In Today's Daily Reckoning:
*** The 'Summer of Love' gives way to the 'Autumn of
Anxiety'...
*** When stocks go down...so does retail spending. More
alarming earnings announcements...ahead.
*** The economy is the stock market. Evening in the
Tuileries Garden...and more...
*** More bad news from Asia. The Summer of Love is over.
The Autumn of Anxiety seems to have begun a couple of
days ahead of the calendar.
*** South Korean stocks were off 3% soon after the market
opened for business this morning. Then, they bounced
back...but remained in negative territory. They've lost
ground in every trading session in September.
*** Hong Kong stocks were down 2% at noon. And Tokyo
stocks are struggling to remain over 16,000. The Nikkei
was almost at 40,000 in January of 1990. Here it is, ten
years later, and investors are still down more than 50%.
*** During the last 5 of those years, Japan's interest
rates were near zero. But when people lose the urge to
borrow, even interest-free loans will be turned down.
*** Meanwhile, back in the USA, the Nasdaq fell 108
points, or 2.83%, yesterday. And the Dow followed in
synch, dropping 118 points, or 1.08%.
*** There wee 2,215 stocks declining yesterday - against
only 683 advancing. More surprising, the number of new
highs dropped to just 92 - while 115 hit new lows. This
reverses the trend of recent weeks, in which the number
of new highs has outpaced the number of new lows by 2, 3,
or even 4 times.
*** The financial media blamed the pullback on surging
oil prices...and the slumping euro...both of which are
hurting earnings.
*** Oil rose above $37 overnight and is now trading at
around $36.73 per barrel. The New Economy may be more
efficient in its use of oil per unit of output...but
there's more economic activity all over the world. More
cars. More heavy machinery. More power plants. And most
of it runs on oil.
*** Inflation-adjusted, that is, compared to the dollar,
oil is still pretty reasonable. It has been about $30 a
barrel, in yr 2000 dollars, for about 100 years. It's not
too far from there now. But it is a long way from the
1/60th of the Dow that it has averaged for the first 9
decades of the 20th century. The current ratio is 1/310.
Either the Dow is much too high. Or the oil price is much
too low.
*** A re-adjustment is in order. Most likely, it involves
a reduction of the Dow by at least 50%.
*** The Big Techs are becoming less big by the day.
Yesterday was not a good day for them. They are trapped
in a Kursk from which they can't escape. The Big Techs
aren't worth their prices. Without the buoyancy of
Popular Sensation...they will sink to the bottom.
*** Qualcomm seemed to find an air pocket yesterday. An
analyst upgraded it which sent the price up $3.50. But
it's still more than $130 beneath the $200 high it
registered in early summer.
*** The dollar rose against the euro. Why do I bother to
report it? The dollar always rises against the euro. The
French franc is at 7.68 to the dollar. The rent on my
Paris apartment has fallen by $500 since last year at
this time. If you ever wanted to buy something in Europe
- this may be the moment to do it. More below.
*** Al Gore's top economic advisor said yesterday that he
expects the dollar to "tumble" sometime in the next
decade. A safe bet.
*** Now Ed Hyman confirms what Dr. Richebacher observed:
when stocks go down, so does retail spending. Hyman
reports that retail spending seems to track the Nasdaq
100. When stocks are up, consumers spend more.
*** With no savings to speak of, consumers have little
margin for error. Most, according to a Bloomberg study,
live "paycheck to paycheck." They have lots of debt - and
look to their stock portfolio statements for a measure of
their spending power. The stock market really is the
economy.
*** So, when stocks go down - expect an immediate
downturn in the economy too.
*** Gold dropped $1.90 yesterday. Platinum went up $8.
*** "No matter how the equity markets open this
morning... this is not the time or place to 'buy the
dips'," warns Kevin Klombies our resident expert in
'inter-market analysis'. "[T]here is an international
factor at work more powerful than most will realize." A
sharp decline in share prices - from London to Sao Paulo
to Singapore indicates growing worldwide selling
pressure...a crisis similar to the Asian Contagion seems
to be forming.
(see: If You're Planning to Buy the Dips - Beware)
*** I've been experimenting with various routes on my
perambulation home each evening. Last night I walked
through the Tuileries garden and then along the river to
Trocadero. The chestnut trees are shaped so they form a
high wall of green along the riverbank. Lovers strolled
arm in arm through the gardens as the soft, evening light
of late summer illuminated the yellowing leaves. The
French have been working on these gardens for hundreds of
years. The effort is paying off.
The truth? America is still in the grips of the largest
credit expansion in world history. For every dollar added
to the GNP, $2.92 has been added to the debt. But here's
the kicker - it's NOT government debt! In this special
on-line report one of the world's preeminent Austrian
economist reveals the truth behind the 'longest peacetime
expansion' in US History. And how you can prepare now to
protect your money when this house of cards begins to
crumble:
(http://www.agora-inc.com/reports/RCLF/OrderToday)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"The race goeth not to the swift, nor the battle to the
strong. But that's the best way to bet."
Jimmy Breslin
"Everybody is in such a hurry," said Mr. DesHais. "But
you can't hurry a good cucumber," he continued, showing
me one of his huge trophies. He was putting them in a
shed.
"They're for seeds for next year. We won't have to buy
many seeds next year. We'll have our own. We'll know what
we're getting. And it's a lot cheaper."
Mr. DesHais...part-time gardener, sometime philosopher,
and full-time dipsomaniac...resists the trends of modern
life. He is no fan of the division of labor. No digital
man. A good salad, to him, is worth more than a good
stock tip. A glass of good, homemade liquor...cannot be
valued at all. It is something beyond the money economy -
like love and faith.
Mr. DesHais' traditionalism is thought to be emblematic
of Europe's troubles. Like Mr. DesHais, Europe is widely
considered "too rigid" and too conservative to fully
benefit from the new technology and the free-spending,
easy-innovation ways of America.
In the minds of many Americans, Europe is in a permanent
slump...a world that will always be old, with a society
that is always on the verge of rigor mortis. America, by
contrast, will always be a new world, pullulating with
new ideas, and robust energy.
Not that there aren't troubles in Europe. And not that
there aren't good things happening in the American
economy. But the burden of today's letter is that both
are exaggerated.
One of the hints that 'The Trouble With Europe' thinking
might be overstated is a pair of recent articles in the
New York Times. They take up one of Al Gore's favorite
campaign targets - working families - and examine their
lives.
'Working family,' is of course, a meaningless
abstraction. Families don't work. People work. And the
number of families in America without a member who works
is not enough to fill a polling booth. Al means people at
middle-income levels - who, we discover, seem to have
benefited little from the New Economy.
In the last quarter of a century, weekly wages, adjusted
for inflation, have fallen 13%. Americans have only been
able to maintain their standards of living by putting
more family members to work - and by going further into
debt.
"Median family income," reports the NY TIMES, "is likely
to pass $47,000," for 1999. "It was $46,737 in 1998. The
gain is small potatoes compared with the most recent high
point, $44,974 in 1989, an increase since that year of
about $2,000 or 4.5%."
In the last ten years, in other words, median income is
up a paltry 4.5% - not even a half a percent each year.
And this is the median. Half the families in America must
have done worse.
And even that does not fully describe what has happened.
The average poor schlep works a lot harder and longer to
get even that measly increase. The Bureau of Labor
Statistics reports that the average American works 2
hours more per week than in 1982, a number that is
probably distorted to the downside, because more and more
women entered the workforce - and many of them are
working short hours.
"Twenty years ago," said a senior economist at the BLS,
"you had one person in the household working. Today,
you've got two. And who goes to the grocery store now?
Who takes the check to the bank on the weekend? Who does
the dishes after dinner?"
These are the sort of questions Mr. DesHais asks, too.
Even without a degree in economics, he wonders whether
the rush, rush, rush society is really the big
improvement it is believed to be.
"It takes a lot of time to make a good ratatouille," he
told me. "Or to put up all those tomatoes. Oh la la. Did
you see all those tomatoes I canned? But then, you have
something really good."
Americans (and Europeans too) work more than ever. You
see them on the subway...reading their reports. On
airplanes, they work on laptop computers. Even walking
down the street, you hear bits and pieces of business
conversations...coming from the mouths of men and women
who look perfectly sane - yet speak to the air in front
of them.
The information age has made it possible for people to
work, regardless of the time of day, the place, or the
weather. There is no off-season - no idle time waiting
for the rain to stop and the fields to dry. No quiet
hours around the campfire until the dawn brings a new day
of activity.
The Europeans, in their more conservative - and perhaps
more socialistic - way, have done much better than
Americans. Instead of the bogus productivity increases of
the BLS, Euroland has become more productive the old
fashioned way - by turning out more real goods and
services per hour worked.
"German manufacturing since 1995," observed Dr. Kurt
Richebacher, "accomplished an overall productivity gain
of 30%, averaging 6% per year. In East Germany...it was
almost 10% per annum."
How does this compare with America? "Productivity growth
in the manufacturing sector, other than high tech, [in
America] remains stuck at an unusually low rate of 2%
annually, comparing miserably with Germany's 6% rate."
Steady improvements in productivity have permitted a
steady increase in earnings in Europe, where "real wage
rates have virtually doubled," according to Dr.
Richebacher, since 1973. "Just as an aside," he adds,
"the average European has six weeks paid holidays every
year, as against two weeks in America."
Meanwhile, the monetary champions of both Europe and
America - the euro and the dollar - battle it out in the
currency markets. The betting overwhelmingly favors the
dollar. The euro is a long shot...with long odds. Thus,
were it able to deliver an unexpected sucker punch to the
greenback, investors in the euro would realize a
substantial profit.
The odds are set by players who may have the wrong idea.
Like soccer crowds and voters - they may be reacting to
herd thinking and empty slogans, rather than careful
analysis or observation. Thus, they may have gotten the
odds wrong.
If the euro were to connect with a good upper cut...or
maybe even an old-fashioned haymaker...the next round
could be surprising.
Your correspondent...ringside...
Bill Bonner
P.S. The world economy seems to be slowing...and the
dollar is dangerously exposed to collapse. The best
investment for the next 6 months might be euro bonds.
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Last modified: April 01, 2001
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