CLAIRVOYANTS NEEDED…
NO EXPERIENCE NECESSARY.OUZILLY, FRANCE MONDAY, 20 December 1999 …Clairvoyants needed…No experience necessary. In Today's Daily Reckoning: *** A key reversal day on Wall Street?
*** The Big Mac Parity Index *** U.S. Economy in Danger of Credit Bust
*** Was it a "key reversal day" on Friday? That's what
traders call it when a market reverses course
dramatically during the day…especially on high volume.
*** Volume was huge on Friday…1.3 billion shares. So
was the turnaround, with prices steaming ahead in the
morning to a new high…and then backing up in the
afternoon. When all was said and done, the Dow was 12
points higher than when it began. *** The week, overall, saw 180 stocks hitting new highs,
and 1,116 hitting new lows. Richard Russell calculates
that nearly one-third of all the issues traded last week
hit new lows. *** This despite the fact that the Dow was up
fractionally for the week. And the Nasdaq rose nearly
5%. The gap between the leading sector -- techs & Nets
-- and the rest of the market is unprecedented. *** The S&P is now trading at 32 times earnings. And
investors are predicting a "melt up" in January. Could
be. But stocks could also melt in the traditional way. *** The euro has fallen to the level of the dollar. But
"The Economist" reports that the Big Mac Parity Index --
comparing prices of Big Macs in different currencies --
says the Euro is still too high. It ought to be about
95 cents. *** The Fed is expanding its asset base at an annual
rate of 14%. The price of oil is twice what it was last
year. Commercial bank credit is growing at 19.9%
annually. *** Retail spending for Christmas is said to be up 9%.
Mortgage applications are up 11%. *** Pearl Harbor update: Bill King reports that a
recently discovered memo from Lt. Cmdr. Arthur H.
McCollum, chief of Naval Intelligence prior to WWII,
outlined a plan to force Japan to attack the United
States. The plan was followed…though we can not be
sure why. *** The U.S. joined China on Standard & Poor's list of
financial systems "vulnerable to a credit bust." The
rating agency cited a rise in non-performing loans and
an increase in domestic lending. *** "A sharp correction in the stock market could lead
to a hard landing for the economy and thus, for the
banks' portfolios," said S&P. Exactly. *** The Japanese market reversed five days of falling
prices on Friday. The Nikkei was up a bit. *** Vladimir the Terrible…that's what the European
papers are calling Russia's president. And his
popularity increases as he crushes Chechnya.
* * * * * * * * * * * * * * * * * * * * * *
Senior Clairvoyant Needed * * * * * * * * * * * * * * * * * * * * * * Even the roads of heaven have their speed bumps,
potholes and maybe even radar traps. Clarence Barron, the progenitor of the weekly financial
paper that bears his name, reported a common complaint
among stockbrokers in the paradise of 1928 -- they
couldn't find household help. The servants were buying General Motors stock and
getting rich. Today, one out of every four of Microsoft's employees
are millionaires. They got rich by owning the GM of the
1990s -- the stock of their employer. And like the
servants of six decades earlier, it is hard to keep them
on the job. MSFT is losing its workers. It claims to
have an attrition rate, at 79.4%, lower than the
industry average, but even high-level people are
leaving. Some are turning to Eastern religions, art or
fly-fishing no doubt. But most are just looking for the
next big opportunity. The next start-up. The next IPO.
The really big payoff. Employment prospects have never been brighter. So I was
particularly grateful to the employees at our 21st annual
office Christmas party on Friday evening. They had not
quit. At least, not yet. (I will have more to say about
our party when the Ghost of Christmas Past visits later
this week.) The newspapers are full of help-wanted ads. Practically
every company web site offers employment. "The
Economist" includes an ad, perhaps fanciful, perhaps
not, for a "Senior Clairvoyant" for, what else, a web-
based financial service. A clairvoyant is exactly what investors need. Because
the common predictive models generally fail to pick up
the most important changes. They are like military
radar that can pick up weather balloons, but not enemy
aircraft. Two years after Clarence registered the stockbrokers'
complaint, the employment picture had changed
completely. The stock market had crashed, and GM
stockbrokers were more likely to be seeking employment
than leaving it. But even then, only clairvoyants were
able to see the trouble that lay ahead. Divine law may
not punish every boom with a depression, but it exacts
its compensations nonetheless. The stock market crash had wiped the obvious excesses
out of the system. Stocks went from being overpriced and
the objects of affection of so many, to being
underpriced and the objects of scorn to practically
everyone. Stockbrokers, newly sober and now cooking
their own eggs, could see that the cycle had turned. No
one could miss it. But they could not imagine that the
cycle that had taken prosperity to such a height would
now take it to such depths. The current issue of Grant's recalls an article from
"Business Week," January issue, 1930. The article,
according to Jim Grant, "spared no sarcasm concerning
the excesses of the glorious preceding upswing," but did
not anticipate how the financial excesses would affect
the real economy of the 1930s. Even after the crash, in
other words, the non-clairvoyant seers of 1930 were
unable to anticipate what the New Era would produce.
The editors cited breakthroughs in technology,
widespread stock ownership, more credit facilities,
transportation and social progress. "The boom was over," writes Jim Grant, "the magazine
seemed to know for a fact -- but the material and
intellectual advances were ineradicable." What the Internet is to today's analysts, the automobile
was to the BW thinkers 60 years ago: ".We are not
likely to see any more real new eras born until some new
industry comes along to play the part that the
automobile has played in the past 10 years." And Jim Grant's comment: "The automobile decade had
shown the 'unlimited possibilities' of mass production,
mechanical efficiency, marketing, distribution and --
not least -- personal credit. Moreover, it had planted
the seed of the thought that prosperity is a permanent
blessing, not a windfall." The permanent blessing of the automobile decade seemed
to have skidded off the road in the decade that
followed. Autos were still manufactured. They performed
better and better. But fewer people had the money to
buy them. And the household servants who bought GM
stock in 1928 -- probably the best of the automakers --
had to wait a generation to recover their money. But that was then. This is now. The blessings of the
Internet are thought to be permanent, too. Today's
stockbrokers admit to the possibility of a correction in
stock prices -- maybe even a 10% correction. But they
cannot imagine a world where the Internet is not a boon
to business and investors. Perhaps such a world will never exist. Only the
clairvoyants can tell us. Until tomorrow, Bill Bonner P.S. I refer to Jim Grant's newsletter so often, you
would be forgiven if you thought that I published it.
But I have only met Jim one time. And I have no
business relationship with him at all. The newsletter
is excellent, if rather expensive. www.grantspub.com * * * * * * * * * * * * * * * * * * * * * * * * * * * * On the other hand, The Daily Reckoning is a FREE e-mail
service of Agora Financial Publishing --
http://www.dailyreckoning@agora-inc.com
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