|
Co-brand
Partnerships
| |
|
|
|
|
| |
|
Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
|
OUZILLY, FRANCE
WEDNESDAY, 29 AUGUST 2001 |
|
|
Today:
Bull Market In
Blame
|
*** Oh la la - the big day - will GDP growth go
negative?
*** Stock market rally collapses...consumer confidence
falls...Friedman's reputation in jeopardy...
*** Deflation...restaurant tabs...golfing...as
repulsive as cannibalism...bull market in blame...and
more!
|
Mr. Greenspan won't be the only one to see his
reputation return "to trend" in the downturn.
Yesterday, the Italian press caught up with Milton
Friedman, who remarked: "The key problem after the
recession ends in 2002 will be how to control
inflation."
We don't know how Mr. Friedman could know that the
recession will end in 2002. But we know why he thinks
inflation will be a problem. His analysis of the Fed's
monetary policies has made him famous and won him a
Nobel Prize. Friedman believes you can control
economic growth with monetary policy. In this, we
believe, he is about to be proven wrong.
The price of gold isn't moving. And the spread between
TIPS (inflation adjusted 10-year notes) and regular T-
notes has narrowed to a new low of only 1.53%.
Deflation is what the market fears - not inflation.
And deflation is what the market is going to
get...deflating stocks, houses, the dollar, computers,
cars, just about everything.
Here's Eric's report on yesterday's deflating market:
******
Mr. Fry in Manhattan...
- Just two trading days after Cisco wowed tech-stock
investors with the pronouncement that its sales would
be no worse than it had forecast two weeks earlier,
the long faces returned to Wall Street.
- Stocks fell hard Tuesday, with the Dow dropping 160
points to 10,222 and the Nasdaq sliding 47 to 1,865.
Cisco, for its part, fell more than 5% to 17.
- A downbeat consumer confidence report, released one-
half hour after the start of trading, accelerated the
sell-off that was already underway. The Consumer
Confidence Index fell to 114.3 in August from a
revised 116.3 in July. For some inexplicable reason,
consumers feel less confident when jobs disappear.
- Friday's rally now looks to have been the kind of
one-day wonder that typifies bear markets.
- Watching the stock market fall is enough to make you
lose your appetite. And, in fact, we Americans have
been: we are dining out less and less frequently, and
that is toxic for restaurant company profits.
- The Smith & Wollensky Restaurant Group Inc. - owner
of Manhattan's famous steakhouse of the same name -
reported a 12.3% drop in sales in its latest quarter.
The company blamed the slowing economy for its
troubles and said its three New York restaurants,
Cite, Park Avenue Cafe and Manhattan Ocean Club, were
hit particularly hard.
- Likewise, Morton's Restaurant Group, a chain of 61
steakhouses nationwide, saw its same-store sales drop
9.6% in the second quarter.
- "As the shaky economy gives more consumers the
jitters," writes the Wall Street Journal, "the $258
billion restaurant and bar industry is grappling with
the biggest slowdown in a decade." - The weakening
economy is also pushing consumers not to indulge
themselves in at least one other way: we're playing
less golf! Yes, sadly, it's come to this. "Hard times
have hit the links," reports the Wall Street Journal.
"National Golf Properties, which owns 146 courses in
23 states, reported [recently] that same-course
revenue fell 5.1% in the first half largely due to the
weakening economy."
- The Journal continues: "Big companies are hosting fewer
charity benefits and tournaments for employees and clients.
Membership sales also are down. 'Uncertainty over jobs has been
impacting people's willingness to pay initiation
fees,' says National Golf spokesman Edward Sause."
- Does the U.S. golf slowdown remind anyone else of a
bubble economy from a different place and time? Let me
give you a hint: Nikkei 1989.
- Yes, that's right, the average market value of a Japanese
golf club membership hit its peak on March 10, 1990 - just
three months after the Japanese stock market touched it's
now-infamous record high. (For financial bubble trivia
buffs, the Nikkei reached its peak level of 38,915.87
on December 29, 1989. The hapless index closed Tuesday
at 11,189.40)
- Meanwhile, the Nihon Keizai Shimbun Index, which tracks
the average price of golf club memberships at 530 major
Japanese country clubs, has collapsed more than 90% from
its all-time high. Even one decade after the bubble burst,
this index continues to make new lows. Fore!
- But just because some U.S. consumers are reining in their
spending here and there doesn't mean that the entire country
has suddenly become as thrifty as "Poor Richard."
- Rather, typifying America's thrift ethic - or lack of
it - the Daily Express relates, "In a recent poll of
1,205 people 21 to 35 years of age, 54% of the women
surveyed said they were more likely to own 30 pairs of
shoes than to have saved $30,000 in a retirement
fund...70% said it's important to look
successful...48% of the women surveyed said that their
money was to spend, not save." Imelda Marcos wannabes
- 1; U.S. Savings Rate - 0.
- On Monday, the Daily Reckoning noted the withering demand
for new office furniture in the wake of the dot-com implosion.
Tuesday, Herman Miller Inc., known for its stylish
office furniture, brought the grim situation into high
relief by announcing that its sales are slowing and
its earnings will be lower than previously forecast.
- In lowering its sales outlook, the furniture company
cited a forecast from the Business and Institutional
Furniture Manufacturers Association suggesting that
the industry's decline this year will be one of the
deepest in history.
*******
Back to Ouzilly...
*** Today's the big day. GDP figures are to be
revised.
*** The BBC says it sees "Fresh Signs of a U.S.
Slowdown." Insider stock purchases are at an 8-year
low. Tannette Johnson-Elie says she sees "Pay Day
Loan" sharks doing a bustling business in Milwaukee.
And Warren Buffett says he is preparing for an 8-year
period of hard times.
*** Will the new GDP number be negative, showing a
deflating economy?
*** We will see, dear reader.
*** Meanwhile, Pierre has gone all-out to make sure
the attendees at our writers' conference eat well.
We've had platters overflowing with various dead
animals - chicken, duck, lamb, beef.
*** Imagine Pierre's expression when he learned that
several guests were vegetarians. At first his face
registered shock, then denial...and then betrayed an
unmistakable look of disgust.
*** "Why would these people not want to eat meat? Why
would they come to France?" he asked.
*** To Pierre, vegetarianism is as repulsive as
cannibalism.
* * * * * * * * * Advertisement * * * * * * * * * *
Learn The Wealth-Building Secrets Of The Richest
People In The World! And Use Them To Build Your Own
Fortune!
You'll never get rich buying Microsoft today. No way!
Here's how to build real wealth: buy 4,000 or 5,000
shares for just pennies - like Bill Gates did - while
the company is still private. A tiny company with
breakthrough technology can easily take you to a new
level of prosperity. And just one significant
investment into such a company can catapult you into
the ranks of the super-rich. If you can invest in
opportunities like this - BEFORE they go public -
you'll find the real money.
Ready for Super Wealth? Click Here:
http://www.agora-inc.com/reports/STOP/AbsoluteWealth
* * * * * * * * * * * * * * * * * * * * * * * * * *
The Daily Reckoning Presents: The following is a
portion of the recent testimony by financial
commentator Christopher Byron before the House
Committee on Financial Services, which is currently
investigating the actions of Wall Street analysts. We
produce it here for its insight into the bubble that
was.
BULL MARKET IN BLAME
By Christopher Byron
"For nearly four years...the analyst community on Wall Street,
and
the media organizations that covered it, engaged in
what amounted to a massive, shameless and totally
irresponsible free-for-all riot in pursuit of money."
The huge amplification of voices now provided by the
digital age is creating new and increasingly difficult
challenges for the self-regulators and the Securities
and Exchange Commission. One can make a strong and
convincing case that the entire tech-sector bubble,
which swelled the Nasdaq stock market to three times
its size in barely 24 months, then popped in March of
2000 like a champagne bubble in a glass, was caused by
Wall Street's amplified megaphones of cable television
and, most especially, the Internet - megaphones
through which the analysts shouted "come and get it"
to uninformed investors all over the earth.
That fact has huge and obvious public policy
ramifications for Congress, because the collapse of
the Nasdaq market has brought an end to the longest-
running bull market in the nation's history, and now
threatens to tip the economy into a recession that no
expert has yet shown a convincing way to avoid.
Trillions of dollars in national treasure have been
drained from the economy by the implosion of what
Federal Reserve Chairman Greenspan has termed the
"wealth effect" created by that bubble, and the Bush
administration and the Federal Reserve are now engaged
in an uncertain effort to replace it with a
combination of tax rebates and lowered short-term
interest rates. Yet if stock prices had not been
pumped up to the indefensible heights they eventually
reached in the first place, they would not now have
fallen as far as they have and we would not now be
groping for a way to pump them back up again.
This bubble was financed largely by individual
investors. And it is the Wall Street analysts and the
media voices that helped turn the analysts into
pseudo-celebrities who must now bear responsibility
for the consequences. In some cases, we have even seen
the spectacle of professional investors simultaneously
purporting to be analysts, investors and journalists
all at once.
For nearly four years - from the Yahoo IPO in April of
1996 to the deluge of IPOs that spread across Wall
Street in the first three months of 2000 - the analyst
community on Wall Street, and the media organizations
that covered it, engaged in what amounted to a
massive, shameless and totally irresponsible free-for-
all riot in pursuit of money.
In stories and columns I wrote during this period, I
attempted to call the public's attention to the
colossal pocket-picking to which it was being
subjected. Most particularly, I wrote repeatedly about
the outrageous situation in which IPOs would be
offered to investment bank clients at a cheap "pre-
market" price, even as the bank's analysts engaged in
nonstop commentary designed to pump up demand for the
stock among individual investors in the aftermarket.
Then, when the stock would come public, the insiders
would instantly dump their shares into the waiting and
outstretched arms of individual aftermarket investors
at four and five times their pre-market price. Within
hours thereafter, the stock price would collapse. You
can call it what you want, but I view schemes like
that as nothing more than swindles and fraud.
You may review the trading histories of literally
dozens of tech-sector IPOs during this period and find
this precise pattern repeating itself over and over
again. To that end, I would thus respectfully call the
Committee's attention to the following IPOs, which are
simply illustrative of the process I have described:
-- VA Linux Systems Inc. (Insider price, $30; first
sale to individuals, $320.)
-- theGlobe. com Inc. (Insider price, $9; first sale
to individuals, $97.)
-- WebMethods Inc. (Insider price, $35; first sale to
individuals, $336.)
There are many, many more like them. These stocks, and
countless more, were pumped to wildly unsupportable
prices by impossibly grand claims from analysts
regarding their potential as businesses. The fact that
these claims echoed through the megaphones of TV and
the Internet, to reach individual investors [in] every
corner of the globe, simply underscores just how much
capital can be raised on Wall Street now that the
whole world has access to the same information
simultaneously. And this is only the first instance in
which this unexpected alliance of analysts and the
electronic media has come to bear on the market.
Unless efforts are undertaken now to prevent a
recurrence, we may look for even more disruptive
performances in the future.
To that end, I would respectfully suggest
consideration of the following:
That so-called Section 17B of the Securities and
Exchange Act of 1933, which, in layman's terms,
requires anyone who is paid by an issuer to circulate,
publish, or otherwise disseminate stock recommendations,
be augmented to require - as a matter of law - that anyone
publishing or disseminating such information disclose, on
the same document in which the dissemination takes place,
any financial interest, either direct or indirect, that he
or she may hold in the stock in question. It is not enough
for self-regulatory bodies such as the Securities Industry
Association and individual investment firms to do this
on a "voluntary" basis. In this particular area,
volunteerism has shown itself to be inadequate, and
the law should be brought to bear. If Section 17B of
the 1933 Act does not violate anyone's First Amendment
rights, then I doubt that the augmentation I have
suggested would do so either.
Secondly, I believe that Section 10B of the 1934 Act,
which deals with fraud on the market, should be
aggressively enforced by the SEC. In the now famous
Foster Winans case, a Wall Street Journal reporter ran
afoul of the Act by using information obtained in the
course of his work for that newspaper to trade in
stocks before publication of his stories - in
violation of an agreement he signed with his newspaper
not to do so.
His essential violation thus amounted to promising not
to do something, then doing it anyway. That basic
principal can, and I think should, be applied to an
implied covenant that can be presumed to exist between
all disseminators of financial information that is
offered to the public under color of impartiality. Any
conflict of interest can be waived by disclosure, to
be sure, but the regulatory authorities, and
ultimately the Congress, can set clear, convincing and
unambiguous standards as to what sort of disclosure
constitutes adequate disclosure.
The goal should not be the "minimum" disclosure
necessary to give comfort to the disseminator of the
information, but the minimum necessary to give comfort
to the consumer of the information that he or she is
being fully informed as to any hidden agendas lurking
in a recommendation. I thank you kindly for your time
and patience.
Christopher Byron,
for The Daily Reckoning
Christopher Byron is a magazine, newspaper and
Internet columnist and a radio commentator. His
columns appear weekly in the New York Observer
newspaper and on MSNBC Interactive on the Internet. He
also hosts a daily webcast radio program entitled
"High Noon on Wall Street." A version of these
excerpts first appeared on the grantsinvestor.com
website.
Daily Reckoning readers are cordially invited to try
grantsinvestor.com, a new destination for the
thoughtful investor, for 30 days free. Please click
here:
http://www.grantsinvestor.com/agora.html
* * * * * * * * * Advertisement * * * * * * * * * *
WE MADE 906% PROFITS EVEN AS THE MARKETS SANK!
While others struggle to rise from the ashes, we're
counting double and triple-digit profits. Our
"bulletproof" investment strategy cashed us out of the
tech sector last year with huge winners. That allowed
us to profit on more stable investments. Use our self-
reliant strategies to double your money during the
next three years. They could even help you earn
triple-digit profits this year. The 2001 market could
sink you.
So, grab onto an investment lifeline by clicking on
the link below:
http://www.agora-inc.com/reports/OXFU/DR_Lifeline
* * * * * * * * * * * * * * * * * * * * * * * * * *
|
|
|
| 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.
|
|
|
|
