Richebacher's Revenge

Richebacher's Revenge
The Daily Reckoning Weekend Edition
August 21-22, 2004
Baltimore, Maryland

"Greenspan's rate cuts have completely failed to have their normal effects on the financial system."

Dr. Richebächer is reclining in a cushioned deck chair. The view over his right shoulder is littered with palm trees and yachts. To his left, a rocky cliff face…

"He may be able to stage temporary rallies, but he will not create a prolonged and sustainable rally."

It was Friday night and your Baltimore-based British editor was holed up in his apartment watching an interview with Dr. Kurt Richebächer. We couldn't sleep.

"I look at the profits and potential money that might fuel the next big bull run in stocks. And I say that both conditions are negative. I expect further declines in profits and I don't see any purchasing power from consumer savings…this is not a cyclical downturn, this is a structural down turn." Our eyelids began to feel heavy…

"I know my own investigations. I work very carefully. The more I look at the statistics, the more I realize how right I am. I read what all the other economists write and I can tell you that their forecasts are without any serious analysis…they take their knowledge from their stomachs not from their brains."

Listening to Dr. Richebächer before you go to sleep is a bad idea - just like eating cheese, it gives you nightmares!

No nightmares on Wall Street, at least, not last week…in fact, stocks staged a remarkable rally.

Stocks and oil rarely compliment one another, let alone jump into bed together. But that's what happened…they both jumped significantly higher.

The black goo gained nearly 6.5%, trading as high as $49.40 a barrel before settling to $47.86 by the bell…

…while the Nasdaq gained 4.6% to 1,838, the Dow gained 2.9% to 10,110 and the broad market, as measured by the S&P, added 3.2%, closing the week at 1,098!

Google added another $8 to Thursday's $15-gain, closing Friday at $108.31. That's a 27.4% gain in two days.

After all the negative press, Google's owners will be delighted with the search engine's maiden foray into the capital markets. Wall street won't be though…they had hoped for a disaster to dissuade any future IPOs from choosing a similar Dutch-style Internet auction.

As you can see, dear reader, there were more unlikely rallies in the markets last week than in the average Andy Roddick defeat, but of all the rallies - oil, stocks, Google - gold's was the most impressive. So impressive, in fact, that hardly anyone noticed!

The barbarous relic gained over 4%. It added nearly $18 last week, including a $6.30 jump on Friday, and is now worth $413.40 and ounce. Was it something The Good Doctor said…?

"The dollar will collapse," concluded Dr. Richebächer, and strangely, "I disurb people - I'm used to that!"

P.S. Dr. Richebächer predicted big problems for Brazil in 1998. In 1999, the Brazilian real crashed.

In the same year, he saw trouble in Asia…French newspaper, Le Figaro, called him the man "who predicted the Asian crisis."

In late 1999, he wrote that the technology market and the bubble in Internet and communication stocks was "the biggest mania of all time…and these kind of manias do not end in a whimper." Then in January 2000, the Richebächer Letter predicted that many Internet companies would not be around by the end of the year.

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We love Jim Rogers. We loved him when he was being bearish on the dollar in the '80s. We loved him when he was being bearish on the dollar in the '90s. We loved his first book, Investment Biker, and we loved his second book, Adventure Capitalist. And guess what…he's bearish on the dollar in both!

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"…Soon, great clouds of marijuana smoke billowed over us. We continued to explain the many terrors of the dark night ahead. The debt bubble. The trade deficit. Federal liabilities. The rise of China. Peak oil, and so forth. The smoke thickened…"

"…Is it worth $50,000 to you to eat a raw pig's rectum? How about lying in an open glass casket with live rats crawling all over you? Or maybe driving a car off a ramp at high speed, crashing headlong into a half acre of cardboard boxes while you sit helpless in the driver's seat…?"

"…It shocked us to see how readily and uncritically research institutions, economists and media around the world accepted these numbers at face value, even though they came like a bolt from the blue in the face of otherwise rather mixed economic data. For the few who wanted to see, these numbers were bluntly suspect…"

"…Not remembering any pink shirts in my closet, I asked my daughter, who works across the hall, if pink was showing up any more than usual. 'It's really big now, especially overseas,' Tiffani reported, just coming back from six months in Cypress and Eastern Europe…"

"…As the camera pulls back, I am revealed to be in the office of Ted Kennedy, one of the most infamous manifestations of Leftist Lunacy that eats the guts out of America. I have grabbed this Kennedy bozo by the hair, and I am shoving his unwilling head down onto the desk…"

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"…BHP Billiton is exactly the kind of company that will deliver you profits from the China and commodities boom - without requiring that you own risky Chinese stocks. Just compare BHP to any foreign carmaker. You can do all the market share calculations you want, but there's one compelling reason why you should NOT buy carmakers doing business in China…"

"…The national central banks still exist and are fully operational. The bulk of currency reserves still reside with the national central banks, and payment systems in the Euro area are still national. Last but not least, the Euro coins have been issued by the 12 central banks; they could easily be traced to their origin, and then taken out of circulation…"

"…The tools you need to understand Buffett's definition of intrinsic value go by the soporific moniker of discounted cash flow analysis. But when the richest guy in the world says it's the most important thing you can know if you want to get rich, I'll bet it's worth staying awake for…"

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