| A BETTER STRATEGY THE DAILY RECKONING PARIS, FRANCE
WEDNESDAY, 24 NOVEMBER 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning: *** Quiet day on Wall Street
*** Boomers are no longer the biggest group
*** Is gold beginning to move? * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *** The Dow fell 93 points. The S&P and the Nasdaq were off
a little, too. *** Bonds…utilities…oil…they were all down a bit. *** It is a quiet, stealthy bear market…with only 40 new
highs on Wall Street against 295 new lows. *** But gold rose to $298. *** I am puzzled over the various money supply figures. Some
measures show a huge increase in new credit. Others -- such
as numbers in the current issue of "Barron's" -- suggest
that the rate of growth in the money supply has topped out.
M1…M2…M3…MZM…M&Ms…MMMM…I wonder if anyone knows
what's going on… *** "Things you expect to happen usually take longer than
expected," said Doug Casey, "but once under way they tend to
evolve more quickly than you expected." That has been our
experience… http://www.douglascasey.com *** Dan Denning, from our financial research team, reports
that 10 Fortune 500 companies were hit by a new computer
virus called W97/Pelissa last week. Dan also thinks that his
Japanese virus-fighting company recommendation is going to
soar. *** In fact, many of the shares in the Far East are getting
a boost -- following the news that China will be admitted to
the WTO. Pohang Steel is up 149% since we recommended it.
But it still has a P/E that is only half the S&P. *** Dan was feeling rather proud of himself…because the
REIT his team recommended just announced its 82nd
consecutive quarterly dividend increase. It's yielding a
comfy 10%. For information on the "Fleet Street Letter," in the U.S.
call 1-800-433-1528, or outside the U.S. call 410-234-0691
and ask for code 3472. *** Our other Dan, Dan Ferris, is a trader. He trades
commodities. Right now…he, too, is riding high, he
says…with big gains in cocoa (up 285% since 11/8), crude
oil (up 168% since 11/10), unleaded gas (up 203% since
11/10) and Brent crude (up 166% since 11/10). If you're
interested in trading…you can contact Dan at
dferris@Agora-inc.com to receive his "Free Trading Ideas."
*** Today is the 140th anniversary of the publication of
Darwin's "Origin of the Species." People have been arguing
about it ever since. The latest argument concerned man's
oldest ancestor. New finds in West Africa challenge the
well-known "Lucy" hypothesis of East African origin.
*** In Afghanistan…five thieves had their right hands and
left feet cut off. The punishment was performed at a
football stadium…before a crowd of thousands. *** Meanwhile, the Church of England is going to ask new
members to state their racial origin. This follows the
finding of a mathematician working for the metropolitan
police that the Anglicans practice "institutional
racism"…as evidenced by the numbers. *** And the boomers are no longer the largest generation in
America. They delayed having children so long that they
actually amplified the generation born after 1980. There are
about 77 million boomers, born between `47 and `64. The next
generation is small…with 60 million born between `65 and
`80. But the following generation, born between `80 and `99,
has 80 million members. *** I saw an interesting investment Strategy in "2000 and
Beyond…Profit Perspectives for the New Millennium" from
Taipan's Chris "The Hammer" De Haemer. He's targeting
companies that cater to well-off baby boomers and racking up
some substantial profits. In fact, you'll find over a dozen
of the Taipan group's best picks on videotape. See
advertisement below…
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A BETTER STRATEGY
A reader asked, "If the Nasdaq stocks are still going
up…why don't you tell readers to buy them!?" And, yes, a smart trader might buy the Internets…and might
make some money on them. But he should realize that they are
like a pack of cards in which nearly every one will turn out
to be an Old Maid. He is probably more likely to lose than
to gain. A better strategy, for the long-run, was suggested
by Dennis Gartman in an interview in "Barron's" last month. "I think we have entered a bear market," said Mr. Gartman,
echoing the view with which DR readers are very
familiar…and probably a little fatigued. But few people
have realized it. Which is just the way a bear market is
supposed to work. "Nobody should be able to anticipate a
bear market," he said, "or a bull market. All one should be
able to do is say within two or three months of a turn, that
it appears to be taking place." Most stocks have been in decline for more than a year and a
half. And still there is no popular recognition that we are
in a bear market. But…this is an extraordinary bear
market. In fact, the market is unusual almost every way.
But it is not completely without precedent. Gartman notes
that the broad market began going down for months in advance
of the `73-`74 bear market. "Now," he says, "you're seeing
the Microsofts and Intels of the world beginning to break
trendlines. The definition of a bear market begins [with] a
market where each high is lower and each low is lower. This
market is acting that way." Gartman is moderate and measured in his outlook. (Maybe he
should drink more. Or drink less.) He says that going back
to the middle of the 18th century, the average bear market
decline has been 31%. That leaves him the expectation of Dow
"trading closer to 7,500 than to 10,000." If he's right…the bear market may not be as catastrophic
as I imagine. Most likely there will be a crash in the high
tech sector. Most Internet stocks will disappear. Day
trading taxi-drivers will begin paying attention to where
they're going. People will cancel their most extravagant
plans, save money and play out their lives on a more modest
stage. This sober perspective is made possible by Gartman's view of
the world economy. There are three major economic
areas…Europe, Asia and America. They are all doing well,
he says. But the growth is not trouble-free. In America, the labor market is far too tight, he believes.
There are Help Wanted signs up everywhere. People are
offering bonuses just to attract minimum wage laborers. The
cost of labor is going to go up…like it or not. And the
economy is going to slow down -- for lack of labor. Rising
labor rates, and falling economic activity, mean -- for the
first time in years -- consumer prices should rise. The
inflation rate should nearly double in the next 12 months,
he believes. Japan, meanwhile, is experiencing a tentative recovery. But
a huge problem looms -- the disappearance of the Japanese
themselves. Economic growth requires people. And capital.
Financial capital. Japan, with among the world's highest
savings rate, has plenty. But it is running out of human
capital. In fact, it is the first and only major country
whose population is actually shrinking. Immigration has
helped prevent a decline in population in most European
nations…and it has provided the United States with a
significant population boost. But the Japanese do not, by
and large, allow immigration. I can become French if I
want…if I work on my French hard enough, I may eventually
even be able to pass myself off as a Frenchman. But I will
never pass myself off as Japanese. With fewer people, it
will be very hard for Japanese economic growth to be
anything other than sluggish. Their only hope, Gartman believes, aside from allowing
immigration…is to reduce the yen. "Over the next several
years, Japan has to see something closer to 175 or even 200
yen to the dollar…rather than 110," he says. Another big problem in the Far East is China. China needs 9%
growth just to keep unemployment under control. But it's
only growing at about 5%. The most likely move will be for
the Chinese to devalue their currency next year. The European picture is a bit more obscure. My neighbors
believe the 35-hour workweek will put them at such a
disadvantage that they will not be able to sustain it. But
the sorbet will freeze in hell before France repeals such an
important bit of social legislation. The only way it might
make it work is by stimulating rapid growth. This
fundamentally inflationist policy may dominate all of
Euroland…though it is too early to tell how it will play
out. So what do you do with your money? Gartman believes the age
of equities is about to be replaced by what he calls "the
age of owning stuff." After 20 years of being bearish on
gold, Gartman has turned in his claws. "I'm not bearish any
longer," he says. "One of the first rules of trading is,
when something doesn't go down on bearish news, [the Bank of
England's gold sale] you probably shouldn't be bearish any
more." What's more, after the big run up in gold in
September, "gold still hasn't retraced." In fact, it seems
to be strengthening…slowly. His prediction: "Gold prices are probably going
higher…very close to $400 per ounce." But like Buffett and
Gates, Gartman is also looking at silver. "I am looking for
relatively pure silver plays like Pan American Silver and
Apex Silver Mines…" he says. The simple investment strategy for the coming months: Sell
stock on rallies. Buy gold (and commodities) on dips.
Until tomorrow… Bill Bonner P.S. Thanksgiving is not a holiday in France. The kids will
be in school. I will be at work. So, I'll write. My feelings
will not be hurt, however, if you choose to ignore
tomorrow's message in favor of a full frontal assault on
turkey and stuffing. Best wishes.
NOW ON VIDEO
"2000 and Beyond…Profit Perspectives for the New
Millennium" assembles financial masterminds like "Strategic
Intelligence" specialist Jack Wheeler -- with a brilliant
revelation of where business will thrive in 2000. Also, Dan
Ferris, editor of "Real Asset Investor," gives you his top
gold picks for 2000. And Sui-Yee Ng discloses two IPOs that
could repeat eBay's astounding gains. Experienced investors would spend thousands to sit in on
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Click here for more:
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