The Dow seems to be bouncing back - up every day so far this week. One theory: What is attractive in the Dow are the big INTERNATIONAL stocks…those with interests beyond the United States.
Here's a little item that helps make sense of this. The Chicago Tribune reports that while GM (NYSE:GM) lost $146 on every car it sold last year, Toyota (NYSE:TM)made a profit of $3,668. While U.S. manufacturing continues its disappearing act, foreign-based manufacturers are doing quite well. And many of them are subsidiaries of U.S. Dow-listed companies.
Some observers take this as evidence that the U.S. economy is not as vulnerable as it appears; after all, American firms own valuable businesses outside U.S. borders. We take it in just the opposite way…it is proof that people who know what they are doing are getting out of the United States.
As we, and we alone, have been saying, there are two sides to this great worldwide boom. There is the Dr. Jekyll side, and there is the Mr. Hyde side. One is respectable. The other is a monster.
Also in yesterday's news was a little note that told us that McDonald's (NYSE:MCD) workers in China are going to get a 30% pay raise. When was the last time people who labored in the fields for Mickey D U.S.A got a 30% raise? The 1960s?
Real wages are rising in China, because the boom is real there. We don't know whether it is a matter of actual cause and effect, divine justice, or mere coincidence, but the boom in Asia also began with real money…real savings, that is. This real boom was the topic of conversation at our recent conference in Vancouver, and the outcome of the conversations…speeches…debates was always the same: pay attention to the East. Look for the smart, safe sectors to invest in, and you could turn a nice profit.
The boom in the West - principally the Anglo-Saxon countries - is a phony boom. It was fueled with phony purchasing power - EZ credit from the Fed and the lending industry. To simplify, people bought things they didn't need with money they didn't have. Since the money they spent came from credit rather than wages, businesses had no additional labor cost to produce additional sales and profits. But the average person went deeper and deeper into debt in order to do it. Not only that, he added to his living costs. Now, he is likely to have a bigger house to take care of…further from his work than ever before…and maybe even a second house.
Part of what Westerners were spending came from central banks, and part of it came from the savings of the East. Asian economies make money by exporting products, primarily to the West. They make profits…and save them. The Chinese save nearly 25% of their earnings, for example. Throughout the East, savings are huge…China has more than $1.2 trillion of reserves. It was these huge real savings from the East, as well as the phony "out of thin air" money from the Western central banks, that fueled the worldwide asset bubble. The symmetry of the system is simple: the East makes; the West takes. The East saves; the West spends. The East lends; the West borrows. The boom in the East is real; in the West it is a fraud.
Nothing comes from nothing….and now the fraudulent boom is beginning to look a little hollow.
The National Association of REALTORS predicts house sales will hit a 5-year low this year. NAR has been optimistic, as you'd expect. It has said that the slump would "bottom out" in 2007. Now, it's saying the problem could persist "for some time."
There is "no plan to bail out lenders," adds a MSNBC report. Meanwhile, Jim Cramer says that if Fed doesn't come to the rescue with lower rates there's going to be "Armageddon" in the housing market. Jumbo loans are getting harder to get. And the whole asset-backed commercial paper market is trembling in anticipation of further shocks.
But don't worry, dear reader, TheStreet.com tells us that you can still get an ARM with nice, enticing teaser rate. So, you can still ruin yourself, if you're a mind to do so…
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