P.T. Barnum, legendary co-founder of the world-famous Barnum and Bailey’s Circus, is widely quoted for his pithy quip: “There’s a sucker born every minute” – a line we hope to understand in new and interesting ways before this report is over.
Barnum certainly intended that he could find new fools to part with their money for something so foolish as a day at the circus. And in many ways, this, too, is an apt slogan for Wall Street. But with a slightly different twist.
On Wall Street, brokers are in the business of selling hope. They take your money and promise you a retirement, or a yacht, or a bigger house or car, or a second bigger house or car. And during “normal” times they can generally get away with it, because investing, as opposed to speculating or day trading or swing trading – when done within proper parameters and with discipline and caution – generally yields predictable results.
But during difficult times (or crises like the one we’re currently in the midst of) Wall Street finds it more and more difficult to find those suckers. In fact, the last few weeks’ painful losses have done more than any book or market education course could ever do to educate investors regarding risk and the true nature of capital markets.
That said, we don’t particularly believe the lessons of this sell-off will be taken to heart, because we don’t believe the pain will be deep enough or last long enough to cause a real change of thinking, either on Wall Street or amongst the “suckers” who’ve been dragged through the carnage of these last few weeks.
Please direct your attention to the Ringmaster, Henry Paulson.
We will get to a stage where the truth about “investing” and market returns, etc. will be internalized by all, but we’re not there yet. The grit of reality only comes after the greatest of falls, and we’ve yet to rise to the heights of arrogance that presage a genuine understanding of how the world really works. It will come, though, replete with the hubris and self-absorption and smugness that appertains in all great nations before the great tide of history withdraws on them and leaves them barren and desolate.
And we have, in large measure, Henry Paulson to thank for that.
Henry Paulson is an all-American in every sense of the word. From his boyhood days as an Eagle Scout, to his All-Ivy, All-East (and honorable mention All-America) football honors, to his MBA at Harvard and subsequent work in the office of the Secretary of Defense, Paulson has done it all. More recently he headed investment banking giant, Goldman Sachs (NYSE: GS, Stock Forum) before being named Treasury Secretary in 2006.
But who knew he had ambitions to work in the circus?
Yes, friends, what you are watching now is a circus – and one that’s playing out simultaneously for audiences the world over – but most particularly for viewers in America and China.
As we’ve mentioned for subscribers to the Residual Income Report, what is currently taking place is the sure and steady procurement of the American financial industry by the newly created American Sovereign Wealth Fund – later, of course, to be repackaged and resold to foreign Sovereign Wealth Funds (SWFs) once the recapitalization and ongoing liquidity of the system has been secured.
Henry Paulson is the Ringmaster here, juggling and cajoling, coercing and threatening at every turn whoever is necessary to bring about the attainment of that single goal: the successful reliquification of the American banking system.
And we have faith he’ll do it.
Moreover, we know that his second objective, selling off these assets to foreigners, is likely already in the bag. No other man on the planet could pull this off like Paulson. Why? Because no other man has as much knowledge of government, the banking system, the selling of securities and of the Chinese as Paulson does.
Paulson wasn’t just collecting paychecks of $16 and $34 million for being CEO of Goldman Sachs. He was also working – specifically by building ties with the Chinese. During his tenure at Goldman Sachs, Paulson built intimate relations with the Chinese ruling and business elite on over seventy visits to the country in just a few short years. He knows these people as friends and knows exactly what they want from an investment perspective.
A look at the table below shows the types of investments SWFs have been focusing on.
Clearly, the tendency is toward the financials. And for a simple reason: with enough of a hand in the banks and brokerages, nations like China assure themselves a spot at the table for all deals. And Paulson knows this.
Below is a chart showing countries with the greatest current account surpluses and deficits. The leaders in these categories are, respectively, China and The U.S.: a marriage made in heaven.
Henry Paulson is not executing a bailout. He is reshaping capitalism the way the Chinese and Kuwaitis and Russians have; he is employing the “American SWF” to acquire outstanding assets for rock bottom prices; he is eliminating the waste from their balance sheets (at taxpayer expense); and he is lining up foreign buyers to offload the goods once stability has returned.
He is praying:
That stability, in fact, does return, and that there is some profit to be had that might be returned to America’s balance sheet once the deals are done.
In the meantime, your newly reshaped capitalist economy is benefiting from oil prices that have dropped from $140 a barrel to less than $80, a resurgent dollar, the confidence of 1) Warren Buffett, who recently took a massive stake in GE (NYSE: GE, Stock Forum) and Goldman Sachs (non-equity), 2) Barclay’s Bank (UK) which bought the investment bank ops of Lehman Bros., and 3) Citigroup (NYSE: C, Stock Forum) and Wells Fargo (NYSE: WFC, Stock Forum), who are still having it out over the privilege of owning near-defunct Wachovia.
The turn, my friends, is very close.
The hubris and greed that follow will lead to a bust unlike any other.
But until then, there is still time to enjoy the Greatest Show on Earth.
Disclosure: Author and publisher do not hold positions in the securities mentioned.