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Welcome To the Greatest Show on Earth
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 selloff 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 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 (SWF’s) 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 whomever 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.
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.
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 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 and Goldman
Sachs (non-equity), 2) Barclay’s Bank (UK) which bought the investment
bank ops of Lehman Bros., and 3) Citigroup and Wells Fargo, 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.
All the best,
Matt McAbby
Analyst,
Oxbury Research
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