*** Microsoft - victim of anti-trust law
*** Dow back above 50% retracement level - what will
*** How much are votes worth?
*** The big news today, screaming from every headline and
website, is that Judge Thomas Penfield Jackson has ordered
the breakup of the most successful new business in history.
Judge Jackson excoriated Microsoft in his judgement for
failing to admit that it broke the law.
*** What law? Whom did Bill Gates & co. murder? From whom
did they steal? When did they bear false witness? Ah, but
it was not the law of Moses nor any provision, big or
small, of common law that MSFT transgressed. It was the law
writ by politicians and interpreted by bureaucrats - that
is to say, the law of fools and knaves - that Judge Jackson
applies. Anti-Trust, it is called. A refuge of legal
humbuggery if there ever was one.
*** Had Bill Gates been a big contributor to political
campaign coffers...and spent his time currying favor in
Washington rather than providing the world with useful
products...no case would have ever been launched against
the company and Judge Jackson might be spending his time
locking up people for, say, littering federal highways.
*** The Dow rose back above the critical 50% retracement
level of 10,762 again yesterday. Mr. Market seems unable to
make up his mind. Or, perhaps he is just toying with
investors the way a cat toys with a mouse, before eating it
*** The Dow rose 77 points. The Nasdaq rose 82 points.
*** "The Dow has had four rallies since April, EACH WEAKER
THAN THE LAST," reports Richard Russell in yesterday's
commentary. "The first rally ended on April 11 with the Dow
at 11287. The second rally ended on April 25 with the Dow
at 11124. The Third rally ended on May 16 with the Dow at
10934. The fourth and most recent rally ended on June 5
with the Dow at 10815." (http://www.dowtheoryletters.com)
*** There are signs that the market wants to go up. For the
7th day in a row, the Advance/Decline ratio has improved.
More stocks are going up than down, in other words.
Yesterday, 1606 rose on the NYSE. 1296 fell. 60 stocks hit
new highs. Only 41 hit new lows.
*** Up or down...one way or another...some day or
another...stocks have to find more solid footing. It may be
a long, hard, twisted and confused path they use to get
there...but until further notice, we are still in a bear
market and prices are still going down.
*** Of course, there are some prices that are already so
far down they represent decent value. James Grant mentions
American Greetings Corp., the #2 greeting card company in
the world (after Hallmark). American Greetings is one of
the "Old Economy" companies that is thought to be in danger
of disappearing under the assault of free Internet services
- that not only send out digital greetings for you, but
also remember the appropriate occasions.
*** Nevertheless, getting an emailed birthday remembrance
is not exactly the same as getting its analog equivalent.
Maybe it's the thought that counts. Or maybe, unlike
pornography, anniversaries and weddings are things we are
happy to be reminded of through the mail...and we don't
mind displaying the cards on desks and mantels. American
Greetings is selling at about 50% of sales, 90% of book
value and a P/E of 7.6.
*** Gold gave up some of its recent increases - falling
$1.80. Oil, meanwhile, rose 20 cents.
*** According to CNBC, Tax Freedom Day was unofficially May
2nd this year. But for people in the highest brackets it is
June 9th. Tomorrow.
*** But it's all relative. James Davidson: "Someone who
graduated from college in 2000 with no net worth, earned $2
million from day trading in Texas during the year, confined
his expeditures to $120,000, and then was killed in a
traffic accident on New Year's Eve, would owe an additional
$550,000 to the federal government. The total tax take out
of $2 million earned - $1,430,000, or 72%. For this fellow,
Tax Freedom Day would fall on Tuesday, Sept. 19."
*** Why do shareholders allow companies to buy back their
own shares? Gary North: "A temporary employee -- let us
call him a CEO -- can use the money generated by the
company to buy back shares, which increases the CEO's stock
option portfolio almost immediately. Pouring company money
back into the company [instead of buying back its own
stock] might produce long-term profits for investors, but,
as Keynes said. . . .
"The question is, why do investors accept this policy?
Because it makes them look smart. 'I bought 100 shares of
Capital Consumption, Inc.,' [the investor says to himself],
'and look how well I've done.' I call this the 'love me,
I'm a genius' syndrome. Investment genius needs
confirmation before the next quarterly report"
*** Another hot item in today's news: Jon Corzine, a Wall
Street moneybags, called the "human ATM" by his opponent,
won the NJ democratic primary. He did it by spending $137
per vote. That doesn't seem like much to pay for a vote
that could give you permission to take somebody else's
property. But, it's depressing to think that this spending
goes into the GDP along with real products, like haircuts,
razor wire and whiskey.
*** Commentators are calling for Campaign Reform.
Immodestly, I repeat my reform suggestion: Choose members
of congress by chance rather than by fraud. By lottery,
that is, as juries are selected.
*** It would cost nothing...nor would political campaigns
continue to interrupt the taste and dignity of the regular
MTV programming...and the resulting congress would be far
more representative of the American people. Not only that,
its members would have no incentive to act like potentates
rather than citizens. After their terms were up - they'd
have to go back to honest jobs.
You can cash in on greed, ignorance and fear. A respected
economist and former central banker, Dr. Kurt Richebacher,
shatters the myths of the New Paradigm. Protect yourself
and profit with his keen insights. Find the free report at http://www.dailyreckoning.com/corprofits3
Amid the fed-watching and Gates-watching...and Anna
Who has time to watch the dollar?
Yet, "the strong dollar," wrote a correspondent on the
SiliconInvestor website yesterday, "is the only thing left
underpinning a wildly overpriced stock market."
And the Bank of International Settlements frets, perhaps
prematurely, that the biggest risk to the world's financial
system is "coping with the reversal in the fortunes of the
After a flurry of articles about the weakness of the euro -
predicting its demise - the euro has done the predictable
thing; it has risen. The dollar has fallen. The euro has
been climbing a wall of worry for the last week or so. My
lunch today will be marginally more expensive than it was
yesterday - even if I order exactly the same thing.
Meanwhile, a report in today's International Herald Tribune
informs us that a robotic telescope in Australia has
confirmed that even "cosmic structures have a maximum size,
a limit called 'the end of greatness..'"
Could it be that the world's greatest currency has limits
An American, at home in Des Moines or Sun City, has little
interest in the foreign exchange value of the dollar. Only
when on vacation overseas is he either delighted or annoyed
- depending on the circumstances. Delight or annoyance, I
should warn you, tend to be cyclical phenomena - not
And yet, for the past few years, the dollar has been so
strong and durable that it seemed that it would rise
forever. Maybe not against the yen. But the yen is in a
class by itself. The bank of Japan is not playing by the
same rules. Its officials must not even breathe the same
air (they eat raw fish, after all). Even taking interest
rates down to zero and running the biggest government
deficit in the industrial world does not seem to lower the
value of the yen. Instead, the yen also rises. And rises.
And rises. (http://www.dailyreckoning.com see: The Austrian Case
against American Monetarism)
The dollar, meanwhile, does not so much rise as expand. It
is America's number one export. It is the brand of choice
for billions of money consumers all over the world - even
in places where the local brand is in good competitive
shape. Trillions of dollars have been shipped overseas over
the past few decades. Not only have they been accepted,
they've been welcomed like a tourist with a fat wallet.
So welcome has the dollar become that it has encouraged a
U.S. current account deficit larger than the world has ever
seen. Every day, Sundays and holidays included, about $1
billion more of goods and services is sold to America than
America sells to the rest of the world. That $1 billion
deficit hole is filled with dollars - one billion of them,
to be precise. And the willingness of the world to continue
to accept this paper - in return for products of real worth
- is both one of the wonders of the modern world...and the
subject of today's letter.
The dollar is, after all, the world's leading reserve
currency. Central banks, corporate treasurers and
individual investors throughout the world hold the dollar -
instead of, say, gold or euros - as a reserve asset. There
is, however, no law that requires them to do so. They might
decide one day that they would rather have euros. In a
trice - actually at the speed of light - they could convert
their dollar holdings into yen or euro positions. Or even
Why don't they do so?
It is a matter of faith. Like an Internet stock, the actual
value of the dollar is a hard thing to figure. How many are
in circulation? What is the effect of derivatives? Against
what assets is it a liability? What earnings?
Lacking tangibles, the currency markets rely on intangibles
- such as confidence, an emotion as subject to ups and
downs as an elevator.
Back in 1965, the American economy was nearly as robust as
it is today. James Grant, (http://www.grantspub.com) excavates a
passage from an issue of Business Week which appeared
almost exactly 35 years ago, but which might have been
"Some European central bankers and economists have been
watching the U.S. economy with utter amazement, some
apprehension, and not a little jealousy.
"By all their rules, the U.S. economy should have started
long ago to show the signs of strain that are the
inevitable prelude to a bust. Yet despite an expansion that
has carried gross national product up a startling
30%...over the past 4 � years, the economy remains
generally free from inflationary pressures and imbalances.
And the businessmen who run the show fully expect their
trouble-free prosperity to continue.
"The underlying factor behind this remarkable performance,
so baffling to the European traditionalists, has been a
sharp rise in productivity. Measured by output per man-
hour, productivity in the private economy has increased at
an average annual rate of 3.5% during the past four years,
compared with average rates of 2.5% in 1953-57 and 2.7% in
Bringing the comparison up to date, "in the period from
1961 to 1966," writes Grant, "output per hour in the
nonfarm economy climbed by an average of 3.7% a year vs.
2.3% a year for the period 1995-99."
Nevertheless, once again, strong productivity is thought to
be the source, or perhaps the expression, of the U.S.
Alan Greenspan, to the Senate Banking Committee in
February: "It," he said, referring to the American economy
speeding along with the pedal to the metal, "is
characterized by a really phenomenal change in technologies
which are inducing not only a high rate of growth and
productivity but an accelerated, accelerating
I have already bored you with the logic and figures behind
what Dr. Kurt Richebacher calls the "U.S. productivity
hoax." Using the helium of 'hedonic' measures, government
number crunchers have managed to balloon GDP output numbers
by as much as 700%.
No one knows what the real output or productivity numbers
should be. But whatever they are, they are no guarantee
against financial decline.
"The Achilles heel of the apparently perfect economy of the
early and mid-1960s," Grant continues, "was the dollar."
Charles de Gaulle had caught on to the mysteries of a world
reserve currency as early as 1965. "[W]hat the United
States owes to foreign countries it pays - at least in part
- with dollars that it can simply issue if it wants to."
Then, as now, the US was running a huge current account
deficit. Then, as now, Americans were allowed to continue
spending more than they earned as long as confidence in the
dollar remained strong. Then, as now, the dollar eventually
came to "the end of greatness," and was forced back.
More on this tomorrow...
Your correspondent...still searching for the beginning of
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Last modified: April 02, 2001
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