|
Co-brand
Partnerships
| |
|
|
|
|
| |
|
Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
|
PARIS, FRANCE
THURSDAY, 25 OCTOBER 2001 |
|
|
Today:
Sometimes
A Great Nation
|
*** Amazon...Cisco...and a company with NEGATIVE
revenue!
*** Congress stimulates...but, patience, urges Barton
Biggs...
*** Security costs mount...the cost of inventory
rebuilding...as "just in time" becomes "just in
case"...and more!
|
* * * * * * * * 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
shattered.
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
http://www.agora-inc.com/reports/RCLF/ClickZingo
* * * * * * * * * * * * * * * * * * * * * * * * *
Amazon.com - the river of no returns - just keeps
rolling along. It announced losses of $169.9 million for
the 3rd quarter, down from $240.5 million lost in the
same quarter last year. Sales were flat. But the company
said it would still produce a breakeven 4th quarter, on a
pro-forma basis. That means if it ignores enough
expenses, it can show a positive bottom-line number.
But even "pro-forma" couldn't save a company
called 360Networks. Its revenue for the 2nd quarter was
neither up, down, flat, nor zero. The company - now
enjoying the protection of the bankruptcy courts - had
previously reported revenue before it got the cash.
Then, when the contracts were cancelled, it had to
subtract huge amounts, leaving it with negative revenue
of $63 million. In addition, it lost $5 billion during
the quarter. Shareholders are said to be holding "for
the long term."
"Fed Sees U.S. Economy Struggling," says the BBC.
The Fed's Beige Book of regional reports showed almost
no area spared from the slump. But the Fed found no
evidence of inflation either. There was "little upward
pressure on either wages or prices."
Prices refuse to rise - despite the best efforts
of the Fed and Congress. The House passed a $100 billion
stimulus bill yesterday. And the Fed prepares for its
10th rate cut - expected next month, if not sooner.
Still, long bonds rose yesterday and gold has been
sinking to near 25 lows.
"This is what is so astounding," writes Gary
North. "...there has been no visible increase in long-
term rates...The bond market has actually risen, and the
stock market has fallen in response to 9 consecutive
reductions in the federal funds rate. This runs counter
to previous experience, except during the Great
Depression.
"Investors have become afflicted with what I call
Japan Syndrome," Gary continues. "The Japanese central
bank has lowered short-term interest rates to almost
zero, but the Japanese economy remains in recession and
the Japanese stock market is in the pits. This is now
happening to America."
But, let's turn to Eric to find out what happened
to Wall Street yesterday:
*****
Mr. Fry in New York:
- Remember when Amazon shares seemed to go up every day?
No price was too high to pay for this icon of the new
economy...or so it seemed. As it turns out, of course,
almost any price was too high to pay, and the stock is
falling still. Amazon shares dropped another 20%
yesterday, after reporting disappointing earnings.
- Meanwhile, for no apparent reason, the shares of
fellow new economy refugee, Cisco Systems, gained 5%.
Perhaps Cisco shares rallied on the misguided notion
that "things can't get any worse." Whatever the reason,
the networking company's shares led the Nasdaq Composite
27 higher to 1731. The Dow gained 5 points to 9,346.
- "Patience," counsels Barton Biggs, the veteran equity
strategist at Morgan Stanley Dean Witter. "There should
be a better opportunity to buy."
- Biggs offers several reasons for caution. "First, the
second stage of the war against terrorism almost has to
involve Saddam Hussein...Second, the U.S. and world
economies are weak and weakening...Third, [my personal
favorite] stocks are still not cheap. Fourth, investors'
equity ratios are still too high and cash levels too
low. Fifth, the American consumer bubble has still not
been burst..."
- The average U.S. corporation is earning less money
this year than last. These same average U.S.
corporations face slackening demand for their products.
And now, they face the considerable direct and indirect
costs of operating in an increasingly security-obsessed
nation. (Wasn't it so much easier two years ago when we
were simply a securities-obsessed nation - far less
worried about Osama bin Laden than we were about where
Cisco bin tradin').
- Some companies will bear direct costs. For example
TrizecHahn, manager of the Sears Tower in Chicago, is
spending millions to beef up the skyscraper's security.
"[TrizecHahn] has installed concrete barriers around the
perimeter of the tower," Bloomberg reports, "and hired
security firm Kroll Inc. to evaluate security at the
tower...Additional security staff alone could represent
as much as $1 a square foot in rent."
- The indirect, or "hidden," costs that many companies
will incur could be even more expensive. For example,
some companies are deciding to increase inventories on
hand because of the risk that future terrorist acts
might disrupt their supply-chains.
- "Holding higher inventories is a cost," reminds
economist Paul Kasriel, of Northern Trust. "You have to
finance them or forgo some other use for your funds."
- "Inventories have fallen from 17 percent of GDP to
11.6 percent of GDP over the last two decades,"
according to James Bianco of Bianco Research. By his
estimates, it would cost about $600 billion to take
inventories back up to 17%. Any move in that direction
will cost tens of billions of dollars, at least.
Therefore, to the extent companies restock their
depleted cupboards, reported earnings will suffer.
- "In 1988, 'The Just-In-Time Breakthrough,' by Edward
J. Hay, was published, a paean to the management methods
pioneered by Toyota and credited with making Japanese
manufacturing invincible," Jim Grant writes. "Strive for
'absolute minimum resources,' Hay advises, 'the smallest
possible quantity at the latest possible time in the
elimination of inventory.'"
- The pendulum may now be swinging in the opposite
direction. Already, Toyota - the company that started it
all - has begun "increasing its inventories," according
to Bloomberg, "[because] winter snows in previous years
had made it difficult to keep its supply chain going."
- As Grant notes, "We wonder if, during a wartime
recession, business practices won't veer from just-in-
time to just-in-case. Seeking safety in the things they
can control, managers may begin to stockpile more
inventory..."
- First consumers become savers. Now, just-in-time
managers are becoming pack-rats. Woe to us all. The
"recovery" that a growing chorus of Wall Street
strategists say is now underway looks increasingly like
a zero-sum game. Yes, some items are selling better, but
only because some items are selling worse.
- Numerous auto industry observers report, for example,
that new cars are selling briskly this month, thanks
mostly to zero-interest rate financing deals. But used
cars aren't selling at all. Maybe the auto manufacturers
are just shifting deck chairs around on a sinking ship -
the S.S. American Economy.
- "Automakers' no-interest financing offers have
stimulated new car sales but also have created a glut of
used cars," says USA Today. "Jerry Reynolds, owner of
Prestige Ford in Garland, Texas, says his used car
inventory has swollen to 600 vehicles instead of the
usual 250 on the lot this time last year."
- Fasten your seat belts, the U.S. economy is in for a
bumpy ride.
*****
Back in Paris:
*** This from the Mogambo Guru: "At the beginning of a
recession/depression investors are bidding the S&P 55 to
record-setting P/Es. Company after company is decimating
the ranks of its employees as sales disappear. Company
after company is admitting to failed earnings and with
no expectations to reverse that sorry state anytime
soon. And yet, here are supposedly intelligent people
blithely throwing their money at a probably overvalued
stock market! My God! What are they thinking about?
Can't they even read a newspaper?"
*** Economist Diane Swonk expects consumers will stay
"home for the holidays" this Thanksgiving and Christmas.
She believes the terrorist attacks, combined with
declining earnings, will produce a "cocooning effect."
Sales will be flat, except for companies selling home
improvement products, she predicts.
*** "I had a regular client once - a real sweetheart,"
says one of the loveable prostitutes in Irma La Douce.
"He was such a good customer. He came to me for
consolation. But then, his wife died and he stopped
coming," she continued. "He didn't need me any more."
* * * * * * * * Advertisement * * * * * * * * * *
Don't Miss Out On Today's Low Mortgage Rates!
EVERBANK, a Forbes "Best of The Web" selection,
makes refinancing fast and easy. Apply online in just
15 minutes and you'll receive the nation's best
combination of rates and fees - GUARANTEED! How much can
YOU save?
Click
here for a rate quote and then lock in your great
rate mortgage while there's still time! (Be sure to tell
us you are a Daily Reckoning subscriber!)
* * * * * * * * * * * * * * * * * * * * * * * * *
SOMETIMES A GREAT NATION
"For which of you, intending to build a tower, sitteth
not down first, and counteth the cost?"
Jesus of Nazareth,
Luke 14:28-32
When terrorists struck on Sept. 11, we had the feeling
that the world had crossed an important bridge...and
that there was no going back. We sensed the boom world
of the late 20th century was finally finished. We
wondered what would replace it...
We still don't know, of course, but as dawn lights up
the world of the early 21st century, little by little the
hills, trees, houses and factories comes into view...
It is not a pretty picture.
The main feature of the landscape we see is that the
comic mania for wealth of the '90s has been replaced by
a tragic passion for revenge and war. The word "tragic"
is part description and part anticipation. For we see
little good coming from the present enterprise.
The guardians of the nation's security are bombing one
of the poorest, most God-forsaken countries on the
planet. Afghanistan was chosen because its government
harbors a man who is wanted for questioning - Osama bin
Laden. What his role in the terrorists' attack on the
Twin Towers and the Pentagon was, no one seems to know.
But once evidence was shown linking Bin Laden to the
attacks, Afghanistan's ruling Taliban offered to
negotiate. It was too late. America's military was
already moving towards war as if it wanted one.
But against whom? For what? Why not negotiate?
"Should the attack be considered an act of war?" asked
Doug Casey in this space yesterday. As far as we know,
no government was involved in the attacks on the WTC and
Pentagon. But instead of merely attempting to bring the
guilty parties to justice, the Bush administration has
decided to strike back at a foreign country and announce
a "war" on terrorism.
It is a war out of "1984" - a war that may never end
against an enemy we can never quite identify. But as
long as the flags are waving, people seem willing to
support any fool project or expense.
"What the American public has not been told," writes
Gary North, "is that our attack on Afghanistan has been
in the works throughout 2001. The war in Afghanistan was
in the planning stages no later than June." That is
probably why negotiations weren't undertaken...and why
U.S. troops were so quickly allowed into former Soviet
republics. There was advance planning - probably
contingency planning - already underway. Perhaps Russia
and the U.S. were looking for a way to take out the
Taliban anyway.
Will the "war" end well? Will it ever end? We have no
way of knowing. But we fear that this war against
terrorism might actually make Americans less safe. For
while the U.S. tries to topple one corrupt, incompetent
regime in Afghanistan, it tries to prop up another in
Saudi Arabia. The risk is that it will succeed in the
first effort...and fail in the second - just as Osama
bin Laden seems to want. That is the trap he has set for
America. Luring the U.S. into a war in the Middle East,
he hopes that the shaky, irresolute aristocracy of
Saudia Arabia may - like the Romanoffs in Russia in WWI
- come crashing down. He may be right. The mistakes of
nearly 100 years ago may be repeated.
"It's time to start facing the truth," said a "prominent
Middle Eastern oil man who did not wish to cited by
name" in the current issue of the New Yorker. "This war
was declared by bin Laden, but there are thousands of
bin Ladens. They are setting the game - the agenda. It's
a new form of war. This fabulous military machine you
have is completely useless."
The Saudi regime "will explode in time," he added. If
and when it does, oil will probably go to more than $100
a barrel...and the essential ingredient of modern
economies could be under the control of a Saudi-style
Taliban.
"I think we're edging closer and closer to a time where
global military, political, and economic events spin out
of the control of those who think they are in charge,"
writes Dan Denning in our "Blue" service. "The
assassination of a cabinet minister in Israel could
easily be the type of unanticipated event that tips the
scales of diplomacy and plunges the entire Middle East
into greater chaos. Or it could be the gathering storm
of unrest in Saudi Arabia. Each day I read more and more
stories about how vulnerable the house of Saud is, and
how they have essentially been paying 'protection' money
to Islamic fundamentalists to prevent a revolution."
Meanwhile, what actually is going on in Afghanistan is
anyone's guess. There is precious little "news" coming
from the news media. The guardians of truth and
information have come down with war fever along with
everyone else. When bin Laden offered to explain himself
on video, for instance, both George Bush and Tony Blair
tried to prevent the news media from broadcasting his
statement...on the preposterous grounds that the message
"might contain coded messages" - an absurdity so
transparent that even a TV newsman could see through it.
Yet, the western press generally went along
Who knows what the war itself will cost. But "estimates
of the cost of the new Homeland Security Department
alone," writes Gary North, "indicate $1.5 trillion over
the next five years."
That is just the beginning. But in the addled mind of
the public and newspaper columnists the more the better.
Every dollar spent - no matter how it is spent - is
expected to contribute to the "stimulus" that will lift
the economy out of its slump, return stocks to their
bull market highs, and save America's spendthrift
debtors - private and corporate - from getting what they
deserve.
Anything might happen. Osama bin Laden might convert to
Catholicism. But it is a bad bet.
"If [investors] are serious," explains Gary North, "they
won't pay any attention to stock market hypesters who
spout some nutty version of "war is good for business."
War is rotten for business. It leads to higher taxes,
more government controls, less privacy, more deception
by leaders, more inflation and a reallocation of
resources from the private sector into battlefields.
When steel is used for guns, it is not used for
refrigerators and cars."
And the cost of the war will not just be a lot of
money...
"It is possible, if not likely, that we will rely more
on international rules of war than on our cherished
constitutional standards for criminal prosecutions in
responding to threats to our national security," said
Supreme Court Justice Sandra Day O'Connor, speaking of
the very thing she has sworn to protect. "As a result,
we are likely to experience more restriction on our
personal freedom than has ever been the case in our
country."
The guardians of the nation's liberties have apparently
decided to act like the guardians of its money. There is
a time, they reason, to protect liberty in America...and
a time to destroy it.
"I read the most amazing thing in the Figaro," said my
friend Michel at lunch yesterday. "Apparently, the
courts in America wouldn't allow torture within the
U.S., so the FBI is going to send suspected terrorists -
or maybe tax evaders - to foreign countries where they
will be tortured before returning them to the U.S."
Meanwhile, the House of Representatives, yesterday,
approved a $100 billion stimulus package. What good will
it do? Probably none.
But in war, as in love, you do not stop to count the
costs. Caught in the collective hysteria of military
campaigns...or the private madness of romance...who can
take the time to add up the figures? The accounts are
pushed off, debts left to pile up. Sooner or later they
will be have to settled. But in the heat of passion, any
price seems trivial compared to what is at stake.
Your editor, trying to keep his head about him...
Bill Bonner
P.S. Here at the Daily Reckoning, we don't mind taking
unpopular positions. When stocks were at record highs in
the late '90s, we warned that they would soon come down.
Some readers, who had staked their financial futures on
the bubble market, were offended.
Some will, no doubt, be offended by our views on the
present war.
But we do not merely honor free speech or celebrate
it...we practice it...gulping it down like a man's first
beer after being released from jail. We like the feel of
the foam on our upper lip...and let it dribble from our
chins. "If the U.S. does not stand for freedom of
thought and speech...for diversity and dissent," writes
George Monbiot in the Guardian Unlimited, "than we have
been deceived as to the nature of the national project."
|
|
|
| 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.
|
|
|
|
