Payday or Mayday?

Just read an article from the New York Times – Wall Street Bonuses: So Much Money, So Few Ferraris

After a year of record profits, investment houses like Goldman Sachs, Lehman Brothers and Morgan Stanley are awarding bonuses as high as $60 million.

“We love hedge funds, they are our favorite people. They don’t feel like the money is real and they don’t mind spending it — they don’t mind going up by $500,000 or $1 million increments.”

“It was a terrible year. I am going to the movies with my bonus. By myself.” (Keyword: Terrible)

Sounds like a supply and demand issue. But “So much money”. Ok, so you take home a bonus of $10 million dollars, 20… 54! What’s the fun in everyone has a Ferrari?

As we’ve mentioned many times, one of the only things that’s had a real bad year has been the Dollar. And by contrast we’ve seen an immense surge in prices for assets. Precious metals up over 20%, Real estate still very high in many places, commodities did phenomenally well. I think the only thing that is over valued is the Dollar.

What is a bubble again? “A boom in economic activity…” sounds about right. How about contrarian sentiment? Do you know anyone who would turn down a dollar? Alright, supply and demand. From what I can see the supply is mostly in the dollar and the demand is in… Ferraris!

In a day and age when the wealthiest are giving away most of their wealth, Mergers and Acquisitions are at record peaks, and Private equity is on a rampage, who you gonna trust?

Let’s backtrack to the 1970s. If you were a 30 years old investment banker on Wall Street then you’d be about 65 years old now. So we now have a whole new wave of individuals who strive on three things. The Dollar, Volatility and Risk.

The Dollar that they’ve been so successfully pursuing has lost over 84% of its purchasing power if you ask the silver it was once backed by. In the 1920, an ounce of .999 Gold and a suit would each cost you about $20. Today you could buy yourself a heck of a nice suit with that same gold, worth about $620. As for the 20 bucks, it probably wouldn’t buy you lunch.

Volatility, as the Street has come to know it is at all-time lows. It makes you wonder. With all those hundreds of trillions of dollars being circulated in derivatives and hedge funds, what small level of volatility would it take to throw so many right out of the sky like it did to say, Amaranth ? The Derivatives market is like a great round in a poker game. Everyone’s high rolling with thousands of dollars on the table until its time to turn over your cards.

Risk. This is a word that we’ve all just completely disregarded. What is Risk? A quarter century ago avoiding risk meant not to lose money. Stocks, contracts even cash were all called risky. Hard assets were king. How much gold do you own? How much real estate? Do you have a full tank of gas?

In the 70 and early 80s people wanted security. “Not to lose money” was the name of the game. Today its how to “Get rich quick” or “Double your money over the next 12 months!”.

Times have changed, but change is inevitable. What won’t change? As Jim Rohn says “After summer comes winter and after day comes night. I tell you that isn’t going to change”.

My Dad said to me “People who are into buying gold and hard assets are usually those who survived a war or a depression”. I say yes, but too bad there aren’t enough of them around to tell the tale.


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