--So is it all over? The crash? The depression? The credit crisis?

--Well, no. We wouldn't expect the banks stress tests to reveal anything at all later this week. If bad news is already priced into bank stocks, less than bad news coming from the stress tests might even lead to a rally in financials. The market anticipated that result today, driving the financials up on the S&P. And in the end, perhaps the stress test was Tim Geithner's way of forcing the banks to raise capital more quickly than they otherwise might.

--But in a lot of ways, this feels like a "catch up" rally, where timid investors "catch up" with the trend buy getting off the sidelines and into the market. Or should we say "ketchup" or perhaps "catsup?" It's the kind of rally that makes things seem (or taste) better than they are (like a meat pie at the footy). And it's driven by people who are afraid of missing out on an even bigger rally.

--If that's correct, then it's exactly the sort of convincing move that the insiders would ride early while selling into retail strength. Get everyone back in the game, sell for a tidy 35-40% profit on a short-term basis, then hunker down to see what the second half brings.

--After all, the old trading adage is to "Sell in May and go away." It's supposedly based on the idea that the stock market generates its biggest returns between November and May on the calendar. The gap between May and the last quarter is a kind of no man's land for investors. We have no idea if that's true.

--We do know that there's more than one second wave out there, though. A second wave rally in the ASX is a great time to make trades and take some profits on recovering shares. But let's not forget the second wave of bad housing debt in the U.S. (Alt-A mortgage) and the second wave of real estate losses coming from commercial property.

--Those losses are going to further impair bank capital, put pressure on lending, and lead to larger declines in employment. Economies that live and die by credit growth and residential real estate still have some dying to do, we reckon. But for us the living today, the rally is something to enjoy while it lasts.

And now over to Bill Bonner in London, England:

In the newspapers there is much discussion of what General Motors should do. This discussion has gone on for many years. Until now, it was a conversation carried on by serious analysts and auto industry experts. They all said the same thing: GM needed to clear out its management, dump much of its expensive, "legacy" overhead, and produce better cars. Why didn't it do so?

And now, it's broke. And even politicians think they know how to run an auto company. Just read the papers. "Obama insists on changes," says one headline.

Normally, the politicos should hold their tongues...and let an industry's owners run their businesses. Alas, as of a few days ago, the politicians ARE the owners.

Here's a question:

When the government takes a majority stake in the auto business you know you are:

A) In a bad dream
B) In a bad way
C) In a bad country
D) In France

Correct answer: well, we we're not in France. But as for the rest, it could be any of them...or all of the above.

Here's an easier question. Who will the U.S. government put on the board of directors of General Motors?

A) A political hack
B) An industry hack
C) A far-sighted maverick that will shake up the business and put it on the road to growth and prosperity

If you answered "C" - you are from another planet. There is a reason neither government, nor workers should own businesses. In the following, roundabout way, we explain why...

But first, a bit of news. As far as we can tell, the bear market rally is still on. The Dow rose 44 points on Friday. Oil closed at $53. The dollar is still sinking. And gold lost $3 to end the day's trading at $888.

Thirty-two banks have shut down so far this year in the United States. Little, mismanaged banks go broke. But big, mismanaged banks get federal money. With these subsidies and bailouts, the big banks get larger...and live to foul-up another day.

Poor Warren Buffett seemed a little discouraged at his annual shareholders' fest in Omaha. He must be nearing the end of his career. And consumers just aren't buying as much furniture, cola, and candy as they used to, he told the faithful. Berkshire Hathaway's profits were 10% below those of last year.

Swine flu seems to be disappearing from the front pages. Has it gone the way of Y2K and terrorism? Has another great disaster been averted? Might be too early to tell...

Oh you doomers and gloomers, cheer up! There's always some other disaster waiting for a headline. How about this? The Seattle Times looks at Las Vegas and sees what it calls "the next global crisis." After 10 years of drought, Las Vegas is running out of water.

The city fathers are thinking of all sorts of solutions - except, of course, for the obvious and effective one. They're planning on huge pipelines...hundreds of miles long...and sucking water out of aquifers millions of years old. But, according to the paper, Las Vegas charges only about a tenth as much for its water as Atlanta does. The simple solution is to let free enterprise provide water...so that it could be priced correctly.

Colleague Chris Mayer has been following the water crisis story since the introduction of his newsletter, Mayer's Special Situations, in 2006.

"Water is not just a problem in Las Vegas. The lack of sources for fresh water is a problem facing much of the American West, though the problem is particularly acute there and in the state of Nevada generally. Nevada is the most arid state in the union," says Chris.

"The tight water supply has implications all over the West. In Arizona, you can't build a residential development unless you find a 'designated assured water supply' that can sustain that development for 100 years. I could go on and on about this kind of thing. Suffice it to say, the American West faces a water crisis."

Maybe the increase in water prices would discourage people from planting Georgia-style grass lawns in the Nevada desert. Or maybe it would discourage people from moving to Las Vegas in the first place. But that's the thing with capitalism; it doesn't take people where they want to go...it takes them where they ought to be. That's also why people hate free enterprise so much. Where they ought to be is, often, where they least want to go. In the present example, people think they have a right to water - practically for free. They think there's a 'water clause' in the Constitution that says government is supposed to provide them as much water as they want at a price they can afford.

Most things work better when they are run by private enterprises. Too bad. Free enterprise is out of style. The days of privatizing are over. Now, everyone wants the government to take charge.

What a turnaround from a few years ago - when people thought they could solve practically every problem by privatizing it. And then, the voters would buy shares in the newly privatized companies...and we'd all get rich!

"For water, the really bad stuff hasn't happened - yet," says Chris. "As investors, it's a good place to be for a long time."

********************

The proletariat began buying stocks in the '80s. The 'shareholder nation' was a dream of Maggie Thatcher and Ronald Reagan: Everyman a Capitalist.

Of course, these new capitalists were not real capitalists. Instead, the little guys were mostly pigeons for Wall Street. Instead of really understanding and CONTROLLING the companies they owed, they bought shares in mutual funds...or owned their shares through insurance or pension funds. These collective investments left the little guys dependent on Wall Street managers - who paid themselves enormous fees and bonuses.

Of course, as long as stocks went up, the new capitalists didn't mind or notice that the financial industry took advantage of them. They completely misunderstood what they had gotten into. In their minds, capitalists made people rich...and Wall Street helped them get in on the deal.

When Francois Mitterand, socialist president of France during the '80s, realized how it worked, he was outraged; 'they make money in their sleep,' he remarked of capitalists. But that was just what most people wanted to do. So, they began to imitate the capitalists. "Buy stocks," thundered Wall Street.

And so...the little guys piled in....and stocks soared.

"Buy and Hold," the pros told them. "Stocks for the Long Run," wrote professors of finance.

Of course, some people wanted to make money faster. So 'day trading' became popular in the late '90s. The newspapers were full of stories of people who quit their jobs in order to trade stocks.

In the '80s and '90s, too, people began to believe that you could motivate workers by giving them "a piece of the upside." And the workers, too, believed they might get rich if they had a stake in their employer's company. Especially in the financial sector, 'results-based compensation' caught on. Soon, almost everyone had a piece of the upside.

The trouble was, especially in the financial sector, the upside was remarkably short-sighted. In the near-term, business managers ought a huge incentive to push the upside up farther than it to go. Take risks? Why not! If they could increase the quarterly results they would get a bigger bonus. If, over the long term, the business were weakened...well, that would be the owners problem, wouldn't it? Managers sometimes had such a big piece of the upside there was scarcely anything left for the owners.

Everybody wanted a piece of the upside. Owners - including the new capitalists - wanted the business to prosper so their stocks would go up in price. Managers wanted high quarterly profits - so they could exercise their stock options and pay themselves big bonuses. They were all 'capitalists' - but ersatz capitalists. None had much of an interest in the long-term health of the capitalist institution itself.

A real capitalist is eager to cut his labor costs. If hourly wages rose too high...he'd want to move to a lower-cost production center. And if the managers asked for too much - he'd fire them and get new ones.

But neither the working stiffs nor the suits shared the owners' interest in cutting labor costs and preparing for the future. While European automakers shifted much of their production to lower-cost countries...GM continued to make cars in the United States of America. Its unionized, stock-owning, voting employees wouldn't allow it to move. And when it needed to invest in new tools and equipment in order to make autos for the 21st century - suppressing earnings in the short term in order to make the company stronger later on - its bonus- seeking, option-driven managers wouldn't permit it.

Lesson: Let the managers manage. Let the workers work. Let the capitalists grub for money. And let the politicians lie and steal. Each to his own métier.

If you're wondering what that means in today's world, you're not alone. We're wondering too.

Until tomorrow,

Bill Bonner

The Daily Reckoning Presents: All fiat currency is inherently worthless. Its value is entirely faith-based, and thus, only worth what people believes its worth. So what happens when people lose all their faith in a fiat currency? The Mogambo Guru explores...

The Killing of a Worthless Currency
by The Mogambo Guru

All of our economic problems are caused by the Federal Reserve creating the excess of money and credit that produced the bubbles in stocks, bonds, houses and size of government, but doesn't have to be electronic money made from electronic credit.

No, sirree! You can expand the money supply the old-fashioned way, as it can be money made from plain, old, paper-and-ink! Fire up the presses! Monetary inflation the old-fashioned way!

Perhaps that is why Mark J. Lundeen, market analyst, writes that Currency in Circulation (CinC) can also be an inflationary problem, as "The historical period where the US saw double digit CPI inflation occurred from the mid 1970s to about 1982" which was a time when, "CinC's annual increase was pegged at 10% during this period. The CPI Index soon followed." Yikes! Double-digit inflation!

Well, if you are like me, you are wary of references to the '70s and '80s since someone is liable to bring up some of those embarrassing episodes from your past that you had hoped were now forgotten, hopefully forgiven, but past the statute of limitations in either event.

Thankfully, Mr. Lundeen is not referring to any of that, and says, "CinC, after falling for almost 8 years, has just recently jumped up to this same 10% year over year increase line that caused so many inflationary problems 30 years ago." Yikes!

And besides, he says, "How can any economist claim that the Fed is fighting inflation when the US Currency in Circulation has increased 20,000% in the past 95 years?"

Well, already overwhelmed by the terrifying increases in the money supply thanks to the recent insanities of the Federal Reserve and Congress, my Delicate Mogambo System (DMS) cannot take another shock.

So with trembling fingers I quickly verify this, and I see that, as of April 27, 2009, currency in circulation was $903.3 billion, up $90.4 billion from this time last year! He's right! An increase of MORE than 10%!

And if double-digit inflation is not bad enough, the news for the stock market (representing everybody's retirement accounts) is bad, too, as explained when he notes, "capital gains and dividend payouts lagged inflation for 10 years after the surge of CinC inflation of 1971. If this pattern holds for the 2007/09 surge of CinC inflation, stock values, earnings and dividend payouts will be woefully sub-par for a decade or more." Yikes!

Unfortunately, he seems to be being already proved right, as even he notes, "corporate earnings are currently crashing. And," he asks, "without earnings, how long can the DJIA, Barron's 50 and the S&P500 companies continue to pay dividends?" Good point!

Naturally, he figures that he expects to see "big cuts in dividend payouts within a year," and that bond yields will rise "higher than most 'experts' believe possible," which makes perfect sense to me when I see how the 30-year T-bond is priced so high that it now yields about 3 lousy percent, the lowest since the mid 1950s!

And what is the problem with creating excess paper, fiat money? Well, ask the people of Zimbabwe, whose moronic government has been creating so much of it for almost 15 years that, towards the end, inflation in prices could only be poorly estimated, as prices soared to more than a million percent, or a billion percent, or more. Nobody knows. A lot, though!

Well, the final upshot of constantly creating more and more money was provided by Junior Mogambo Ranger (JMR) Arlo S., who made sure I got the news from CommodityOnline.com that "Zimbabwe Declares Its Currency Dead."

The article read, "Super-inflated Zimbabwe declared its currency, the Zimbabwean dollar, a dead one and is no longer being printed." The fiat Zimbabwe dollar is worth zero!

Actually, this was inevitable, as nobody has used Zimbabwe dollars in a long time anyway, and non-governmental commerce was being conducted in foreign currencies and in grains of gold.

Later, we read that even such a catastrophic lesson has not penetrated any thick heads, as "Speaking to reporters here Zimbabwe's Economic Planning Minister Elton Mangoma said the currency could be returned as a different currency or as notes once inflation was under control." Hahahaha!

And what will gold be worth then? And one day, what will you answer when somebody asks you, "What will gold be worth at the end of the American super-inflation?" Hahaha!

I thought so! And that is why we both know that you should be buying gold right now!

Whee! This investing stuff is easy!

Until next time,

The Mogambo Guru