The Daily Reckoning Weekend Edition
November 6-7, 2004
Baltimore, Maryland
By Addison Wiggin and Tom Dyson MARKET REVIEW: GRAVITY GETS ITS MAN Friday was the single most pivotal day in the markets this year, we
commented to Addison via Instant Messenger. Addison is in China… he had just woken up to a fine Saturday
morning in Shanghai… while your Baltimore-based editor was still
wrapping up his Friday afternoon at the Daily Reckoning HQ in
Baltimore. Addison hadn't seen the news… He hadn't seen gold had just moved to levels not witnessed for nearly
16 years. He hadn't heard that payrolls were hot, very hot. 337,000 new jobs
were added in October, said the BLS, including an upward revision of
113,000 to the two previous months. Wall street put in its best
weekly performance for nearly 19 months. He didn't know about the weird behavior in the currency markets
either… the euro made a decisive move higher - high enough to make
a new lifetime record: 1 euro now buys $1.2962 - yet it should have
been falling, according to conventional wisdom. We pondered why the dollar would fall on a day when short-term
interest rates rose. After all, it seems that two such ponderous masses as the dollar and
its yield would move together. At least, that's how it would seem to
a couple of British men like Sir Isaac and your editor. "Gravity," typed Addison. "The structural forces pushing the dollar
lower are so powerful, that one strong payroll report doesn't make
any difference." By pushing the short end of the yield curve higher, Eurodollar
traders are signaling they expect the Fed to raise rates at both the
next two FOMC meetings, which should make dollar deposits more
attractive. So far this year, the dollar has been incredibly sensitive to changes
in short-term interest rates, as it should be. When inflation
expectations rise, so do interest rates, and the dollar rises in
sympathy. Not on Friday, the dollar diverged from its yield. Addison chalks up this strange behavior as just another piece of
evidence that the dollar's bear market is alive and kicking. Despite the dollar's swoon, Wall Street's rampant optimism was
palpable. A reborn president, 300k+ new jobs, oil pulling back below
$50 to $49.61 and stock indices surged higher. The Dow gained 360
points on the week, a 3.5% surge, to 10,388. The Nasdaq was up over
3% to 2,039 as was the S&P… it pushed 36 points higher to close at
1,166. Bonds got crushed. 10-year Treasury yields climbed 16 basis points
last week, and are now selling for 4.19%. The long-end moved higher
as well with 30-year government bonds gaining 15 basis points on the
week. Over the last few years, bond yields have moved in virtual
lockstep with the dollar. "This is not, however, a situation we
expect will continue for much longer," argues the Speculative
Investor. "If the dollar keeps falling then it is bound to cause
inflation expectations to rise. On the other hand, if the dollar
starts to rise then the inter-market relationships that have
dominated the financial markets over the past few years should ensure
that bonds take a hit. In other words, regardless of what happens to
the dollar we don't see much scope for bonds to advance from their
current elevated level." That the fundamentals are finally exerting their downward pressure on
the dollar despite other existing medium-term inter-market
relationships is great news for anyone holding that strange yellow
metal we shamelessly promote here at the Daily Reckoning. The conditions for a stunning bull market in gold have been in place
for nearly a decade. Now the toil is starting to produce fruit, and
the markets are beginning to notice… On Friday, gold made a new 16-year high at $433.40 an ounce. Gravity always gets its man, and when it does, $500-gold will seem
unbearably cheap. Tom Dyson,
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about EverBank's world currency accounts and CDs now. http://www.everbank.com/main.asp?idpage=pro_wc_disc&referID=11639 ------------------------ THIS WEEK in THE DAILY RECKONING THE AMERICAN BRAIN 11/5/04
By Bill Bonner "People go along with whatever hooey is popular. Not only do they go
along with it - they go out of their way to take part in it. The
front page of almost all the newspapers in Europe this week carried
photos of long lines of Americans - eager to stand in solemn fraud,
in order to keep it going." http://www.dailyreckoning.com/body_index3.cfm?id=10720
THE ERA OF FICTITIOUS CAPITALISM 11/4/04
by Addison Wiggin
"In 1971, when Nixon closed the gold window… the dollar - the last
major currency to be tethered to gold - came unstuck. Economic growth
as measured by GDP was no longer restricted by the growth of material
goods production. Toss in a few financial innovations, like
derivatives, and the 'fictitious' economy assumed the central role in
the global monetary system."
http://www.dailyreckoning.com/body_index3.cfm?id=10713
A WORLD OF RANDOMNESS 11/3/04
By Nassim Nicholas Taleb
"I try to benefit from rare events, events that do not tend to repeat
themselves frequently, but, accordingly, present a large payoff when
they occur. I try to make money infrequently, as infrequently as
possible, simply because I believe that rare events are not fairly
valued, and that the rarer the event, the more undervalued it will be
in price."
http://www.dailyreckoning.com/body_index3.cfm?id=10705
GOOD SEATS STILL AVAILABLE 11/2/04
By Christopher Mayer
"If you think the tech bubble popped in 2000, I urge you to take
another look. America's love affair with racy concepts, phony values
and paper pseudo-wealth continues unabated. The flair for risk-taking
is still alive and well. Investors are still smitten with New Economy
thinking."
http://www.dailyreckoning.com/body_index3.cfm?id=10687
WHO'S PAYING FOR THE FREE LUNCH? 11/1/04
By The Mogambo Guru
"So, while there is a big demand for money, and everybody in the
United States is issuing debt, the damn Fed and the foreign central
banks are creating so damn much money that there is more than enough
new money for everybody to get as much as they want! And it's so
cheap that insanely low interest rates are more than enough to turn a
profit for the lender, who borrowed the money to make the loan, and
is thus merely living off the spread!"
http://www.dailyreckoning.com/body_index3.cfm?id=10676 ---------------------- HEADLINE, NEWS And INSIGHT: Ballot Bedlam
by Byron King "'There sure is one hell of a lot of new voters coming out of the
woodwork for this election.' If you know what I mean… If everyone
votes enough times in the same election, do you think that eventually
we will get it right?"
http://www.dailyreckoning.com/body_headline.cfm?id=4236
Cowboys and Liberals
by Lord William Rees-Mogg
"Obviously the U.S. election result is among the most important of
these events… Yet the global issues themselves will not be
changed. The United States will still have to have an economic
policy, and foreign policies towards the Middle East and Europe, the
areas of highest tension."
http://www.dailyreckoning.com/body_headline.cfm?id=4235
Stirring the Mob
by Bill Bonner
"'The French army became pretty brutal… we felt we had no choice.
That was one reason the top military leaders wanted the war stopped;
it was destroying the integrity of the army itself. Armies can't
fight terror without becoming terrorists themselves.'"
http://www.dailyreckoning.com/body_headline.cfm?id=4234
----------------------
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