Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 10 SEPTEMBER 2001
*** Stocks down - panic ahead?
*** What's up? Well, people are beginning to understand
how a bear market works...and the Europeans are
beginning to notice that dollar-based investments are at
*** More pink slips...spending slowing...GE below
Last week was not a good week for stock market
investors. The Dow dropped 234 points on Friday alone,
bringing the week's losses to 3.46%.
What's going on? Investors are beginning to
realize that we're in a bear market - and it's not just
the tech sector.
Big, mainstream Dow companies are taking a
beating. Walmart, the nation's leading retailer, was at
$70...now it's at $46. GE lost 2% of its value on
Friday, closing below $40. AOL is down to $32 - after
losing 2/3rd of its capital value.
Fannie Mae, Freddie Mac and the builders are also
heading down - suggesting that the real estate bubble
may also have reached its end.
Little by little, investors are beginning to
understand that the virtuous circle of expanding credit
- increasing sales - increasing stock prices...has
turned into a vicious circle of collapsing profits and
pink slips, which will inevitably be followed by
declining sales, more layoffs, further cuts in profits
and ultimately, lower stock prices.
"The market looks ahead 6 months" - or so they
say. Stock buyers are looking ahead towards a recession,
bankruptcies, and deflation.
Bond investors, too, seem to be anticipating
deflation. The premium they are willing to pay for
protection against inflation (as measured by the gap
between inflation-adjusted TIPS and normal 10-year
notes) has fallen to just 1.52%. America has hardly ever
seen inflation rates that low since the end of the Great
Depression. But that's what the bond market is telling
us to expect.
Addison Wiggin in Paris:
- "The market - and investors - are going to have to
sweat for every penny of upside in the future," reports
the Industry Standard. The S&P closed Friday at levels
last seen in 1998. Those "buy and hold" investors who've
held on for the long run have toiled away for three
years and come up empty-handed.
- The jobless rate rose to 4.9% Friday from 4.5% in
July. 550,000 people have been "made redundant" in tech,
or tech-related industries, since the beginning of the
year. "The U.S. labor market will deteriorate sharply,"
reports Bloomberg, "hitting consumer confidence, retail
sales and slamming the brakes on recovery."
- News also came Friday that manufacturers laid off
twice as many people in August as in July. People with
no savings and no paychecks make poor consumers. They
can spend for a while, but not for long.
- That's why credit card debt write-offs soared to $2.8
billion in the last quarter...up 27% from a year ago.
People can still spend - by borrowing against credit
cards and home equity. But they can't keep up with the
debt payments when they lose income.
- Things don't look too good for new hires either.
Colleges, says an article in the Dallas Morning News,
are "taking steps to prepare their students for a
Spartan job market." [We have no idea what a Spartan job
market is...no figures are available to us on the
employment picture in ancient Sparta. Perhaps he meant
"sparse".] Businesses report that they plan to hire
nearly 20% less new grads in 2002.
- And there's evidence that consumer spending has
started to act out Greenspan's worst nightmare in broad
daylight. The big "c", which makes up 2/3 of the U.S.
GDP, slowed by 16% in the 2nd quarter. "The most telling
[sign of the times]," writes The Blue Team's David Tice,
"is that people who still have jobs are fearful and are
firing their maids and lawn care services. Cell phones
and cable services have been canceled and entertainment
has been reduced to Blockbuster."
- Another sign of the times? The dollar dropped 1.3% on
- And the Chicago Board of Exchange Gold Index (GOX) was
up 3% on Friday. "Foreign demand for gold rises when the
U.S. dollar weakens," says Dan Denning, editor of The
Daily Reckoning Investment Advisory. (Dan issued a buy
on a new gold play Friday morning - and watched it rise
1.5% by the end of the day. If you are not currently a
Blue subscriber, please see and subscribe today:
"After The Tech Wreck"
- As I reported in The DR Weekend Edition, Friday saw
the S&P 500 fall 20 to 1085. The Nasdaq logged its own
worst close since April 4, down 17 to 1687. And the Dow
followed up its 192 point loss Thursday with a 234 drop
Friday to close out the week at 9605 - also a low since
April 4. Only 216 points remain between here and the
Dow's weakest finish for the year.
- The opening days of September have been brutal for
stocks. Last week the Dow lost nearly 3.5%, but it and
the S&P are down 8% since opening trading on the 27th of
August. The Nasdaq tumbled 6.5% for the week, and has
lost nearly 12% in the last 10 trading days.
Back to Bill, also in Paris (we're all in Paris!):
*** This may be another big day on Wall Street.
Investors are nervous. So far there has been no panic
selling on Wall Street. But don't rule it out.
*** Nor should you rule out a big bull rally. "There
should be a major rally...that could last for a year or
more...before the final collapse," warned Sheldon
Jacobs, a mutual fund "guru" whom I had the pleasure of
meeting with over the weekend.
*** Stocks could go wild on the upside or wild on the
downside. Either way, the fools need to fully express
themselves before the bear market is over.
*** But thank God for fools. It would be no fun watching
the market without them. And they will drive stocks down
to bargain prices - at P/Es below 10 - before they
finally hit bottom. Until then, the best advice is to
enjoy the spectacle from a safe distance.
*** What else is new?
*** Well, I notice that the Japanese stock market is
still racing Wall Street to the bottom. The Nikkei
closed at just 10,280 on Friday as economic conditions
reached their lowest point in a quarter of a century.
*** And, oh yes, Elizabeth got into London after two
very nice women carried her passport over to her in
Paris. We enjoyed a couple of days on our own in London
- that is, without children. We rode the big Ferris
wheel on the river, visited the national portrait
gallery, had lunch at the Savoy...and went to church at
St. Paul's Cathedral...more below...
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THE LIVING UNIVERSE
If any man come to me, and hate not his father, and
mother, and wife, and children, and brethren, and
sisters, yea and his own life also, he cannot be my
The Reverend Canon Philip Buckler wrestled with the
above passage in his sermon at St. Paul's Cathedral in
London on Sunday. He is not the first to do so. For
hundreds of years, this quotation has bothered and
bewildered men of the cloth of all denominations - from
purple-fringed priests to bible thumpers in sweaty
This was one of Jesus's "hard sayings" - hard to make
sense out of. Because the words seem as much a
contradiction of Christianity as the Albigensian crusade
or the Borgia popes. It is almost as if Christ forgot
himself that day.
Immediately prior to the Reverend Mr. Buckler's sermon,
the world-renowned boy's choir had already revealed the
Dressed in black robes and crenulated collars, the boys
"Love is his news, love is his name...love is his law,
love is his word...love is his name, love is his law..."
Which is it? Love or hate? But consistency is the
hobgoblin of small minds...and Jesus had no small mind.
Surely the learned translators of King James' day would
have translated the passage more conveniently if they
could have. Digging into the etymology of Aramaic or
Greek words, they might have discovered that Jesus must
have meant that you should "prefer" the kingdom of God
even to the most important and basic pleasures of human
life...and even life itself.
And yet, there it is, the dreadful word, "hate" - like a
wart on a model's nose. It is there for everyone in the
world to see and to wonder about.
"Could it be that Jesus exaggerated, just to make his
point?" asked Mr. Buckler from his gilded pulpit.
Before him, an audience of casual worshippers would have
been perfectly happy to believe that Jesus overstated
Most of those sitting in the rows of chairs seemed to be
tourists enjoying the spectacle of pomp and splendor,
rather than a regular church congregation.
American tourists were there - recognizable in their
blue jeans and running shoes. The Japanese tourists were
recognizable too - with their orange hair and cameras.
There were even a number of British tourists - middle-
aged couples who looked as though they had come down
from Leicester or up from Brighton for the weekend.
But Buckler knew better. "The Exaggeration Hypothesis"
might be slipped by the lumpenchristians, but it
would never pass through the ranks of ecclesiastical
glitterati around him. For there was an entire team of
priests, deans, vergers, wandsmen and canons upon the
stage...including the lead priest, a pale man with the
feeble, twitty voice of an aged vicar, and a team of
clerics dressed in shimmering silver lame gowns.
If Jesus' words could be dismissed as hyperbole in this
case - maybe he was exaggerating about other things too.
Maybe he did not really mean you should "love your
neighbor," for example. Perhaps "admiring" or
"respecting" your neighbor would be good enough.
And so the churchman put up a fight. Not as dramatically
as an angel might wrestle with a devil or as amusingly
as two fat women might wrestle in a mud bath. The
contest was more the equivalent of a computer nerd
trying to open a bag of potato chips. And like so many
priests and pastors before him, Mr. Buckler was unable
to get it open.
Daily Reckoning readers may wonder what this has to do
with investment advice. I wondered too. So I put the
question to Dan Denning, Bible Scholar and Investment
Analyst, who just happens to be visiting us in the Paris
"The Bible is full of challenges and paradoxes," Dan
replied, "just like the financial markets. In this
passage, I believe Jesus is challenging his listeners to
understand that they can let nothing - not even life
itself - interfere with their love of God.
"But there's another side to this that has relevance for
investors. Jesus goes on to say that those who would
follow him must "give up all their possessions." The
idea here is that a person must be willing to forego the
here-and-now pleasures...that is, current consumption...
in order to realize a greater reward somewhere down the
This squares perfectly well with our understanding of
how economies really work. People must save money in
order to get richer. If they are not willing to set
aside some of their production - to delay gratification
in favor of a hoped-for but uncertain reward later on -
they will never get richer.
"Thus is the universe alive," wrote Emerson. "All things
P.S. - The living universe - created by God - has its
own ways of punishing sin and rewarding virtue. But
neither sin nor virtue is always easy to spot.
Fed governor Robert McTeer urges American consumers to
keep spending, recognizing that this may be "irrational"
for any individual household. Already deeply in debt,
spending more now - on the eve of recession - may not be
merely irrational, but a form of financial self-
loathing. But there is the paradox: what may be bad for
an individual, says McTeer, is good for the economy.
Is it really? Would the living, moral universe make a
virtue of spending money you don't have...and reward
those who spend their money rather than save it?
Who will turn out to be dumber - the Americans who spend
their money...or the Europeans who save it?
Will American baby boomers - who loved current
consumption so dearly that they put themselves further
in debt than any other generation - be saved by
inflation? Will their debts be wiped out like a slate of
sin by a forgiving god?
Or will they get what they've got coming - and get it
good and hard?
I don't know, dear reader. But we will all find out.
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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.