In Today's Daily Reckoning:
*** Big Techs - tapping on the hull - they're still alive
*** Oil is alive too...and still greatly undervalued
relative to the Dow
*** Could we be returning to early 70s?... where you can
still exploit the workers...and, of course...more!
*** The Big Techs, I suggested yesterday, are entombed in
a Kursk of sinking prices. They're well below their
highs... and, in my humble opinion, there is no way they
will ever make it back to the surface.
*** But yesterday, we heard a little tapping on the hull.
They're still alive! There was a "flight to more
expensive stocks on the Nasdaq," reported Reuters. This
took the index up 44 points, reversing - for the present
- the trend of the last week.
*** JNPR rose almost $9. Cisco and Oracle gained about
$2.50 each. Intel is holding a bit above $60. Cisco is
still a little below the $60 mark. And Microsoft, at
$67.50, is still down more than 40% below its high of
$119.
*** But the action on the Dow was less uplifting. The
index fell 51 points - with no particular theme or
direction.
*** J.P. Morgan is being purchased by Chase for $35
billion (in stock). This sent JMP shares to an all-time
high of $182. Chase shares declined $5.40.
*** "A Return to the 70s" announces a headline in Le
Figaro. The paper refers to the rising price of oil. In
1972 a barrel of oil cost about $12. Two years later, it
was nearly twice that amount.
*** Already, oil has tripled in the last 2 years. But
there could be other similarities with the early 70s.
Arthur Burns presided over the Federal Reserve. He asked
his economists to figure out what inflation would be if
they took out 'volatile' oil prices. And guess what -
inflation was lower. This lulled them into complacency,
from which they failed to detect the even greater
inflation ahead.
*** Several regional Fed bank officials warned of rising
inflation pressures yesterday. A 200% increase in the
price of oil, coming at a time of full employment, could
result, they said, in higher consumer prices.
*** Not to mention a continued surge in the money supply.
Cash is increasing nearly twice as fast as the GDP. More
money, relatively fewer goods and services...hmmm...
*** DR reader AG writes: "If the dollar and oil continue
to trade at new highs, will this cause the US stock
markets to fall? Crude oil is priced and paid for in US
Dollars. My thought is that the higher energy prices will
compete for the US Dollars that are now being reinvested
in the US markets from foreigners. The foreigners will
need more US Dollars to pay off their energy costs.
Therefore there will be less US Dollars available for
investment in the US stock markets..."
*** The relationship between oil, stocks and the dollar
is worth exploring. In the fall of 1972, oil was about
$12 a barrel, and the Dow was about 950. So, it took
almost 80 barrels of oil to buy one unit of the Dow. But,
as I pointed out yesterday, you will need 312 barrels of
oil to buy a unit of the Dow today.
*** By 1974, the Dow had lost a third of its value...and
the price of oil had doubled. Let's see...the price of
oil has already more than doubled. But it is still very
cheap relative to the Dow. Let's say it doubles again -
to around $70. And if the Dow fell by a third, it would
be around 6700. Even this would leave the oil/Dow ratio a
little rich. You'd still need more than 95 barrels of oil
for each unit of the Dow.
*** Of course, the world's industries have become more
efficient too. A unit of output now only takes half the
oil it took in 1970. So, let's say the proper ratio is
about 150 barrels of oil to every unit of the Dow. Either
the Dow has to be cut in half...or the price of oil has
to rise substantially... to reestablish the relationship.
*** Will history repeat itself? Marx said it did - first
as a tragedy...then as a farce. But Marx had no sense of
humor. The 70s was a farce. Since then it has been the
theatre of the absurd. What's next?
*** "Regardless of what pledges have been made in Vienna,
new OPEC production is not going to hit the market
anytime soon," says John Myers of Outstanding
Investments. "The reason? Oil tanker traffic is running
close to full capacity. According to the Center for
Global Energy Studies, 'There aren't any spare tankers to
move the stuff around.' In total the world has 3,100
tankers. But... the world consumes 76 mb/d today, up from
40 mb/d in 1968. Moreover, two-thirds of the world's
crude supplies must be shipped from the Persian Gulf."
(see: The Oil Tide Turns Towards Profits
http://www.dailyreckoning.com/body_headline.cfm?id=466)
*** On the other hand, "Oil is setting up a lot of trend
prices," says Pirate Investor Porter Stansberry "... the
bus is getting very crowded on the long side. A reversal
is imminent. I bet you'll see oil prices near $20 a
barrel by March next year, half the $40 that the oil
bulls predict."
*** Porter, by the way, a digital man, has invited some
of the leading thinkers in the high-tech world, the
people he says are "literally changing the face of
history," for a conference in Jamaica on November 5-9th.
If you're interested in joining him send an e-mail to
Andrea Shaw (andrea@pirateinvestor.com)...
*** A report in the Financial Times says that fraud on
the Internet is increasing. And "the total level of fraud
is growing so fast that it is eating into any price
advantage established retailers get from selling over the
web. Unchecked, it will affect their ability to make
profits."
*** "I think I speak for everyone out there (the entire
planet)," wrote a dull-witted hacker who placed his
message on the opening page of OPEC's website, "when I
say to you guys to get your collective asses in gear with
the crude price. We really need to focus on the poverty-
stricken countries..." he went on, in the usual way of
feeble-minded do-gooders. Like a member of the Children's
crusade of 1218, the hacker seemed to think that he could
conquer the Moorish oil producers with good intentions.
*** The dollar index rose 21 points. The euro barely
budged.
*** Gold rose 10 cents. Platinum, Oct. contract, fell
$102.0.
*** "...the stock market boom has not reached middle-
income families in any important way," says an economist
with the Economic Policy Institute by way of the New York
Times. "While median family income is up [to $46,737 a
year from just over $44,000 in 1989], so is family debt
and hours spent at work." According to the article, from
1995 to 1998 'middle' income workers "added 70 hours a
year of work on average... nearly 1.8 additional weeks.
And from 1989 to 1998 the increase in work time was 3.4
weeks."
*** Kathie Peddicord, International Living publisher with
whom I dined last night, reported that labor has gotten
tight in Ireland. After centuries of exporting its
surplus labor, Ireland is becoming a labor importer.
*** But thank God you can still exploit labor in some
parts of the globe. Kathie recently returned from Ecuador
where, she told me, the "cloud forest properties
(mountain land near Quito) are unbelievably beautiful and
unbelievably cheap." Labor is $1 per day.
*** And the Thom Bomb sent me this note from the NY
TIMES... evidence of the effects of global warming in
Noah's day: "Scientists said today that they had
discovered remnants of human habitation under the Black
Sea that they believe is the first proof that people
thrived along an ancient shoreline before it was
inundated by a great flood thousands of years ago."
"The expedition, sponsored by the National Geographic
Society and others, is part of a project to survey the
coastal waters of northern Turkey for signs life at the
time of the Biblical flood."
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Today, sick people rarely gather in public places. St.
Peter has been dead for almost 2 millennia. His shadow no
longer offers the hope of healing.
Today, people look for their miracle cures on the
Internet.
The Internet is a curious thing. It extends Solomon's
Porch - the open market of ideas and popular sensations,
as well as goods and services - to billions of people.
And yet, it is not exactly a mass media.
Before the invention of the printing press, mass
movements were difficult. Thinking was too personal and
isolated.
But the innovation of moveable type, cheap paper, and
easy distribution... not to mention public schools...
gave rise to mob thinking on a much greater scale.
People changed the way they thought of themselves -
corresponding to the reach of the media. Instead of being
villagers in Poitou or Perche, for example, the
newspapers, railroads, and telegraphic communications of
the early 19th century gave people a new identity.
The media introduced a new set of ideas and beliefs,
which the new French took up. They became citizens:
French citizens, with adversaries on two sides - across
the channel in Britain and on the other side of the Rhine
river in Germany.
The national identity was an abstraction created by mass
media and politics. The farmer in Poitou was no
different. He had the same struggle with nature. The same
sheep. The same wheat. The same neighbors and the same
God.
But the newspapers spoke of the "challenge posed by the
Germans"...or a blockade by the British fleet. Thanks to
the media, he was able to live his life on a wider stage
- with props and stock characters provided for him: The
barbarian Hun - ready to storm into France at any
opportunity... and perfidious Albion, the conniving Brit
- ready to stab him in the back as soon as he turned
around.
And there were other characters too - anthropomorphic
abstractions of national powers, much like the figures of
the Worldwide Wrestling Federation today.
Even at the end of the 19th century, a farmer in rural
Poitou might be expected to have an opinion about what
the Russian Bear might do if the Huns attacked sweet
little Marianne (the woman who represents France.)
More than a hundred years later, in Baltimore, a lively
debate occurred whose topic was the government of South
Africa. People who knew perfectly well that they had no
hope of understanding, let alone influencing, the way the
garbage was picked up in their own city, nevertheless
felt obliged to have an opinion about government policies
in a country in which they had never so much as set foot.
They had no idea what languages were spoken there...what
people ate...nor even who these people were. They had
never met a person from South Africa, had never read a
history of the country and could probably not have found
it on the map. But a good deal of their mental energy
nevertheless was taken up providing advice to people they
had never met. Bumper stickers defaced automobiles,
editorial comment and letters to the editor filled the
pages of the Baltimore Sun. Even political rallies on the
subject were staged in downtown Baltimore.
Mass, political thinking had reduced a very complex
situation in South Africa to a simple idiotic slogan 7
times zones away: Africa for the Africans!
The idea was, of course, absurd. Which Africans? The
Hottentots - which had intermarried with immigrants from
Portugal, Spain, France and the Indian Subcontinent - and
were then classified a "coloured"...or the 'white tribe'
of Afrikaaners who arrived in 18th century...or the black
tribe of Zulus who arrived a few years later?
The 'debate' was thus a farce - like a professional
wrestling match. But that is the tribal scar of crowd
thinking. Or, to put it digitally, the larger the
numerator of those taking part - the lower the common
denominator of content.
Mob thinking permits a Baltimore parole officer and a Los
Angeles computer hacker to participate in the same farce
- in which neither of them has any real idea of what he
is talking about. It is like a form of sign language for
illiterates...
I have already explained how the media depicted the
German invasion of Belgium in early WWI. The Hun was
shown ravaging poor, innocent little Marianne. The
Poitevin peasant was incensed. He made his way to
recruitment centers and thence to the front lines. All
over France, you can find monuments to these poor souls -
with the names of the dead chiseled in cold granite.
Throughout most of the 20th century, people responded to
the seduction of crowd thinking. They enlisted in the
cause of making the world safe for democracy...or giving
power to the workers...or fighting the red tide. For a
hundred years they responded to the jingoes and code
phrases - as if on cue, happily applauding whatever
preposterous jimcrackery mob thinking came up with.
After the Berlin Wall came down, however, the media
subtly shifted its attention from political concerns to
financial ones. The public has become a little callous to
the farcical election campaigns. Voting is down. "Isms"
have lost much of their appeal. People are skeptical of
mass thinking in politics.
David Ignatius, executive editor of the Washington Post,
explained recently that people were no longer worried
about the Russian Bear or Marianne. They're worried about
economics. TV shows, for example, such as "Who Wants to
Be a Millionaire" reflect the new popular sensation -
getting rich.
And the Internet, the Solomon's Porch of the 21 century,
seems to make it possible. All the world can now
participate in the biggest market ever - like having the
whole world gathered in a coffee-house in Amsterdam,
where tulips were traded...or under the buttonwood tree
in lower Manhattan. Gossip, rumors... get rich quick
tips... it all flies around at the speed of light.
Stock analysis has been replaced by jingoes. The New
Economy...the digital era...greater productivity...
abstractions are piled onto abstractions. And the
specific component ideas - when carefully examined - turn
out to be every bit as wobbly as those that supported the
20th century's silly political slogans.
But...of course...things still blow up from time to time.
As we will see...
Tomorrow.
Your demolitions expert-in-training, working on Solomon's
Porch,
Bill Bonner
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