04/21/01 RALLY CATS CASH IN The Daily Reckoning
Weekend Edition
April 21-22, 2001
Paris, France
By Addison Wiggin
MARKET REVIEW: Rally Cats Cash In
Investor's cashed in Friday on the Fed-inspired market
boost, taking profits and driving all indexes down. The Dow
dropped 113 to 10,579; the S&P 500 slipped 10 to 1242; and
the Nasdaq fell back 18 to 2163. But what a week… what a couple of weeks… the Dow and
S&P have now gained 13% since achieving their lows for the
year. The Nasdaq is up 32% since it closed at a low of 1638
on April 4, and ends this week firmly back in 2000
territory. Have we seen the bottom? Are we ready for a new bull? Not
likely. In the past 2 weeks, the money supply has
skyrocketed. MZM - the broadest measure of the money supply
- is up an annualized 45%… up 40% annualized in just the
past month. That money is just finding its way right back
in the market. "This money surge is equivalent to those that accompanied
the Fed's Y2K credit expansion, or the late 1998 LCTM
bailout," says the DR Blue Team's Michael Belkin. "Something happened about 3 weeks ago that unnerved Easy Al
and the Fed," observed Bill King on Thursday. Our bet is
the pending announcement of the largest single-month
decline in the trade deficit since records have been kept
on the subject… more below. Markets Around The Globe: All but London down…the Nikkei
in Tokyo - 0.7%; the DAX in Frankfurt - 0.9%; the CAC-40 in
Paris slid - 0.6%; The 'footsie' rose, but slightly +0.1%. The Russell 2000 fell 5 to 466 Friday, but finished the
week up 2.6%. ADD'L PRICES FOR THE WEEK: Gold and commodities up…
dollar down Gold: $265
Crude Oil: $27.58
Natural Gas: $5.12
CRB Index: 216
Dollar Index: 114
The Sad, Sad Euro: $.90
British Pound: $1.44
Japanese Yen: $.82
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Battle - from The DR Blue Weekly Update of the Daily Reckoning
Investment Advisory "…so the Fed cut rates again - the fourth time in the
last 15 weeks. And so the Nasdaq was up 8%. Has anything
really changed? No. You don't create wealth by printing more money or re-
inflating bubbles. The Fed is trying to pull a Dr.
Frankenstein - reanimating a U.S. consumer who is tapped
out. The most significant news this week, and the real
motivation behind the rate cut, was that the Commerce
Department announced the "trade gap" shrank by the largest
one-month percentage since records have been kept. A 4.4
percent drop in imports in February indicates consumers
bought less, and (what's this?) saved more… and
businesses expect the slowdown to last well past the second
quarter. Foreigners are making fewer dollars now, which
means they may be less inclined to hold the ones they
already own. Foreigners have been using surplus trade dollars earned
from selling goods to U.S. consumers to invest in high-
yielding U.S. financial assets - to the tune of $1.5
billion a day. "That rate," wrote Dean Baker of the Center
of Economic and Policy Research early in 2001, "of
accumulation of foreign debt cannot be sustained long."
Especially when those U.S. assets ain't so high-yielding.
It looks like the trade deficit is finally coming home to
roost. Americans are spending less. And as the Fed lowers rates to
make them spend more, the dollar gets less attractive to
foreign dollar holders. The next big story - and maybe the
biggest this year - will be the fall of the dollar. This
weeks events only accelerated the day of reckoning. This is a sucker's rally if we've ever seen one. It could
be a long one though-long enough to convince you to be long
stocks going into the spring. Don't do it yet. Or better
yet, see what we're recommending for riding out the bear
market rallies and setting yourself up to own the strongest
companies with the best balance sheets." Enjoy your weekend, Addison Wiggin,
The Daily Reckoning
P.S. In case you missed it, the Daily Reckoning Blue
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