11/15/03
Statistical Adonis, Real-World Elephant Man The Daily Reckoning Weekend Edition
15 November, 2003
Paris, France
By Addison Wiggin and Eric Fry
MARKET REVIEW: Statistical Adonis, Real-World Elephant Man
The U.S. stock market struggled all week, as gold prices soared.
The stock-buying lumpeninvestoriat is finally beginning to notice
that daily Iraqi explosions and daily dollar implosions are
un-bullish phenomena for the stock market…especially when share
prices are already quite expensive.
For the week, the Dow slipped half a percent to 9,769, while the
Nasdaq dropped 2% to 1,930. Meanwhile, the gold market hosted the
week's most exciting trading action, as the increasingly precious
metal jumped toward the $400-mark for the first time since 1996.
Gold gained nearly $15 for the week to $398 an ounce.
Gold derived its strength from the usual source: dollar weakness.
The greenback continues to succumb to the powerful forces arrayed
against it - falling nearly 2% last week to $1.178 per euro.
Trying to pinpoint the exact causes of the dollar's weakness is
like trying to pinpoint the exact causes of President Bush's
declining popularity - there is no single reason. But one of the
reasons - both for the dollar's struggles and for the President's
waning popularity - is the intensifying crisis in Iraq. The
terrorist attacks against coalition forces are growing
increasingly frequent and fatal.
Meanwhile, back here at home, the misguided policies of Chairman
Greenspan and Treasury Secretary Snow deserve at least partial
credit for the dollar's weakness. Whatever the exact cause or
causes, the results are the same: the dollar's purchasing power
plummets. Next thing you know, commodity prices soar, the gold
price edges higher and - eventually -- producer prices jump
unexpectedly.
Friday, the Labor Department reported a shocking 0.8% jump in
producer prices during October. We suspect that this latest
inflationary augury is not a "one-off." After all, commodity
prices and gold prices have both been climbing for more than two
years already…And they are still climbing. Natural gas jumped
8% last week, while crude oil gained $1.52 to $32.37 a barrel.
But most consumers aren't worrying about the rising cost of
heating their homes and driving their SUVs…not yet anyway.
The University of Michigan reported consumer sentiment
strengthened to 93.5 in early November from 89.6 in late
October.
"For months, [consumers and] investors have been wallowing in the
warm fuzzies of a recovering economy, while ignoring the cold
realities of escalating violence in the Middle East," we wrote
mid-week. "A steady stream of bullish economic headlines here at
home has made it much easier to ignore the steady stream of
bearish headlines from 'over there.' [But] we suspect that the
stock market's 'disillusionment phase' is about to begin "The
problems in the Middle East are probably worse than they appear,
while the strength of the U.S. economy is probably less than it
appears."
Just ask Wal-Mart.
Thursday morning, Wal-Mart announced somewhat disappointing
earnings for the third quarter. America's largest employer fell
short of Wall Street's consensus earnings estimate for the first
time in seven years. The company's earnings report wasn't really
so bad, it just wasn't so great.
"I don't think consumer spending is slowing," said President and
CEO Lee Scott, "but I also don't see the strength that many of
you in the investment community appear to see."
Forgive us our cynicism, but we would tend to trust Wal-Mart's
assessment of our economic condition over the government's
assessment.
"The best quarter of America GDP since the Reagan Revolution did
not turn heads at Wal-Mart stores," writes Jim Grant, editor of
Grant's Interest Rate Observer. "Gains in same-store sales, which
had been running at 6% in August and September, subsided to the
neighbor hood of 3% to 5% in the first three weeks of October.
"The 'paycheck-to-paycheck customer,'" a Wal-Mart spokesman tells
David Lane of this staff. "Always has been, always will be."
But clearly, this archetypal American consumer is not spending
money with the abandon that a 7.2% GDP would imply. "As a rule,"
Grant relates, "working people come into funds on the 15th of the
month or at the end of the month…Wal-Mart has devised an
elegantly simple calculation to measure the liquidity of Homo
americanus. It calculates the difference between sales on the
14th, when people are dry, and the 15th, when people are
liquid."
Currently, this simple indicator is flashing red. According to a
couple of Wall Street analysts who monitor Wal-Mart's
consumer-liquidity indicator, "The consumer's liquidity crisis is
the worst that Wal-Mart has seen and is the most pronounced in
the last five to seven years."
We repeat what we observed last week, "The economy may be a
statistical Adonis, but it's a real-world Elephant Man."
Have a good weekend,
Eric Fry,
The Daily Reckoning
P.S. In case you hadn't heard, Bill and Addison's book hit the
NYTimes Business bestseller list this week, too… bravo! See the
Weekend Edition Floastam & Jetsam section below…
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THIS WEEK in THE DAILY RECKONING
BEYOND NIETZSCHE (11/14/03)
by Bill Bonner
"… Nietzsche identified two different kinds of knowledge. There
are the things you know from personal experience and observation,
which he called 'erfahrung.' There are also the abstractions you
think you know - the kind of thing that is reported in the paper
and discussed on the editorial pages - which he called 'wissen.'
Today, we expand Nietzsche's insight. Not only are there two
forms of knowledge, there are also two entirely different ways of
reasoning…"
http://www.dailyreckoning.com/body_index3.cfm?id=7251
THE PSYCHOLOGY OF CREDIT AND DEBT (11/13/03)
by Wendy Raffel and Robert Folsom
"…We are a nation of consumers who live beyond our means. Our
consumption exceeds what we can afford…hence the overuse of
credit, and the debt extremes that come with it. The public's
willingness to submit to the servitude of credit is a direct
measure of their optimism - or pessimism - about the future, and
a reflection of mass psychology and social mood…"
http://www.dailyreckoning.com/body_index3.cfm?id=7240
TOO MANY TREASURE HUNTERS (11/12/03)
by Marc Faber
"…Shares do not always go up in the long run. The reality is
that most companies go out of business in the long term, and
investors must continuously look for new companies, regions,
sectors, and asset classes within the investment universe…For
my taste, the Western financial markets are too large compared to
the real economy and will have to be deflated at some point much
further than has already happened since 2000…"
http://www.dailyreckoning.com/body_index3.cfm?id=7226
ARMISTICE DAY (11/11/03)
by Bill Bonner
"…Over the four years of the first World War, one by one, the
people back at home got the news…the telegrams…the letters.
The church bells rang. The black cloth came out. And for years
after…at 11 A.M., the bells tolled, and even in America, people
stoodsilently…recalling the terrible toll of four years of war.
Now it is almost forgotten…"
http://www.dailyreckoning.com/body_index3.cfm?id=7205
UNCONVENTIONAL METHODS (11/10/03)
by the Mogambo Guru
"…In case you are wondering, the gigantic increase in GDP was
the result of morons, like you and me, but not you and me, and
not nearly as good looking as us, well, you anyway, borrowing
money that they cannot pay back to buy things they cannot afford
and should not be buying. The 7% rise in GDP does not come at any
price - it comes at an astronomical price. And we, that is, you
and me, are paying very, very dearly for it…"
http://www.dailyreckoning.com/body_index3.cfm?id=7192
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HEADLINE, NEWS And INSIGHT: All eyes on China… gold's less
brilliant but equally attractive cousin… and a tip of the hat from our friends at Newsmax.com…
What's Good for China
by Lynn Carpenter
"…Investing in Chinese companies will give you a currency
advantage. There's likely to be some nice upside and only a small
risk of a big downside. But once again, you need to be careful
that those who love theories don't get the better of you. You
need to understand what's good for China - not what's good for
the United States - and just how much China can and cannot do for
itself…"
http://www.dailyreckoning.com/body_index3.cfm?id=3549
The Dollar's Silver Lining
by John Myers
"…If the lagged price action of silver continues to mimic the
price action of the euro, sharply higher prices could be just
around the corner, providing investors with a "backdoor" way to
play the greenback without having to chase the market. A price
increase to $7 and $8 per ounce could be right around the
corner…the one thing missing from the bullish equation for
silver up until now has been investment demand. But that is now
changing as silver has begun what is quickly and quietly
developing into a bull market…"
http://www.dailyreckoning.com/body_headline.cfm?id=3544
FLOTSAM AND JETSAM: From our friends at Newsmax.com:
Saturday, Nov. 15, 2003 1:43 PM EST
'Financial Reckoning Day' Hits NY Times Bestseller List
A new book that challenges the idea the U.S. is in a full-blown
economic recovery is getting big notice -- and just hit #7 on the
New York Times Business Bestseller list. Maverick investment
authors Bill Bonner and Addison Wiggin make these and other
claims in "Financial Reckoning Day: Surviving The Soft Depression
Of The 21st Century."
Don't believe the latest economic numbers, they say, adding,
"History shows us that investing has less to do with raw economic
data and statistics-the domain of most other investment books-and
more to do old rules, metaphors, and experience."
"Financial Reckoning Day" offers new revelations:
* Why the "Information Age" stock boom went bust, with sobering
insights into such companies as Amazon.com, Cisco Systems, and
Global Crossing
* Why high-spending, high-borrowing consumerism "leveraged" the
US economy and what you might expect from the "soft, slow
depression" in the decade ahead
* Why Japan's "miracle economy" unexpectedly collapsed and why a
decade of monetary stimulus - similar to what the US is trying to
do now - failed!
"Financial Reckoning Day" warns that depressions are not
necessarily a thing of the past. And that's why it's so vital to
have an essential, wide-angle resource like this on hand… to
get through the current crunch-and put profits back into your
portfolio.
Irreverent and eye-opening, this "big picture" investment book
will "thoroughly entertain you for hours" says Barron's
Roundtable member Marc Faber, and help you safely chart your
financial destiny in today's precarious investing climate.
See the Newsmax.com Cover Story archives here:
http://www.newsmax.com/archives/ic/2003/11/15/141839.shtml
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