11/08/03
Financial Heresy The Daily Reckoning Weekend Edition
08 November 2003
Paris, France
By Addison Wiggin and Eric Fry
MARKET REVIEW: Financial Heresy
The economy dazzles, while the stock market disappoints.
All week long, a chorus line of favorable economic reports
tap-danced along the newswires…But the stock market merely
yawned. The Dow Jones Industrial Average ended the week at 9,810
-- only 9 points higher than its closing price the prior Friday.
The Nasdaq fared somewhat better by gaining 2% to 1,971. Cisco
Systems, which surged 7% on the week, powered most of the
Nasdaq's advance. The networking giant's shares surged to their
highest price in more than two years after the company announced
cosmetically pleasing quarterly earnings.
The dollar also trekked higher last week, as bonds and gold both
retreated to lower elevations. The dollar gained about half a
percent against the euro to $1.153. Gold slipped $1.20 to $383.40
an ounce. Bond prices fell sharply all week -- which caused
yields to rise sharply all week -- in response to signs of
renewed economic vitality. The 10-year Treasury note yield jumped
to 4.44%, up from 4.30% a week earlier.
The economy is recovering. (We know this is true because the
government tells us so). Friday, the Labor Department informed us
that the unemployment rate fell to 6% in October, as the economy
added 126,000 non-farm jobs. Earlier in the week, we learned that
manufacturing activity is rebounding and that productivity is
surging.
But the stock market has been celebrating these phenomena for
months already. So now that the recovery has actually arrived,
there is little celebrating left to do. Then too, our recovering
economy is not without its shortcomings. The economy may be a
statistical Adonis, but it's a real-world Elephant Man. Job
growth is resuming…a little; industrial production is
reviving…a little; and capacity utilization is increasing…a
little. But government deficits, household indebtedness and the
U.S. current account deficit are all worsening…a lot.
Just yesterday, the Federal Reserve reported that consumer credit
in the U.S. rose $15.2 billion, or at a 9.7 percent annual pace,
in September. That's the biggest jump in consumer credit since
January. But how trustworthy is 7% GDP growth when national
indebtedness is soaring?…It's a strange sort of prosperity that
impoverishes those who are becoming "wealthier."
"Our age in finance is an age of heresy," says Jim Grant, editor
of Grant's Interest Rate Observer. "Budgets go unbalanced,
currencies go un-collateralized, current-account deficits go
uncorrected, securities go unanalyzed and bubbles go un-popped
(until too late)…We see the S&P 500 or the dollar…and we
imagine a kind of anvil suspended by dental floss."
For now, however, buying overpriced American stocks is as
fashionable as it has ever been. And yet, does anyone worry about
whether the stocks they are buying might -- one day undefined fall?
Most investors imagine that share prices are soaring undefined and will
continue soaring -- on the strength of an improving economy. We
observe the same stock market trajectory and imagine a field
mouse tossed into the air by a hungry cat. Share prices are still
flying, only because the cat isn't done playing.
"As a rule, the world is always falling apart, yet forever
carrying on. Opportunity exists in tandem with clear and
compelling reasons not to get out of bed in the morning," says
Jim Grant. "Absurd overvaluation duly gives way to unique
under-valuation. And at extremes, experts provide cogent reasons
to accept as rational the irrational prevailing prices."
We non-experts, on the other hand, find cogent reasons to reject
as irrational the prevailing prices that most investors find
completely normal. We find trouble and worry as effortlessly as
the father of a 16-year old daughter. We can't see expensive as
cheap, no matter how hard we try and no matter how many times
Wall Street promises that "this time is different."
We still suspect that overpriced stocks are dangerous things to
own and that an over-indebted consumer and government are
dangerous foundations for the world's largest economy…And yet,
the stock market moves ahead while the gold price languishes.
Eric Fry,
The Daily Reckoning
--- Daily Reckoning undefined The Book ---
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the others deteriorate and collapse. "Financial Reckoning Day,"
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demonstrates that current FED policies are re-inflating the stock
market bubble, the consumption bubble and the housing bubble…
when these bubbles burst there are going to be a lot of angry
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Senior Managing Director
Carret & Company
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------------------------
THIS WEEK in THE DAILY RECKONING
PRACTICING RANDOM ACTS OF INSANITY (11/7/03)
By Bill Bonner
"…At the Daily Reckoning…we like old things. Old buildings.
Old ideas. Old trees. Old rules. Old investors. The older the
investor, the more confidence we have in him. He's seen good
times and bad times. He's seen bulls and bears. Maybe the old
fellow's even heard enough absurdities to be able to recognize
the voice. [We consider] the wisdom of the old…and the lessons
of history…as a sort of 'distilled information.'…"
http://www.dailyreckoning.com/body_index3.cfm?id=7022
THE EMPEROR HAS NO CLOTHES (11/6/03)
By Kurt Richebächer
"…While a few economists have been warning that this recovery's
actual pace may disappoint, our own view is that the U.S.
economy's higher growth rate in the second quarter was totally
deceptive. Focusing strictly on the hard economic data, like
employment, personal income, production, business fixed
investment and profits, we completely fail to see any recovery at
all in the United States…"
http://www.dailyreckoning.com/body_index3.cfm?id=7159
LAST MAN STANDING (11/5/03)
By Bill Bonner
"…We have come to believe that Alan Greenspan is one of the
last of the New Era heroes. As long as he still stands, we think,
the delusion of greater wealth through greater borrowing stands,
too. But the last man standing - the only member of the
'committee to save the world' triumvirate still in office, the
Caesar of central banking - cannot last much longer. When
Greenspan's reputation gives way…we think…so will the dollar,
and the consumer…"
http://www.dailyreckoning.com/body_index3.cfm?id=7148
DEEP IN DEBT, CAUGHT IN A NET (11/4/03)
By Hans Sennholz
"…Private debtors may find it difficult to pay for bread that
has been eaten. It is likely to become ever more difficult in the
future as the cost of debt is likely to double and triple. In
economic disarray, the Fed may have no choice but to raise its
rate to market heights that enable businessmen to readjust to the
judgments and wishes of the people…"
http://www.dailyreckoning.com/body_index3.cfm?id=7134
LITANY OF WOE (11/3/03)
By the Mogambo Guru
"…The poor and the old and the disabled and all those
static-income people get the old baseball-bat-upside-the-head
treatment, or in this case let-them-starve-to-death treatment,
when it comes to inflation. History has shown that these are the
people who ALWAYS feel it first, and then the misery travels up
and up into the middle classes and chews their guts out awhile,
and then pretty soon everybody else is looking at reduced real
income. Welcome to the Wonderful World of Inflation!…"
http://www.dailyreckoning.com/body_index3.cfm?id=7119
----------------------
HEADLINE, NEWS And INSIGHT: An excellent summary of the at-risk US economy by Mr. Puplava -- it's a must read! Plus, John Pugsley
takes a look the history of gold as money…
The 'OK' [unbalanced and at risk] Economy
by Jim Puplava
"…This sputtering economy requires an ongoing stream of new
stimulus just in order to keep it afloat. Compared to past
recoveries, economic growth has been half of what it has averaged
over the last half century. What makes this situation more
worrisome is that it has taken 13 rate cuts, three tax cuts,
massive government deficits, and record growth in money and
credit just to keep the economy growing. In economic terms, it is
the largest fiscal and monetary stimulus the world has ever seen.
What does the Fed have to show for its efforts other than
multiple bubbles and the return of speculation to the financial
markets?…"
http://www.dailyreckoning.com/body_index3.cfm?id=3531
What Money Really Is -- and Isn't
by John Pugsley
"…Before the 20th century…the government couldn't print
currency without first having the gold to back it up. So
hamstrung were the politicians by this 'gold standard' that in
1913, 124 years after the country's founding, the total federal
debt was a paltry US$75 million dollars. So, how did it get to
over US$6 trillion in the next 90 years? The answer is that the
politicians and bankers pulled off one of the greatest swindles
in human history: a scheme to abolish the gold standard and
eliminate the fiscal discipline that it had historically
provided…"
http://www.dailyreckoning.com/body_headline.cfm?id=3530
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