Illusions Disperse

The Daily Reckoning

Weekend Edition

February 10-11, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: Illusions Of A Quick Turn Around Disperse

Motorola and Dell added their names to the planned-layoffs list Friday, once again casting a pall over the markets. All the major indexes slipped back, as “investors grew more pessimistic about the prospects of a quick turnaround for the economy and company earnings.” (Reuters)

The big techs, it is widely believed, have overspent on production of goods. Consumers meanwhile may have all the computers… and related paraphenalia… they need. The 100 bps cut by the Fed last month helped spur some strong speculation, boosting the Nasdaq briefly and threatening 11,000 on the Dow… but with the exception of a few strong cyclicals, this bear rally has lost its gumption.

The Dow closed down 99 Friday at 10,781 – down 81 for the week. The Nasdaq lost 91 for the day to close at 2470, a 190 point loss for the week. The S&P 500 dropped 17 to 1314 Friday, slipping 35 for the week.

The Nasdaq has given back all of the 15% gain it was enjoying by mid-January of this year, and now rests at +0.0% for the year. The Dow and S&P 500 are just under par for the year.

Markets around the globe: The Nikkei scooted up 2.6% for the week, but Germany’s DAX, Britain’s FT-SE 100, and France’s CAC-40 all fell… -2.1%, -0.7%, -1.1%, respectively.

The Russell 2000: 497 The Wilshire 5000: 12,124

ADD’L PRICES FOR THE WEEK: Gold Gave It All Back… Dollar Up Again, Slightly

Gold: $262 down $7

Crude Oil: $31.03 …

Natural Gas: $6.21 …

CRB Index: 224 down 4

Dollar Index: 111 up one

The Euro: $.92 down one

British Pound: $1.44 down two

Japanese Yen: $.85 down one

FLOTSAM & JETSAM: Just Look Across The Valley!

– From The Richebacher Letter

“Mr. Alan Greenspan has gained the gloriole of being the world’s greatest central banker who has masterminded the U.S. economy’s longest expansion with record-high economic growth and has contained inflation. We hardly need to emphasize that we have a radically different view of what he has achieved: the world’s worst bubble economy in history, riddled with financial excesses and economic imbalances of unprecedented magnitude.

For years we have been warning that this `bubble’ and `bubble economy’ will end like all their predecessors: in a devastating bust. A few times in the past, it seemed that the day of reckoning was at hand. During the 1990s, Mr. Greenspan had to cope with two critical phases, one in 1990-91, involving a recession, and the other one in September-November 1998, when Russia’s default on a bond issue sent heavy jitters through the U.S. financial markets, jeopardizing the Long-Term Capital Management hedge fund. Fearing that the unwinding of truly monstrous commitments of LTCM in assets and derivatives markets would endanger the important institutions involved, the Fed orchestrated the rescue of LTCM and slashed its interest rates in swift succession by 0.75% – with quick success.

Now the Fed is facing its greatest outstanding challenge in the whole postwar period, we think. Most economists are looking hopefully back to 1998, when the Fed easily pulled the economy through the crisis with its three small, though quick, rate cuts, convinced that the same medicine will work as well and as fast as it did in 1998. `Look across the valley’ is Wall Street’s happy invitation to investors.

Many believe that the U.S. economy may experience a sharp downward lurch, but thanks to rapid Fed easing, it is expected to be a brief, painless affair. Propelled by a few rate cuts, investors can look forward to a `V-shaped’ economic recovery in this year’s second half and a new boom in the stock market. Sleep well in the meantime.”

That’s the illusion. What remains of it past the halfway point, we will see…

Enjoy your weekend,

Addison Wiggin,

The Daily Reckoning