*** The First Great Event of the 21st Century...Pre-
presidential drunk driving...and more!
*** Not very much in the news today. Which is a good thing
because I've got to rush out and see a man about fish.
*** Our pond has finally been cleaned out, reshaped and,
after a couple of days of rain, refilled. It's time to
stock it with fish.
*** Meanwhile, a couple of Daily Reckoning readers from
California have come to visit. They've been driving around
France and have seen more of the country in the last two
weeks than I've seen in the 5 years I've been living here,
albeit off and on.
*** Back to the financial world...the techs managed another
rally yesterday. Intel stepped up to the microphone
yesterday and announced that sales were back on track. And
the Bureau of Labor Statistics came out with some good news
of its own. This was all the encouragement tech diehards
seemed to need.
*** The Nasdaq rose 95 points. Techs and nets were up
across the big board. IBM rose $3. Even Amazon rose again
and is now almost back at $40. Maybe I've been wrong about
the big River of No Returns all along. Great company. Great
stock. (Note to Bezos: Please keep buying books from us.)
*** A couple noteworthy exceptions to the tech rally -
Worldcom lost nearly $1.50. And Oracle fell about 10% on
rumors that someone is leaving.
*** Someone is definitely leaving Priceline.com. The
company fired about 15% of the staff and the CEO, Heidi
Miller, named by Fortune as the "second most powerful
business woman" in America, resigned. But her puissance may
have dimmed a little in the last 9 months. Since she
assumed command of the company, the stock has lost 90% of
its value.
*** The Dow got no help from Intel (a Dow component) nor
from the BLS figures. The Dow fell 19 points.
*** 1760 stocks advanced; 1114 declined. 93 hit new highs;
35 saw new lows.
*** The BLS also tossed out news that non-farm productivity
rose 3.8% in the 3rd quarter. It is up 5% - if you believe
the BLS numbers - from a year ago. Unit labor costs rose
only 2.5%, after falling in the 2nd quarter.
*** Auto sales fell 1.5% in October.
*** Are the tires on the runway? Has Fed succeeded in
bringing about a 'soft landing' - reducing the rate of
growth of the U.S. economy to a more 'sustainable' pace?
*** "Yes, I think we have," said regional Fed Governor
Edward Gramlich.
*** Oil fell a modest 71 cents on news of another Mid-east
cease-fire.
*** "The Saudi royal family has announced they will not
tolerate violence against the Palestinians," writes
Outstanding Investment's John Myers. "Saudi Arabia is the
world's largest oil producer. The Saudi's can push oil
prices into the stratosphere... traders remember that the
Yom Kippur War was the launching pad for the first oil
embargo in 1973..."
*** "But, even without war in the Middle East, oil may stay
expensive," says Myers. Oil prices trending hire are part
of what he calls: 'The First Great Event of the 21st
Century.' "According the M. King Hubbert Center for
Petroleum Supply Studies 'The world has been consuming far
more oil than has been discovered since 1980 ... We now
burn four barrels of oil for each new barrel [located in
the ground]'."
*** "In 1956, Hubbert, a geologist, predicted that oil
production in the lower 48 U.S. states would rise for 13
more years, peak in approximately 1969, and then fall off,"
explains Myers. "In short, he was right. Oil production
peaked in 1970 and has been falling since then. But that's
only the beginning. When you apply Hubbert's techniques to
world oil, you find out we're just a few years from peak
production. The world has produced roughly 800 billion
barrels of oil. There's about another 850 billion barrels
in proven reserves, and an estimated 150 billion barrels
yet to be discovered. In other words, we're almost halfway
through the world's supply of oil."
*** One way to play this trend is to keep an eye on energy
companies. For example, "Calpine is America's fastest
growing power company," also from John Myers. "Its earnings
for the third quarter marked the 17th consecutive quarter
in which earnings grew. According to CEO Peter Cartwright,
'By the end of 2004, we expect to be one of the nation's
leading and most profitable power generation companies,
with more than 40,000 megawatts of generation on line in
attractive energy markets throughout the U.S.' Calpine is
up 50% since May."
*** The dollar index rose 5...as the euro settle a little
but held at over 86 cents.
*** Gold rose 50 cents.
*** "El Salvador earned the distinction as the 'Hong Kong
of Latin America', finishing as the 12th freest economy in
the world in this year's Index of Economic Freedom," writes
Steve Sjuggerud. "I expect El Salvador to dollarize in the
next decade eliminating local currency risk, and government
has done a nice job keeping its hands out of the economy as
well, consuming less than 10% of GDP (imagine that in
France)." Unbelievably, Mugabe-torn Zimbabwe, says
Sjuggerud, managed to finish in 146th place... meaning that
there are apparently 15 countries worse off than Hell on
Earth. (see: Where Freedom Reigns)
*** George Bush was arrested for drunk driving 24 years
ago. But he says that when he turned 40 he decided to give
up alcohol and take up politics - that is, to stop abusing
himself and begin abusing others.
When The Greatest Credit Bubble in History Bursts...What
Comes Next?
No banks or brokerage houses went bust in the 1929 crash.
In fact, many investors and businessmen prospered. The real
damage was done later on - when popular sentiment turned
against stocks altogether. Just as is happening in our
markets today...
Will you profit in the months ahead? You will if you
prepare yourself now - EVERYTHING that is happening in the
markets today has already happened before. Click here to
learn more about the Hidden Logic of Credit Bubbles
(http://www.agora-inc.com/reports/BUBD/BubbleTrouble)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
The dot.coms have done pretty much what we thought they
would. They have been crushed. The squeezing is far from
complete, of course. Many companies still have cash...and
hope. For most dot.coms, both accounts will be drawn down
to zero in the months ahead.
And now the big techs are being ground down, too. These are
real companies with real revenues. They will not disappear.
But they will soon trade at prices similar to those of
other stocks - that is, between 10 and 20 times earnings,
rather than 100 times earnings.
The destruction of the techs will take time. But it will
happen. Because, as I explained yesterday, investors'
emotional attachment is to the hope of getting rich in
stocks, not to any specific group of stocks. Technology has
merely provided a rationale.
Investors will find other stocks. They will continue
putting their money "in the market." They will still
believe that stock market investing is the surest way to
wealth. They will believe it until, one by one, they can no
longer afford to believe it.
And here I will offer a prediction:
The decisive event...which will turn the dream of stock
market riches into a nightmare...will be the fall of the
dollar.
Few Americans care about the dollar. Perhaps only those of
us who live overseas and see the daily price fluctuations
notice it. But it is upon the King Dollar that the U.S.
economy and its markets rest. But the dollar is a strange
monarch...because it depends on foreigners for its power.
The burden of today's letter is that a revolution is
coming. If I am right, the dollar will soon be pulled from
his throne and decapitated.
"We continue to wait and to look for the dollar's impending
collapse," wrote Dr. Kurt Richebacher.
When? How?
"The decline...will start once the economic news begins to
disappoint," continues Richebacher. The 3rd quarter GDP
figures were disappointing. Hedonics, technology,
flexibility - suddenly, all the reasons why the U.S.
economy would grow faster than Europe no longer mattered.
Because, in real terms, Europe seems to be at least keeping
up with the US, and maybe surpassing it.
The U.S. is the most successful paper currency of all time.
While Europeans and Asians produced cheese, wine, shoes and
walkmen...the U.S. produced dollars. For many years,
dollars have been traded for the foreigners' products with
no trace of regret on either side.
As the automobiles and designer clothes piled up on U.S.
docks, the dollars piled up in overseas banks. "Today, as a
matter of fact, Europe's central banks [alone] sit on a
huge dollar hoard of $222 billion," says Richebacher. And
"gross foreign dollar holdings today exceed $7 trillion..."
Even these enormous dollar holdings fail to describe the
magnitude of the flow of cash out of the U.S. At least $400
billion comes back into the U.S. this year - to finance the
current account deficit. That money comes willingly, as
long as people have faith 1) in the U.S. economy and 2) and
in the superior rate of return from U.S. investments.
On both points, faith is being shaken. Stocks are down. And
now the U.S. economy is slowing down.
"Everybody hedges against a falling euro, but nobody hedges
against a falling dollar," observes Dr. Richebacher. (see: The Secret Fear)
Even in the Age of Information, investors and business
people are where they always are: closer to the clueless
point on the information spectrum than anywhere else.
With no direct experience nor any points of reference, they
are caught up in the latest collective thinking. The dollar
is strong because of 'technology in America' or because the
U.S. economy is 'more flexible,' 'dynamic' and so on. The
fantasy du jour is that the euro must always go down and
the dollar must always go up. And yet, all it would take
would be a little hedging on the part of investors and
dollar-holding foreigners to send the dollar plunging.
"[T]he dollar's stability depends on the perseverance of
capital inflows of preposterous magnitude," continues
Richebacher. Not only do Americans mortgage their homes in
order to consume foreign products, U.S. corporations borrow
money on European markets to take advantage of Europe's
higher saving rates.
Fannie Mae, Freddie Mac and the Fed Home Loan System were
set up to help disadvantaged borrowers obtain home
financing. After the biggest boom in mankind's history,
apparently a lot more Americans are disadvantaged. The
assets (mostly mortgage loans) of these three institutions
rose three times since 1993 and now approach $2 trillion.
Did this money go into new and better housing? Dr.
Richebacher calculates that only one tenth of that money
was actually used in residential building. Where does the
money go? Some of the borrowed money is used to increase
American's standard of living. And the rest seems to go
into U.S. investment markets.
Where do these three institutions get the money they lend?
Much of it, it turns out, directly or indirectly, is
borrowed overseas. U.S. corporations borrowed $282 billion
overseas in 1999 and $71 billion in the first quarter of
2000, reports Dr. Richebacher.
Normally, real GDP and real incomes rise together. But for
the last two years, disposable incomes in America have been
going up only at half the rate of the GDP. Though incomes
increased at a 4.8% annual rate in the first quarter of
1998, they went up at only 1.9% in the first quarter of
2000.
But spending continued to increase even faster than the GDP
rate. This spending, coupled with the paper profits of the
stock market, allowed people to increase their standards of
living while feeling richer from the 'wealth effect' at the
same time. It was gain without pain...wealth without effort
or sacrifice.
And it was an illusion. Now, with the wealth effect in
reverse, even the slightest pullback in the dollar will
prove disastrous. The cost of imported goods will go up.
Credit from overseas lenders will dry up. Purchases of U.S.
assets will fall. Foreign dollar holders - including
dollar-based bonds and equities - will sell. Living
standards will fall in America.
People will feel poorer, not richer.
But other then that, things will be fine.
Your cheerful correspondent,
Bill Bonner
About
The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."
That's what readers are saying about The Daily
Reckoning.
Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical
contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.
Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly
contrarian. It's also among the fastest growing e-letter on the Internet.
It's a brand new service... but it has a distinguished history..
For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market
falters. Here's more from his online readers...
"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune
directly to The Daily Reckoning" (Timothy)
" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor" (Makram)
"It is actually better than some of the newsletters that I pay to
get" (Joe)
"Your statements and philosophy have kept me from storming into the market and in fact [I'm]
making some money in put options" (Frank)
Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter
click
here now.
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears
LLC
