|
Co-brand
Partnerships
| |
|
|
|
|
| |
|
Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
|
LONDON, ENGLAND
FRIDAY, 7 SEPTEMBER 2001 |
|
|
Today:
Paying Dearly
|
*** Shares slump worldwide...Dow down 192 points...
*** British manufacturing suffers "worst collapse since
early 1990s"... US investors mired in the Sisyphus
cycle...
*** Smacking toddlers, naked chefs, beggars
castigated... and more collective insanity!
|
"Shares slump as recession grips industry,"
announces today's headline in THE TIMES of London.
"Rising fear over the economy sent the stock market
crashing to its lowest level in nearly three years
yesterday..."
The stock market THE TIMES referred to was the
London exchange. But the same might have been said for
almost any of the world's leading markets yesterday...
including the NYSE.
Manufacturing in Britain, as in America, is
"suffering its worst collapse since the depths of the
last full-blown recession in the early 1990s,"
continues the TIMES article.
Marconi, recently Britain's largest industrial
company, has seen its bonds downgraded to junk status.
The stock has collapsed by 95% in the last year and on
Tuesday announced another 6,000 layoffs - including the
chairman and CEO.
Also front page news in the TIMES: "Smacking of
toddlers to be a crime." On page 3, we learn that a man
won $800,000 in a jumping contest on a lame horse. And
on page 5, we find a photo of a model who is to replace
Liz Hurley in perfume ads.
Nobody with any sense takes the news seriously.
The 'news' is merely a compilation of the latest fads,
group-stupidity and collective insanity. The media
merely focuses and amplifies the effect - helping
stupid people do stupid things all together.
Unlike the U.S. papers, the British press has few
pretensions of High Purpose. "Naked Chef tells of bun
in the oven," informs us that a TV chef is going to be
a parent. And later, we discover that "Britain faces a
climate as cold as Canada," a news item that warns of a
slowing in Gulf Stream. Get out your overcoats. If the
Gulf Stream flow keeps weakening at the same rate -
Britain will be 40 degrees cooler in half a century!
Meanwhile, across the gutter, that is...on the
facing page, "Beggar castigated," reports the TIMES.
Ouch...that should discourage them...
But back to the financial news. Addison reports
from Paris:
*****
Addison Wiggin watching "The Street" from France:
- "The tunnel at the end of the light," Andy Serwer of
The Street Life called it this morning. "Remember back
in the spring of last year, when the Naz was at 5000?
Well, there were bears out there then saying stuff like,
'I wouldn't be surprised if the Nasdaq traded down as
low as 1600 or 1500!' That was pure hooey, right? I
mean DOOMSDAY scenario."
- Well, surprise...er, again.
- By the time the dust settled yesterday, the Dow
was down 192 points and the Nasdaq sank for the seventh
of eight sessions - leaving all major U.S indexes
precariously close to "new" lows. Consider, with my
compliments to USAToday, these figures:
* The S&P 500 - "a proxy for the broader market" - slid
more than 2% to 1106, less than 4 points above its
April 4 low of 1103.
* After falling 53 points to 1705, the Nasdaq need only
fall 67 more points to retest its own April 4 low of
1638.
* If the Dow slips another 451 points - it will be
sitting smack dab on its March 22 low of 9389.
- Investors in the US have entered the "Sisyphus" cycle
of the bear market...
- Sisyphus, you may recall from Homer, was the wisest
and most prudent of mortals... but having stolen
secrets from the Gods was banished to Hades. His
punishment there was to perpetually push an enormous
boulder up a steep incline... only to watch it slide
back down lower than its original point, from whence he
was condemned to begin again - and so on, for eternity.
- Investors in the US stock market have been laboring
for "profits" - under the illusion of a "second half
recovery" - for 5 months... only to find themselves
exhausted and the market straining to maintain a
foothold against former lows.
- How long will this downward part of the cycle last
before investors can begin pushing upward again? Well,
it's anybody's guess. But, here may be a clue...
- "Japan is in outright recession," writes Daily
Reckoning cohort John Mauldin, "monetary deflation is
the order of the day. Their market is now where it was
in 1984 - a 17 year low! And there appears to be no
bottom...
- "Ten years ago people were writing about Japan Inc.
and telling us that the future was Japan. The US was
but a fading star. Now we find the Japanese miracle was
but a mirage, built on false premises and manufactured
money."
- Our sake drinking brethren are rooting around for a
foothold back to a time when Caspar Weinberger had opinions
you might have cared about.
- Meanwhile, "we have warned this would happen," wrote
Dr. Richebacher in August. "This traumatic profit
disaster ... has an obvious reason: Poor profitability
in large parts of Corporate America over the past few
years was obscured by deceptive propaganda and large
windfall gains in the booming stock market."
for more see: Profit Meltdown
*****
Back to Bill in London:
*** I got a call from my wife at 5:30AM this morning.
Elizabeth was still in Paris, but preparing to take the
train up to London for the weekend. Just one problem...
I had taken her passport.
*** So I rushed over to Waterloo Station and looked for
someone with an honest and helpful face. What I found
was a pair of women with rather nice faces...So I threw
myself on their mercy...explaining the situation, I
asked if they would take Elizabeth's passport on the
train with them to Paris. They were very accommodating
and happily agreed to undertake the mission.
*** Thank God for the kindness of strangers.
*** Which gives me an idea....
*** Every day, I write to you. You let me into your
home, your office and your thoughts. I tell you about
my home, my family, my gardener...things you have no
reason to care about. But, you put up with my opinions,
rants and personal news.
*** Have I ever thanked you?
*** Probably not.
*** Well, thank you, all you kind strangers...
* * * * * * * Advertisement * * * * * * * * *
If it's not already clear to you - it should be: the
most "popular" investments of the end of the 20th
century will be death traps for your money in the 21st.
But you will never hear that from Wall Street.
SO WHO DO YOU TRUST, NOW?
This FREE report from The Fleet Street Letter outlines
a handful of 21st century winners - stocks you can buy
today without worry they will go the way of the dot-
bombs or the Big Techs. You'll also learn a safe
investment strategy you can count on to make money...
without getting taken in by the Wall Street sales
machine.
Read it, free of charge - then you be the judge:
http://www.agora-inc.com/reports/FSUS/PositiveProfits
* * * * * * * * * * * * * * * * * * * * * *
PAYING DEARLY
by Bill Bonner
"Much has been written about panics and manias, much
more than with the most outstretched intellect we are
able to follow or conceive; but one thing is certain,
that at particular times a great deal of stupid people
have a great deal of stupid money..."
- Walter Bagehot
Who is dumber - I revisit yesterday's question - the
Americans who think they can spend their way to
wealth... or the Europeans who enable their delusion by
lending them money?
There are a great many lunkheads in the world, as many
in Europe and Britain as in America. But today I write
to praise them, not to criticise. For, as Erasmus tells
us, we are all fools in our own time and in our own
charming way. And so much the better.
Rational consumers, as Robert McTeer explained
yesterday, would have cut back spending and lopped off
the economic expansion a long time ago. Rational
investors would have sold dot.com and tech shares long
before the bubble even began to lift off.
Thank God for all of us fools. We allow bull and bear
markets to fully express themselves - and put on a good
show doing it!
The newspapers are full of stupid people doing stupid
things. Some of the fools are news makers. Others are
just reporting it. Whatever their role, fools make the
World go around.
Reading the news in 1989 - as I have mentioned ad
tedium - would have left you with the impression that
Japan was a booming economy where everyone was getting
rich. In fact, it was beginning a downturn that would
last for more than a decade and wipe out 3/4ths of all
stock and real estate values.
Reading the news in 1999 would have given you a similar
impression of America. You, dear reader, can recall
those days as well as we can, so there is no need to
remind you.
Yesterday, the Dow went down nearly 200 points. If
historical patterns hold, we will look back in a few
years and realize that, today, we are just entering the
second stage of a major bear market. The bear has
mauled the outlying tech stocks. Now, he is moving in
on the center of the herd - the Dow stocks...IBM...
GE...Microsoft.
In fact, if this bear market repeats the pattern of the
last two major bear market cycles in the U.S., many if
not most people reading this Daily Reckoning will never
again see share prices at these levels in their
lifetimes. Investors should be preparing for more than
15 years of falling prices and a collapse of their
assets prices to about a quarter of today's levels.
Markets make opinions, as they say. Eighteen years of
rising share prices has led to the opinion that share
prices always rise. 'Nothing beats a well-diversified
portfolio of long-term stockholdings," the mutual fund
ads promise.
Recent history has also left many people with the
opinion that the entire secret of successful economic
management lies in manipulating consumer demand by
running interest rates up or down.
"Since the introduction of active demand management
policies in most capitalist countries after the Second
World War," writes Anatole Kaletsky in today's TIMES,
skillfully making the macro-economic apology for the
spendthrift attitudes in the Anglo-saxon world,
"economy-wide recessions have always been caused by
demand reductions that were provoked by monetary or
fiscal squeezes and never by supply shocks in one
particular industry such as energy, property or IT.
"The present economic cycle looks like a classic
example," he continues. "Interest rates have been cut
dramatically in America. At the same time, the U.S.
Government is sending out large tax rebates. As a
result, the American and British economies seem to be
starting to accelerate, after exactly the six to nine-
month lag suggested by experience."
Nine months after what, readers may want to know. Oh,
after the most aggressive attempt at demand management
in history...
Markets make opinions, I repeat.
And the press disseminates them, disguised as 'news'.
To be more precise, markets make the stupid opinions
that you hear in the media....the very opinions that
permit the fad du jour to reach its culminating peak of
madness. "...At intervals," as Walter Bagehot put it,
"... the money of these people - the blind capital, as
we call it, of the country - is particularly large and
craving; it seeks for someone to devour it...there is
'speculation'; it is devoured, and there is 'panic'"
Bob Woodward helped give American media hacks their
conceit of high-mindedness with his Watergate fandango.
It was no accident that he also brought American
investors a book lauding Alan Greenspan as 'Maestro' on
the very eve of the bear market in the Fed chief's
reputation.
No one manipulates demand better than Alan Greenspan.
And few doubted that the Maestro's effort would pay off
when, in early January, Greenspan began his rate cuts.
Perhaps you recall this comment: "Even if this doesn't
work," said Ed Yardeni, or words to that effect, "there
are 600 basis points between here and zero."
Since then, rates have been cut an additional 6 times,
leaving only 325 basis points to zero. So far, there
are no real signs of recovery. In fact, things seem to
be getting worse. Here is a description of the current
situation from Frederick Sheehan, reported on
Prudentbear.com:
"Equity ownership in homes, as a percentage of market
value, has not been this low since World War II. Home
sales are at an all-time high and prices are rising.
[T]his 'day-trading' of houses is a good indicator of a
speculative asset. The installment debt of U.S.
consumers, as a percentage of disposable income, has
never been higher. The ratio stands at 21.7% today,
compared to 17.9% in 1992, the post-recession low,
after a 19.6% high in the Greedy Eighties.
"Another ratio: U.S. mortgage payments as a percentage
of disposable income is at an all-time high: 6.5%
today, 5.7% in 1992 and 6.3% at its peak in the
eighties. Credit card balances are rising, as are
credit card delinquency ratios. Since durable and non-
durable goods sales have gone nowhere this year,
households are adding more debt - including home equity
loans - and hoping they can bail themselves out. How?
Maybe VerticalNet will come back."
Maybe VerticalNet, Amazon and Cisco will come back. But
it is not likely. It has never happened before. When
the leading stocks of a bubble go down - they rarely
come back....ever.
And...gradually....opinions change as stupid people
wise up, having paid dearly for their instruction.
Bill Bonner,
helping to make the World go around.
P.S. "The industries that are likely to lead the next
economic expansion are coming into the financial
headlines. And they are exactly the businesses -
property, retailing and consumer finance - that usually
prosper in an environment where investment in machinery
is still declining and the stock market remains
shaky..."
Ah...that is the hope....that demand can be stimulated
once again....and that real estate will give consumers
the purchasing power to allow them to continue
spending.
Will it? Can it? I will take a wild guess about Dr.
Richebacher's answer - "Rubbish!' - and rejoin the
question on Monday.
* * * * * * * Advertisement * * * * * * * * *
The World's Best "Job"
Imagine a job in which you set your own hours, and live
wherever you please: at the beach, in the mountains, in
an apartment in Paris, London, or Berlin.
As a copywriter, you can. I know. I spend my summers
"working" in 14th century chateau in France. Here's how
you can learn the secrets of this little-known,
lucrative business...
http://www.thewriterslife.com/opportunity
* * * * * * * * * * * * * * * * * * * * * * *
|
|
|
| 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.
|
|
|
|
