RED LIQUID -- Weekend Edition

RED LIQUID
The Daily Reckoning Weekend Edition
August 7-8, 2004
Baltimore, Maryland

"Our enemies are innovative and resourceful - and so are
we." The U.S. president was speaking at a high-level
meeting of Pentagon officials. They were celebrating a new
bill that gives the President $416.4 billion of your money
to spend on defense next year.

"They never stop thinking about new ways to harm our
country and our people - and neither do we."

Of course, Bush didn't mean to say that. He gaffed. But
here at the Daily Reckoning, we found his comment so
deliciously ironic, it made us chuckle.

"So unbecoming is this mélange," wrote Bill last year,
"that the Bush administration seems on the verge of doing
the impossible - making Clinton look good! During the
Clinton years, though probably through no virtue of Mr.
Clinton himself, if there were any, the nation was at
peace…and seemed prosperous. And the federal government
was in surplus. Now, the nation is at war, seems to be in a
slump, and the federal deficit is projected at about $500
trillion for next year - the biggest flood of red liquid
since Pharaoh's Army drowned in it!"

Yesterday, the slump got worse. Non-farm payrolls for July
were so stunningly weak, we weren't sure Yahoo Finance
hadn't made a mistake. 32,000 jobs were added last month
versus expectations of over 240,000. What's more, June's
weak figures got even weaker…they were revised to 78,000
from 112,000.

The market dropped faster than one of Bush's lead balloons.
The Nasdaq spiraled to a 2.28% loss, drooping 42 points. At
1,780, the Nasdaq is at a new 2004 low. In the last week
alone, it has fallen 5.8%. The Dow gave up 148 points,
which, when added to the losses of the previous four
trading sessions, makes for a 3.2% loss on the week.
Yesterday, the S&P was certainly not immune to the
bloodshed. It fell 16 points yesterday to 1,064.

"This feels climactic," said an analyst on the phone with
your editor yesterday, preferring to remain anonymous.
"Besides, I was phoning around the market this morning and
I couldn't get hold of anyone. All the traders are away
from their desks - I don't know, they must all be on the
golf course or something."

Stocks weren't the only assets affected by the job
numbers…gold had a smashing day, rising $7.40 and closing
just shy of $400. Treasury bonds rallied hard as yields
were slashed. The 10-year bond moved 18 basis points and
now yields 4.22%. The 30-year bond declined 11.5 basis
points to 5.03%. Both maturities made a new 4-month low.
The 30-year bond had opened the week at 5.19%.

The dollar got whacked too. The euro jumped from $1.205 to
$1.2286 in a matter of seconds, while the yen moved from
111.6 to 110.37.

Next week, we have the FOMC meeting. Fed funds futures
still assign a 100% probability of a quarter point rate
hike, but the chances of a hike in September were reduced
significantly.

"Greenspan is playing poker with the U.S. economy," said
our unnamed analyst. "And worse of all, he's playing with
weak cards. Raising rates is kinda like raising the pot.
Only, because the cards are so poor, it's a bluff."

P.S. We shorted oil. And for one day, it looked like a good
trade. Then it bounced back. This pleased the clever
analysts up stairs who think buying oil is the trade of the
century. They have prepared this special report which
details their thoughts. We seriously urge you to read it…

P.P.S. Here's Addison's latest radio interview. It's
Canada's principal financial radio show, so this was a big
deal. There's some excellent advice in here too…

P.P.P.S. Want to hoard some gold bars without spending any
money? Now you can…we've installed this great game on our
website. And it's not just another silly Internet game
either, this one requires some serious brain power.

Save 34% on this absolute classic investment tome. If there
were such a thing as an investing bible, this is it.

The Intelligent has inspired hundreds and thousands or
investors worldwide. Graham takes account of both the
defensive investor and the enterprising investor outlining
the principals of stock selection and portfolio management.

The Full-On Oil War of 2007

What would happen if oil soars past $100 per barrel…crashes through the $125 ceiling…and careens toward a history-making $150?

The dollar gets destroyed. Energy-dependent industry goes bust. Many stocks go down.

That's the bad news. The good news is when energy is under the gun, the soaring oil price itself opens you up to all kinds of soaring investments…and there is a lot of money to be made. Get the full report, here:

INDECISIVE DECISION 8/5/04
By Lynn Carpenter

"…You've no doubt noticed it by now - any bit of news can
move the market up or down a few hundred points. Then it
suddenly heads in the other direction because of another
bit of news…"
http://www.dailyreckoning.com/body_index3.cfm?id=9882

THE BIG BAD WOLF 8/4/04
By Porter Stansberry

"…consider that Warren Buffett is now holding $34 billion
in cash - with most of it in foreign currencies. In his
previous 50 years as an investor, he'd never bought foreign
stocks or currencies. Now he owns billions of both…"
http://www.dailyreckoning.com/body_index3.cfm?id=9870

A DAMNATION IN DISGUISE 8/3/04
By Marc Faber

"…Now, in the case of Japan, the more-than-tripling in
bond yields coincided with a strong recovery in the stock
market (up from less than 8,000 in April to around 11,500
recently); therefore, one could argue that, in the United
States, further weakness in bonds, or even a collapsing
bond market, may not derail a bull market in equities…"
http://www.dailyreckoning.com/body_index3.cfm?id=9851

"…To save myself from getting hoarse in another of my
patented screaming hissy-fits, I will merely point to the
handy chart that reveals that the minimum wage was last
increased seven short years ago, and prices have risen 17%
in that time…"
http://www.dailyreckoning.com/body_index3.cfm?id=9835

"…Interestingly, most of these studies found the
volatility of stock price movements declined after mandated
disclosure came into play. Riskier, more entrepreneurial
firms tend to have more volatile stocks. The implication is
that regulation reduced market swings by shutting out these
firms from publicly traded equities, hindering a key source
of economic dynamism…"
http://www.dailyreckoning.com/body_headline.cfm?id=4047

"…Nothing would be easier than to create a major
terrorist event in France itself. It has a large and
radicalised Islamic population. There are internationally
famous symbolic buildings and vulnerable high-speed trains.
France has a sophisticated intelligence service, but it
does not have the resources of the Anglo-American system.
Yet it would serve no political purpose for Al Qaeda to
knock down the Eiffel Tower…"
http://www.dailyreckoning.com/body_headline.cfm?id=4046

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