*** Big drop in GDP growth - 'soft landing' or 'crash
*** What's this? Euro up...Dollar down?...
*** Collusion in the gold market?... a dark and stormy
day in Poitou... and more.
*** The Bureau of Labor Statistics reported on Friday
that the nation's GDP growth rate had slowed in the 3rd
quarter. The key component, according to Bloomberg's
Caroline Baum, is "domestic demand" - which rose 7.5%
(annual rate) in the first quarter, 4.7% in the second
and fell to only 2.8% in the third.
*** Thus does the 'miracle economy' come to seem a bit
more ordinary. Even with the wind of hedonics at its
back, GDP in the 3rd quarter grew only at a 2.7% annual
*** The source of the miracle was believed by some to be
new technology. Others - curmudgeons, cranks, and
Austrian economists - found a more familiar cause - new
money. In the 13 years since Alan Greenspan has been Fed
chief, Richard Russell observed over the weekend, he has
increased the money supply by 3.25 Trillion dollars -
more than all the other Fed chiefs, since 1913, combined.
*** Whatever the cause, the U.S. economy seems to be
cooling off. The 'soft landing' that investors had hoped
for seems to be getting close. We have our seat belts
strapped on...and our tray tables stowed away...but we
are not at all sure the landing is going to be as soft as
predicted. This economy and stock market surprised
everyone on the upside - perhaps it will be symmetrical
on the downside.
*** Wall Street liked the GDP figures, which suggest that
the days of Fed tightening are over. The Dow shot up 2% -
or 209 points, to end the week with a 3% gain.
*** If this were still July or August, the financial
press would be in full chortle about the rally expected
for this week. Instead, the reports I read this morning
were remarkably restrained. The four E's worry investors
- Earnings, Energy, the Economy and the Election. Times
have changed. What was cause for celebration a few months
ago is now a source of anxiety.
*** But as much as U.S. investors were encouraged by the
slowing economy, foreign investors were unsettled. Much
of the appeal of the dollar has been that it was backed
by the U.S. miracle economy. Now, the U.S. economy seems
to be growing no faster than the European one. Perhaps
its money is not much more valuable either.
*** The euro gained about 1% on Friday. And the dollar
index fell a point. It is surprising, to me anyway,
that the dollar stood firm while the Nasdaq lost its
footing. The dollar is not itself the source of the
miracle economy...but it is the shroud on which the
miraculous image appears. $1 billion per day come into
the US from overseas to fund the current account deficit.
When that stops the fabric will disintegrate and the
miracle economy will disappear. Could Friday mark the
beginning of the end?
*** About 20% of the dollar's support over the past year
came from a single source - European telecoms. The
companies needed dollars to fund U.S. mergers and
acquisitions. Another big part of it came from US
companies which raised money in Europe, taking advantage
of European savers to fund U.S. growth. That too, seems
to be fading - as capital investment declines.
*** But the financial media (and investors) are still
very bullish on the dollar. "The euro on borrowed time,"
says today's Reuters headline. The inertia of sentiment
has left mainstream investors with a target of 80 cents
for the euro - even though the friendless currency may
now be headed in the opposite direction. It is at 84
cents this morning.
*** The Nasdaq barely made it into positive territory on
Friday. Once it was thought that technology was immune to
bad news. Now it seems resistant to the good news too.
The index ended the week down 6% - or 19% for the year.
*** Gold fell 70 cents on Friday.
*** "Despite wide press coverage of the price fixing
scandal at Sotheby's and Christie's, anti-trust charges
levied at Visa and Mastercard, and the ubiquitous central
bank euro intervention," writes the international Harry
Schultz, "the mainstream press won't even consider the
possibility of meddling with gold prices. Yet, there
hasn't been a free market in this precious metal for
years. Recent intra-day price fluctuations tell the real
story." (see: Collusion in the Gold Market? Impossible)
*** Investors Business Daily's index of leading mutual
funds is down 6.10% per year.
*** Eight IPOs are scheduled for this week. It will be
interesting to see how they do.
*** "Before trading was suspended in the stock last
Wednesday," says John Myers, "Nortel had fallen $24. The
stock is now down almost 50% in just seven weeks. Across
the board the Canadian blue chip index is down 23%
from highs achieved in early September. But despite the
carnage, the TSE Oil & Gas index has held up remarkably
well, which is great news for investor's seeking refuge
from US market volatility." (see: Sack of Canadian Stocks
Good for Oil and Gold)
*** It is a dark and stormy morning out here in Poitou.
This is a holiday week for school children in France -
Tous Saints. But I fear there are more gloomy days ahead.
"You have to take your time, walk slowly. Otherwise, you
might as well not bother."
Francois Debenest, recently retired after 40 years as a
farmhand, was showing me a secret. We were out in the
woods south of the house on Saturday morning looking for
What follows, I must warn you, is another rambling letter
of no particular importance. It concerns, loosely, a
subject I know is as big a concern to you as it is to me:
"I know only two kinds...well, maybe a few more," said
Francois, as we moved almost silently among the charme
trees - which look like ironwood or beech. The ground was
wet. The leaves, which lay on the forest floor were as
limp and lifeless as a subway drunk.
"They're very hard to see," said Francois, motioning with
his hand for me to slow down. You have to take your time.
"Do you see one?" he asked me a moment later. "It's right
in front of you."
It may have been right in front of me, but I didn't see
it. The cepp mushroom has a brown top - about
the same color as the leaves. It must be a form of
camouflage - maybe against impatient mushroom hunters
like your author.
The mushrooms don't grow everywhere. In 40 years of
looking for them, Francois and his brothers had found
them only in this one little area of the forest. It looks
no different from the rest of the woods...but go 20 yards
in any direction, and you will find no mushrooms.
Francois has guarded the secret as a fisherman keeps his
fishing holes to himself or a private investor keeps
quiet about his best opportunities. The best investments
- like the best places to find mushrooms - are rarely
Now that Francois is retired, and has left the farm, he
is willing to tell me where to find the mushrooms...
Daily Reckoning reader, MM, sent me this quote from a
1930 G. K. Chesterton lecture entitled "Culture and the
The Coming Peril was:
"...the intellectual, educational, psychological,
artistic overproduction, which equally with
economic overproduction, threatened the well being
of contemporary civilisation. People were
inundated, blinded, deafened, and mentally
paralysed by a flood of vulgar and tasteless
externals, leaving them no time for leisure,
thought, or creation from within themselves."
Despite making this statement more than 20 years before
Neumann filled a room with vacuum tubes, making way for
the PC revolution, Chesterton could be describing the
Internet. You may be able to buy mushrooms over the
Internet - but you cannot hunt for them. Hunting for them
takes a different kind of knowledge, and a different kind
of attitude. It takes time.
As the division of labor expands, fewer and fewer people
have the time or inclination to hunt for their own
mushrooms. We are all deracinated, cut off from direct
knowledge of the things that really matter to us. We
don't know what's in the food we eat...nor how it is
prepared. We don't know who writes our software programs,
nor do we have any idea how they actually do it. Mass
investors don't know what the companies they buy actually
do, and have way of measuring the value of the stocks,
except for recent price trends.
My son, Jules, plays computer games, reads books and
watches movies all day long. He doesn't even like to
visit with friends - as they cut off the time he might
spend with his virtual friends.
According to a report in the WSJ, hotels now earn more of
their profits from the in-room naughty movies than from
their bars and restaurants. This, too, must be a show a
preference for the virtual, or perhaps vicarious, over
the real thing. Not only that, it represents a triumph of
mass thinking. We no longer have to discover the baroque
particularities of sex for ourselves. It is right there -
mass-produced, packaged and clarified on the Pay-for-View
People don't know where the mushrooms grow - and don't
seem to care. You can get them in the grocery store.
Even wealth itself is more and more of the collective,
virtual sort. An article in the International Herald
Tribune informs me that 4 million people have already
signed up for a service called PayPal, which allows
people to transfer money via email. The system's founder
says he is handling $6 million per month in payments.
Wealth was once measured in useful, particular items -
such as furs, weapons, slaves, cattle or land. Those
items were replaced by gold, silver and other precious or
rare commodities - such as the stones of Yap. Then, mass-
produced paper replaced metal. Paper currency and paper
checks, notes, bills, and various paper bonds and other
obligations served to represent wealth.
And now wealth exists purely in digital form - nothing
but long strands of 1's and 0's that convey the necessary
information and have no tangible or individual embodiment
of any sort. You cannot see it, touch it, feel it, eat
it, weigh it or even use it to light a cigar. But it
seems to do the job.
Is this deracinated wealth any less real, or less
reliable, than analog wealth?
More to come...
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Last modified: April 01, 2001
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