Let’s get a couple of things straight before we start. First, we agree that Warren Buffett is probably the best investor the markets have seen in the last fifty years. Second, we have no problem with the fact he is worth over $40 billion.

We do have a problem with the fawning that has surrounded his $6 billion investment in Goldman Sachs. The headlines have been typical:

“Buffett’s buy heartens stricken market”

“Buffett waves a $6bn magic wand”

“Warren Buffett, Goldman’s White Knight”

“Buffett Deal at Goldman Seen as a Sign of Confidence”

The gist of all the newspaper reports suggests that this investment shows that Buffett believes the US economy is “fundamentally” in a great shape. And that this must be the bottom of the market because Buffett never gets any investment decisions wrong.

The key comment from Buffett was that he would not have done the Goldman Sachs deal unless he believed the US Congress would pass the USD$700 billion bail-out bill.

Why should that matter if he is so confident in the Goldman Sachs business? We can only conclude that Goldman’s will get something out of the deal. And not just indirectly, but directly.

From Taxpayer to Buffett
In other words Goldman’s can be virtually assured of being involved in some shape or form with a slice of the $700 billion. After all, when the US government gains ownership of these assets it will need someone to manage them.

We wonder whom they will look to. Goldman’s perhaps. Treasury Secretary Paulson is the former CEO of the company. It also explains the urgency by Paulson to have his plan completed as soon as possible, while he is still Treasury Secretary, to ensure Goldman’s gets their slice of the action.

Buffett claimed last night on an interview with CNBC that if he had a spare $100 billion he would gladly leverage that up to $700 billion and buy the stinky mortgage assets himself. In his view they would be a great investment.

We don’t know whether that is true or not. But it is certainly good propaganda to convince Congress that the government should proceed with the bail-out. Once it goes through and Goldman’s are installed as one of the asset managers they won’t care whether the mortgages make a profit or not for the government.

It’s the management fees and excising of bad credit from the market that they will be celebrating.

You can’t really make a long-term bullish case for the buck right now. Sure, the dollar has had a strong rally recently, but that doesn’t change the fundamentals. We’re still looking at no interest rate hikes, a fiscal deficit that continues to grow, and weak consumption, thanks to an historic credit squeeze and real estate deflation.

And yet the buck has been getting a lot of love since early August – rallying nearly 8% against a basket of major currencies. What gives? Do global investors see positive factors we don’t? Hardly. Overseas investors are simply taking advantage of cheap dollar-based assets and 2009 growth prospects for the U.S. economy that are more compelling than for other major economies.

In short, almost certainly, what we’re looking at right now is not a new dollar bull market, but a cyclical bear market rally. That’s exactly what happened in 2005 as the dollar rallied 12.8% versus the euro and other currencies. But back then the Fed was raising short-term interest rates and the U.S. economy was still firing on all cylinders.

It’s quite a different story now.

In fact, the only thing that could keep the dollar rally going is a continued deterioration of other major economies while U.S. growth accelerates.

NEW YORK - US stocks fell 1.8 per cent after weak readings on economic growth and the job market touched off renewed concerns about the financial health of businesses and consumers.
The Commerce Department’s report that gross domestic product grew at a 1.9 per cent pace in the second quarter disappointed investors.
Investors were also concerned about Labor Department data saying that the number of people seeking jobless benefits jumped to the highest level in five years.
The Dow Jones Industrial Average lost 205.67 points, or 1.78 per cent, to 13,3787.02 and the Standard & Poor’s 500 broad-market index dropped 16.68 points to 1,267.38.
The tech-heavy Nasdaq composite declined 4.17 points to 2,325.55.
The yield on the 10-year US Treasury bond fell to 3.979 per cent from 4.048 per cent Wednesday and that on the 30-year bond dropped to 4.603 per cent from 4.638 per cent.

LONDON -European stocks closed generally weaker on US and eurozone data that dented market sentiment and in response to mixed corporate results.
In London the FTSE 100 index shed 8.80 points to 5,411.90.

FRANKFURT - The DAX gained 19.44 points to 6,479.56.

PARIS - The CAC 40 jettisoned 8.19 points to 4,392.36.

TOKYO - Japanese stocks closed little changed after a day spent as the market awaited a raft of corporate earnings and key US data.
The Tokyo Stock Exchange’s benchmark Nikkei-225 index gained 9.02 points to 13,376.81.

HONG KONG - Hong Kong share rose modestly, reflecting cautious trade ahead of key US economic data and interim corporate results.
The benchmark Hang Seng Index rose 40.5 points to 22,731.1.

WELLINGTON - The benchmark NZSX-50 index advanced 48.52 points to 3336.28.

SYDNEY - The Australian stock market is expected to fall about one per cent after Wall St was rocked by disappointing US economic growth and job market figures.
On the Sydney Futures exchange, the September share price index futures contract fell 48 points, or 0.96 per cent, to 4,930.
Today, the Australian Industry Group/PricewaterhouseCoopers Australian Performance of Manufacturing Index for July is released.
So to the Securities/Melbourne Institute inflation gauge for July and the Reserve Bank of Australia commodity price index for July.
Australian shares closed firmly in the black yesterday for the second consecutive day, driven by a positive US lead and higher prices overnight for copper, nickel and oil.
The benchmark S&P/ASX200 index added 40.7 points, or 0.82 per cent, to 4,977.4 while the broader All Ordinaries gained 43.9 points to 5,052.6.

NYMEX
Oil prices ended lower, pulling back from the previous day’s rally, as disappointing data on the US economy signaled further cutbacks in energy demand for the world’s thirstiest consumer.
In another sign Americans are driving less, US filling stations hungry for business continued to ratchet down retail gas prices, with a gallon of regular falling on average 1.7 US cents to $US3.909, according auto club AAA, the Oil Price Information Service and Wright Express.
Light, sweet crude for September delivery fell $US2.69 to settle at $US124.08 a barrel on the New York Mercantile Exchange, a day after the contract soared more than $US4 in the biggest one-day jump in two weeks.

COMEX
Gold strengthened as fear about a slowing US economy stimulated more interest in the perceived safe haven investment.
Gold for August delivery rose $US11.00 to settle at $US913.90 an ounce on the New York Mercantile Exchange.
September silver gained 32.5 US cents to settle at $US17.79 an ounce
Copper for September delivery firmed $US1.55 cents to $US366.15 a pound on the New York Mercantile Exchange.