*** Dow down...Nasdaq up...what are investors waiting for?
*** Today - Cisco announces its earnings...Is it really
'severely undervalued?' Or grossly over-valued?
*** Dollar down! Why hasn't the broad market collapsed...
Bill Gates on what poor people really want...and more!
*** The stock market seemed dull towards the end of last
week. On Friday, for example, the Dow finished down 62
points. The Nasdaq went up 22. Investors seemed to be
waiting for something to happen.
*** Financial reporters are desperately trying to gin up
some excitement about tomorrow's election. Analysts have
been quoted saying that investors have been sidelined by
the uncertainty of the elections and are waiting until Nov.
8 before a beginning a strong year-end rally.
*** Well, maybe...but why wait? What's the uncertainty?
What difference does it make? Possibly Bush would be better
for tobacco and defense stocks...but possibly not. Gore's
spending promises actually include more money for defense.
And the federal government is no longer a big buyer of
tobacco products in any case. More on the election below...
*** Apart from the elections, the other big event is
Cisco's earnings announcement scheduled for today. Most
likely, Cisco will report satisfactory figures. Sales have
been growing at 30-50% for years. But the sharp analysts
may detect some flaws in the Cisco Kid's picture. Telecoms
are among Cisco's most important customers and the industry
has gotten very soft in recent months. Other suppliers -
such as Nortel, Lucent and Copper Mountain - have been
already been crushed.
*** Nortel, too, has been growing at 42% per year...but
that didn't stop investors from marking down its shares by
nearly that same amount.
*** Cisco has a $400 billion market cap - equal to 20 times
sales. At that price, at least one analyst claims that it
is "severely undervalued." Meanwhile, a headline in the
International Herald Tribune last week claimed that
investors are "Going Back to Value." They will have a long
way to go before they find value in Cisco.
*** The Nasdaq gained 5% last week. The Dow ended the week
up 2%.
*** Taking the week as a whole, there were 2398 advancing
issues on the NYSE and only 904 declining ones. 248 hit new
highs; 138 hit new lows.
*** Labor costs increased 6% in the 2nd quarter. One of the
miraculous features of the miracle U.S. economy was its
ability to avoid inflation by getting more than enough
additional output from workers to cover increases in
salaries. That didn't seem to happen in the most recent
quarter. Productivity only increased by 3.8%.
*** King Dollar may have topped out. The ECB intervened,
suddenly and without much effect, on Friday. Still, the
dollar index fell to 114.05 and the euro rose to nearly 88
cents before falling back under 87 cents. IF the dollar is
now falling, it marks the beginning of the end for the
economic boom that began ten years ago. It also would be an
important milestone along the path of retreat for the stock
market boom than began in 1982...and turned into a bubble
in 1998.
*** Why hasn't the weakness in the market leaders led to a
general market collapse (yet)? "First of all," writes John
Mauldin, answering the question I posed on Thursday, "the
Bull Market of the past few years was a very narrow bull
market, largely missing the vast majority of the market.
Excluding the technology sector, the S&P 500 Index has been
in a flat trend for two years. The Technology Sector of the
S&P 500 is up almost ten times since 1992, which has
largely fueled the bull market. For the last 8 years ending
in 1999, transportation is up only 75%, utilities were up
less than 50%..."
"In addition, the S&P 500 dumps the loser stocks and adds
winners on a regular basis (as does the Dow). Companies
which are going down are removed from the Index, so the
bias is upwards. The tech component of the S&P 500 is 50%
bigger than 10 years ago.
"As of a few days ago, the S&P was down 7% for the year,
but the tech component was down 21%. Due to the heavy
weighting of the tech sector in the Index, the biggest
portion of the recent decline is due largely to the tech
sector.
"One is almost tempted to ask, 'What Bull Market?' The
market in tech stocks was not a bull market, it was a
momentum driven mania/bubble market frenzy. But because it
was a component of the overall market, it masked the
malaise in the rest of the market.
"...the out of favor Old Economy stocks went nowhere price-
wise. Now, however, since the first of the year technology,
communication, basic materials and consumer cyclicals are
all down between 20-30%. The rest of the market is doing
just fine.
"What will cause a general bear market in all stocks?"
John asks. "A recession."
*** But a recession is just what you get when the `wealth
effect' turns negative. A decline in stock prices alone can
trigger a slowdown as households cut back on spending to
offset losses in their stock portfolios.
*** "The established euphoria continues to prevail among
consumers, businesses, investors and economists," wrote Dr.
Kurt Richebacher recently. "The consensus keeps expecting a
continuation of the economy's stellar performance. The U.S.
economy is expected to show its strongest growth since 1984
by the end of this year, while the interest cycle has
peaked..."
"We repeat," he continues, "was we have said many times
before: It will come as a great surprise how fast the U.S.
economy will weaken within the near future...it's five
minutes to twelve."
*** As I have been saying, the benefits of connectivity,
bandwidth plenty and the Information Age are greatly
exaggerated. Even Bill Gates agrees: "the world's poorest 2
billion people," said the richest man in the world,
"desperately need health care, not laptops or Internet
connections or a bridge across the digital divide."
*** Addison and I are attending a writers' conference in
Germany. I arrived late last night by train and stepped
onto the platform where I discovered that everything was
closed. Only one other person got off with me. She turned
out to be one of the few people in Germany who speak no
English or French. But she pointed me in the right
direction and I arrived at the hotel a few minutes later.
*** My week's semi-holiday for All Saints was less than
blissful. The weather was mostly bad. The family was
fractured with various agendas that didn't match. And I got
in the middle of the bitter 20-year-old feud between
Francois and Pierre when I invited Francois to cut wood
along the entryway. "He is going to cause trouble," Pierre
warned, practically shaking with emotion. Now that Francois
is retired, Pierre can't bear seeing him around the farm.
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Signal: The NASDAQ's 200-day MA crashes...the S&P breaks support...
FORECAST #2: The Dollar will fall - hard! Signal: Two major
European currencies not in the euro - break through the top
"channel." When they do... watch out!
FORECAST #3: Stocks will begin a new bull cycle in 2001.
Signal: Bonds and equities bottom together.
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
A presidential ticket with three drunk driving arrests
can't be all bad.
We have the news of Mr. Bush's brush with the law thanks to
one quick-thinking member of the electorate...a Mr. Tom
Connolly. The Maine Democrat was worried that "Bush could
relapse" and felt it his duty to reveal details of an
arrest that occurred before the Spice Girls were born.
But no sooner were the chattering classes set to their
labors when the news broke that the number two man on the
Republican ticket also had had his problems with demon rum.
Mr. Cheney admitted that he had been arrested not just once
- but twice - for DUI.
Mr. Gore, meanwhile, proving that sobriety is no sure
defense against imbecility, has let it be known that he has
successfully avoided arrest all his life.
Drunk driving is not the threat that people think it is,
and certainly much less a threat than that posed by the
political process itself. One study I recall determined
that a middle-aged drunk was less likely to have an auto
accident than a 70-year-old woman or an 18-year-old boy.
Mature drunks weave, but they tend to drive very slowly and
cautiously - realizing that their abilities are impaired.
But the nation is indebted to Mr. Connolly. Were it not for
his keen sense of civic responsibility, none of this might
have come out and we would have been forced to make our
presidential selections on the basis of incomplete
information. Indeed, just about all we really know about
the candidates - aside from the empty slogans and campaign
promises are the little details that slip out from time to
time unbidden, like change under a seat cushion.
Mr. Gore, for example, was told by his father to clear a
20-acre section of land with only a hand axe and brush
hook. This biographical flourish was supposed too enhance
Mr. Gore's reputation for grit and determination. But it
makes you wonder about the man's judgment. Clearing land by
hand is a very inefficient way to do it. If young Al had
had any sense or gumption he would have demanded at least a
chain saw or bush hog. Instead, the future vice president
merely did as he was told, like a Chinese coolie hauling
dirt in a basket.
Of Mr. Bush we know similarly little. His chief virtue
seems to be that he knows a NY TIMES reporter when he sees
one.
And now that the long season of hard campaigning is
over...the debates have past...the fortunes have been spent
to convince voters to `get out and vote' for one candidate
or the other...the climactic moment finally arrives,
tomorrow, when we discover by whom we will be robbed,
bossed around and insulted for the next 4 years.
Will it be - as the media have cast them - the moron or the
robot? Which essential body part are we able to do without
in a president - a mind or a heart?
Thus, dear reader, do we see the full quackery of the
Information Age. We have access to all the information we
could possibly want on the two candidates. We know where
they went to school, what they've done with their
lives...even with whom they've slept. And yet, we know
nothing. We lack even the basic terms and ideas with which
to understand the election itself...and how these two
defective characters - whose programs are only marginally
different - could be the only choice of an electorate
numbering more than 100 million.
It's not information we lack - it's insight and wisdom.
People have so much faith in American democracy that they
are unable to see the farce it has become.
Coming back from a restaurant in Baltimore a few weeks ago,
I noticed a whole group of posters hectoring people to
vote. One showed a picture of a 60s era U.S. army helmet
with bullet holes in it. The preposterous message: that
soldiers died in Vietnam so you and I can vote for Bush or
Gore. I know a lot of guys who went to Vietnam...and some
who died there. I guarantee that the idea of defending the
U.S. electoral system from the Viet Cong never crossed
their minds.
Every one of the people with whom I was walking said they
did not intend to vote. Smart, educated, well-paid people -
and yet they didn't consider it worth their while to cast a
ballot.
Americans can read the election coverage in the papers.
They see the candidates on TV. They may believe in
`democracy' in the abstract. But when they see what
actually happens, they know it is not worth their while to
get involved.
Ralph Nader, trailing in the polls but with an unbeatable
lead in humbuggery, seems to reject the whole concept of
centrist politics:
"Don't vote for the lesser of two evils," says St. Ralph,
the patron saint of tort lawyers, "because at the end of
the day, you end up with evil."
The New York Times and the Washington Post are mad at
Nader. "Spoiler" they call him. People voting for Ralph are
`throwing their votes away,' say the great liberal oracles.
Voters can see that the whole spectacle is phony...but they
lack the terms to understand it. Even with the Internet at
their fingertips - it seems impossible to gain a clear idea
of what the election is really about or what it really
means.
Neal Gabler, writing an unusually sensible editorial in the
International Herald Tribune describes the dumbing down of
national politics as a feature of mass communications:
"The arrival to television and the televised debates, which
enabled candidates to reach the electorate directly, forced
the media to redefine their coverage," he says. "What has
emerged is something suspiciously like celebrity reporting.
Candidates' personalities are analyszed and their life
histories exhumed as if they were movie stars. Again, like
stars, they are judged by whether they exceed or disappoint
the expectations that the media have created for them."
Mr. Gabler describes the positioning of the candidates as a
"narrative" created by the media...as though the election
were a sporting event.
"Because the candidates fully understand that this is the
media's obsession," he observes, "and because the media,
through repetition, largely govern how the rest of us think
and feel about the candidates, the narrative actually
drives the entire electoral process now."
So who will you vote for? Brainy Spice or Friendly Spice?
Beneath the media's narrative is the logic of democracy. A
recent survey revealed that the average amount of tax paid
in the U.S. is about $7,500. Seventy percent of taxpayers
pay less than that amount. And those earning under $10,000
pay only 4% of their incomes in tax, while those earning
more than $500,000 pay nearly 30% to the government.
Relatively few people earn more than $500,000 per year -
not enough to elect even a county executive. But a lot of
people hope to earn $500,000 and they're smart enough not
to want to destroy the dream of great wealth. And many
voters have a sneaking suspicion that that people are
better off generally if the most successful among them are
not routinely and ruthlessly plundered.
Politicians need to position themselves as close to the
point of balance as possible - the point where the most
money can be squeezed out of people for the benefit of the
largest possible number of voters. The leading candidates
take up their posts on either side of the balance...close
to the margin. Both are candidates of the status quo -
since the balance point changes little from year to year.
Thus, the evil choice that they offer is similar to a pair
of criminals who break into your house at gunpoint and
allow you to choose: one will take 29% of everything you
earned that year. The other will take 31%. Choose one or
the other and you become party to your own expropriation.
The Washington Post and NY TIMES hector their readers to
vote - lest the 29% candidate carry the day. And
Republicans are reminded that if they stay home on election
day, or vote for Harry Browne, the Libertarian candidate,
it could cost them thousands of dollars, too. And so, they
are all drawn into the politics - all made accomplices to
an act of larceny and absurdity.
Sigmund Freud, you will recall, explained the Germans'
attitudes at the end of the two world wars on the basis of
how much they identified with their leaders. German troops
abandoned the Kaiser when the going got tough. But they
stood by the Fuhrer when the going got really tough. The
difference was that the Fuhrer was elected, Wilhelm was
not. Between WWI & WWII Germany discovered democracy. Mass
thinking, mass media, and mass democracy had replaced the
quirky independence of the House of the Hohenzollerns. The
Germans had ceased being subjects of unelected monarchs and
had become citizens of nation whose leader they elected,
and with whose fantasies they fully identified and largely
cooperated.
In Germany, as in America, as voting spread so did mass
media, mass thinking, and mass self-delusion.
Your correspondent,
Bill Bonner
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