*** Has the grinch already stolen the holiday rally? Dow
down 234 points...
*** Earnings still plague the market...more signs of the
big D: deflation...
*** What did Roosevelt know...and when did he know it?
*** What's this? Is the end of the year rally over already?
*** The Dow fell 234 points yesterday. The Nasdaq dropped
93. 1218 stocks on the NYSE rose; 1678 fell. Mr. Bear may
be getting ready for a holiday, but that didn't stop it
from mauling a few shares before he left.
*** In particular, he took a big bite out of Apple, after
the computer firm reported lower sales and its first
quarterly loss in 3 years. Once again, earnings were
blamed. If you want to put an Apple share in a Christmas
stocking you can do so for just $17 - down from $72 on
March 22nd. Another steeply discounted stock is Xerox -
which sold for $29 in March and can now be purchased for
less than $5 a share.
*** `Must own' stock, Intel, fell $4.25 - to $31.75. Yahoo!
lost 14%. IBM dropped more than $6. Hewlett-Packard and
Microsoft both fell about $3.
*** Compaq lost 17%. Juniper Networks slumped 10%.
*** Earnings continue to disappoint investors. Even Dow
Jones, publishers of the Wall Street Journal, announced
lower earnings. The stock fell nearly $6.
*** The Internet incubus, I mean incubator, Safeguard
Scientific, has dropped from $100 to $9 - forcing the CEO
to sell his stock to meet a margin call. More below...
*** Oil has dropped to $27. But energy shortages and cold
weather dominate the news in the U.S. California utilities
are giving customers a taste of the early `70s - asking
consumers to lower thermostats and turn off Christmas
lights.
*** Who would have thought...that this Age of Information
would be marked by such monumental ignorance? Was it a
secret that energy supplies were low? That usage was
increasing? That autumn follows summer...?
*** Natural gas traded as high as $8.50 yesterday. The
liquid has basically doubled in the last month.
*** "What is interesting about this market are the horror
stories of utilities being short of natural gas," says Bill
Fleckenstein. "With prices where they are right now, only
in our wildest imagination could we pick the price it will
trade at in the depths of the winter. I recall pointing out
last winter an e-mail I got from a reader who knew someone
who was buying $8 natural gas calls for January/February of
2001... it was met with many guffaws. Obviously, whoever
purchased those calls, should he still own them, has made
an enormous amount of money."
(http://www.dailyreckoning.com/body_headline.cfm?id=806)
*** The spread between inflation adjusted TIPS bonds and
regular bonds is a measure of the inflation that bond
investors anticipate. The wider the spread, the more
inflation they see on the horizon. The spread is now
narrowing. It was 1.9% a few months ago. Now it has fallen
to 1.6%.
*** Bonds rose as stocks fell yesterday - another sign that
bond investors believe inflation will be no problem. In
fact, they expect the Fed to lower interest rates early
next year. Henry Kaufman says interest rates may fall to 4%
in this swing of the credit cycle.
*** And the latest money supply numbers from the Fed show
MZM - money of zero maturity, or `cash' as we economists
like to call it - increasing at a reasonable rate of 4.5% -
down from the near-double digit rates earlier in the year.
*** Also from the Fed - the Beige Book, the Fed's report on
economic conditions around the country - tells of "slowing
in the pace of growth" in 8 of 12 Fed districts.
*** If sales growth and debt-financing are the keys to
success in the business world - Hyundai would be one of the
greatest success stories on the planet. Instead, Korea's
largest company is close to bankruptcy. Seven out of 10
cars in Seoul are made by the firm. People live in Hyundai
apartments and shop in Hyundai malls. But the conglomerate
has $5 billion in debt - and not much hope of paying it.
*** Telecoms worldwide have borrowed $866 billion since
'97. Where will the money come from to repay these loans?
Who knows. Two Canadian banks, for some reason, have the
greatest exposure.
*** "There are some warning signs about out economy," said
economist George W. Bush yesterday, "that I think we ought
to take seriously." Translation: if there is a recession
next year, it's not my fault.
*** Bankruptcies, recession, falling interest rates,
declining asset values - these are all indicators of
DEFLATION.
*** But what do you do in Deflation? Bonds are the place to
be, normally. But U.S. bonds are denominated in dollars.
And dollars are vulnerable. The euro rose more than 1%
yesterday - and is now holding just below 90 cents. The
dollar index hit a high of 118.65 on the 24th of November.
It fell to 113.23 on Monday.
*** Gold is another possibility. The gold price rose $4
yesterday.
*** "If one looks at various key markets in their entirety,
it should be obvious that 'something just aint right',"
writes David Tice. "An historic real estate bubble runs
unabated. Energy prices are out of control. There are
extraordinary price moves in the credit market and stock
prices continue to move with historic volatility... the
unfortunate but inevitable consequence of years of reckless
credit and speculative excess." (see: Something Just Ain't
Right
http://www.dailyreckoning.com/body_headline.cfm?id=807)
*** "I met a woman and her husband in the high-end antique
business," writes my friend Thom. "They say there's a 12
month antique market indicator for an economic turndown.
And the indicator has already kicked in - this quarter.
Sales are soft. She's selling everything that she can and
moving to cash. So that when the bottom falls out she can
be a buyer at bargain prices. Her specialty is antique
jewelry. The market has been great for a long time but now
is D.O.A."
*** "When Franklin Delano Roosevelt proclaimed Dec. 7, 1941
a `date that will live in infamy,' did he know that his own
actions preceding the Japanese bombing might eventually
come under a cloud of suspicion?" This message came to me
from the Independent Institute, a S.F. think tank.
Last May, the Institute hosted a speech by Robert B.
Stinnett (author, DAY OF DECEIT: The Truth about FDR and
Pearl Harbor, (Free Press)) who was finally able to examine
the long-hidden evidence of the Roosevelt administration's
provocation of the Japanese `surprise' attack on Pearl
Harbor. The Institute summarizes Stinnet's findings:
"Not only was Japan's attack on Pearl Harbor expected, it
was deliberately provoked through an eight-point plan
devised by the U.S. Navy for President Roosevelt. The
purpose? To break America's isolationist opposition to
fighting in Europe and the Pacific.
"American officials knew that a spy on Oahu was sending
Japanese officials a map of bombing targets.
"The Japanese fleet broke radio silence as it approached
Hawaii. The U.S. intercepted Japan's military codes before
the attack. U.S. Navy Admiral Kimmel was prevented from
conducting a routine exercise at the 11th hour that would
have discovered the oncoming Japanese fleet.
"Basically our policy was that we wanted Japan to commit
the first overt act of war," Stinnett said.
"After the Pearl Harbor disaster, both Kimmel and Short
retired under a cloud. Short committed suicide shortly
after leaving military service."
Several top geologists quit big firms, and start out on
their own. The new stock pays 100%-2,000% a year. But As
usual...
Nobody Notices The Good News Until It's Too Late.
Early investors make all the money before Wall Street even
gets wind of the deal. The pattern is repeated. Again and
again. With the right tip you could have bet a whole lot
less than the ranch - and still made a killing. For
reliable hands-on intelligence - and your shot 1,000% gains
in stocks ignored by Wall Street:
(http://www.agora-inc.com/reports/CRIS/intltrader)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Among the sad stories making their way around the worldwide
web is this one from Philadelphia. "The Internet mania that
thrilled and then battered Wall Street claimed one of its
most aggressive promoters as a victim," reports Joseph
DiStefano.
"Like a high-stakes gambler risking the biggest bet of a
long career," reporter DiStefano dramatized the situation,
"Safeguard Scientifics Inc.'s chairman, Warren V. 'Pete'
Musser, borrowed heavily this year to invest in the stocks
of the company's faltering Internet affiliates."
Mr. Musser is no fool. The 73-year-old investor built one
of the most successful new tech incubation companies in the
nation - with huge stakes in the well-known stars of the
Internet world - such as ICG, VerticalNet, and U.S.
Interactive. He did not get to this position overnight.
Instead, he began the firm decades ago and knew his
business well.
"Of all the guys who should have known better," said Howard
Butcher IV, a Main Line investor, who is described as a
longtime Internet skeptic. "He's a consummate stock
promoter. You'd think he would have unloaded it and had his
big nest egg of cash instead of being in debt."
But Musser apparently succumbed to the risk all stock
promoters face - he came to believe his own hype.
"There's nothing new about the 'new' economy," commented
Mr. Butcher. Musser was forced to sell 80% of his shares to
cover an old-fashioned margin call. The shares, worth $738
million in March, brought less than $100 million.
It may be too late for Mr. Musser, but the financial press
worldwide reported that Mr. Greenspan is on his way with
help. "Greenspan Arrests Wall Street Collapse" heralded the
front page of France's leading financial paper, La Tribune,
yesterday.
Shareholders believe that Mr. Greenspan still holds the big
put option that will save them from losses. But does he?
Can a change in policy by the Fed save the Mr. Mussers of
this world? Or are their investments so imbecilic, so
suicidal, so hopeless that they cannot avoid self-
destruction?
Pets.com spent $179 to acquire each dog food customer. Now
that the company has gone belly-up, what is left? How can a
change in interest rate policy bring back the millions that
were spent?
Likewise, TheStreet.com lost $37 million in the first 9
months of this year - or nearly $400 for every one of its
paying customers. TheStreet.com announced the closing of
its UK office...and a 20% cut in employees. Maybe someday
it will find a business model that works. But how will a
lower fed funds rate help investors recover the $37
million?
How can the telecoms hope to recover that vast amounts they
have spent over the last two years? How can those who lent
them money hope to get their money back?
"The numbers coming out of the economy this quarter are
going to be modest numbers," Henry Kaufman forecast
yesterday, "It is going to require more than a quarter
point move by the Fed to bring some momentum back to the
economy."
Early next year, Greenspan and co. are likely to cut rates
by a quarter point. Maybe a half point. Suppose they do?
Many companies are already shut out of the capital markets
- not because rates are too high, but because they're
perceived as bad credit risks. Other companies are paying
17% or more to attract capital - even though the Fed Funds
rate is half that amount. A rate cut, says Goldman Sachs
senior economist Ed McKelvey, "is not going to affect the
cost of credit a whole lot."
A cut in the Fed Funds rate doesn't all of a sudden make
these borrowers more creditworthy. No one is going to jump
at the chance to lend money to TheStreet or Amazon or other
CWI - 'companies with issues' - borrowers just because the
Fed cuts rates. It is big Bankruptcies not the big Bottom
that is the problem.
If a man borrows more than he can afford...and spends the
money on high living rather than productive investments...
lower interest rates do not make you want to lend him more.
He needs to put his financial affairs in order first - and
that can't be done by borrowing more money.
And there is the dollar. The U.S. economy relies upon vast
amounts of credit from overseas. A cut in rates makes it
relatively less attractive for foreigners to buy U.S.
assets or lend dollars...and increases the cost of imported
goods.
Thus, while Greenspan tries to boost the supply of credit
through lower rates - he would be fighting a losing battle
against world capital flows. For every dollar of credit he
added to the U.S. economy by lower rates, two or three
would disappear - taken away by foreign creditors...
And whatever Mr. Greenspan may do...it is likely to trail
the action of the stock market rather than lead it. A cut
in rates is likely to speed the collapse of the dollar.
Already, the average American household has experienced a
negative wealth effect due to falling stock prices of
nearly $30,000. If stocks continue to fall, even the most
aggressive cuts Mr. Greenspan could manage would, in
comparison, be as negligible as the wind drag on a runaway
tractor trailer.
Sell the rallies.
Your correspondent,
Bill Bonner
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