Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 6 AUGUST 2001
Steady Your Money
*** Time to rethink the Reagan Era 'bias' factor?
Unemployment numbers bushwhack the Dow...
*** Cisco may make numbers - but what about those write-
offs? Dollar Demise...Time to go global!...
*** The "productivity miracle" was just a sick joke? Say
it ain't so...tomorrow will be the final day of
reckoning...(not for us, for the market)...
|*** Says the BLS...the unemployment rate in July held |
steady at 4.5%, but businesses slashed another 42,000
jobs during the month.
*** So what? Why do we watch these BLS numbers anyway?
*** Purportedly, as our friend John Mauldin points out,
"unemployment is The Final Answer connection to consumer
spending. Consumer spending is what is holding up the
economy. As high consumer debt and unemployment problems
wreak havoc on consumer spending, we will see the
economy continue to weaken. This in turn is going to
produce another round of negative earnings warnings and
more heartburn for investors."
*** And "in the past 50 years," writes analyst Tony
Glennon, "the US economy has never experienced a full 1%
increase in unemployment without a full-scale
recession..." As jobs go, so goes the economy. Easy
*** Well, maybe not. Here's an interesting little
observation from Bill King, a trader in Chicago: "In
1985, the Reagan BLS understood that white collar
workers jettisoned by Fortune 500 companies were being
assimilated into start-up enterprises - tech firms - or
forming their own companies. The government could not
count that type of job creation, so they had the BLS
computer add 35,000 jobs/month to employment. This is
the 'plug' or 'bias' factor - jobs the government can't
count, but believe are being created."
*** Under Bush, The Elder, the 'bias' was increased to
55,000 jobs per month...and again under Clinton the bias
was boosted to 155-165k. Where it remains today...
*** "We now have an environment where high tech jobs are
being destroyed, not created, and the BLS computer still
assumes 155k+ jobs are being created that they can't
count," says King. "If job creation during a decade and
a half boom couldn't be counted, how can BLS count job
destruction in small entities?"
*** Hmmmnn... as Eric reports below, the BLS numbers had
a negative effect on Friday's markets. What would
happen, in this post-bubble era, if the BLS computers
should delete X amount of jobs per month rather than
tack on 150k?
*** Let's check in with Eric:
Eric Fry reports from Wall Street:
- To dispel any notions that we here at the Daily
Reckoning are a bunch of doomsday-prophesying crepe-
hangers, allow me to offer the following prediction: the
economy will recover. Of course, it may head lower
- As Addison mentioned, the stock market did not take
kindly to the employment report. The Dow declined 38
points Friday to close the session at 10,513, while the
Nasdaq fell about 1% to 2,066.
- Despite the Friday fade, stocks chalked up small gains
on the week. The Dow climbed 96 points and the Nasdaq
tacked on 36.
- Cisco Systems, which will assail us with its latest
earnings tomorrow, is grabbing the spotlight once again.
According to Sanford Bernstein analyst Paul Sagawa: "To
justify current valuations, Cisco would need to deliver
more than 20% growth and sustain more than 20% operating
margins over the next decade, performance that is
unprecedented for a company of Cisco's size in the
history of modern public companies... Investors have
high expectations that are ripe for disappointment."
- Even if Cisco "makes the numbers," Smartmoney.com's
Igor Greenwald points out, "[I]t has yet to write off
billions in soured investments and high-priced
acquisitions, as Microsoft, JDS Uniphase and a host of
other tech firms have done already... The company
investors used to love and once rewarded with the
largest market cap in America is, these days, only about
three-fourths as valuable as a boring and vastly more
profitable insurer like American International Group."
- When it comes to declining revenues, Cisco has plenty
of company in corporate America. "Business sales,"
observes Moody's John Lonski, "are down minus 0.7% in
the second quarter of 2001 from the second quarter of
2000. This is the sum of retail sales, manufacturing and
wholesale sales...The last time business sales were down
year-over-year was the three quarters from the first
quarter of 1991 to the third quarter of 1991."
- For months, we've been reading about how the patriotic
consumer continues to buy houses and cars, no matter how
little money he makes. The stories usually include
accolades for these stalwart consumers whose spendthrift
ways are rescuing our economy from recession.
- It's true, auto sales have held up over the last few
months, but mostly because manufacturers have enticed
car shoppers with lavish incentives. That game may have
played its final inning for this cycle. "Even with
generous incentives costing U.S. automakers most of the
new vehicle profits," USA Today observes, "auto sales
slipped in July."
- Now that the stock market waffles and business sales
slow down, the U.S. dollar has started to struggle just
a bit. That's good news for gold, says Greg Weldon: "As
the USD teeters at key long-term support levels, gold
teeters, on the verge of a MAJOR upside breakout..." We
will certainly see...
- "What would happen if the dollar bubble actually
bursts?" we wonder from time to time. According to
Dismal.com, you could stand to make some money: "If the
bubble takes 3 years to deflate, which is not
unreasonable since that's how long it took the dollar's
previous bubble to unwind... [t]he following annualized
rates of return would be realized for G7 assets from the
perspective of U.S. investors:
United Kingdom 7.1%
United States 5.8%
- "It's a good time to be global," says the peripatetic
Mark Mobius in a recent interview with Delta's Sky
Magazine. The long-time manager of the Templeton
Emerging Markets Fund predicts, "This is a good time to
be in emerging markets...these markets have been beaten
down pretty low, and there's a good opportunity to get
cheap stocks." Mobius' favorite emerging market? South
Africa, where he has invested about 14% of the funds
under his stewardship.
Back to Addison in Paris...
*** "Investing in the U.S. miracle will, in retrospect,
be seen as a sick joke," predicted Dresdner Kleinwort
Wasserstein Global Equity Strategist Albert Edwards in a
note to his clients on Friday. Nooo... say it ain't so.
*** "The markets will be forced to confront this harsh
reality on August 7. Make a date in your diary! The U.S.
'new paradigm' will then be officially revised away! The
risks of an equity crash are high."
*** August 7th... wait, isn't that tomorrow? Oh man. Note
to self: "don't invest in stocks. Tomorrow the markets
will crash." Damn... I just wish we were on to this
productivity story sooner.
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The Daily Reckoning Presents: A DR Classique originally
broadcast on October 21, 1999.
NERVES STEADY YOUR MONEY
By Bill Bonner
"I don't care about money," said "Smokin' Joe" Frazier.
"It just steadies my nerves." The former champ, after
having been hammered by Ali and numerous others in his
career, seems to have suffered less brain damage than
the president of Indonesia.
I was thinking about that last night on my long walk
home from the office. It came to me just as my attention
was distracted by a beautiful woman entering the church
at St. Sulpice. She was tall with swept-back blond hair.
And there was something about her expression. She was at
ease in some personal way...not vacant like a Hare
Krishna at an airport terminal...her nerves were steady,
Yesterday's comments contained a provocative idea: that
virtue can improve your financial performance [see: "The
Sacred and the Profane", a DR essay dated October 20,
1999]. As I mulled that idea over, I realized how absurd
Think about the very rich people you know. The
boneheads, the morally-challenged, the perverts and the
profane. Ted Turner, Donald Trump...the corporate
raiders...the stock market mavens...
I mean...if the battle for wealth is won with weapons of
virtue...a lot of these guys are, well, unarmed.
The subject of morality has certain parallels...and
intersections...with investing. Both can be dull. And
both can be perplexing and paradoxical. So, fortify
yourself with a cup of coffee. Today's reflection has no
practical application. But it could be interesting.
I am coming more and more to the belief - first
announced by Jim Grant - that markets work on the
principle of irony. More and more, I find irony to be
the driving force...as well as the secret key to
understanding market movements. The very moment when the
public comes to believe that stocks will go up
forever...stocks begin to decline. When a technology is
certain to be a big success, you can almost be sure that
an investment in the company's stock will be a big
loser. When gold is pronounced dead...that is the moment
to hold a mirror to the nostrils and recheck the pulse.
The same may be true for the way morality affects your
We are dealing here with cause and effect relationships.
Primitive peoples, lacking a sophisticated view of cause
and effect, partake of a primitive one. They see spirits
hiding behind every bush. And the spirits are dangerous.
The spirit of a tree may get mad because you chop off a
branch. The sun spirit may decide to hide himself if he
doesn't like the way you dress. A volcano may hunger for
a maiden or two.
In the Old Testament days, it was still thought that God
would punish sin in this life rather than the next.
Sodom and Gomorrah did not prosper...they were
obliterated. If a person fell ill...or a drought ruined
crops...the elders would ask, "who sinned?"
This sentiment is still a strong part of our emotional
programming. We feel we will be punished, in some way,
for sin. What better way, in this materialistic age,
than in the stock market? And from yesterday's example,
it is obvious how certain sins (avarice) at certain
times (a bull market top) may produce negative returns.
Wouldn't it be ironic, and perhaps poetic, for a jealous
God to punish the mammon worshippers in such a way? By
putting their mammons through the wringer of a bear
Wouldn't it be fun to watch the yuppies and masters of
the universe get what they deserve? Uh-oh...taking
pleasure in their loss...that delightful sensation of
"schadenfreude," as the Germans say, that is probably a
sin too! Maybe not a capital sin...maybe a sin of the
lower case...or sub-prefecture variety. But still a sin.
And if God is going to punish the big ones...he's bound
to punish the little ones, too. Those who delight in
irony will have irony done unto them, too.
But, if God is to punish sin...will he really reward
virtue? Think about the virtuous people you know. Are
they rich? All major religions have a similar vision of
a virtuous person. And in none is he long the Internet
stocks or filthy rich. The virtuous soul cares not for
material things. I learned yesterday that the
philosopher Wittgenstein, born into one of Europe's
wealthiest families, gave away all his money. One of
Julius Nyerere's virtues was that he didn't seem
interested in money.
Virtuous people are beyond caring...and not just about
money. They are satisfied if not happy...people who can
walk by a Paris pastry shop in their bare feet, with no
desire to stop in have an eclair. They can get a tip on
an IPO and have no urge to call their broker. They can
watch a beautiful blonde pass on the street and not lust
after her...neither in their hearts nor other anatomical
Shakespeare was not describing a virtuous man...
translated into Swahili by Nyerere... when he spoke of
Cassius as having "a lean and hungry look." Virtuous
people do not have a hungry look. They lust not. Neither
do they sin. And neither do they make a lot of money.
They don't care about money.
I don't care about money either. But as "Smokin' Joe"
put it, it steadies my nerves. I am not a virtuous man.
I lust after profit, pulchritudinous company and
profiterolles just like everyone else. Besides, I need
to lust after money. I have six children to put through
college. Six times $20,000 per year...times four
years...after tax...well, you can do the math.
I don't know if God will punish me by sending me to the
poorhouse. But, like Blaise Pascal, I'd rather not find
out. And I'm not desperate for money, anyway. Or
pastries. Or blondes, for that matter. And maybe that's
the real key. Desperate gamblers are bad gamblers.
Starving people will eat anything...even Dinty Moore
stew. A man who hasn't had sex in 12 years...well...you
fill in the rest.
I am not desperate. So, I can tolerate a little virtue
in my life, from time to time...within reason. And a
little virtue is probably not a bad thing in investing,
just as it is not necessarily a bad thing in the rest of
life... It helps prevent you from doing something really
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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.