*** 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 Argentina...gold 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. TheStreet.com
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
*** "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
*** "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 by...at least compared to me. Carpe diem...
remember, the moon doesn't wait.
Would you like to know about a country where you can set up
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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
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
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
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
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, "...to 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.
The Daily Reckoning:
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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