food. A roof over his head. Plenty of company. Even free health care. The MPT guys would look at his history. They’d see no volatility. Every day, the turkey gains weight. Every day things get better. They’d see all reward and no risk. They’d say ‘every investor should have turkeys in his portfolio.’

The chartists, too. They’d look at the turkey’s life and see a line moving steadily up. ‘Is this a winner or what,” they’d say to each other.

And what about the economists? Well, the old-timers would be suspicious. ‘There’s no such thing as all upside... there’s no boom without a bust,’ they’d grumble. But the young fellows wouldn’t listen. They’d plump for the turkeys without hesitation, confident that if anything were to go wrong, Ben Bernanke and Tim Geithner would set it right lickety-split.

And now, they think the Bernanke-Geithner team has just pulled off a save. Thanks to them, the turkeys who ran Wall Street – and invested in it – have been spared. America is getting back to work.

But what kind of work?

Alas, it’s the work of a DEPRESSION – de-leveraging, busting up, working out loans, defaulting on debt... going chapters 11 and 7.

Yes, dear reader, the recession is over. Welcome back to the Depression.

The number crunchers reported a positive US GDP growth figure for the last quarter of 3.5%. Everyone cheered. Now, the crunchers admit that they were a little too optimistic. The real number is only 2.8%. But it’s still positive. So the recovery is still on...

Sort of. If you deconstruct the numbers, and pull out all the feds’ hot money effects, you’ll probably find that the economy is not growing at all. How could it be? It’s a consumer economy. Consumers aren’t consuming...

The Wall Street Journal reports “One in four borrowers underwater.”

Mortgage delinquencies at a record high, adds the New York Times.

Real joblessness is at 17.5%, reports CNBC.

Insiders are selling 17 of their own shares for every one that they buy.

‘Consumers lose appetite for dining out,” says the Los Angeles Times.

The National Retail Federation thinks holiday sales will be 1% lower than last year. And last year they were depressed.

But the New York Times is worried about us over here in England. “Lost decade feared for British economy,” says a headline.

As we pointed out yesterday, the US economy has already suffered a lost decade. No employment growth in the last ten years. No gains in the stock market. No household income growth. As near as we can tell, the whole nation is just another decade older and deeper in debt.

But that’s the way it works, isn’t it? A bull market on Wall Street... or a boom in the economy... they’re just like a turkey’s life. It’s all fine... until it ain’t fine any more.

And now, we’re going to let you in on the secret. You can pass this on to the White House and the Fed if you like.

How can you really get an economy out of a depression? Well, you have to get into a depression first. Then, you can get out.

The cure for a depression, in other words, is a depression. Nothing else will do. Mistakes need to be addressed and corrected. Losses need to be recognized and written off. Bad decisions need to be put right.

So, bring on the depression! Get it on. Get it over with.

Too bad the feds don’t get it at all.

More news:

“If you want to make real money, look over here…” writes Tom Bulford in the latest issue of his free Penny Sleuth email.

[If you don’t get Penny Sleuth, it’s worth doing so for Tom’s excellent business insights and expertise on the small cap market. Click here to read this latest issue and you’ll see a way you can get this sent direct, for free - ed.]

Tom was having a bit of a rant. He was dismissing boring old Blue Chip companies. The ones that exist only because they have a long history. He questions whether they are really needed in this day and age… and whether they are worth investing in.

Tom is talking about the new chairman at FTSE household names, ITV and Marks and Spencer. Of Marks, he says:

“Marc Bolland [incoming chairman at M&S] has no experience of clothes retailing. What he has instead, according to The Times, are ‘matinee idol looks and sharp dress sense’ and a belief that M&S is a ‘fantastic brand – and it can be developed internationally’.

“Well, we’ve heard that one before, haven’t we? When I lived in Hong Kong I remember Marks & Spencer opening a store there amidst great fanfare. It went down like a lead balloon and was soon closed.

“Overseas expansion has been a graveyard for British retailers. And if the M&S brand stands for anything overseas it is for a complete lack of any fashion flair.

As to the food side of M&S, the latest initiative here is to sell branded groceries ‘like Marmite and Kit-Kat.’ That will make it the fourth store selling Marmite and Kit-Kat on my local Oxfordshire small-town high street. If that is the best they can do…”

Then Tom questions ITV’s new boss man and the serious challenges his business faces…

“For ITV the problem is even more serious. People are not watching as much telly and they are skimming through the commercial breaks.

“Incoming chairman, Archie Norman, we are told, will ‘surround himself with great talent’. He will use his experience gained at Asda, because ‘TV is very like retail in the sense that we know the next morning how we did the previous day’. And he will use his political contacts.

“This is just spin and none of it is likely to change ITV’s basic predicament. I wouldn’t want to own these shares.

“Don’t get me wrong. M&S and ITV were great businesses – once. But their heyday is long past. Today, if they did not exist, nobody would invent them.

“Like all of those craft sellers they are not meeting a real need. That is why they are destined to struggle.

If you want to make real money you need to be investing in the businesses that supply things that the world really needs. Businesses that can solve real problems. These businesses are small, innovative and ambitious.

“Look-a-like clothing stores, advertising-funded TV stations are not more amongst them…

“You want a couple of areas to look for great profit potential? Two good places right now are commodities, especially oil. And second biotech and pharmaceuticals. We’ll always need these.

But don’t go for the lumbering giants… concentrate on the up and coming small caps and penny shares. These are where the real opportunities will be found.

“And I’ve also got a specific “problem/solution” play for you. It’s not one that would spring to mind straight away. But it’s a problem that affects up to 300 million people a year. And there’s one tiny tech-firm that’s spent ten years trying to solve it…”

“Now it’s on the verge of revolutionizing a giant, billion dollar industry…”

Click here for more on this opportunity.

And back to Bill for more thoughts...

*** Yesterday was a typical day on Wall Street. The Dow fell a little. Oil slipped a little. The dollar held steady at $1.49 per euro, about where it has been for months. And the price of gold went up.

No matter what else happens, gold seems to go up. Watch out, though. This gold market is ready for a correction.

*** As we said yesterday, a little bit of governance goes a long way. You’d think the feds might have learned their lesson. Their low rates... and subsidized mortgage loans... led to the biggest bubble in housing in US history. But no... they continue to cause trouble:

This from the Independent Institute:

FHA Encourages More Bad Mortgage Loans

“An astounding 20 percent of the Federal Housing Administration's $725 billion portfolio of mortgage loans will go into default as the result of the agency's recent campaign to subsidize first-time homebuyers with little cash and weak credit. That prediction comes from an industry insider who has seen it all happen before: former chief credit officer of Fannie Mae, Edward Pinto, who recently testified before a House committee on the gathering storm of FHA mortgage defaults. It's déjà vu all over again. But why did federal policymakers allow history to repeat itself?

"To listen to our glorious leaders discuss such matters is to realize that they have no real understanding of what they are dealing with," writes Independent Institute Senior Fellow Robert Higgs in a new post on The Beacon . "They see the collapse of an artificially stimulated house-construction industry, and they conclude: the government must subsidize more house construction. They see the collapse of real estate prices, and they conclude: the government must stimulate demand for real estate in order to raise its price.”

“Had policymakers grasped the causes of the housing boom and subsequent bust, they would have stopped subsidizing unqualified borrowers, stopped trying to raise the prices of houses, and let the economic process work itself out through market processes. Continues Higgs: "Simply piling on more and more of the same distortive policies that generated the crisis in the first place can, at best, only delay the day of reckoning while magnifying the adjustments that ultimately will have to occur."

*** Eliot Spitzer is trying for rehabilitation. He seems to be attempting a comeback as the champion of the little guy. So, in Slate Magazine, he attacks Tim Geithner’s deal to save AIG. It was a sellout of the American taxpayer, he says.

“Geither’s Disgrace,” he entitles it.

But wasn’t that the whole idea? To bail out Wall Street with the taxpayers’ money... ?

AIG was saved... thereby saving a lot of bankers’ bacon all up and down Wall Street. But what about the firms that weren’t saved? The New York Times reports that their bacon was fine too:

“At Lehman, the top five executives received cash bonuses and proceeds from stock sales totaling $1 billion between 2000 and 2008, and at Bear, the top five received more than $1.4 billion, according to the study, which was released on Sunday night on the Web site of the Program on Corporate Governance at Harvard Law School.

“The payouts came in the form of cash bonuses as well as thousands of shares of stock that the executives sold as the share prices of their companies soared. Most of the executives sold far more shares during that period than the number they held when their companies hit bottom.

“There’s no question they would have done massively better had their firms not collapsed,” said Lucian Bebchuk, one of the study’s authors. “But the wealth of those top executives was hardly wiped out. The idea that they were devastated financially has kind of colored the picture people have about what payoffs they were facing.”

Until tomorrow,

Bill Bonner

For The Daily Reckoning

Editor’s note: To download Tom Bulford’s latest profit opportunity now, click here.

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