|
Co-brand
Partnerships
| |
|
|
|
|
| |
|
Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
|
PARIS, FRANCE
WEDNESDAY, 26 SEPTEMBER 2001 |
|
|
Today:
Concrete and Oil
|
*** Greenspan pushes his string...
*** War not always bullish...confidence plummets...
*** "Bomb them all - let God sort them out!" And, of
course...more!
|
From Julian Snyder courtesy of Richard Russell:
"After 1929, the strangely forgotten (or covered
up) fact is that the Fed cut interest rates rapidly from
6 to 2 percent by early 1930. Pundits of the day called
the non-response to the cuts 'pushing on a string.'"
Greenspan has been pushing on a string too. Rates
have been cut from 6.5% to 3%, with results comparable
to those of '29.
Consumer spending - the last pillar of support for
the American Dream Economy - is now collapsing. "Home
sales slow after attack," says the Associated Press.
"Retail Sales Plunge After Attack," observes Reuters.
Consumer confidence has taken its biggest hit in 5
years.
"The bottom line throughout 300 years of
capitalism," Snyder goes on to explain, "is that
economic expansion, no matter how handled, is, at the
end of the day, like a balloon. When production has
filled warehouses with unsold goods, when credit is at
its limit, when the consumer is mired in debt, when big
media advertising can no longer con or beat the consumer
into spending more money, and the most ambitious
marketing plans (at home and abroad) have gone awry, the
balloon bursts or is rapidly deflated.
Usually, the greater the expansion, the more
severe the contraction. "President Franklin Roosevelt's
WPA and deficit financing policies proved in the end to
be futile. In 1940 the economy was still in depression.
Only Pearl Harbor saved the economic day with the need
for massive war production."
But is war always bullish? A DR reader challenged
us to find out. "The two wars most relevant to current
conditions [are] the U.S. Civil War and the War of 1812,
when the British burned the White House to the ground.
In no other war EVER has the U.S. suffered any damage to
the continental U.S. Do us a favor...go to the Library
of Congress and find out what Baltimore real estate or
some other asset of relevance did from 1811 to 1813."
So, I sent Becky (our ace researcher) to the
Internet as the next best thing. "Baltimore real estate
in 1812?" I detected a "mission impossible" doubt in
Becky's voice. "I guess next you'll want me to find
Osama Bin Laden."
Becky was unable to concoct an index of Baltimore
real estate during the War of 1812 - from the material
available on the Internet. But she found that Civil War
stock prices did indeed rise - 170% from 1861 to 1864.
During WWI, however, stocks rose only 40%. Alas,
prices rose 80% during the same period...which was
followed by the recession of '20-'21. At the bear market
bottom, of 1921, stocks were down 37% from their wartime
high and 13% below their pre-war values.
But let's see what happened yesterday on Wall
Street. Eric? (Watch Eric - this week only - on CNNfn,
9:30 to 11:30 a.m. est.)
*****
Eric Fry on the scene in Manhattan:
- Consumer confidence took a header in September, but it
was hardly a surprise. There is nothing confidence
inspiring about watching two of America's tallest
skyscrapers collapse and kill thousands of our citizens.
- The consumer confidence index plunged to 97.6 in
September from 114 a month earlier, according to the
Conference Board survey (conducted partly before and
partly after the Sept. 11 terrorist attacks). It was the
largest monthly drop since October 1990. The future
expectations index also fell sharply to 79.2 from 93.7
the prior month.
- Although this latest drop in consumer confidence was
dramatic, it merely continues a months long trend.
Most of the root causes of shriveling confidence
preceded the attack. Things like rising joblessness and
falling stock prices have been weighing on a heavily
indebted Mr. and Mrs. Consumer for some time. (More
below in this week's guest essay...)
- Wall Street shrugged off the expected bad news, as
investors focused on the task of buying marked-down -
but still richly valued - stocks. The Dow advanced 56
points to 8,660, while the Nasdaq squeaked ahead 2
points to 1,502. Of course, some stocks are richly
valued for a reason.
- Wal-Mart, for example, sells for a plump 30 times
earnings. But that's because the giant retailer
continues to mint money in an environment where many
retailers are struggling to avoid losses. Of course,
Wal-Mart may owe part of its resilience to the fact that
it operates in suburban America - far from New York
City. The farther one moves away from "ground zero," the
easier it is to buy a new toaster and a complete set of
commemorative Elvis Presley dinner plates.
- Looking out over the next few months, the retail
landscape will not exactly be feast or famine - more
like tuna fish sandwich or famine. Will anybody be
feasting?
- After wrapping up my appearance on CNNfn yesterday,
the TV station offered to call up a car service to drive
me to my office. I accepted. As we rode along through
the bustling streets out of Manhattan, I asked the
driver if his business had picked up since the attack.
My thinking was that all those Manhattanites who might
now be less inclined to ride the subway would be more
inclined to call up a car service to take them to and
fro. "Business is awful," he answered. "It's off about
70% since the attack."
- The problem, as my driver explained it, is threefold:
fewer people are going to airports, nobody is going to
lower Manhattan and all businesses are scared.
- It's hard to make lemonade out of those lemons. The
best that one can say is that air travel will likely
pick up over the coming months. In the meantime, it will
be rough going for the airlines, the hotel companies,
the theme park operators, etc.
- The way it's looking right now, if you go to Aspen
this winter, you might have the place to yourself. But
if we assume that most Americans will be traveling less,
will they not be doing something else more?
- Maybe they will go out for dinner and a movie a little
more often. Or maybe they will play Monopoly with the
family more often. Or maybe they will start reading the
Daily Reckoning from start to finish each and every day.
(Maybe we'll start writing twice a day!)
- In other words, subtle lifestyle changes might benefit
specific industries and/or specific companies. One hedge
fund manager told me that reduced spending on vacation
travel will mean rising discretionary spending on
children's clothes and toys. He likes Toys "R" Us. Call
it the "guilt" trade if you will. The fund manager's
hypothesis is that if Dad cancels the vacation to Disney
World, he'll have to make up for it somehow. Maybe he
will buy an extra toy here and there.
- Even if consumers rein in their spending a bit, there
is some good news out there for this ol' economy of
ours. Oil prices are falling, government spending is
accelerating, government bailouts are rising, tax cuts
are in place and Greenspan (remember him?) is expanding
the money supply rapidly. All told, our economy may just
rebound in spite of itself.
- Of course, any rebound will likely be short-lived
until corporate cash flows and balance sheets start to
improve. Greenspan's magic interest rate alone can't
pull those rabbits out of any hat.
*****
Back in Paris:
*** "Finally, we give Afghanistan 72 hours to turn over
bin Laden," wrote a helpful citizen. "If they don't, we
give them 72 hours notice so that their civilian
population can evacuate the city and then bomb the city
out. Next, the second city is bombed out. Etc. And so on
until bin Laden will not even have a tower to use his
cell phone..."
*** "We're wasting time," said another, to a reporter
from Le Figaro. "We're strong enough to do the job
alone. It was New York and the Pentagon that were hit -
not the Eiffel Tower. Sad to say, but I think we need
blood and fast."
*** "Of course, it would be better to avoid civilian
casualties," added an accountant, "but if there's no
other way, we shouldn't hesitate. The Twins weren't a
military target. Innocent people were killed, so I don't
see why we should worry."
*** "Bomb them all," said another New Yorker, "let God
sort them out."
*** The speaker, giving voice to America's new spirit of
thoughtfulness and honesty, was - perhaps without
realizing it - paraphrasing the remark of one of
Christendom's greatest protectors - Simon de Montfort.
More about him tomorrow...
* * * * * * * * Advertisement * * * * * * * * * *
The horrible events of September 11th have given an
entirely new meaning to the word "security." Personal
security, financial security - the true meaning of a
secure life itself - have now been called into serious
question.
This sudden uncertainty about what the future may hold,
makes it not only prudent, but highly critical, that you
take appropriate action now to protect your freedom and
your hard earned cash, assets and investments. Click
here to learn how:
http://www.agora-inc.com/reports/SOVS/TSVDR1
* * * * * * * * * * * * * * * * * * * * * * * * *
The Daily Reckoning Presents: A Guest Essay from "the
nation's leading advocate for financial safety."
THE LAST BIG BUBBLE
By Martin D. Weiss, Ph.D.
On September 11, nineteen fanatic terrorists broke
America's heart. But even as we continue to grieve for
our fallen countrymen and women, the second devastating
impact of that contemptible deed is being felt - on the
world economy.
The unsettling new environment guarantees that we are
about to experience more than an economic
slowdown...more than a mere recession. We are about to
witness the deepest stock market crash and depression
since the 1930s.
Please don't misunderstand: Things will not fall
straight down. The most powerful institutions and
central banks in the world will do everything in their
power to prop up their economies and stimulate temporary
stock market rallies.
But their efforts are a drop in the bucket compared to
the trillions that had already been lost in stocks
around the world. Even before the Twin Towers fell on
September 11...
* THE ASIAN BUBBLE was a distant memory. The Nikkei had
lost an incredible 75% of its peak value.
* THE TECH STOCK BUBBLE was in shambles. The Nasdaq was
down 66%, $5 trillion in wealth destroyed.
* THE WORLDWIDE REAL ESTATE BUBBLE was ending too. In
Japan, prime real estate was selling for a meager ONE
SIXTH of its peak value.
All this BEFORE the terrorist attacks on September 11.
But one giant bubble was still standing: The core of the
great American economy, held up by just one thin thread
-- the confidence of the American consumer.
By early September, the American consumer was living in
an increasingly smaller and more lonely world, shielded
from reality by credit cards, home equity loans, a
couple of SUVs, and the nearest shopping malls.
And, strangely, until late August, consumers were still
spending freely despite the bad economic news. Home
sales were holding firmly. Retail sales were still OK.
Consumers were the last hope for the American economy.
But all that ended when the Twin Towers collapsed. The
thin thread of consumer confidence was cut -
irreversibly and irretrievably severed.
Everywhere in America today, consumer confidence is
gone. Seven out of 10 Americans are fearful, depressed,
or terrified. They feel powerless to restore their sense
of physical security. So they are scrambling to restore
their feeling of FINANCIAL security, to somehow build a
cushion to fall back on during the coming hard times.
Problem: Right now, most Americans HAVE NO CASH. They've
been living from hand to mouth for years. In the past,
whenever they needed cash, they just grabbed the nearest
credit card...or took out still another loan on their
home.
No more. Now, many feel a growing pressure, even a
compulsion, to sell something - anything. Stocks.
Property. Goods.
This past weekend, we talked to automobile dealers here
in Palm Beach County, Florida. Even though GM and Ford
are offering ZERO percent financing for new cars, the
dealers are getting no takers. None. Zilch.
Yes, they ARE getting a lot of phone calls. But the
calls are from customers who want to SELL their cars -
not to buy. Many families in this area have two cars for
transportation. Plus, they also have one or two EXTRA
cars for leisure, fun, or just conspicuous consumption.
And Palm Beach County is not unique. It's the same in
key areas all over the USA.
The CEOs up in Detroit and the economists up in New York
figured that, once someone buys a car, that's it. It's
off the market. They forgot that the United States has
the largest used car market in the world. They never
imagined that, instead of consumers making net
purchases, you could see them unleashing net SALES.
And don't forget the mass selling still coming in the
stock market. Last week, many investors called their
brokers to sell. But they didn't want to seem
"unpatriotic." So they mumbled sheepishly that they were
doing it "only because they had to" - only because they
"needed the CASH."
Or the brokers called THEM, asking for more margin
money. Like the Bass brothers who got a margin call to
sell 135 million shares ($2 billion) of Disney. Brace
yourself. This is just the beginning of the forced
liquidations in the stock market - to raise desperately
needed cash.
Back here in Palm Beach Gardens, where I live, an
associate called a handy man this week to give him a
small job. The man was practically in tears with
gratitude. All his other jobs had been canceled. He was
completely out of cash. He had no idea where his next
dollar was going to come from.
In New York, four Broadway shows have closed down. Not
just for a few days. Forever! They were out of cash.
The leading airlines in America were equally cashless.
They were estimating losses of $2.5 billion for the year
before the September 11 tragedy. Now, they say their
losses in 2001 will be many times larger. They asked Mr.
Bush and Congress for close to $25 billion; they're
getting "only" $15 billion. But giving them money is
like throwing salt into the sea. Even after 115,000
layoffs and even after flight bookings begin to pick up,
they'll still be running way below capacity. If that
continues, the $15 billion will be gone like a puff of
smoke.
I've dug back into the history of America's 10 largest
great corporations - AT&T, Ford, GM, GE, etc. - and
found that, before the Crash of 1929, they used to keep
as much as $2 in cash on hand for every dollar of
current liabilities (bills and debts coming due within
12 months). Now, I see many of those same companies are
down to a dime - one measly alloy dime - on the dollar.
Nearly all American individuals and institutions are
equally cashless.
This has been true for a few years. The difference now
is that they're desperate to GET to cash, but don't know
how. That's the sea change we are now witnessing.
You can already hear the sound of millions of American
consumers slamming their wallets shut.
Americans will unite behind the President and rally for
the country. But will they buy a new gas-guzzling SUV
every year? Take luxury fly-away vacations every summer?
Gleefully charge their credit cards and go deeper and
deeper into debt?
No, those days are gone. Mark my words: It's going to be
many, many long years before we see another wave of
consumer spending like the one that had energized this
economy before the events of September 11.
Best wishes,
Martin Weiss, Ph.D.
for The Daily Reckoning
P.S. Your financial security has never been in greater
danger. Thus, we've provided a specific plan of action
for you to follow. You'll find it on the Daily Reckoning
website - click here: Your Financial Security At Risk
Martin D. Weiss, Ph.D., the nation's leading advocate
for financial safety, has helped millions of Americans
with his ratings of stocks, mutual funds, insurance
companies, banks, brokerage firms and HMOs. And he has
testified before Congress repeatedly, advocating full
disclosure of risk to investors.
That's why Forbes has called Martin Weiss "Mr.
Independence," the Wall Street Journal says he runs a
"feisty firm," and Esquire noted that his is "the only
company...that provides financial grades free of any
possible conflict of interest."
Today, subscribers to Martin Weiss's newsletter, the
Safe Money Report, get this kind of widely acclaimed
information PLUS specific advice on how to convert it
into investment profits.
See: The Safe Money Report
http://www.safemoneyreport.com/
* * * * * * * * Advertisement * * * * * * * * * *
The Nikkei recently plunged below 10,000 to its lowest
level in 18 years, down a staggering 76% from its peak.
Turn this crisis into some of the most astonishing
profits imaginable. A modest $4,000 in put options on
select Japan indexes and stocks could explode into
$148,000.
And this is just the beginning. Click on the
link below to find out more:
http://internationaloptionsspeculator.com/17300
* * * * * * * * * * * * * * * * * * * * * * * * *
|
|
|
| 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.
|
|
|
|
