*** Layoffs at record pace...big techs collapsing...
*** "A golden age" coming soon....? Another refinancing
binge...the Nasdaq to be cut in half...raving in the
nave...and more!
*** If the Depression was great...maybe this slump will be
fun, too. A friend reports that the slowdown has been
welcomed by many over-worked, over-hyped New Yorkers.
"I wanted to be unemployed," said one laid-off on-line
worker quoted by the New York Observer. "I wanted to be
laid off for, like, four months, collecting unemployment."
"It was a relief," said another, of his unemployment. "We
no longer felt like we had to work really hard and not make
any money."
"Stupid kids!" comments former Mayor Ed Koch, "If they knew
what it was to live in a depression, or a recession, they
wouldn't say what they're saying."
*** Friday's news seemed to bring America a little closer
to recession. Secretary of the Treasury Paul O'Neill, for
example, said he agreed with Greenspan - that growth has
slowed to near zero.
*** The NY Post ran an article illustrated with a "Layoff-
o-meter", on which the needle had moved to the "bloodbath"
position. There were more than 54,000 layoffs announced at
the end of the week - 50,000 at GE alone.
*** In December and January the layoff total came to
275,000 - making the 2-month period one of the worst in a
very long time.
*** The world's two largest economies are probably in
recession. I say probably, because you can't tell for sure
until the numbers are toted up later on. Japan has been in
and out of recession and near-depression for the last 10
years.... But it is a strange calamity...after more than a
decade of stagnation, the Japanese are still the richest
people on earth...more below...
*** The Dow fell 99 points on Friday - bringing it about
even for the week. The Nasdaq, on the other hand, lost 7%
of its value over the week. And TheStreet.com Internet
index fell 9%. Gold stocks fell too - by 5%.
*** The big news on Friday was the continued collapse of
the Big Techs. It was disclosed on Friday, that Larry
Ellison sold $850 million worth of shares in his Oracle --
the stock dropped 13% to close at $23 on Friday.
*** IBM lost $2. GE was down $1.48. Cisco fell to $28.
Microsoft fell $3 to under $60. Amazon drifted down $1 to
just $13. Lucent slumped 9% after news of an SEC inquiry
surfaced. Dell fell 10%. And Intel lost more than $1.
*** Remember, these were the 'must own' stocks of the New
Economy. I will pause here for a brief message of self-
aggrandizement. Okay, the price of gold still hasn't
risen...and the dollar still hasn't collapsed. But those
Big Techs have melted down - just as I said they would.
Billions of investment dollars have been lost as these
stocks grope for the Big Bottom of their dreams.
*** While stock prices are steady or falling, P/Es are
going up, thanks to declining earnings. The average P/E on
the Dow is now 22.2.
*** But not to worry. Paul O'Neil says that tech-led
productivity gains will take the nation to a "golden era of
economic prosperity."
*** The Fed is doing its part - attempting to pump up
consumer spending by making more cash available. Japan,
though, is way ahead. It announced a rate cut of its own -
from 0.5% to 0.35%. Yes, Japan is practically giving money
away - and still its economy is barely growing. And its
stock market is still down about 65% from its high 11 years
ago.
*** "We are currently in the midst of another extraordinary
mortgage refinancing boom," writes Doug Noland, on The
Prudent Bear website. "Yesterday Freddie Mac announced that
the average 30-year mortgage rate again dropped below 7%,
so the deluge of refinancings will continue. Wednesday, the
Mortgage Bankers Association reported that its weekly
mortgage applications index jumped 19% from the previous
week, with purchase applications increasing 4.5% and
refinancing applications surging 31%. Applications to
refinance are running almost 500% above the levels of this
time last year and have almost returned to last month's
peak refinancing rate... Figuratively and otherwise, there
simply could not be 'easier money'."
*** Lowering rates, to harp on a subject upon which one
cannot harp too much, is considered the magic potion that
will make consumers fall in love with more borrowing and
more spending.
*** But of borrowing and spending we already have plenty,
comments Marc Faber in Forbes Global. "The booms usually
come to a painful end when the phase of accelerating growth
gives way to decelerating growth rates. Financial asset
prices collapse. In addition, while growth rates were
overestimated, supply was underestimated. Cutthroat price
competition and competition from newer technologies lead to
widespread losses. Stock prices collapse some more.
Subsequently, the cost of capital rises and credit is
sharply curtailed, as the new-issue market shuts down, and
as bonds can be placed only at prohibitively high interest
rates."
*** The problem is not too little demand, says Faber, it's
over-investment in the tech-led boom. Making more money
available allows bad businesses and bad investments to
survive - thus postponing the day of reckoning. "I
predict," he says of the Nasdaq, "that it will fall by
another 50% or so from the Jan. 29 level of around 2840."
*** "Every time the market misbehaves like this, people
wonder about 1929," says the Fleet Street Letter's Lynn
Carpenter. "Sorry... Wrong crash, wrong decade. Value
investors should think 1961-1962 instead. Here's why:
"In 1950, the average P/E for the Dow Industrials was 6.
But by 1961, growth-crazed investors bid stocks up to
outrageous prices... P/Es of 100 were common on the hot
stocks of the day. The mania was so widespread that even
cautious investors abandoned the 10 times earnings rule the
market had followed in the previous three decades. They
moved their sights to 15 - even 20 times - earnings. The
market fell apart in December 1961, then rebounded quickly.
Just as today, people thought it was over, the bottom was
in... but on May 28, 1962 the real crash took another 20%
off the market. Stocks did nothing for two years. The next
real bull market didn't begin until 1964. Here's what's
important - after the 1962 crash, the 10 times earnings
rule proved a winner again."
*** "While it is not a precise one to one ratio," John
Myers tells me, "over the past 30 years, there is a
consistent correlation between Fed rate cuts and a rise in
the price of gold. In 1973, the Fed cut rates for several
months, gold rose from $100 to $183. The crash of 1987 also
saw the Fed cut rates... while the DJIA corrected 22% in a
single day, bullion prices rose 10%. Again in 1989, when
the Fed moved to abrogate a short-term correction gold rose
from $360 to $410. And most recently when the Fed cut rates
in 1998, gold again rose 10%. Rates are again being cut...
we may be on the cusp of a serious gold revival."
*** We enjoyed one of the most beautiful weekends ever at
Ouzilly. Skies were clear. It was so warm I could leave my
windows open at night and look out on a beautiful winter
moon.
*** "Now is the time to do my grafts," announced the
gardener on Sunday, surrounded by twigs and branches. "I
have to do them this week, because the moon is full." He
has been scouting the countryside for old varieties of plum
and cherry trees - which he's going to graft and plant in
our orchard. He's also found some old grape vines, of the
sort that are no longer planted.
*** "Oh no, this is scientific... proven," he went on,
sensing my skepticism, "if you graft fruit trees on a new
moon all you get is a lot of growth in the plant and no
fruit. I've tried it. It doesn't work." So there you are,
dear reader, a little gratuitous gardening advice to go
with your gratuitous investment advice. May they both be
fruitful.
*** Henry and I went to church on Sunday. The others were
excused for various reasons. But Henry is an acolyte and
had to do his duty. We are all very proud of Henry. He is
well-liked wherever he goes and always seems composed and
dignified. But as the priest raised the cup in anticipation
of the eucharist, I noticed Henry standing beside him in
his altar boy outfit - jerking his shoulders and shuffling
his feet. What is wrong with the boy, I wondered. He looked
like he was warming up for a night at the disco. Well, it
turned out that that very morning, his older sister had
shown him a rather spastic Michael Jackson dance number.
Henry couldn't resist rehearsing it - even in front of the
whole church. Pride goeth before a fall...and satisfaction
before humiliation.
Several top geologists quit big firms, and start out on
their own. The new stock pays 100%-2,000% a year. But As
usual...
Nobody Notices The Good News Until It's Too Late.
Early investors make all the money before Wall Street even
gets wind of the deal. The pattern is repeated. Again and
again. With the right tip you could have bet a whole lot
less than the ranch - and still made a killing. For
reliable hands-on intelligence - and your shot 1,000% gains
in stocks ignored by Wall Street:
While Americans enjoyed the greatest financial boom in
history - apparently getting rich beyond their dreams and
deserts - the poor Japanese were stuck. The New Era, the
New Economy, the Information Age - all of the wonders of
the last decade of the 20th century missed them entirely.
Stocks fell from almost 40,000 - on the Nikkei average - to
below 13,000, and stayed there.
The economy did no better. Year after year, growth was slow
or negative - it was as if the Japanese were running
backward. No promethean light struck their faces. Computers
and the Internet - the twin innovations that are thought to
have boosted U.S. productivity and now offer a new "golden
age of prosperity," according to Paul O'Neil, the new
Secretary of the Treasury, provided none of their blessings
to the Japanese. What is wrong with the Japanese?
The poor Japanese. And not only was their economy shrinking
- so was the population, literally. There are more people
over the age of 65 in Japan, proportionally, than any other
country. And each year, there are fewer Japanese - the
population itself is in decline!
The poor Japanese - dumb, short, old, few and poverty-
stricken.
Not that American economists and politicians have been unwilling
to lend a hand. They've repeatedly urged the Japanese to
increase their money supply, advice that the U.S. has
followed, perhaps to a fault.
Inflating the currency, according to U.S. economists is the
key. If the yen were destroyed, little by little, Japanese
consumers would be more willing to spend, rather than save.
But the stubborn Nipponese have been unwilling to destroy
their own currency in the name of prosperity. Instead, they
have crucified their economy on a cross of relatively hard
money. At least, that is the popular view in America.
So moved was Treasury Secretary O'Neil by the Japanese
plight that he entertained the issue from a humanitarian,
rather than a central banker's, point of view: The
question, he said, was "how do we help the people of Japan
achieve a higher standard of living."
The problem with such generous sentiments is that they
ignore the reality of the situation. The trend, dare we
say, of thinking that America is an unstoppable New Economy
headed for "a golden age of prosperity" while Japan is
thought to be stuck in a past of permanent recession,
poverty and ignorance, may be one whose premise is false.
"Japan is the largest net creditor in the world," replied
the chief economist at Mitsubishi Research, as reported in
the International Herald Tribune, "and is thus the richest
country in the world."
Incomes are higher in Japan than in the U.S. People work
fewer hours. They pay less in taxes. They get more in
social services for the taxes they pay. They are in better
health. And they live longer.
The average employee in manufacturing in Japan, for
example, works 5 fewer hours per week than a similar worker
in America. On average, an American puts in a full two
additional weeks of work than a Japanese.
Not only is his income higher in Japan, but his tax burden
is lower. The average Japanese pays 12% of his earnings to
the government. In the U.S., it is 16%.
Japan is a marvel of well-functioning social services.
Health care is practically free. Public transportation is
ubiquitous and efficient. Trains pull into the station, on
average, 18 seconds before the scheduled arrival time.
Compared to U.S. workers, the average Japanese takes more
overseas vacations. And he buys more luxury goods. Two-
thirds of the world's high-end products are bought by the
Japanese.
The Japanese live better and longer. Japanese women live
longer than any other group in the world. Japanese men have
life expectancies second only to Swedes, where people don't
actually live longer, it just seems longer.
"The average standard of living and the satisfaction
level," said a partner in Accenture, formerly Andersen
Consulting, "is higher here than in the U.S."
How could that be? How could people suffer an entire decade
of stagnation...while the stock market loses 65% of its
value - and while the competitive Americans dash ahead at
their fastest speed in 70 years - and still be at the head
of the field? How is this possible?
The cause of Japan's economic trouble, according to the
popular view, is the propensity of the Japanese to save
money. Even though they live well, travel abroad, and buy
luxury goods, the average Japanese saves 13% of his
earnings, compared to less than zero for Americans.
Currently, the Japanese have $6.5 trillion in savings.
Could it be that saving money is not so bad after all?
The IHT refers to Japan's economic malaise as a "phantom
stagnation." Unemployment has risen - but only to 4.7%.
Even in a slump, Japan's unemployment number is not much
different from America's at the top of a boom.
If Japan has experienced a phantom bust, was America's
prosperity a phantom boom?
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the...
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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Last modified: April 01, 2001
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