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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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PARIS, FRANCE
MONDAY, 1 OCTOBER 2001 |
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Today:
Honor Insolvency
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*** Americans are depressed...and losing sleep...
*** S&P 500 down $1 trillion in last quarter. Mutual
funds down 20%...
*** Credit card delinquencies up...Amazon below $6...a
small, dead deer...and more!
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More than 2 out of 3 Americans say they are
depressed, reports a NY Times article. In the aftermath
of the terrorist attacks, one out of every two people
has had trouble focusing on his job...one out of three
has had his sleep disturbed.
Americans were so busy with high-minded frets,
they might not have had a chance to notice the low-
minded ones. The S&P 500, alone, took a trillion dollars
from the asset side of their personal ledgers in the
last quarter. The Nasdaq sank 31%. Investors Business
Daily's index of leading mutual funds is down more than
33% so far this year.
And, as Eric reports below, the average stock fund
lost 20% in the latest quarter. Here's the rest of
Eric's report...
*****
Eric Fry in New York:
- While the stock market turned in a very respectable
showing last week...the Dow and the S&P 500 each gained
more than 7%, and the NASDAQ tacked on about 5%...the
third quarter of 2001 was a disaster for most investors.
The Dow and S&P 500 fell about 15% each, and the
beleaguered NASDAQ tumbled more than 30%.
- The Stock-Market-for-the-Next-Hundred-Years trades
like it won't be around for the next hundred days. Last
week, Nasdaq announced that it would suspend rules
barring stocks under one dollar from remaining listed on
the exchange. About 15% of the 669 stocks listed now
qualify for the exemption...how far the mighty have
fallen!
- Whatever else might be going on in this vast economy,
massive stock market losses can't be helpful. While John
Q. Public finds himself with mounting debts and
diminishing job security, his investment portfolio is
taking it on the chin. Fund data firm Lipper reports
that the average diversified U.S. stock fund lost nearly
20% during the third quarter - the worst quarterly
performance since the October 1987 crash.
- With numbers like that, it will surprise almost no one
to learn that loan delinquencies are on the rise. "The
numbers are not alarming at the present time," assures
Northern Trust economist Asha Bangalore. "However,
layoffs and a sluggish economy can add an additional
burden to an already indebted economy."
- Mr. Bangalore notes that credit card delinquencies
jumped 11% from June 2000 to June 2001. Even more
worrisome, the loan delinquency rate of commercial and
industrial loans soared 36% over the same time frame.
And remember, these numbers run only through last June.
We can only imagine what the September data will show.
- Even though the stock market ended last week on a
strong note, it will face a daunting task trying to
build on those gains. "The hand-wringing starts Monday
with a cascade of scary auto sales numbers," writes
Smartmoney.com's Igor Greenwald. "[It] gathers speed
Tuesday after another likely rate cut by the weary Fed
and culminates Friday with the monthly tally of the jobs
destroyed."
- Still, some rays of hope pierce through the economic
cloud cover. Options trader Steve Sarnoff, anticipating
today's auto industry figures by about 6 weeks, just
logged 1,202% on GM "puts" for readers of his advisory
service Options Hotline. In a volatile and increasingly
uncertain environment, Steve's managed a whopping 12-
for-12 record over the summer months...and an average
gain of 240%. (See: Hot Options On Bad News)
- With every day that goes by, life starts to feel a
little more normal in and around New York City. In fact,
to judge from the packed restaurants around here,
business is more "normal" than ever. A friend of mine
whose father owns a restaurant just outside New York
City says that his father's restaurant is as busy as
ever.
- The commercial real estate sector is another industry
that seems to be thriving in the post-attack economy.
The instant loss of 15 to 20 million square feet in
lower Manhattan has put a premium on the space available
elsewhere in the city and also in New Jersey.
- Not surprisingly, the stock of Mack-Cali Realty Corp.,
a REIT focused on New Jersey office properties is among
the very few stocks to have gained ground since
September 11th, 2001.
*****
Back to Paris:
*** John Myers pointed out last week that during the Yom
Kippur War in 1972, oil surged from $3 to $12 a barrel,
a 4-fold increase; during the Iranian Revolution (1978),
oil doubled from $12 to $24; and in both the Iran/Iraq
War (1980) and the Iraqi invasion of Kuwait (1990), the
price of oil rose from around $20 to $35.
*** "In each of these cases," says John, "investors that
caught the move early...did very well for themselves."
*** But that doesn't mean you have to invest in
companies in the region. In fact, as an alternative Mr.
Myers is recommending companies working the vast
Athabasca Oil Sand region in Canada - a total area
covering more than 26,000 square miles (roughly twice
the size of Virginia). "Within this unconventional oil
deposit rests more than 300 billion barrels of oil..."
says Myers. "And the best part? It's 7,000 miles from
the Mideast." (See: A Matter of National Security)
*** Hunters were out in force at Ouzilly this weekend. I
watched as a group of them parked behind our farmhouse
and then dispersed, following a pack of yelping dogs.
*** About a quarter of an hour later, a small deer - a
chevreuil - bounded out of the woods at almost the exact
spot the hunters had collected, and set off in the
direction the hunters had gone.
*** He outsmarted them, I thought. Circling around, he
had managed to get behind them. Now, he could follow
safely, at a discreet distance.
*** But he was not smart enough. Twenty minutes passed
and we heard gun shots. Moments later the hounds changed
their tune - howling, baying, yelping in a furious
crescendo. And then, the horn sounded and in a few
minutes, all was quiet.
*** "The poor chevreuil," reported Mr. Deshais, who had
been working in the woods near where the animal was
shot. "The dogs got to him before the huntsman. Finally,
a hunter came up, chased off the dogs and cut his
throat."
* * * * * * * * * Advertisement * * * * * * * * *
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* * * * * * * * * * * * * * * * * * * * * * * * *
HONOR INSOLVENCY
"Men, it has been well said, think in herds; it will be
seen that they go mad in herds, while they only recover
their senses slowly, and one by one."
Charles Mackay
"The struggle against terrorism," said French Prime
Minister Lionel Jospin last week, "is not just the
business of judges, the police and the secret service.
There is also a response that heads of business,
investors, and consumers can give!"
I took the liberty of adding an exclamation point. Such
a statement needed a little flourish at the end, I
thought...as when a man claims to have invented a
perpetual motion machine or been visited by space men in
his backyard. The preposterous needs emphasis.
"Lionel Jospin invited the French to show their
'economic patriotism' by continuing to consume in order
to avoid a recession," says the Associated Press report.
"The head of government invited business leaders and
consumers to 'resist intimidation' and to 'support
economic activity'."
"Let's show, all together, our economic patriotism,"
Jospin urged.
I am not making this up. It would be impossible. I
couldn't imagine that anyone outside of an asylum could
say something so absurd. But there it is.
The French prime minister also gave assurances that
economic fundamentals "remain favorable" and that
"Neither the U.S. nor Europe is in recession; there is
no collapse of production."
Jospin did not cite his sources. All available evidence
suggests that the U.S. economy is presently shrinking,
i.e. in recession. And factory production has been going
down for the last 11 months - one of the greatest
collapses in history. But ignorance has never been a
barrier to public office.
Despite the fact that no economic difficulty exists,
according to Jospin, the government is nevertheless
taking measures to deal with it. On one side of the
Atlantic as on the other, politicians have the same idea
- to find ways to keep the consumer spending.
It may come as a relief to many Daily Reckoning readers,
but Americans are not the only ones made mad by the
terrorists attack. A kind of Esperanto madness - a
common language of absurdities - seems to be spreading
across borders and seeping into casual conversations
between grown-ups. Everywhere, patriotism, nationalism,
jingoism, militarism, religion, culture, and finance
seem to have gotten jumbled up.
But I do not write to criticize. The day is long past
when I attempt to tell the world how it should conduct
itself. Instead, I write to honor those caught up in the
madness.
Daily Reckoning readers may recall those dark and
shameful events of the 1960's...when soldiers were sent
off to Vietnam to risk their lives in a war they
couldn't win...and then spat upon and reviled when they
returned home. The prospects for today's economic
patriots seem no better: for they are surely on a fool's
errand. But, even so, they deserve recognition.
All over the world consumers and investors are being
mobilized to fight the campaign against terrorism. They
take up their credit cards and portfolios and aim at an
enemy they can neither see nor understand.
It's madness, of course. Economies are not really helped
by investors who make bad investments, nor by consumers
who buy things they can't afford.
But madness needs to run its course.
So, there ought to be some form of recognition for the
casualties. Soldiers - even those sent off on the most
preposterous campaigns...such as the French attacks in
the opening days of WWI, or the British "Charge of the
Light Brigade" in the Crimea...were still able to come
home (if they survived) and live in dignity. On
appropriate occasions, they got to wear their campaign
medals, to the delight and pride of all around them.
Surely, some medals should be prepared for people who
blow themselves up in the name of "economic patriotism"
too. Let me make a few suggestions:
For a man who distinguishes himself by running up huge
credit card debt, for example, I suggest awarding a
small pin, made of plastic...depicting a Visa card
surrounded by a cluster of dollar signs.
And what of a man who loses his house in a bankruptcy
proceeding? Maybe a pin shaped like a house would be
appropriate. It should be made of an inferior grade of
plywood - with the number "11" on it... or "7" for those
who choose the liquidation route.
Shopping recklessly ought to be worth some kind of
medal...something like a Distinguished Consumer Award.
Anyone who increases his personal consumption through a
recession should get at least a ribbon...maybe in
dollar-bill green with red ink slashes.
And an investor who remains steadfastly bullish in a
bear market also deserves recognition for his self-
sacrifice. A small pin - of base metal - would be
enough.
But a real hero, an investor who mortgages his house,
his business, and his wife's engagement ring, in order
to continue going long in the face of huge reversals,
collapsing prices, and spreading panic - that person
deserves something special. For he may lose everything
for the Homeland, as it is now called - his house, his
business, his money, and, most likely, his wife.
I suggest an Order of Economic Merit award - a medallion
depicting a man in a barrel might be appropriate, with a
flag in one hand and a credit card in the other. The
medallion should be suspended from a red, white, and
blue ribbon and worn around the neck on all state
occasions...Armistice Day, VE Day, Veterans Day and so
forth. It should also be required at weddings and serve
a cautionary emblem for those just starting out in life.
What's more, this top honor should be bestowed,
personally, by the Secretary of the Treasury, Paul
O'Neill, with, perhaps, a kiss on each cheek...to give
it the right preposterous flourish.
Your correspondent in Paris,
Bill Bonner
* * * * * * * * * Advertisement * * * * * * * * *
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| About
The Daily Reckoning: |
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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.
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