Contributed by Bill
Publisher of: The
Fleet Street Letter
THURSDAY, 6 SEPTEMBER 2001
*** Immigrants on the 'fast' track... more 'bull' from
*** September - the cruelest month of all... What's on
your "do without" list?
*** Please, if you do nothing else, use your cell phone
and upgrade...and for heaven's sake - get a room!
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I'm taking the train up to London this morning. As
I write, the train is halted at the entrance to the
channel tunnel. A half dozen men are walking around
outside the train. Dressed in bright yellow safety vests
and carrying walky-talkies, they appear to be inspecting
the undercarriage of the train - looking for illegal
immigrants to Britain.
The operation took about 15 minutes - a waste of
time, in my opinion. Anyone who's so eager to get to
London that they're willing to hang from the bottom of a
high-speed train to get it would be an asset to the gene
Well, Ol' Ferdinand has done it again. He was in
the North section of the field yesterday morning....and
stock prices went north. The Dow ended up 36 points.
Even so, Cisco closed below $15. Yahoo is now
under $11. And Amazon! You can buy all you want for less
than $8 a share.
Little by little, day by day, investors seem to be
catching on to what a debacle the technology sector
really is. And not just the dot.coms. Let's check in
with Eric. Eric, ca va?
Eric Fry reporting from the Paris office:
- I'm in Paris today, fresh from visiting Bill in
Ouzilly. His chateau rests in story-book picturesque
French countryside - a spot that one would not easily
confuse with Manhattan. There are some similarities,
- For example, Mr. Deshais, Bill's gardener at Ouzilly,
plucks the ducks clean. Wall Street investment bankers
pluck investors clean.
- At Ouzilly, the ducks live well, if not for very long.
(The Canard a L'orange was excellent!) But on average
investors in America live longer. That may be good thing
from an investment standpoint. If Bill's right, the
folks who purchased Nasdaq stocks last year might need
another 17 years to see a positive return. (One down -
only 16 to go!)
- Microsoft's exhilarating pronouncement that its
business outlook is no worse than previously forecast,
rescued the stock market yesterday. The Dow, which had
ventured far into negative territory early on, finished
the day up 36 points to 10,033.
- The Nasdaq did not quite make it to the plus side -
finishing down 12 points. The tech-heavy index now sits
less than 120 points above its April lows.
- A few months back, when consumers were buying almost
everything in sight, the "do without" list included just
a few select items: routers, servers and venture capital
- But today, the list has grown rapidly to include Dow
stocks, Nasdaq stocks, cars, cell phones, and hotel
- During the month of August new cars languished on
dealer lots from Los Angeles to New York. Industry-wide,
sales fell about 5%.
- Cell phones aren't selling any better. It seems that
even though most of us have two ears, we only need one
cellphone, and we've got it already. Ericsson, Motorola
and Nokia keep taking turns telling everyone how awful
business has become.
- Kurt Hellstrom, Ericsson's CEO confessed to the
Financial Times: "We would like to say we saw positive
signs, but we don't. No one can tell when we will see
the end of the downturn."
- Hotel room demand is collapsing, as well. Falling
business travel budgets are weighing on room rates,
which have dropped to their lowest levels in over 10
- The soft demand for everything from cellphones to
Cisco shares seems to begin and end with the sliding
consumer confidence. The year over year change in the
Conference Board's Consumer Confidence Index turned
negative in November of 2000 and hasn't looked back
- Add it all up and its no wonder investors are having
such a tough time finding companies with rising profits.
Without profits the stock market forecast is stormy,
- September is typically a beautiful month almost
everywhere in the World. A few years back I started to
notice that no matter where I traveled and no matter how
awful the weather might actually be in that location, a
local resident would be quick to note, "But you should
see it here in September. It's beautiful."
- Wall Street denizens can make no such claim. October
is infamous for its crashes, but September is the
cruelest month of all for stocks. According to Ned Davis
research, since 1900 stocks on average fall about 1%
during the month. By comparison, stocks break even in
- "No two markets will ever repeat in exact symmetry,"
ContraryInvestor.com observes, "but equating the Nasdaq
top to the top in the Nikkei reveals that the Nasdaq has
already plummeted to the equivalent of the first post
crash bottom of the Nikkei."
- Problem is, the first post-crash bottom was not the
last. If the Nasdaq continues its eerily similar
trajectory, it has much farther to fall.
Bill in London:
*** An article in the Financial Times tells us how
business is picking up in East London at a company
called Shields Environmental. The company dismantles,
recycles and destroys unwanted technological garbage.
*** Lately, it's been cleaning up the unsold inventories
of telecoms - as one telecom operator has gone bust, on
average, every six days throughout the last six months.
So far, nearly $4 trillion of capital value has been
wiped out in the telecom sector worldwide....and more
than $1 trillion of bank loans and junk bonds are in
*** This must be what has caused Dallas Fed government
Robert McTeer to change his tune. Early this year,
McTeer urged consumers to "buy an SUV" to keep the
economy humming. Now he urges people to "use their cell
phones more and upgrade."
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by Bill Bonner
"Ja, we Europeans have it rough," Kurt Richebacher said
to me on Saturday, with a slight smile on his face. "We
have to work 35 hours per week, with only 6 weeks off."
Americans may not work harder than other people, but
they undoubtedly work longer. The latest numbers from
the Labor Department show that Americans put in more
hours than any other group. Since the beginning of the
last great bull market, U.S. workers added an entire
workweek to their annual total. They now work 499 more
hours per year -- or about 12 additional weeks - more
Compared to America, Dr. Richebacher might have added,
the Old World enjoys lower crime rates, often better
roads, better schools, more extensive public
transportation, far higher savings, a positive balance
of trade, little debt, and GDP and productivity growth
rates equal to or better than the current rates in the
Despite the comparison, American economists cannot seem
to resist criticizing Europeans and giving them bad
advice. The European Central Bank, for example, has been
chastised for being too cautious. Unlike our rapid rate
cutter, Alan Greenspan, for example, Wim Duisenberg,
head of the ECB, seems hesitant - as if he was actually
concerned with protecting the value of the euro rather
than destroying it. The poor Europeans have gotten only
one, small � of a percent of interest rate cut, while
Americans have gotten 7.
Seven rate cuts are not necessarily better than one, of
course. (Here at the Daily Reckoning we have no idea
what interest rates should be and would be perfectly
happy to let Mr. Market find out for itself.) But we
have a hunch that Americans have benefited nor more from
rate cuts than they have from longer hours and greater
Readers with short attention spans may want to reduce
today's letter to a simple question: Who's dumber...
Americans or Europeans? In response to that question, we
offer both an answer and another guess about the future.
"Ja, the Europeans are stupid," Dr. Richebacher
explained. "They are so stupid they actually believe the
American economic myths more than the Americans
Dr. Richebacher's evidence is the U.S. current account
balance...or, lack of balance. Europeans' faith in the
U.S. dollar and the U.S. economy is so strong that they
are willing to finance them both - with no guarantees.
Not even a 'thank you.'
Instead, Republican economic advisor Lawrence Kudlow
appeared on TV and called the European currency a
'europeso" and suggested that the European Union should
"These foreign fools seed us $155 billion in the
preceding quarter and we not only have no gratitude,"
writes Edmund McCarthy of Financial Risk Management
Advisors, "(and outside certain arcane circles, no idea)
and we take then to task for thinking that they have
rights on what our biggest borrowers should be able to
do in their alleged countries!"
Thanks to the foreigners, Americans can spend money they
"They [Americans] have been doing something that's
probably irrational from the point of view of the
individual consumer," commented Dallas Fed governor,
Robert McTeer, over the weekend, speaking of the trend
he and other Fed governors helped put in motion,
"because they all need to be saving more: saving for
retirement, saving for college and all that. But we'd be
in bad trouble if they started doing that rational thing
all of a sudden. We're happy they're spending. We wish
that they didn't run up a lot of debt to do it."
While Americans spend money, Europeans save it. Big U.S.
borrowers - notably Fannie Mae and Freddie Mac who,
along with the other government-backed debt monger, the
Federal Home Loan Agency - sell bonds to gullible
Europeans and then use the money to buy American
mortgages. Doing so, they have run up debt equal to one-
third of America's GDP.
"We barely even know what credit cards are here in
Europe," continued Dr. Richebacher. "Everyone has
plastic bank cards, but there are no lines of credit.
They take the money out of your bank account as soon as
you spend it."
American economists consider this lack of credit an
economic handicap. Dr. Richebacher considers it a
blessing. "This emphasis that Americans place on
consumer confidence and consumer spending is a big
mistake," he commented.
Big mistakes have bad consequences. The American economy
rests on levels of consumer spending that could only be
achieved by increasing levels of debt...enabled by
European investors. Any hesitation on either side is bad
news for the economy, foretelling collapsing share
prices, a falling dollar, further drops in corporate
profits, layoffs, and recession.
And thus we come to our forecast:
"At some point in the second half of the year, it is
going to become clear that the American consumer is
cutting back," predicted Barton Biggs in June. Perhaps
it is becoming clear already. The latest numbers show
the growth of consumer spending declining rapidly
(though still positive....barely). Savings rates just
hit a two-year high...and are rising.
Meanwhile, Europeans seem to have begun hedging against
the dollar. The euro has gained more than 10% against
Americans and Europeans may both be dumbbells. But they
are getting smarter.
on the scene and on the ball...in Europe...
"The man who predicted the Asian crisis," says the
respectable French magazine, Le Figaro, of Austrian
economist Dr. Kurt Richebacher. To learn more about, and
profit from, the good Doctor's views, please see:
The Inevitable Crash Landing Of The US Economy
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.