There is an article at Slate.com making the rounds in the financial press. Warren Buffett’s partner at Berkshire Hathaway, Charlie Munger, penned a parable about America’s rise and fall, called "Basically, It’s Over."
The article details how a young, fiscally responsible country called Basicland got caught up in the "casino" of speculation, ignored its export economy, and essentially went bankrupt.
While perhaps a bit simplistic, Munger’s piece is intended as a warning about rising government debt and an over-reliance on risky financial speculation. This speculation is intended to make up for the lack of manufacturing as a major component of GDP.
Some of the statistics he throws out are a bit scary. He says "The winnings of the casinos (investment banks) eventually amounted to 25 percent of Basicland’s GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos."
I haven’t verified those numbers, but they certainly suggest an economy that’s out of balance.
As I read Munger’s article, I thought immediately of yesterday’s story about how Goldman Sachs and other investment banks may knowingly used mortgage-backed securities and CDOs to set-up AIG.
I’m sure we all believe it is any company’s right to take advantage of another company’s weakness. At the same time, however, it seems to me that at some point, a company must ask itself "at what cost?"
In the case of the housing bubble, investment banks knew the mortgage-backed securities they were selling were junk. Not only did they set AIG up for a fall, these casinos, as Munger calls them, essentially cannibalized America to make a buck.
Munger’s answer? Listen to Paul Volcker. Keep banking separate from investing. And "…produce and sell items that foreigner’s [are] willing to buy."
Let’s hope that our elected officials are not so ensnared in the casinos’ tentacles that they can make the changes that America needs.
Stocks sold off yesterday as the Consumer Confidence survey showed a surprise drop from 56 to 46. For a little color on what this means, I asked TradeMaster Daily Stock Alerts’ Jason Cimpl for his take…
"Consumers dominate the U.S. economy, so when confidence data falls from 56 to 46 in one month, investors panic. But while the reading from yesterday was less than expected it is nothing to get too excited over – or too bearish for that matter.
The move lower yesterday could have been a lot worse. Last week the market successfully absorbed a Fed rate hike and lousy economic data. It seems yesterday’s news of a drop in consumer confidence was the final straw and the market pulled back…
For the rest of the week, it’s all about 1085 on the SPX. The SPX lost 1097 support yesterday afternoon, but as long as 1085 is not taken out the bulls are in control of trading direction."
Google China is hiring. And apparently customers are returning, too. After Google threatened to leave China altogether, this is the first indication I’ve seen that behind-the-scenes negotiations with Chinese official may be going Google’s way.
I continue to believe that China could create a lot of goodwill and encourage investing in the country if it’s able to work out a solution where Google could continue to operate in China. Because let’s face it – foreign investment is very important for China.
Several of the recent Chinese stock recommendations at SmallCapInvestor PRO have sold off and look very attractive at current levels. One of my favorite Chinese energy stocks has the potential to rise 90% as it increases capacity by 200% to meet the exploding demand for its products. You can read more about this stock HERE.