05/05/01 DISMAL NEWS STOKES SPECULATIVE FIRE The Daily Reckoning
Weekend Edition
May 05-06, 2001
Paris, France
By Addison Wiggin
MARKET REVIEW: Dismal News Stokes Speculative Fire Unemployment numbers reached their highest rate in 2 and half
years, this week, and the Commerce Dept. reported
businesses slashed their payrolls by the largest amount
since the last recession - a decade ago. Wall Street's response? Party!!! Expecting further rate cuts from the Fed… and tax cuts
from Congress, investors drove the Dow up 154 to 10,951 -
its most potent close since the last Greenspan Put puffed
up it up to 10,957 on Feb. 6th. For the week, the Dow
finished the week 141 higher - a positive 1.3%. The Nasdaq fared well for the day, up 45 to 2,191, making
five winning sessions out of six. The Nasdaq, up 115 for
this week, is now hovering 34% above its year low… set
just a month ago. The S&P's 500 rose 18 to 1266, ending the
week up 13. Code Blue: Despite continued reports affirming dismal
economic fundamentals in the US economy… speculation is
back in vogue on Wall Street. The insiders, schemers and
dreamers are gearing up for another round of "legal" wealth
transfer. Watch your wallet. For investment advice
consistent with the insights you read in the Daily
Reckoning please see:
The DR Blue Service ADD'L PRICES FOR THE WEEK: Gas back down around September
prices Gold: $266
Crude Oil: $28.36
Natural Gas: $4.49
CRB Index: 215
Dollar Index: 115
The Sad, Sad Euro: $.89
British Pound: $1.43
Japanese Yen: $.82
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * FLOTSAM AND JETSAM: Global Currency Devaluation V. The US
Dollar - The Blue Team's Dr. Marc Faber:
"As long as the currencies of emerging economies decline
against the US dollar, these economies experience deflation
in US dollar terms - their export prices in dollars are
likely to remain weak. Moreover, as long as their currencies decline against the
US dollar and their local interest rates remain below the
level of US rates, flight capital will flow from the
emerging world into the US dollar and keep it strong. But here lies the danger. This gigantic pool of foreign money is very volatile; once
the still-optimistic perception among foreign investors
about the US changes, triggered possibly by no economic
recovery in the second half, very weak corporate profits,
or consumer price inflation and declining bond prices, a
sudden shift out of US dollars into another asset class
such as the Euro or gold could take shape. In an environment of a weakening US dollar, TIPs may not be
as attractive as high-quality Euro-denominated bonds, whose
yields look set to decline somewhat further. According to
The Bank Credit Analyst the US Treasury bond market rally
is 'probably over' and 'the next major move in yields is
up' because 'the U.S. economy will be among the first to
spring back to life this year.' I am less sure about BCA's
prediction of a rebound in the US, but I do agree with
their view that 'the next few months will be one of the
infrequent periods when yields fall in the euro area but
stay flat or rise in the U.S.' According to BCA's managing editor, Ian Boeckh, the present
situation is reminiscent of 1998, when the Fed eased
aggressively and put a floor under US bond yields, while
the ECB didn't ease until three months later and the Euro
area bond yields didn't bottom out until early 1999. Boeckh
writes that 'the ECB's current inaction in the face of
deteriorating economic data is bond bullish and euro area
bonds will benefit as consensus forecasts for the euro area
economy are downgraded.' Finally, I might add that, concerning the outlook for US
Treasury bonds, a number of technicians whom I regard
highly, including Robert Prechter and Michael Belkin, have
recently voiced cautionary or negative views about the bond
market." Enjoy your weekend, Addison Wiggin,
The Daily Reckoning
P.S. For investment advice from Dr. Marc Faber and others
members of the Daily Reckoning Blue Team please see:
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