Market Review: The Recovery IS Right On Track, Isn't It?

The recession is over. Everyone who’s anyone agrees. Your gloomy sourpuss editors might even be tempted to do the same. After all, who are we to stem the tides of progress?

Still it’s a funny recovery, indeed. While official reports for "productivity" put the economy on the speed train to Impressiveville… a short look at the balance sheets of America’s household show that whatever gains might be had from increased productivity are lost on the American consumer.

A report from the Labor Department released on Friday suggests US productivity grew at its fastest pace in almost two decades. "Strong productivity growth means that corporate profits are rebounding," Mark Vitner of Wachovia Securities told Bloomberg, "and that is probably the most critical element in a recovery right now."

Still, according to Financial Times, the number of Americans "on the dole" this week reached a 19-year high this week. Nearly 4 million people are collecting unemployment on an ongoing basis, the highest number since January 15th, 1983.

Likewise, if the economy is on the rebound what do you make of these figure. "The average U.S. household carries credit card debt of $8,367," writes colleague and friend James Boric. "Late payments on credit cards reached a five-year high in April 2002. And Write-offs by banks of uncollectable credit card debt have reached an 11-year high.

Meanwhile, "personal bankruptcy filings are expected to hit an all-time high this year. Household debt for those 65 and older is up 164% over the last eight years. And according the Consumer Bankruptcy Project, about 82,000 Americans 65 or older filed for bankruptcy in 2001, up 244% from 1991."

At this rate America’s private balance sheets will have a dog’s night in hell trying to get back to zero… let alone reach the positive wealth building side of the ledger. And, suggests Dr. Kurt Richebacher, that throws a bit of a wrench into the recovery scenario.

Dr. Richebacher: "In America, traditional economic thinking has it that the most important element of the economy’s demand is consumer spending. There is an underlying view that as long as there is sufficient consumer demand, everything else, like profit and investment spending, will take care of itself.

"Taken literally, this perception of the overriding role of consumption in the economic growth process implies reasonable disregard of anything else. In fact, disregard of profits and capital investment is the essence of American economics. Profits and the prospect for profits are almost solely of interest with respect to the stock market."

The trouble with the recession-recovery scenario as proposed by this week’s "news" is this: At the expense of consumer paychecks, corporations have made themselves lean, mean productivity machines. But when the mountains of debt begin to collapse and consumers are left gasping beneath them jobless – who’s going to buy all the "stuff" we’ve produced?

Okay, so I’m being a bit melodramatic. Besides there’s always stocks to make the consumer whole again, right? The ‘buy and hold’ crowd seem to think so, at least. The Dow closed up slightly on Friday and managed to keep itself within an earshot of the 10,000 range. The Nasdaq only lost 45 for the week closing at 1,615 and the S&P 500 stayed in the game by trading sideways itself. The old lady of Wall Street closed down 16 for the week at 1,067.

It’s just… well, too bad… or at least aggravating… that corporate insiders don’t agree. A report from Floyd Norris at the NYTimes reveals during over the last 8 weeks there have been 4.2 insiders sells for every insider purchase reported – the highest ratio on record than at any time since the bull market began in earnest during the ’90s.

So let me ask you this, if insiders are aren’t buying the productivity-goosed recovery story… should you?

Bon weekend,

Addison Wiggin
The Daily Reckoning
June 02, 2002 — Paris, France

P.S. Oh well, gold, at least in the short term continues to be a suitable investment choice. Friday, the sensible relic broke through the $325 resistance mark it set back in fall of 1999.

"Looks to me like the quick recovery that Wall Street pundits are talking about," writes James Boric, "is just that – talk. That’s why gold is such a smart investment right now. As the market remains sluggish, gold prices will continue to rise. And there is no better way to buy the yellow metal – than for pennies on the dollar." James suggests a few alternatives for investing in junior golds, in Flotsam & Jetsam , below…

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THIS WEEK in THE DAILY RECKONING
by Bill Bonner

05/31/02 SIN AND ARCHITECTURE

"…Architecture is no different from central banking…There are essential rules and principles that must be respected. These rules are not declared by edict or voted upon. Instead, they are like common law and common language…vernacular rules that arise out of trial and era over many, manygenerations…"

05/30/02 BEAR MARKETS FOR DUMMIES

"…People do dumb things. They pay more for stocks than they are worth. They make investments that can’t possibly pay off. They go into debt, buying things they can’t quite afford. What’s more, they tend to do dumb thingstogether…"

05/29/02 EAT THE RICH
Guest Essay by John Mauldin

"…In the investment world, there are in fact two sets of laws: one for the wealthy and one for everyone else…the laws now in place prevent American citizens from accessing the best opportunities and best managers unless they are worth at least$1,000,000…"

05/28/02 LOOKING OUT FOR #1

"…For a nation that relies on the kindness of strangers in order to live beyond its means, stepping on foreign toes would seem to be a badidea…"

05/27/02 AMERICAN HERO

"…something went wrong. A time-delay bomb went off and ignited the powder magazine just as he was passing overhead – at an altitude of only a hundred feet. The debris hit the aircraft, putting one engine out of action and damaging the other. Worse, Harper had been struck in the head by flying glass. So much blood streamed down his face that he could no longer see. Smoke filled thecockpit…"

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FLOTSAM AND JETSAM: James Boric uncovers some (not so) shocking statistics about the American household and suggests a few more reasons why gold is on a tear…

America’s Balance Sheet & The Price Of Gold
– James Boric, editor
Penny Stock Fortunes

"…In case you hadn’t noticed, Wall Street ‘Blue Chips’ are bleeding red. In the last six months major companies like Enron and Kmart have gone from robust to bust. "Safe" companies like Ericsson, Bristol-Myers Squibb, WorldCom Group and DuPont aren’t sure bets anymore. Investors have lost an average of 49%. The picture isn’t getting any prettier.

But there are always ways to make money – in good times and in bad. You just have to know where to look.

In the 1970s you could have doubled your money by investing in gold. In the 1980s, Asia and Latin America made U.S. investors rich. And during the bull run of the 1990s, almost anything technology-related skyrocketed.

Unfortunately, the U.S. market isn’t feeling so frisky nowadays. The Dow Jones has traded sideways since January. And the Nasdaq (the "technology index") is down more than 18% year-to-date. So why do I think now is your best chance for huge profits?

The key to making a killing on the market isn’t finding the single best stock. What are the odds of that anyway? There are over 9,000 companies to choose from.

The secret is to find an up-and-coming sector that’s been beaten down for years and years. Instead of finding one or two bargain stocks – which is about all you’ll find on most of the U.S. markets right now – you get a whole industry full of them. Then you choose one or two leaders to invest in.

Gold has been beaten down for 20 years…now it’s on the comeback trail. A rare opportunity exists for easy profits. In the early 1980s gold was trading for more than $800 an ounce. But then people started taking their money out of gold and putting it into the depressed U.S. stock market. For most, that proved to be a lucrative move.

Here’s why: In October 1965 the Dow Jones was trading at 960. By June of 1982 it was trading for 811. For 17 years the U.S. market was stagnant. There was nowhere to go but up.

And it did. From 1982 to 1999 you could have turned $10,000 into $107,437 – just by investing in the Dow Jones Industrial Average Index. Meanwhile, gold fell by 50%.

Gold and the stock market tend to move in opposite directions. As the market stumbles, gold gains strength. Right now, the U.S. market is stumbling. Not surprisingly, gold is on the rise.

As people lose confidence in the market, the economy and their own banks, they look for a safe place to store their money. Nothing has been safer over the last two thousand years than gold. It is the ultimate store of value – in almost any society.

Why is now the time to place your money in gold? Take a look at the following statistics about U.S. households:

• Late payments on credit cards reached a five-year high in April 2002.
• Write-offs by banks of uncollectable credit card debt have reached an 11-year high.
• The average U.S. household carries credit card debt of $8,367.
• Personal bankruptcy filings are expected to hit an all-time high this year.
• Household debt for those 65 and older is up 164% over the last eight years.
• The average debt load for these seniors is an astounding $30,000.
• And according the Consumer Bankruptcy Project, about 82,000 Americans 65 or older filed for bankruptcy in 2001, up 244% from 1991.

Looks to me like the quick recovery that Wall Street pundits are talking about is just that – talk. That’s why gold is such a smart investment right now. As the market remains sluggish, gold prices will continue to rise. And there is no better way to buy the yellow metal than for pennies on the dollar…"