Contributed by Bill
Publisher of: The
Fleet Street Letter
TUESDAY, 4 SEPTEMBER 2001
*** Markets closed - no news is good news...
*** A new "bull" market indicator...the trouble with
*** The good doctor and his silver-tipped cane...and
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Markets were closed in America yesterday. Nothing
No news is good news.
But a friend who is visiting has noticed that one of
Pierre's bulls seems to have a gift for stock market
"I'm not kidding," he told me over dinner. "I think
I've found a new bull market indicator. Since last
week I've been watching the big bull in the field
next to the house. If he's down in the south end of
the field in the morning - stocks fall on Wall Street
that day. If he's in the north end - stocks rise. He
spent most of his time in the south end of the field
last week. But on Friday, he was up a little."
Yesterday, my friend did not bother to check the
bull. Markets were closed. I have not yet received
today's report on "Ol Ferdinand."
"Bill, how do I get in on that tobacco program?"
asked a DR reader, by email, this morning. "I figure
I can not grow tobacco as well as the next guy. Heck,
I can not grow a lot of tobacco. But, at $1 a pound,
I'd be content to not grow just 50,000 lbs a year.
I'm not a very ambitious farmer, as you can see."
"When are they going to start paying publishers not
to publish?" asked another reader. "I'll bet you'll
be happy when they introduce that program."
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"All over the Anglo-Saxon world," said Dr. Kurt
Richebacher on Saturday's visit, speaking with a
strong German accent, "it's the same. High debt, low
savings...low real capital investment in real
"And they all think they're getting rich. That is the
amazing thing. They think they can get rich by
spending their money.
"Where did this consumer spending idea come from?
That's what I want to know. It's crazy. No
respectable economist ever thought you could get rich
by spending your money. It's saving that produces
wealth - the opposite of spending. It's saving and
investing and profits. Anything else is pure mumbo-
Dr. Richebacher was an infantryman in the German army
"I was injured after only a few days," he reports.
"Then I spent two years in a hospital recovering. It
was there that I discovered an interest in
A half century later, Dr. Richebacher is retired from
his post as chief economist of Dresdner Bank. He
lives in the south of France, walks with a silver
handled cane and drives a sporty BMW.
Here at the Daily Reckoning, we recognize that
predictions about the future are little more than
tall guessing. Still, we can't quite break the habit.
Lately, we've been wondering how long the current
business downturn and bear market might last. "How
bad will it get?" Daily Reckoning readers want to
know. Here we offer another guess.
Intuition tells us that nature is symmetrical.
Americans climbed a mountain of rising stock prices
and apparent economic prosperity over the last 18
years. We imagine that the other side of the mountain
will be similar. What goes up, we figure, will go
down about as much.
Experience tells us that this is how things work in
the topography of markets as well as that of mountain
Every bubble is fully corrected. Every one. There
have been no new eras. None.
Each correction has taken prices - whether it was the
price of gold or of Kuwaiti stocks - back to the long
term trend. There have been no exceptions. Ever.
In the 20th century, there were two 17-year bear
markets - one from '29 to '46 and another from '65 to
'82. And there were two major bull markets, one 20
years long, from '46 to '66, and another 18 years
long, from '82 to 2000.
Each major bull market has been corrected by a major
bear market of nearly equal duration. How could it be
that, this time, an 18-year bull market will be set
right by only 18 months of falling prices? How could
it be that prices at the bottom of this short bear
market cycle are still higher than at the top of
previous bull markets? The idea contradicts both
intuition and experience.
Kurt Richebacher points out that it contradicts
"This is the worst bubble in economic history...worse
than '29...worse than Japan...
"There is no theory of economics that says that
consumer confidence is the key to prosperity," he
says. "What matters is savings and business profits.
It is profits that are the key. And this new
Information Age. What a joke! It is the
Misinformation Age. Everybody had so much information
they didn't seem to notice anything important. That
is true for economists too.
"Nobody noticed that profits were collapsing. Now we
know that the new technology is essentially
Dr. Richebacher is an essentialist. He reduces
economics to its important features and rarely takes
his eye off them. So concentrated is his attention on
these economic verities that his conversation rarely
strays. You feel a Maryland legislator could choke to
death on a granola bar right in front of him and he
would continue talking about productivity figures. At
least you hope so.
"At the end of July, some new information came out
that completely demolished the myth of American
prosperity. Productivity proved to be no better than
it has always been. In fact, the number is still
flattered by these hedonic adjustments that they
make. The real number for productivity growth is
probably zero. All this new technology has made no
improvement in productivity.
"And profits, too...the number was revised downward
at the end of July. Now we see the whole technology
sector is operating at a loss. And even at the height
of the tech boom, profits were greatly inflated by
stock market profits. Since the end of '98, the
entire technology sector has made no profits.
Nothing. It has been a profit catastrophe.
"The real cause of the economic slowdown is the lack
of profits - which has lead to a collapse in capital
spending. But who notices? No one!"
No one but Kurt Richebacher and a handful of Daily
Instead of guessing about the future, Dr. Richebacher
noticed that Americans have been impoverishing
themselves in the last few years. Believing that they
were getting rich in stocks (and now real estate),
Americans stepped up consumer spending - thus wasting
the savings that real prosperity requires.
"The problem in America is not consumer confidence,"
explains Dr. Richebacher, "but the excessive
confidence that Americans feel in the future. And the
Europeans believe in this American delusion even more
than the Americans themselves. They continue to
finance U.S. deficits. Total U.S. dollar assets
outside of America have now reached $9 trillion -
almost equal to U.S. GDP."
Foreigners may be dumb, Dr Richebacher believes, but
stupidity runs in cycles, just like stock market
prices and hemlines. Pretty soon, Europeans are going
to feel they are a little bit too exposed to the
dollar. They're not necessarily going to dump all
their dollar holdings, but they are going to hedge.
"When the hedging begins," Dr. Richebacher ventures a
guess, "we will have massive deflation of all kinds.
The dollar, stocks, bonds, real estate. Everything."
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.