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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Back Up The Truck?

*** Greenspan sees no recession. Of course, he didn't see 
the last one either... 

*** Semiconductor business looks weak...could it get 

*** Don't cry for down...oil imports 
up...and the moon won't wait...

*** Greenspan's comments are being interpreted in a variety 
of ways...but the prevailing sentiment is that "Greenspan 
Sees No Recession" as one news service put it.

*** "Those who argue that we are already in a recession, I 
think are reasonably certain to be wrong," said the Fed 
chairman. But that statement was made on August 21, 1990 - 
when the U.S. economy was already in recession, which 
became apparent a few months later.

*** Are we in recession or not? Mr. Greenspan and the rest 
of us will all find out at the same time - as the GDP 
numbers come out. 

*** But, unlike you and me, Mr. Greenspan's opinions can 
have an impact on the economy. And the last thing the great 
man wants is for people to become fearful, cautious or 
financially prudent. Who knows, if people thought we were 
in recession they might stop borrowing and spending...and 
then, we would be in a recession for sure.

*** I'm trapped on a train in Poitiers. There seems to have 
been an accident on the tracks ahead, so we've been sitting 
here in the station 2 hours. These notes will be shorter 
than usual. Wait...we're starting to move...

*** Applied Materials announced yesterday that things 
didn't look good. Both revenue and earnings are falling at 
the semiconductor equipment maker. The company said it 
couldn't predict what would happen next. AMAT shares rose 
13% on the news. Why? 

*** Because "the worst is known and could be behind us 
soon," according to chip analyst Eric Chen at J.P. Morgan.

*** The Dow fell 107 points. The Nasdaq went up 63.

*** Declining stocks outnumbered advancing ones on the 
NYSE, counter to recent trends, 1712 to 1377.

*** Cisco rose 3% - one of many big techs that had a good 
day. Oracle ended up 10%.

*** The Internets had an especially good day. 
index rose 10% yesterday...putting the Internets ahead 10% 
for the year.

*** How are we doing so far in this new millennium? The Dow 
and S&P 500 are about where they began. Utilities are down 
7%. Biotechs - the stars of last year - are down 8%. 

*** In overseas markets, Paris stocks are down 5%. The 
Nikkei index in Tokyo is down 4%. But they're doing the 
tango down in Argentina. Stocks in Buenos Aires are up 19%.

*** GE fell 2% yesterday. Oil slipped below $30

*** From the Prudent Bear midweek analysis: "American 
Petroleum Institute (API) reported that U.S. imports of 
gasoline, heating oil, other fuels surged to 2.923 million 
barrels a day, (according to Bloomberg) the highest since 
January 1990. From Bloomberg: The 41% increase in imports 
from the same month last year highlights the country's 
increased dependence on international supplies...the U.S. 
now relies on other countries to supply 60% of its 
petroleum energy needs, up from 29% in 1972 as domestic 
production of crude oil and products has failed to keep up 
with increased demand.'" 

*** Bloomberg also reported a two-year research study 
forecasting a 50% increase in global energy demand by 2020. 

*** Gold lost $1. When gold falls, the dollar tends to 
rise. It moved up against the euro, pushing the latter 
currency below 92 cents. More on gold...and the dollar...

*** "The Clinton boom from 1993 to 2000 has been the 
biggest boom in American history, even in stock market 
terms," writes my friend William Rees-Mogg, echoing a 
familiar view. "The 1920s boom saw the Dow-Jones index 
quadruple between 1922 and 1929. The 1990s boom saw it 
quintuple between 1993 and 2000. The boom has created a 
huge external deficit, now running at $450bn a year. After 
1929 it took thirteen years and a World War to correct the 
economic consequences. The Japanese big boom of the 1980s 
has not been corrected yet, twelve years later. I think one 
must be doubtful whether a $450bn deficit can be turned 
around in a single Presidential term." (see: The 'Special 
Relationship' Between The US And The UK Will Be Difficult 
To Sustain.)

*** "In Chicago, there's a car dealership TV ad asking 
people to bring in their W2s," William Fleckenstein notes 
this morning. "the dealer will file the tax return and 
apply the expected refund to a down payment right on the 
spot. Pretty desperate." (see: Love means never having to 
say "overcapacity.")

*** "The moon...the moon," Mr. Deshais seems to be becoming 
more and more agitated, almost lunatic. He walks around 
talking to himself. "The moon doesn't wait," he says. "It 
is almost too late already." His window of opportunity to 
graft stone fruit trees is closing quickly. By this 
weekend, less than half the moon will be visible. . 

*** I hope you enjoyed St. Valentine's day. Elizabeth and I 
went out to a local restaurant and had a marvelous time. 
Elizabeth seems to get younger and more beautiful as the 
years go least compared to me. Carpe diem... 
remember, the moon doesn't wait.

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"We're looking at a dollar crisis bigger that that of the 
early 70s as I see it."

The person doing the looking was Doug Casey, who passed 
along his thoughts on the matter in a recent newsletter. 
The burden of Doug's letter was that the dollar is headed 
down and gold stocks are going up. "THIS IS THE TIME TO 
BACK UP THE TRUCK," Doug shouts. 

This expression comes so often from the mouths of gold bugs 
that you might think their pick-ups are stuck in reverse. 
But Doug assures us that while he is definitely a gold bug, 
he is not always a gold bull. 

But right now? "I'm super-bullish," he says.

I have been writing lately about the curious aspects to 
both the U.S. boom and the Japanese bust. Neither are quite 
as advertised. 

Real economic growth results from a very simple process. 
Resources are saved, rather than consumed, so that 
additional production may be developed. Rather than eat all 
his corn, for example, a farmer sets some additional corn 
aside so that he may increase the size of his crop in the 
following year.

He may eat all his corn and then go to the bank to borrow 
money to buy additional seed. But somewhere, somehow, 
someone has to save real resources or the corn harvest will 
not expand.

The Japanese and Europeans, of late, have been doing almost 
all the developed world's saving. Americans have been doing 
the spending. And yet, it is widely believed that the 
latter are getting rich, not the former...and that 
spending, not saving, is the route to wealth.

"American economists," writes the very non-American 
economist Dr. Kurt Richebacher, "readily discard the 
monstrous U.S. trade deficit and the steep plunge of 
personal saving as irrelevant to the economy's health... 
Quite a few even hail the trade deficit as an emblem of 
economic strength and dynamism. Since these people are just 
as illiterate in history as in theory, it is obviously 
unfamiliar to them that high-growth economies typically run 
a surplus in their current account, such as America in the 
1920s, Germany in the 1950s-1980s and Japan until the late 
1980s. And that has an intrinsic cause: a high level of 
domestic saving."

Without savings to draw upon, American businesses and 
consumers have been borrowing the savings of others 
(foreigners) and the imitation savings offered by the 
Federal reserve. As reported here yesterday, non-Americans 
already own nearly one out of every 10 U.S. stocks and 1 
out of every 5 U.S. Treasury obligations.

Thus the boom in America has left the nation with an 
enormous debt load. "In short," comments Dr. Richebacher, 
"overall credit expanded $4,400 billion [more than 3 times 
faster than the economy]" in the last two years of the 20th 
century. But the fact is still disguised by unsustainably 
high stock prices. Looking at themselves in the curved 
mirror of a bull market, Americans think they look pretty 

Dr. Richebacher refers to the type of slowdown that follows 
such a boom as a "balance sheet" recession. It is what 
happens when the mirror straightens out and people see for 
the first time that they need to go on a diet. 

"America had its first post-war encounter with this type 
of recession in 1990-91," he writes. "...It was not tight 
money imposed by the Fed that caused the credit crunch, but 
soaring bad loans that paralyzed the banking system and the 
financial markets. Nightmare images of the Great Depression 
began to haunt top Fed policymakers."

Then, as now, the Fed rushed to the scene with a pastry 
cart. It cut rates five times, a half point each 
time...down to 4.5%, the lowest level since the '60s. When 
that didn't work, the great man cut a full percentage point 
- bringing the fed funds rate about even with the inflation 
rate at the time. Effectively, banks could borrow at an 
interest rate of zero. 

Even so, the economy barely gained weight in the first half 
of the 90s with a real GDP growth rate of only 2.2%. 

But recession and rate cuts had a dramatic effect on the 
dollar...and on mining stocks. "In May 1995, the dollar 
fell to its lowest level against the European currencies," 
Dr. Richebacher explains.

Now, 6 years later, "American policy makers, like most 
economists," he continues, "expect no more than a gentle 
depreciation of the dollar, reflecting a gentle recession. 
Seeing the worst postwar recession unfolding in the U.S., 
we expect the dollar to fall to a new post-war low against 
the European currencies."

"A dollar-based investor, who switches into euro bonds, can 
look forward to a very big currency gain."

Investors with a greater sense of adventure, or humor, 
should consider gold stocks. As the dollar falls, gold 
tends to rise. Indeed, the last bull market in gold shares 
followed the Fed's rate cuts in the early 90s and coincided 
with the dollar's collapse.

Plus, despite all the billions borrowed and spent...and all 
the trillions of phony new investment capital represented 
by the stock market...almost nothing has been invested in 
new mining output in the last ten years. 

"The problem," Doug Casey reports, "is that the mining 
industry is extremely capital-intensive, extremely risky 
and has shown an extremely low return on capital for the 
last 10 years. Where's the new capital to build new mines 
going to come from? Frankly, it's not going to come from 
anywhere unless metals prices go higher to induce people to 
take the extraordinary risks involved in building mines."

Lower output...low prices...the dollar about to collapse...
"What we're looking at is a rare opportunity," Doug 
elaborates, " make a killing. The last time it was 
this good was Jan. '93. The market is still off 95% from 
its previous peak...and could easily go up 1,000% in the 
next couple of years."

Maybe it is time to back up the truck.

Bill Bonner
About The Daily Reckoning:

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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Last modified: April 01, 2001

Published By Tulips and Bears LLC