In Today's Daily Reckoning:
*** Retail sales falling - so is the dollar
*** Easy Al is not a Daily Reckoning reader
*** New bull market in gold?
*** Two important news stories met investors on Tuesday.
But only one of them will turn out to be true.
*** "The remarkable surge in the availability of more
timely information in recent years," said 'Easy Al'
Greenspan yesterday, "has enabled business management to
remove large swaths of inventory safety stocks and worker
redundancies."
*** "Most of the gains in the level and the growth rate of
productivity in the United States since 1995," he
continued, "appear to have been structural, largely driven
by irreversible advances in technology and its
application."
*** The chairman of the Federal Reserve System is
apparently not yet reading The Daily Reckoning. He seems
blissfully unaware that the productivity numbers are both
unremarkable and unreliable. In fact, he said that those
who question the BLS numbers were "cynical."
*** But there was nothing cynical about Wall Street's
reaction. The rosy remarks of the Fed chairman were greeted
with applause on Wall Street. The Dow rose 57 points and
the Nasdaq climbed back 83 points.
*** The Commerce Dept. also cheered investors with its
report that retail sales fell for the second month in a
row. And the Bloomberg News headline signaled its
importance: "Dollar Falls as U.S. Data Point to a
Slowdown." The euro rose to 96 cents.
*** While the productivity story will eventually be
unmasked as a fraud, reports of a slowdown are almost
certainly heralds of tougher times ahead. The dollar will
fall. Corporate profits will shrink. Unemployment will
rise. Investors seem to think that a slowdown would be good
for stocks - since Easy Al wouldn't be forced to raise
rates. But stocks will not be able to resist the general
trend. Global investors have meters too. They will not want
to stay invested in US assets while corporate profits fall
along with the dollar. They will pull out, and the prices
of U.S. stocks will fall.
*** "The Web improves the productivity of many kinds of
businesses..." says a cheerful article in the San Francisco
Chronicle. "One type of enterprise that benefits greatly...
is fraudulent stock promotion." A well-placed discussion
board post. A free e-mail newsletter or two... and voila:
"...the stock price can soar from a few cents a share to
$10, or in some cases, much more." After the pump and
dumpers sell out... the share price plummets.
*** Earnings, as I explained yesterday, have been far from
the concerns of most investors. And yet, a Fed study found
that among the 140 largest non-financial companies, 40% of
earnings were spent to buy back shares in '99 - up from 17%
in '94. Dell spent 80% of its earnings over the last 3
years.
*** Another study by professors at Stanford and UCLA came
to the shocking conclusion that "executives manage the
disclosures of corporate news to increase the value of
their options."
*** Oil rose by another 82 cents. Oil hurts the dollar,
because the U.S. is the world's largest importer.
*** Gold, which rose $5 early in the day, ended the day $1
down.
*** I put the question directly to very long-time gold
watcher and newsletter writer, Harry Schultz. Has a bull
market in gold finally begun? "Yes," he replied, "I think a
new bull market has begun in gold. I am awaiting
confirmation or cancellation of that either via a break out
above 290 or a break below recent low."
*** The World Health Organization just released an alarming
report. The bugs that cause infectious disease are mutating
faster than previously thought. "A decade ago in India,"
says the report, "typhoid could be cured with the use of
three inexpensive drugs. Today, those drugs are largely
ineffective..." In Eastern Europe, roughly 10% of
tuberculosis patients have strains resistant to the two
most powerful antibiotics.
*** My daughter, Maria, was in a little theatre production
- a comedy skit, actually - at her school last night. She
played an obnoxious American tourist at a French hotel. She
played the part with such confidence - it seemed, well,
natural.
*** Nothing but bad news on this day in history: June 14,
1940... German troops entered Paris during World War II.
And Che Guevara was born in 1928...
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/corprofits
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Mark Hulbert was a former philosophy student from Kansas,
when I met him. He had recently come back from advanced
study at Oxford, where he had been a contemporary of Bill
Clinton.
He had the demeanor of a philosopher - with wire rimmed
glasses, blue jeans, and a careful, though light-hearted,
conversational manner. He looked like someone who had
actually read Kant and Wittgenstein. Maybe it was the cut
of his hair that betrayed his philosophical tendencies. Or
maybe it was just the quizzical way in which he addressed
every thought that passed his way.
"Mark," I asked him one day, when we shared an office "can
you change the paper in the printer?"
"Into what?" he replied.
Later, I asked him if he would like to write a newsletter.
The idea would be to track the performance of other
investment newsletters.
He agreed to do so and has been at it now for the last 20
years. In fact, the fruits of 2 decades of this work
appeared this month in a brief article in the journal of
the American Association of Individual Investors.
In early 1980, Mark selected 26 of the leading investment
newsletters of the day and began to construct model
portfolios based on their advice. There has been much
controversy around this effort - Mark has been threatened
with lawsuits often - because the advice given is often
ambiguous, or simply very difficult to follow in a
methodical way. Mark must apply certain rules to make it
possible for him to compare the investment advice of a
great number of quirky, idiosyncratic writers.
One point of contention, for example, was Mark's decision
to treat a "hold" as a "sell." The two produce, of course,
vastly different outcomes...but they are logically the
same. You are either long a stock or you are short. You
either think it is worth buying at present prices, or you
think it should be sold. A "hold" is merely the lazy ground
in the middle, when you are not sure what to do or when you
have a loss that you do not care to recognize. But a new
subscriber to an investment letter has to decide whether to
take the recommendation as a buy or a sell...or ignore it.
The 'hold' gives him no useful advice.
Newsletter gurus were so upset at this that there was, at
one point, an effort to get up a class-action suit against
Mark. One publisher told me that he thought what Mark was
doing was misleading and unethical.
One of the most colorful personalities in the newsletter
business was a guy named Bob White, author of the The Duck
Book. White was a paving contractor from Florida who
somehow got in the business of writing a financial
newsletter. He cut a sharp, though ridiculous, figure in
the industry - wandering around in his blue jumpsuit,
threatening people, and pushing various conspiracy
theories.
He believed, for example, that the Bank of England was
engaged in a plot with the Federal Reserve to destroy the
dollar. Spotting a BOE official on a flight from London,
Lord Carrington, I think, White went up to him, pointed his
finger at him and declared:
"I'm on to you, Ol' Buddy, and I'm not going to let you get
away with it."
Lord C. must have thought he had a raving lunatic before
him. Which he did.
Bob White met Mark Hulbert at an investment
conference...and then came up to me, and said of him,
"Nice kid...but not much upstairs."
But rarely, if ever, has a newsletter complained when
Mark's analysis showed him producing above average profits
for his followers.
So what do the figures show? Whose advice really paid off
for subscribers over the last 20 years?
First, it should be pointed out, that many of the original
newsletters Mark followed went out of business. There are
only 16 left. Of those only 2 outperformed the Wilshire
5000 on a risk-adjusted basis.
The Wilshire 5000 grew at an annual rate of 17% during the
last two decades. Few people were able to beat it. Those
who did were, not surprisingly, those who invest
unflinchingly in stocks.
Al Frank's Prudent Speculator is at the top of the list -
with an annual gain of 20%. Next is Dan Sullivan's "The
Chartist" at 18.4%.
Meanwhile, at the bottom of the list is Joe Granville,
another colorful character. Joe was at the height of his
glory in the early 80s. He was the George Soros and Abbey
Cohen of the day. Word that he was buying or selling could
move markets.
He was, and still is, also a great showman. He would drop
his pants during a speech - to show 'the importance of
shorts.' In one episode, he had a board painted blue and
placed just beneath the surface of the water in a pool.
Then, he strode across the pool - to prove that 'he walked
on water.'
Yet, following Granville's advice during the last two
decades would have left you penniless. In an average year,
you would have lost 22% of your money. Over two decades -
you would be wiped out.
Many of the old-timers in the newsletter business were gold
bugs and stock bears. Because the big trend of the 70s had
been the rise of hard assets - and the fall of paper ones.
The lesson they had learned was to mistrust paper - and
stay long gold.
Granville remained bearish throughout the greatest bull
market of all time. It was a consistent, but costly,
position.
But now, a new lesson has been learned - that you cannot
trust gold...and you must stay invested in paper. So
persuasive has this new 20-year curriculum been that even
many of the former gold bugs of have become convinced.
Personal Finance recently reported Granville's current
position. He's become a stock bull: "[F]urther evidence
indicates a new bull upleg," he says..."nothing has broken
the bullish pattern of rising bottoms..."
The same issue of PF shows another fair weather friend of
gold who has kicked the hard stuff in favor of some very
soft paper. Mark Skousen is buying the dips. He says the
Nasdaq decline "provides us with the biggest buying
opportunity in years."
Harry Dent, meanwhile, goes completely over the top with
his "bare minimum" targets for the Nasdaq of
30,000...possibly 45,000...by 2008.
"There is one characteristic," writes Mark Hulbert,
summarizing the conclusions of two decades of work, "that I
have discovered that does distinguish the top performers:
discipline. They were willing to stick to their strategies
during the discouraging interludes in which they were
lagging the market or even losing money. In fact, I think
the importance of discipline may be the most important
lesson to emerge from my 20 years of tracking investment
newsletters. It is what keeps us from dumping a good long-
term strategy because of short-term underperformance."
Best regards,
Bill Bonner
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Last modified: April 02, 2001
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