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Co-brand
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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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PARIS, FRANCE
WEDNESDAY, 24 OCTOBER 2001 |
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Today:
Societal
Implications
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*** Slash, slash, slash - companies cut back wherever
they can as earnings, sales fall...
*** Planet Hollywood goes chapter 11...
*** Amazon's sad story...stocks still far too expensive
for a bottom...what kind of recession...Irma La Douce...
and more!
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Slash, slash, slash...quarterly reports are coming
in and they are almost all bad. Sales down. Earnings
down. Operations trimmed back. Jobs cut.
The Conference Board's Index of Leading Indicators
recorded its biggest drop in 5 years. It is the "worst
advertising year since the depression," reports
Dismal.com. "Battle for jobs intensifies as more are
laid off," adds the LA Times.
But there's good news too - Planet Hollywood filed
for chapter 11.
Still, investors can't seem to come to terms with
current events. They think stocks bottomed out on Sept.
21...and they're looking for quick and easy victories
against terrorism and deflation.
Eric, what's the latest from Planet Wall Street?
*****
Eric Fry in New York:
- "If ever you wanted to take a cruise, now's the time
to do it," USA Today suggests helpfully. "Facing a glut
of unsold cabins for departures in the next three
months, cruise lines began slashing rates to levels not
seen since the 1970s." The paper quotes Mike Driscoll,
editor of industry newsletter Cruise Week: "They're
trying to find the price point where people will put
their fears away and take a cruise."
- The stock market is also busy trying to find the price
point where people will "put their fears away" and take
the plunge. Temporarily, at least, investors found that
magical price point on September 21st, when the Dow broke
below the 8,000-level. The venerable index has advanced
almost 18% since then, despite incessant terrorist
attacks and a barrage of bad earnings. The Nasdaq has
soared almost 23% over the same time frame.
- It's nice to see the market rally. But the dramatic
advance from the September 21st lows looks less like a
new bull market than an old bad habit. What are
investors buying exactly? A good story? You know, the
one about the economic recovery that's just a few months
away?
- Wall Street is full of storytellers, and who better to
tell one than on-line storybook seller: Amazon.
- Yesterday afternoon, the e-commerce pioneer hosted a
conference call on which CFO Warren Jenson proclaimed,
"While the history of Q4 has yet to be written, we are
in great shape." Later, lapsing into dot-com speak, he
assured the listeners, "Reaching pro forma profits does
not require heroics, just execution."
- So just what does this "great shape" look like,
according to the Book of Amazon? For starters, the
company posted a "pro forma" loss of $58 million for the
third quarter. After adding in a couple of "exceptional"
items here and there, the true net loss - i.e., the
money that used to be in an Amazon bank account but no
longer is - expands to $169.8 million.
- Next up, Amazon's core books, music and video sales
operations - which account for more than half of total
revenues - fell about 12%. Sales in Amazon's smallest,
but most profitable division, "Services," also fell 12%.
Services include deals such as booking on-line orders
for other retailers like Toys R Us and Borders
bookstores.
- If you add it all up, you're looking at a company that
will probably burn through about a half-billion dollars
over the next nine months. Sounds...well..."great!"
- Blindly paying any price for any stock will accumulate
losses more rapidly and assuredly than wealth. Price
matters. So do earnings. Right now, the former is too
high and the latter is too low.
- Amazon groupies are not the only ones suffering from a
"new paradigm" relapse. "The surge in home refinancing
is giving a boost to the overall economy," Fannie Mae
CEO, Franklin Raines was heard saying last week. "In
fact, a new economic paradigm seems to have taken hold.
Traditionally, whenever the economy caught a cold,
housing got pneumonia. Now the opposite is occurring -
housing tends to do better than the economy."
- "That the head of a thinly capitalized company -
operating with the implied backing of the U.S. taxpayer
- having more than $330 billion of short-term debt and
$1.5 trillion of mortgage exposure," comments the
Prudent Bear's Doug Noland, "in what is clearly a
hostile economic environment, would make reference to a
'New Economic Paradigm' is, in a word, disturbing." (See: Marx Would Be Absolutely Giddy)
- Is it possible that the stock market is buoyant once
again because it anticipates an economic recovery not
yet visible to mere mortals? If so, shouldn't many
commodity markets be rebounding soon as well? What about
oil?
- The oil market seems to be in a win-win situation
right now, according to Outstanding Investments editor
John Myers. An economic recovery would boost demand, and
therefore prices. On the other hand, instability in the
Middle East could disrupt supplies and therefore boost
prices.
- Yesterday, the Wall Street Journal backed up Myers'
assertion that volatile conditions in Saudi Arabia
present an ever-present risk of supply disruption. Saudi
college students interviewed by the Journal complain
that "the U.S. is responsible for the drastic drop in
per capita income to just under $8,000 from $28,000 in
the 1980s. They also blame it for unemployment estimated
to be at least 14%."
- The U.S. is also to blame - we would imagine - for
heat waves in Riyadh and the fact that the Saudi Arabian
soccer team has never won the World Cup.
- Examining the demand side of the equation, BCA
Research predicts, "Oil drilling stocks are set to rally
at first signs of U.S. economic recovery. The number of
active drilling rigs in the U.S. has fallen to 1,141
from its peak of nearly 1,300 in July, as weakening
energy prices and rising natural gas supplies have
reduced exploration efforts...Importantly, the S&P well
equipment and services group...is near the lows set in
1999, when oil was close to $10 per barrel." Watch this
space...
*****
Back in the land of wine and cheese...
*** "[T]he current high [price-to-earnings] multiple
means that there are still far too many people that
think this is the bottom for it to really be the
bottom," J.P. Morgan's Doug Cliggott explained in a
letter to clients. "It's too early, or too expensive, or
both."
*** The highest P/E multiple at a market bottom in the
past 40 years, on trailing net income, was 16.4 in 1960,
Mr. Cliggott elaborated. Currently, the S&P 500 has a
trailing P/E multiple of 39.2.
*** Mr. Cliggott also guesses that the recession has
further to go. The average one since 1945 lasted 11
months. This one probably began in March 2001...giving
it about 4 more months before it reaches the average.
*** But here at the Daily Reckoning, we guess
differently. We guess that this recession has little in
common with the post-1945 recessions and a lot in common
with the Great Depression of the '30s...and the present
soft, slow-motion depression in Japan.
*** If we're right...the slump will last much longer
than 4 months.
*** Irma La Douce was staged at the Comedie Populaire
theatre, near the Opera. I imagined the Doughboys from
the Great Plains on furlough in WWI...how they must have
marveled over the delicious extravagance and opulence of
these Paris theatres. Hardly a square inch of the place
is left unadorned by gold leaf, marble, or figurative
painting in the dreamy, romantic style. Clouds, cherubs,
and plump, naked women decorate the ceilings. Scenes of
ancient Greece...and theatre allegories grace the walls.
The theatre alone is worth the price of admission. "How
you gonna keep 'em down on the farm after they've seen
Paree?"
*** The play was good, too...an endearing musical in
which a man falls in love with a prostitute and then
becomes unbearably jealous of her clients. He decides to
monopolize her favors by putting on a disguise...but
insisting that he be her only customer. Jack Lemmon and
Shirley Maclaine played the lead roles when it was made
into a movie by the Disney Studios in 1963.
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The Daily Reckoning Presents: Doug Casey speculating on
who the real losers in the War on Terrorism will be.
SOCIETAL IMPLICATIONS
by Doug Casey
"The minds of the Romans were very differently prepared
for slavery. Oppressed beneath the weight of their own
corruption and of military violence, they for a long
while preserved the sentiments, or at least the ideas,
of their free born ancestors"
Edward Gibbon,
Decline and Fall of the Roman Empire
"The average man doesn't want to be free. He wants to be
safe."
- H.L. Mencken,
Notes on Democracy
In my view, the proper way to deal with the events of
September 11th, 2001 would be to treat them as common
law crimes, albeit of extraordinary scope and gravity.
Ideally, the criminals who are still alive should be
pursued, captured, tried, convicted and made to pay
reparations - to the damaged parties, not to "society,"
or the government - to the greatest degree possible.
That, however, is unlikely to happen for any number of
reasons, including the fact there's a real war fever in
the land, and Americans don't appear inclined to take
any prisoners at the moment. Entirely apart from the
fact the perpetrators aren't about to allow themselves
to be taken prisoner.
That being the case, we'll just have to do the best we
can. Under the circumstances, the best possible outcome
would probably be the deaths of perhaps 50 or 100
individuals who are directly involved, using small teams
of independent contractors working on a bounty, and
letting the matter rest.
But that's a long shot.
The U.S. has already begun to go wild and use its high
tech military to bomb targets. Afghanistan, a country
where almost no Americans have been, and few can even
find on a map, is in the crosshairs of many armchair
warriors and bellicose pundits.
Afghanistan is one of the fifty countries I haven't been
to, so as with most things where I lack firsthand
experience, I hate to make a comment. But if the Soviet
experience is any indication, it's not a good place to
fight an offensive war, or even go on a manhunt. The
people are xenophobic, inured to battle and discomfort,
highly devout and typical of mountain dwellers the
world over, extremely tough and independent.
After the Gulf War, Schwarzkopf was quoted, mirroring
the wisdom of my cleaning lady with regards to windows,
as saying: "We do deserts; we don't do mountains."
It's gratifying that Bush hasn't flown off the handle so
far; whatever his faults, he deserves credit for that. I
just hope this doesn't turn into a major military
adventure because, even with the utmost care and
precision, there are bound to be tragedies. Many of them
will be pointless mistakes, like the aspirin factory in
Sudan. Many attacks will kill a bunch of completely
innocent civilians, all of whom will have friends and
relatives.
The U.S. has begun to deploy highly trained Special Ops
forces to mitigate these problems, but it's still likely
to be ugly. They'll inevitably take serious casualties,
and some will be captured. When the captured soldiers
are tried and executed, you can bet it will raise the
ante significantly.
Whacking a bunch of hornet's nests with a baseball bat
is okay for young boys with time on their hands, but
it's disastrous for a nation state in today's world.
This is a political matter, and the average American
really seems to want blood and vengeance, let the
consequences including, possibly, actual justice, be
damned. The U.S. will, in other words, react pretty much
like the Israelis do. But just because the Israelis are
experienced in these matters doesn't mean they're
drawing the right lessons from their experience.
In any event, to the degree Israel merits support,
individuals from around the world will continue to send
it billions - as they already do. It's not an activity
that should jeopardize 280 million Americans.
What the US should have done, long ago, is cut off 100%
of all foreign aid (+/- $14 billion annually) and
military aid (+/- $8 billion annually), while recalling
the troops stationed in over 100 countries around the
world.
U.S. soldiers in foreign countries act only as tripwires
and provocations, which is to say they serve no useful
purpose whatsoever. Natives like seeing American
soldiers strutting their homelands about as much as
Americans would if our streets were filled with Iranian
soldiers. Even if they put forward an excellent reason,
like defending those practicing their religion in Waco.
If we were to call our boys home foreigners would have
no more reason to attack the U.S. or Americans than they
do to attack Canadians or New Zealanders.
War is the health of the State, whether it's the War on
Drugs - which, I suspect, has already killed as many
Americans and cost as much money as the Vietnam War - or
the military type. The military and economic
implications of a War on Islam are horrendous. But the
societal implications are even worse.
Proposals are already being made for the long-awaited
national ID card. How many new Federal agents will be
hired with the $20 billion the Congresscritters are
setting aside as a reaction to the WTC event?
It certainly isn't going to warm relations with a
billion Muslims and Arabs when they read, as I did,
comments in the paper like "I hate Arabs! I've always
hated Arabs!" from some silly girl who doesn't even have
a Jewish surname. These people are going to find it
unpleasant to impossible to get visas to visit here. And
their friends who live here are already finding it
unpleasant to dangerous - as might almost anyone who
looks "foreign."
If it gets really serious, some might recall the
concentration camps set up for scores of thousands of
Japanese Americans during World War II as a precedent.
Freedom has been rapidly diminishing in America for many
years, but this will put a near-final nail in its
coffin. The hunt for the perpetrators, sympathizers, or
even potential sympathizers has the potential to turn
into a witch hunt unlike anything we've seen in either
World War or the Cold War.
You can already read and hear plenty of arguments about
how we're going to have to give up some freedoms to
counter this new threat. Privacy of any type will become
suspect. (see: Dangerous Tax and Laundering Initiatives
Introduced)
What's more, membership in "fringe" groups will become
suspect. Not being a solid citizen toeing the line will
be suspect. And the standard distribution of 2-3% of all
people, everywhere, who are sociopaths is going to come
out of the woodwork.
Who would have guessed there would have been all the
volunteers for the SA, the SS, and the Gestapo in the
Germany of the 20s? Who would have guessed that so many
Russians would join the NKVD and other secret police in
the 30s, and that the average citizen would tacitly or
actively support Stalin? Most of them were people who
liked kids and dogs, had hobbies, and respectable jobs.
But when the times changed, their true natures came to
the fore. If you think we don't have the same
distribution of people here, you're dreaming. Except it
could become a real nightmare.
Doug Casey,
for The Daily Reckoning
p.s. Speaking of terror, it's perhaps a good idea to
keep things in perspective. War is pure, unadulterated,
compulsory, organized mass terror.
If you think war might be a good idea, it�s worth seeing
two movies, both of them superb (and easily available on
video): "Stalingrad" and "Enemy at the Gates." Both tell
a story of the battle, one from the German, and the
other from the Russian side. If you ever think you've
got worries, just watch these flicks; they're a
guaranteed attitude adjustment.
For 25 years, "International Speculator" Doug Casey has
been scouring unknown regions of the earth for
investment opportunities. To learn how you can profit
from Casey's speculative travels please see his report:
Nobody Notices the Good News - Until It's Too Late
http://www.agora-inc.com/reports/CRIS/bioCasey
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| About
The Daily Reckoning: |
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Daily Reckoning
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoning—his take on the financial markets and what’s going
on in the world—and sends it off by e-mail before most Americans’
alarm clocks have buzzed. Many readers say it's the first thing they want
to read when they get up—not only because it's informative and thought
provoking, but also it's inspiring, in its own quirky and provocative way.
Of course, there's
much more to Bill than his daily market commentary. He's also the founder
and president of Agora Publishing, one of the world's most successful
consumer newsletter publishing companies. Bill's passion for international
travel and big ideas are reflected in the company he's successfully built.
In 1979, he began publishing International Living and Hulbert's
Financial Digest . Since then, the company has grown to include
dozens of newsletters focusing on health, travel, and finance. Bill has
vigorously expanded from Agora's home base in Baltimore, Maryland since
the early ’90s—opening offices in Florida, London, Paris, Ireland, and
Germany.
Agora's publication
subsidiaries include Pickering
& Chatto, a prestigious academic press in London and Les
Belles Lettres in Paris, best known as a publisher of classical
literature in bilingual editions.
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