Contributed by Bill
Publisher of: The
Fleet Street Letter
TUESDAY, 16 OCTOBER 2001
*** Market still rallying...barely...
*** But people losing confidence in Greenspan-san...
*** Anthrax...REITs...longest downturn in manufacturing
in 60 years...bankruptcies...Ricardo's Bar...and more!
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Bonds up...gold down - off $3 yesterday.
Go figure. The Fed and Congress are working around
the clock to inflate the economy...and still the markets
are telling us that it is deflation we have to fear, not
Robert Samuelson explains why, in NEWSWEEK: "Even
zero interest rates can't reinvigorate the economy if
other conditions are sufficiently unhealthy. Monetary
policy is not some magical potion that can erase any
Samuelson points out that even as the Japanese
lowered rates to zero, total bank lending went down for
45 consecutive months.
Meanwhile, Bloomberg reports that the U.S. is
suffering from "the longest downturn in manufacturing
since the '40s." Output is down for 12 months in a row.
If this isn't a recession, it is doing a good
impersonation of one. A few days ago Polaroid declared
bankruptcy. Yesterday it was Bethlehem Steel that went
Let's see what else happened on Wall Street...
Eric Fry, reporting from Manhattan:
- Given the fact that almost no American companies are
making more money this year than they were last year -
and that many are not making any money at all - the
stock market is putting in a mighty fine performance.
- Stocks recovered from an early morning sell-off to
finish the day just about where they started. The Dow
gained 3 1/2 points to 9,348, while the Nasdaq lost 7 to
- Maybe it was the new crop of anthrax incidents that
kept the market from falling (remember, terrorism is
bullish). Yesterday, Senator Tom Daschle's office became
but the latest locale to receive a letter containing
spores of the deadly bacteria.
- "Despite terror's current resurgence," writes Doug
Casey, "and the fact that it's the only way relatively
weak groups feel they can strike at their enemies, I
feel it's not going to be a really long-lived factor. In
the world created by capitalism spilling over borders,
in the world of the Internet, in a world which will
inevitably become more prosperous, people simply won't
put up with it..."
See: A Brief History Of Terror
- But even if by some fluke, anthrax turns out NOT to be
bullish for stocks, it is making an exciting
contribution to our national vocabulary. Words like
"pulmonary," "cutaneous" and "necrotic" now roll off our
tongues as effortlessly as "tree" or "cat." Think of it
as a bull market in arcane medical terms.
- Meanwhile, the same old bear market in semiconductor
stocks keeps dragging on and on...like a tiresome
anecdote. The SOX Index of semiconductor stocks dropped
almost 5% yesterday. Part of the problem, or maybe all
of the problem, is that neither businesses nor
individuals are buying very many computers these days.
"U.S. retail PC unit sales are expected to fall 25% in
2001 and 18% in 2002," reports Fred Hickey, editor of
the High Tech Strategist.
- Rental housing is another sector signaling economic
weakness. "Apartment REITs are not immune from the
effects of the slowing economy," observes Kathy Shanley
of Gimme Credit. Last week, the "segment leader" Equity
Residential Properties "threw up its hands on guidance,
saying there is 'no road map' for the current
- All in all, the brain trust at the International
Strategy & Investment Group (ISI) predicts that fourth-
quarter GDP will be a "wipeout" - falling as much as 10%
on an annualized basis.
- "The total value of US stocks is STILL 120% of GDP,"
Dan Denning of the DR Blue Team reports, citing research
by Jim Bianco. "Whenever this indicator has approached
80% in the past - 1968, 1972, 1987 - severe bear markets
followed." But considering that Greenspan and Congress
are tossing a kitchen sink of monetary and fiscal
stimuli at our economy, GDP might bounce a bit next
year...unless, of course, we start saving too much.
- Oh, oh...what's this? Recently, the ratio of consumer
installment debt to disposable personal income has been
shrinking. In other words, the famously spendthrift
American consumer has been backsliding...into a saving
- If we Americans ever again expect to taste the fruits
of economic prosperity, we will need to get out there in
the malls and break out the plastic. At least, such is
the sage advice of none other than New York Fed
president William McDonough. "What we dearly want is for
Americans to behave like Americans - to do the patriotic
thing and go out and spend," Mr. McDonough exhorted in a
recent Chicago Tribune story.
- "Can you believe that a sane adult, much less the head
of the New York Fed, would act as though the only thing
an intelligent person should ever do is spend?" asked an
incredulous Bill Fleckenstein in yesterday's Market Rap
on Grantsinvestor.com. "There's never a time to save?
These clueless types either don't know that there is
such a thing as a business cycle, or they believe they
have conquered it. I am not sure which is more
- Fortunately, from McDonough's point of view, the
credit-based consumption that will rescue our economy
requires only two things: an interest rate low enough to
induce a borrower to take on more debt and a banker dumb
enough to make the loan. Seems doable.
Back in Paris...
...A mad world gets even madder...
*** The Figaro reports that "Americans are on the edge
of panic" because of a few cases of anthrax, a disease
still as rare as a sympathetic IRS agent. New York
journalists, continues the report, have been gripped by
a "psychosis." How could anyone tell the difference?
*** White powder, so recently the subject of grins and
smirks among the hip media set, is now treated as a
health threat, we are told...
*** Following the WTC attacks I got a note from a friend
in Nicaragua suggesting "with all the violence in the
US," now might be a good time to relocate...Kathie
Peddicord, who recently returned from Nicaragua, tells
me the bar that Lonely Planet calls "the best bar in
Central America" is for sale.
*** "Ricardo's Bar is like something out of a Hollywood
movie set...frequented by lovers, gangsters, and James
Bond types. It has been visited by the rich and famous
traveling incognito and by the elite of Nicaragua's
government. It's also the meeting place for San Juan's
expat community - the retirees, the real estate
hustlers, and the local eccentrics." For the property
lease and the bar, Ricardo is asking $110,000.
*** Hmmmm...maybe I'll buy Ricardo's...and write the
Daily Reckoning from a barstool in Nicaragua.
(For more on Ricardo's see: "All the romance and
atmosphere of a Hollywood film - for $110,000"
* * * * * * * * * Advertisement * * * * * * * * *
Conveniently, the WTC attacks are being blamed for a
surprise "slowdown" that has rocked the U.S. economy.
Suddenly, it seems, corporate profits are dropping;
investors are less sure...consumer confidence has been
But...the writing WAS ALREADY ON THE WALL!
And according to one of the world's leading economists,
we "ain't seen nothing yet." Experience proves that if
you've been listening to the Fed's high-octane "new
paradigm" propaganda you're in trouble...it can ruin
you. Here's what you need to do - right now - if you
haven't prepared for:
The Coming Economic Crisis
* * * * * * * * * * * * * * * * * * * * * * * * *
NATURAL BORN KILLERS
by Bill Bonner
When it rains, it pours.
War. Now, pestilence.
"I ask myself," wrote Richard Russell yesterday, "does
all this have anything to do with the fact that we're in
a bear market? Or is it just a coincidence? Maybe I've
grown up with too much belief (misguided belief?) in the
mysterious power of the primary trend. Yet, I keep
wondering, why did all this occur within the grip of a
primary bear market rather than say in 1985 or 1990 or
1995 when the primary trend was still bullish? Strange,
eerie, very weird indeed."
Here at the Daily Reckoning we wonder, too.
At the top of a bubble market, people develop such a
distaste for cash that they search for ways to unload it
- spending it recklessly and investing it in loony
ventures without a prayer of success. So deep is their
contempt for liquidity that they will borrow money from
credit cards - at 14% interest - just for the pleasure
of getting rid of it. And so great is their craving for
ruin that they will mortgage their homes in order to buy
stocks trading at record prices.
Eventually, the madness reaches a peak - and people
suddenly rediscover that having a little money in the
bank is not such a bad thing. Academic economists draw a
line at the high water mark of the mania and then watch
it drop off. But the tide of ruin runs deeper; beneath
the surface lies a sea of trouble...enough dark, cold
water to drench the reputations of economists, analysts
and central bankers...and destroy the confidence of an
It is as if, from time to time, people need to have
their money taken away and their spirits crushed.
Something always comes along to do the job.
After 43 years of peace in Europe, a terrorist incident
in Sarajevo set off a series of mishaps and misjudgments
that left 8.5 million dead. Whatever lesson the gods
were trying to teach - one would think that would have
been enough to get the message across. But as the war
came to an end a new and even more lethal menace
Whatever Osama bin Laden and other terrorists are
cooking up in their germ warfare laboratories, they are
likely to be second-rate maladies compared to nature's
In October, 1918, 200,000 Americans died of influenza.
At first, people worried that this new strain of virus
must be the work of German scientists. But the hysteria
proved groundless. The Huns were not responsible...these
were natural born killers.
The following winter of 1918-19, the virus swept around
the world. Eight million people died in Spain alone, so
many that the disease was henceforth known as the
In America, 675,000 people died - ten times as many as
were killed in the Great War. Forty-three thousand
soldiers died of the flu. Nearly one in three Americans
got sick - including President Wilson. But, oddly, young
adults aged 20-40 were most likely to die. People died
quickly. One anecdote told of 4 women who played bridge
together in the evening. Three of them died before
"The 1918 has gone," noted the December issue of the
Journal of the AMA, "a year momentous as the termination
of the most cruel war in the annals of the human race; a
year which marked, the end at least for a time, of man's
destruction of man; unfortunately a year in which
developed a most fatal infectious disease causing the
death of hundreds of thousands of human beings. Medical
science for four and one-half years devoted itself to
putting men on the firing line and keeping them there.
Now it must turn with its whole might to combating the
greatest enemy of all - infectious disease."
Before it was over, the flu had killed 20 to 40 million
people - more in a single year than 4 years of the Black
Death, 1347 to 1351.
Why did the "Spanish flu" come along when it did? No one
knows. What was it...and why did it go away? No one
knows that either.
But the threat of bioterrorism is bound to dampen
enthusiasm for global trade, just as it did when Mr.
Smoot got together with Mr. Hawley, back in the '30s.
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.