FATTENED BY HORS D'OEUVRES

The Daily Reckoning
Weekend Edition
August 4-5, 2004
Baltimore, Maryland
By Addison Wiggin and Tom Dyson
MARKET REVIEW: FATTENED BY HORS D'OEUVRES

"If we had kept our fiscal house in order and saved our
money instead of squandering it on (overpriced) houses and
(overvalued) stocks and bonds," writes our friend Paul
Mampilly of Capuchinomics.com, "we would be sitting at a
king's buffet. Instead, we've fattened ourselves on hors
d'oeuvres, before the entrée was served."

Mampilly is bearish on bonds…he thinks we have just
witnessed a secular peak in the U.S. Treasury market. "Even
if nominal U.S. economic growth averages 4% (2% growth + 2%
inflation) over the next decade," explains Mampilly, "the
American consumer will not be able to maintain the level of
purchases to keep China and Japan invested in treasuries at
current interest rates. Interest rates will rise
significantly to maintain their attractiveness to foreign
buyers."

10-year bond yields have gained 17 basis points in the last
two days, closing Friday at 4.29%. On Wednesday, yields
made a new 5-month low, trading as low as 4.08%. Could the
turnaround mark another change in the tide? Might yields be
starting the next upward leg of the bond bear market as
sentiment swings once again from deflation to inflation? As
ever, here at the Daily Reckoning, we're not sure. At first
glance, Friday's payroll numbers were solid - 144,000 new
jobs were added in August, roughly hitting economists'
predictions. Washington's sigh of relief was palpable…in
fact, we thought we could hear it all the way from
Baltimore.

Of course, we don't put much stock in the numbers. We
received this note from an in-house number cruncher
yesterday, "Just took a detailed look at the employment
statistics. Of the 144,000 new jobs the BLS just reported,
120,000 are courtesy of the "net birth/death ratio. (That's
from that computer program Dr. Richebächer blames for
distorting the economy's health.)"

Regardless of statistical semantics, short-term interest
rate futures traders in Chicago saw the report as
confirmation of a September rate hike. Futures prices have
now priced in a 96% chance of a 0.25% rate increase later
this month.

While bond traders were busy pushing up yields with a
flurry of sell orders, stock traders were pummeling tech
stocks. The Nasdaq took a 29-point hammering after Intel -
and other chipmakers - disappointed the market with less
than cheery outlooks. The Nasdaq traded down to 1,844 for a
1% weekly loss. Intel shares fell 7.3% while Altera shares
fell 6.6 percent; Cypress shed 8.9 percent; and Integrated
Device dropped 5.6 percent.

But while the Nasdaq lags, the Dow and S&P continue their
winning streaks. Despite mild losses on Friday, the Dow has
now had 4 wining weeks in a row, up 0.6% to 10,260 this
week. The S&P was up 0.5% for the week, closing at 1,114.

Contributing to Friday's market malaise, the Institute for
Supply Management reported yesterday that its non-
manufacturing index fell to 58.2 percent from 64.8 percent
in July, indicting that business is still expanding, albeit
at a slower pace.

The U.S. dollar rallied in the wake of Friday's news. The
dollar rose 0.9 percent versus the Japanese yen to 110.46,
and 0.9 percent versus the euro to $1.2058.
Gold was bashed, pushing prices to their lowest levels
since mid-August. December gold closed down $5.50, but
still remains above $400 an ounce. The barbarous relic
closed Friday's session at $402.50.
Crude oil also ended the session lower. Crude for October
delivery closed down 7 cents at $43.99 a barrel in New
York.

Don't be fooled by bad economic news and a slowing economy,
warns Mampilly. "Bond managers (particularly successful
ones) will make the same mistake that equity managers made
in the wake of the implosion of the equity bubble in 2000 -
2001…[they] are likely to believe that higher rates (or
weak economic growth) represent a buying opportunity…"

The Mystery of Capital by Hernando de Soto
Last week, Addison Wiggin called this book "the most
important book of a generation." Addison should know…he
once sat next to de Soto in a classroom presentation in
Paris, and ended up operating de Soto's overhead projector!
He was so impressed by de Soto's message, that he wrote an
essay about 'The Mystery of Capital' the very next day, and
published it in the Daily Reckoning. [Ed. Note: The essay
was called 'The Mystery of Wyndcliff'
http://www.dailyreckoning.com/body_index3.cfm?id=6776 ]

Now he has persuaded Bill Bonner to read it - and Bill
quoted de Soto in the Daily Reckoning.
This is essential reading.

The Mystery of Capital

Readers note: Last week's book, Adventure Capitalist, by
Jim Rogers - the man who wrote the foreward to Financial
Reckoning Day - was not linked correctly. We apologize if
you tried to purchase it. Here's the link again…

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:

THIS WEEK in THE DAILY RECKONING

ARMAGEDDON IN MANHATTAN 9/3/04
By Bill Bonner

"…But now, the national conventions are a disappointment
even to insomniacs. The main TV channels have given up on
them. Only the cable shows bother to carry convention
highlights…"

AMERICAN EAGLE                           9/1/04
By James DiGeorgia

"…You should never buy privately minted gold bullion
coins. They sell originally for large premiums above the
price of gold and later sell at a discount to their
intrinsic gold value because they are NOT widely bought and
sold by dealers, and therefore dealers will discount the
coins when (or if) they buy them…"

http://www.dailyreckoning.com/body_index3.cfm?id=10110

THE OTHER YELLOW METAL                  8/31/04
By Doug Casey

"…To meet this demand, energy has to come from somewhere,
and nuclear power is the only sensible choice. This
conclusion is not mine alone…as I write, there are 30 new
reactors in various stages of construction around the
world…"

http://www.dailyreckoning.com/body_index3.cfm?id=10093

THIS INFLATION THING                              8/30/04
by the Mogambo Guru

"…Anyway, ignoring these unseemly domestic problems,
foreigners bought another $9.3 billion for the week, which
is higher than normal by quite some way, and stashed it at
the Fed. This brings their total holdings at the Fed to
(hit the "Total" button) $1.266 trillion, of which $320
billion of that was acquired in just the last 12 months…"

http://www.dailyreckoning.com/body_index3.cfm?id=10082

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HEADLINE, NEWS And INSIGHT:

CEO Sells His Juniper Stock
by Porter Stansberry

"…You should keep in mind that these additional revenues
came at a steep price. No, Juniper didn't pay for them-but
Juniper's shareholders sure did. NetScreen cost $3.6
BILLION in Juniper shares…"

http://www.dailyreckoning.com/body_headline.cfm?id=4097

On the Next Greyhound Out of Town
by Byron King

"…I am no psychiatrist, but I have to wonder if deep
down, W thinks that he has accomplished his goal of getting
elected and now he can call it quits. At this stage, maybe
he just wants to bring his presidency to an end and go back
to Crawford and plow furrows in his fields…"

http://www.dailyreckoning.com/body_headline.cfm?id=4095

-----------------------

Exposed! America's Own Axis of Ruin

Their sneaky plots and dangerous schemes are THREATENING your income, your
investments, your wealth, and your financial security. It could cost you everything.

Finally -- these plots and schemes have been revealed in this shocking report.
Protect yourself and find out how you could profit.Click here: