10/04/03
Poor Richard Defied The Daily Reckoning Weekend Edition
October 4-5, 2003
Paris, France
By Eric Fry
MARKET REVIEW: Poor Richard Defied Eric Fry, lost in the wilds of New York's financial district… Stocks soared… Gold swooned… It was a wild week on Wall
Street, as the financial markets thumbed their noses at Poor
Richard's dictum: "Moderation in all things." Stocks, bonds, gold
and the dollar cavorted with one another all week, and their
behavior was anything but moderate. To start the week, stocks
tumbled, then soared… bonds soared, then tumbled… the dollar
tumbled, then bounced a bit… while gold bounced a bit, then
tumbled. The Dow Jones Industrial Average closed out a losing September by
falling a cumulative 40 points on Monday and Tuesday. But a
revitalized Dow showed up for work on Wednesday, and seemed to
find the new month very much to its liking. The dividing line
between September and October was as distinct as the old dividing
line between East and West Berlin at "Checkpoint Charlie." On
Wednesday, October 1st, stocks raced ahead like an escaping East
Berliner, and never looked back. For the week, the Dow piled on
2.8% to 9,572 and the Nasdaq heaped up a 4.9% gain to 1,880. The bond market played yin to the stock market's yang, soaring
early in the week, then sliding steadily downhill through the end
of Friday's trading. Consequently, yields jumped sharply. The
10-year Treasury yield, which touched a three-month low of 3.91%
on Wednesday, finished the week at 4.20%. The dollar fared as
badly as the bond market, falling to $1.156 per euro from $1.144
last week. Despite the extreme volatility rocking the financial markets,
gold struggled all week and then seemed to collapse in an
exhausted heap on Friday afternoon. The yellow metal cratered as
much as $16 on Friday, before recovering to end the session
$13.70 lower at $370.00 an ounce. Why? Why? Why? Gold investors want to know. Shouldn't a weak
dollar and tumbling bond prices have lent support to the gold
price? It should have, dear reader, it should have… but it
didn't. Other, less bullish, factors were also at work, as we can
plainly see in hindsight. For one thing, speculative positions in the gold market had
become quite large. So, once the gold price started falling on
Friday, the "specs" started unloading their positions, which
fueled additional selling and, before long, you've got a
wash-out. "Gold made a dramatic sell-off in just minutes Friday
because very large traders liquidated their positions and
triggered technical sell-stops in the market," one trader
explained. It was a rugged week for gold, no doubt about it. But we suspect
the yellow metal will return to take another run at $400 an ounce
sometime over the next few weeks… at least that's our
guess/hope/wish/prayer/plea. Triggering the coincident stock market rally and bond market
selloff Friday was the news from the Labor Department that the
economy added 57,000 jobs in September. The increase in the labor
force was the first such improvement since January.
Unfortunately, the manufacturing sector continues to shed jobs.
Manufacturers cut 29,000 jobs during the month, which was the
38th straight decline in the manufacturing sector. Forgive us our skepticism, but we are a little baffled by the
positive employment number. Mostly because we know that 400,000
individuals are filing claims for unemployment insurance week
after week. How is it that the economy is adding jobs, when so
many jobs are going away? And if the economy is improving as much as the stock market's
rally suggests, why are Americans carrying more debt than ever
before? "Households have been on a borrowing spree," observes Northern
Trust economist Asha Bangalore. "Household borrowing as a
percentage of disposable personal income hit a new high of 12.4%
in the second quarter. This measure of household borrowing
reflects mortgage borrowing, credit card borrowing, borrowing
from banks and the like… Household borrowing is not only at a
record high, but a new aspect has emerged - household borrowing
advanced during the recession unlike in every other post-war
recession when households reduced borrowing. The good news is
that consumer demand continues to advance with the support from
borrowing." The bad news is that no economy has ever borrowed its way to
prosperity.
Eric Fry,
The Daily Reckoning P.S. If you're close to a TV and have the inclination next week,
you might catch your Manhattan correspondent on CNNfn next
Wednesday through Friday (the morning show, "Market Call", runs
from 9 to 11 A.M.). A week in the Daily Reckoning lies below… And finally - have you had a chance to order Bill and Addison's
new book, Financial Reckoning Day? We are still awaiting our
copy, with increasing impatience. However, we're told Amazon.com
still has stock and is shipping regularly… you can even catch a
discount if you order today: Financial Reckoning Day - 30% off (Limited-Time Offer)!!
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THIS WEEK in THE DAILY RECKONING POOR HOUSE, PART I (10/03/03)
by Bill Bonner "… Many are the reasons given why real estate prices must
continue to rise. On the other hand, we immediately see one
reason why they might all be wrong: everyone believes them. As
they say on Wall Street, when everyone thinks the same thing, no
one is thinking. And so we began to think… and came to a
disturbing conclusion. The average house, we believe, is a
dangerous place for your money. But since this little aperçu is
completely at odds with the entire corpus of modern household
economics, clearly the burden of proof is on us. Fair enough… " http://www.dailyreckoning.com/body_index3.cfm?id=6808 MYANMAR EXAMINED (10/02/03)
by Jim Rogers "… Various armed separatist movements have dominated
[Myanmar's] politics over the last four decades. Nevertheless, in
the '90s, Myanmar slowly began to reopen its borders to both
people and capital - a process that continues today. Considering
the wealth of natural resources and labor advantages a
liberalized Myanmar could potentially offer, it's worth taking a
closer look at where the country is headed… "
http://www.dailyreckoning.com/body_index3.cfm?id=6790
THE GILDERED AGE (10/01/03)
by Bill Bonner "… It doesn't seem real. It doesn't seem right. 'Most of us
know,' writes Malone, 'intuitively, that these young web
companies minted by the hour will not survive and prosper. In the
coming reckoning, investors will lose money, retirement funds
will be erased and the valuations that rule the stock market will
become rational.' That seems to be the sentiment of Metcalfe and
Moore too. It is as if they had come back to the Valley and found
their tribesmen had turned the Internet Age into an absurd parody
of the land of milk and honey they sought… "
http://www.dailyreckoning.com/body_index3.cfm?id=6787
THE MYSTERY OF WYNDCLYFFE (09/30/03)
by Addison Wiggin "… The Fed and Treasury have lost their way altogether. Gone
are the days when self reliance meant busting your gut to build a
house, a factory… or even a fine piece of furniture. Now,
credit lines grow ever longer and home equity loans more
ubiquitous. Boobus Americanus - to borrow a phrase from HL
Mencken, by way of our friend Doug Casey - has regressed along
the line from 'know-how' to 'nowhere.' And judging from the
reader mail we expect to receive upon publication of this letter,
they're quite belligerent about it… "
http://www.dailyreckoning.com/body_index3.cfm?id=6776
THE FED'S FREE LUNCH PROGRAM (09/29/03)
by the Mogambo Guru "… Bernanke says that he will be happy to achieve monetary
policy objectives by unconventional means, and nobody gets all
shook up, except me. So I figure that we bedeviled savers out
here ought to emulate Bernanke and his Fed, and commit
'unconventional' acts of our own. We have got to get our money
back here! We are suffering deflation in our discretionary
spending account! We demand the same rights as the Federal
Reserve! We demand the right to commit unconventional acts and
get away with them!… "
http://www.dailyreckoning.com/body_index3.cfm?id=6761 ---------------------
HEADLINE, NEWS And INSIGHT: The Truth Behind Much-Vaunted U.S. GDP Growth
by V. Anatha Nageswaran "… Statistics have clouded the picture and concealed the
underlying poor quality of growth in America. This has also
resulted in unfair comparisons that depict European economies in
poorer light relative to America. Deeper examination reveals a
different picture… But for the hedonic adjustment to prices
(quality-adjusted price change) of IT equipment, American real
GDP over the last three years would have stagnated at best or
contracted at worst. So should one be surprised that the American
economy still sheds jobs?… "
http://www.dailyreckoning.com/body_headline.cfm?id=3461 The Verdict From Insiders
by Lynn Carpenter "… From May to July this year, insiders unloaded shares like
they'd never get another chance. This was bound to happen. After
a long bear market, this spring's rally gave insiders the best
chance in a long time to make some money on their holdings.
Selling after rallies is commonplace. What was not commonplace
was the amount of selling that went on… You can be fairly
certain that hundreds of executives and pals are not expecting
whopper earnings when insider selling outpaces insider buying by
so much. Consider it a valid warning… "
http://www.dailyreckoning.com/body_headline.cfm?id=3460 Rush to Real Assets
by John Myers "… The United States faces the prospect of having to spend
upwards of $300 billion just to pay for the conquest and
occupation of Iraq. Investors, instead of piling into dollar
instruments, are pulling out of them. Meanwhile, detente and the
Cold War have been replaced by seemingly uncontainable hot-spots
throughout the world. This adds fuel to two fundamental facts:
(1) The bond market hates unpredictable times and (2) the
commodity markets love it… "
http://www.dailyreckoning.com/body_headline.cfm?id=3453 | 
