| Back From a Rainy Weekend THE DAILY RECKONING PARIS, FRANCE
MONDAY, 25 OCTOBER 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning: *** Big Day for the Dow…on Friday
*** House prices up
*** 89-year-old fugitive arrested! * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
*** Big day for the Dow on Friday. Dow stocks rose 172 points. Financial stocks
were the big winners…following a legislative deal that will allow banks to
repeat the errors of `29 (abolition of Glass-Steagall)…and looser collateral
requirements (related to Y2K).
*** Nasdaq and S&P both up…but only a bit. *** Still, the damage continues, however, with 244 new lows recorded against only
56 new highs. For the week, there were 83 new highs…and 895 new lows. Hard to
believe, but at the beginning of this decade the Dow hit a low of just 2,427. *** Bill King believes this bear market rally might go to 10,671 -- retracing one
half of the most recent plunge. *** The Internets were down. And so was gold…down $2.20. Why are people selling
gold? A lot of very powerful institutions want it to go down, of course. There
are huge short positions still outstanding. And a rising gold price is a danger
to every paper currency, trillions in bonds…and 10s of trillions in
derivatives. *** But gold investors are a little like the cab driver who hadn't had sex in 12
years. Maybe they just want to take profits…to see if they can still do it. *** Best Bear Market Advice: "Buy the dips in gold," says Doug Casey. "Sell the
rallies in stocks." http://www.douglascasey.com
*** Inflation? "Barron's" reports that the average home has gained 10% in value
in the last 12 months.
*** Last week the "New York Times" revealed a little more of the phony reporting
in the Internet sector. Companies are treating ad swaps as if they were revenue.
No money changes hands. But the companies record ad income on their ledgers…and
report a growth in ad revenues. *** In the midst of last year's Asian crisis, Hong Kong officials took the bull
by the horns…or maybe the tail. They bought shares -- HK$118 billion worth --
to stabilize the markets. But the markets didn't stabilize. They soared. Now
their shares are worth HK$190 billion *** Alas, the octogenarian fugitive has been run to the ground. Maurice Papon,
WWII nazi collaborator and former government official, was arrested in
Switzerland. With Papon's arrest, the French hope to close the book on Vichy-era
investigations. *** Democracy has its moments of triumph. So does Sumo wrestling. In America, the
outcome of the ballot doesn't make much difference. The important policies are
already set -- by bureaucracy, a gaggle of pressure groups and the media. But in
Indonesia, the stolen goods are still up for grabs…so elections are important.
Besides, they haven't had enough of them to become bored. Ms. Megawati, the candidate who sounds more like a power plant than a functional
biped, didn't win. In fact, she lost to someone who -- as mentioned in this space
last week -- is both blind and brain damaged. Of course, it could be said that a
lot of politicians seem brain damaged…they just don't have a medical
certificate proving it. Ms. Megawati could have accepted defeat gracefully. Perhaps she could have
borrowed a concession speech from Dick Tuck, who lost a California race to
Richard Nixon. Tuck mounted the platform and said, "Well…the people have
spoken. The bastards." Instead, she allowed her followers to riot. Said one
disappointed voter, who seemed to have a dislike of compound sentences: "Megawati lost. We burn everything. We are mad. This is people power." But it all turned out well. The brain-damaged president decided he could use a
v.p. with her wits about her. So the deal was done. *** "Get over it," was the departing German ambassador's advice to Britain,
referring to WWII. Nearly the same day it was announced that an unexploded German
bomb was discovered near some tracks…on the same train line which recently
proved fatal to dozens of passengers when an engineer ran a red light coming out
of Paddington Station. Thus does irony rule not only the markets…but life
itself. *** Following in Austria's footsteps, Switzerland has given a huge electoral
boost to Christoph Blocher, a man described as a "billionaire, right-wing
nationalist." How you can be a nationalist in Switzerland is anyone's guess. The
country is not a nation…but a confederation of cantons, with four different
official languages. Blocher opposes immigration. *** Meanwhile, America's own right-wing nationalist, Pat Buchanan, has bolted the
Republican Party. Accusing the GOP of abandoning its values…he's turned to a
party that has no values to abandon….the Reform Party. *** Delta Force. There…I've done it. The "NY Post" reports that mentioning
Delta Force, militia or several other key words will get your e-mail message
flagged by a computer system called Echelon, which is said to be run by the
National Security Administration. Civil libertarians have been urged to use the
words in all correspondence to crash the system. *** Remember that discussion of probabilities a few months ago? The point was
that even when the odds are in your favor…as in a bull market…you will still
lose money unless you play the game correctly. Steve Sjuggerud reports on an
actual test of this phenomenon at the Oxford Club's "Investment University" in
Annapolis. See "A Winning Game," below my comments… * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
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UNEXPECTED RISKS ON A RAINY WEEKEND As the Dow rose Friday…so did the dollar. The dollar is a remarkable currency.
Until recently, it rose on almost all news of any sort. And the more dollars put
into circulation…the higher it went. Americans, however, no longer save the dollar. Or any other currency. Or gold. Or
even tin foil. Saving is for rainy days…and there will be no more rainy days in America. So it
has been forecast, in long-range outlooks that show the Dow mounting steadily to
36,000 (Glassman & Hassett)…40,000 (Elias)…50,000 ("Wired Magazine") or even
100,000 (Kadlac). Recent events, however, may be cause for a revised forecast. The dollar, though
full of sun and warmth on Friday, has been turning a little gray along with the
autumn weather. It is subject, I would like to remind readers, to occasional
bouts of Seasonal Affective Disorder that can last many years. Interest rates in the United States have been edging up. But the dollar has been
going down against the yen…which has an interest rate of "effectively zero." As Dr. Richebacher says, "That is not supposed to happen." After the markets closed on Friday night, I loaded five children in our Renault
Espace van. My oldest daughter, Sophia, is reluctant to go. Paris is where the
action is. Her new friends are always having parties…or simply hanging out,
very late, at cafes. I don't blame her for wanting to stay…but what is fun is not always what is
best. Saying "No" to her is tough…but the alternative is riskier. (This is the
same daughter who went off in a canoe with the Halifax chapter of the Hell's
Angels when we were in Canada last summer.) Many people in Paris have country houses, as we do. It is part of the culture.
They spend the week in the city. Weekends and holidays are spent in the country.
Outside of New York, I don't think many Americans live this way. They tend to
live in suburbs, where they have the benefits of big cities and country in one
place. This is a new lifestyle for me. But I'm enjoying it. It's like having two
personalities. The city is work, books, computers, restaurants, culture. The
country is old clothes, chainsaws and paintbrushes. I like them both. It takes about 20 minutes to get out of the city…then we are on the big, toll
highway. The nice thing about it is that you can drive very fast. I am a cautious
driver, but I get in the spirit and cruise along at about 100 mph. I feel safe. I
am far from the fastest driver on the road. In fact, many cars pass me as if I
were backing up. The highway is designed for high speeds, so there is no problem. But when I get
off the highway, it takes a while to adjust to the road conditions. Even 50 mph
is often too fast. I come to an unexpected curve…on a wet road…and I wish I
had slowed down earlier. It's easy to put your life in danger, without realizing it. At least two times in
the last year I have nearly killed myself while cutting trees down. I've been
cutting wood for 30 years…but on both occasions, the trees did something
unexpected. Carefully cutting a large limb, for example, I had not noticed that
it was interlocked with another limb above my head. When the lower limb fell, it
tore the upper limb off, too…missing my head by about 1 inch. In short, it is not the risks that you see that are the most dangerous…but the
ones you don't see. Or cannot adjust too quickly enough. Americans are now, for
the most part, protected against the risk of missing out. Like Sophia, they do
not want to be left out of the action. And, like Sophia, they see no risk. One thing that has been intriguing about the dollar for the last six months is
the way it has tracked, "tick for tick," says the "Financial Times", the Dow. The
Dow rose on Friday…so did the dollar. But the dollar is a problem for Greenspan. About $1 billion per day are sent
overseas…above and beyond the balance of goods and services that changes hands. This is how the United States has managed to keep consumer prices low -- by
exporting credit inflation to the rest of the world. Giving up their umbrellas
and galoshes, American consumers ignore the possibility of bad weather and use
their savings to buy vast quantities of cheap goods, mainly from Asia. Most likely, stocks are already in a bear market. As the Dow goes down…so will
the dollar. This will make imports more expensive. A curious and unhappy
consequence may then occur -- rising consumer prices in the midst of a falling
market. Thus Americans could see not just rainy weather…but property damage, too. Both
their balance sheets and their operating accounts could take a beating. We've
already seen how the average stockholding family has lost about $30,000 of wealth
because of the Dow's fall since July. A drop to 5,000 on the Dow would mean a
loss of more than $100,000. This would be accompanied by an increase in consumer
prices…and probably a fall in real income, if not nominal income, too. Missing out may be the best thing that could happen to you. Regards, Bill
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A WINNING GAME
by Steve Sjuggerud Our keynote speaker [at the Oxford Club's "Investment University], Dr. Van Tharp,
gave the attendees $100,000 in Monopoly money and played a simple gambling game,
basically a random game of 50 coin flips that would land on heads 60% of the
time. Only he did it with a bag of marbles, and in the bag was one "jackpot
marble," a 10X winner. And another was a big loser, a 5X loser. In this game where you were practically guaranteed to win, one-third of Oxford
Club members lost ALL their money, one-third ended with less money than they had
when they started, and only one-third made a small profit. But there was a simple way to guarantee profits and minimize losses. You maintain
a consistent bet size relative to your capital, which allows you to capture the
odds, and you never risk more than 20%, because the 5X loser marble is always
lurking. At this point, it's no longer gambling. It's having a disciplined system
of protecting and growing your capital. Of making money. And it's easy. This is how you make your money grow. But 99.9% of the people "investing" today
do exactly the opposite. So don't listen to other people (especially the
"experts" on CNBC, who have a vested interest in having you buy their stock or
fund). This is the most expensive bull market in history. It could lead to a massive
decline. It's time to make a change and protect your principal, so you have some
principal to invest another day. Because it's surely possible that "another day" could be at prices substantially
cheaper than today. [For more information on the Oxford Club, call 1-800-992-0205 and ask for code
OXFWEB.] | 
