Market Review: When the Saints go Marching In...

"Neither a man, nor a crowd, nor a nation can be trusted to act humanely or to think sanely under the influence of a great fear."

-Bertrand Russell

We learned about our country this week. We learned some good things – and a lot of not-so-good things. We learned about the American people and our government. We learned about chaos and breaking points. We learned things about our policies and our class systems that may have never been brought into the public eye if it weren’t for this disaster.

Hurricane Katrina did more than devastate the South – she destroyed the image that the United States had been working so hard to upkeep and cultivate over the years. It took a storm to show the rest of the world that the United States is not unshakable. Despite all of the money and time and new policies the federal government has put into Homeland Security – we were still completely unprepared for a hurricane that officials knew about days ahead of time.

"If we can’t respond faster than this to an event we saw coming across the Gulf for days, then why do we think we’re prepared to respond to a nuclear or biological attack?" asked former House Speaker Newt Gingrich, a Republican.

This lack of preparedness, coupled with the power of fear and crowd mentality has turned out nothing but chaos, anarchy and sadness to the refugees in New Orleans. The people who had taken shelter at New Orleans’ convention center grew increasingly hostile after waiting for buses and food for days (some people had been there since last weekend) amid dead and dying people.

"I don’t treat my dog like that," 47-year-old Daniel Edwards said as he pointed at the an elderly woman dead in her wheelchair, covered up by a blanket, with another body lying beside her wrapped in a sheet.

"You can do everything for other countries, but you can’t do nothing for your own people," he added. "You can go overseas with the military, but you can’t get them down here."

The situation culminated on Thursday, with rapes, gang fights and fires breaking out. New Orleans’s mayor Ray Nagin sent out a "desperate SOS" to the federal government – and many storm survivors feared for their lives.

"I’m not sure I’m going to get out of here alive," said tourist Larry Mitzel of Saskatoon, Canada, who handed a reporter his business card in case he goes missing. "I’m scared of riots. I’m scared of the locals. We might get caught in the crossfire."

In other parts of the United States, the crowd mentality is getting the best of many Americans (on a smaller scale, of course) as people scramble for gas. On Friday, the price of gas rose around thirty cents overnight in many parts of the country – even in places that weren’t affected by the hurricane. And as if people weren’t panicked enough by the rise in gas prices, rumors of gas stations closing their doors at 4 PM sent tempers into overdrive here in Maryland yesterday.

Although the rumor was false, it spread like wildfire all over the state, causing huge gas lines and, in some cases; some stations did run out of gas. Police were called to supervise after fights broke out in many of the gas stations.

Robert Mabro, president of Oxford Institute for Energy Studies and an authority on energy issues, is not surprised by this reaction. "The hurricane created a crisis, but the roots of the problem are much deeper than that.

"If people can’t get gas, they become furious, they become violent, they create trouble. Energy is a necessity."

Kate Incontrera
The Daily Reckoning

September 3, 2005

P.S. "With America finally wide awake to the shock of gasoline prices, fuel economy technology may finally receive the attention it deserves from consumers and investors," said energy expert, Justice Litle. He and a team of elite investors have been tirelessly researching alternative energy sources (among other things) – and what they’ve discovered could be highly profitable to you.

— Daily Reckoning Book Of The Week —

Demise of the Dollar…and why it’s great for your investments
by Addison Wiggin

The DR’s own Addison Wiggin recently spent over a week in the #1 slot on Amazon’s bestseller list – knocking Harry Potter to number two. He then showed up on Barnes and Noble’s bestseller list and debuted on The Wall Street Journal’s Business bestseller list last week at #8!

The only logical next step was for the book to get on the New York Times bestseller list…which it did this week, sitting strongly at #5!

The Demise of the Dollar examines the reasons for the dollar’s slide – including the nation’s historic trade deficit, the euro, government spending habits, globalization, and other international factors – and offers an up-close look at the Federal Reserve’s attempts to "manage" the dollar’s value.

THIS WEEK in THE DAILY RECKONING: Addison Wiggin’s essay, "When the Levee Breaks" was written in 2002, but eerily foreshadows some of the events that occurred this week in New Orleans. Take a look…

Houses Without Moats    09/02/05
by Bill Bonner

"Three years ago, we speculated that the housing bubble had found its pin…now – we’re sure of it. This DR Classique first ran on September 20, 2002…"

The Smart Money Strategy     09/01/05
by Addison Wiggin

"A shrinking dollar, growing federal debt, the housing bubble, rising oil prices…they all add up to financial vulnerability. But, as Addison Wiggin explains, there are steps investors can take to avoid loss – and profit…"

When The Levee Breaks     08/31/05
by Addison Wiggin

At the height of "the bubble," just when the wheels started to come off, Mississippi John Law came up with a brilliant plan to save his company and the Banque Royale.

The Consumer-Dependent Economy    08/30/05
by Gary Shilling

"The dependence of the U.S. economy on consumer spending is nothing new. At nearly 71% of GDP, consumer outlays are not only up significantly from earlier years, but also much higher than in most other major countries…"

Life’s Big Mysteries Explained    08/29/05
by The Mogambo Guru

"What happens when the money supply expands faster than the economy?
The new money devalues the existing money, which causes prices to go up, which in turn causes – nothing good. The Mogambo explains…"


FLOTSAM AND JETSAM: In the wake of Hurricane Katrina, some important and difficult questions have to be answered – one being, what will happen to our economy (and our currency) if the price of oil continues to rise? Read on…

by Addison Wiggin

American consumers face the specter of losing value in their retirement savings, finding out they cannot live on a fixed income, and suffering from chronic hyperinflation. These changes are unavoidable. But there are steps that smart investors can take defensively to escape from their vulnerability to the dollar’s inevitable fall.

Any number of things could create a sudden, wrenching drop in the dollar’s value. Consider the following three possibilities:

1. Foreign countries drop their U.S. dollar reserves. We depend on foreign investment in our currency to bolster its value or, at least, to slow down its fall. When that thinly held balance changes, our dollar loses its spending power.

2. Oil prices increase catastrophically. We-and our real inflation rate-are at the mercy of Middle East oil. Imagine what would happen if the price of oil were to double. Or triple. Our vulnerability is not imaginary. We are all aware of our vulnerability and dependence on oil, but we don’t like to think about it. If oil prices do rise, it will affect not only what you pay at the pump, but many other prices as well-nonautomotive modes of travel, the cost of utilities, and local tax rates, for example.

3. The double whammy of trade and budget deficits. We’re living beyond our means. It’s as simple as that, and something is going to give. The federal budget deficit-annual government spending that is higher than tax revenues-adds to the national debt at a dizzying rate, making our future interest burden higher and higher every day. Our trade deficit-bringing more things in from foreign countries than we sell to the same countries-has turned us into a nation of spendaholics. We’ve given up making things to sell elsewhere, closed the store, and gone shopping. But we’re not spending money we have. We’re borrowing money to spend it. Any head of a family knows that this cannot go on forever without the whole thing falling apart-and yet, that is precisely what we are doing on a national scale.

Even as our economy burns, our political leaders fiddle. They point to economic indicators to prove that our economy is strong and getting stronger. This information would be valuable . . . if only it were true.

Politicians like to measure the economy with esoteric indicators. For example, we are told that consumer confidence is up. Well, confidence is all well and good, but what if it isn’t accurate? Yankee optimism has achieved a lot in the past 200 years, but it alone is not going to prevent the current dollar crisis from getting worse and worse.

Does this mean that the United States is finished? No, but it does mean that our long history of economic power and wealth is being eroded from within. For example, look at how the reality has affected you in recent years. For most people, the real state of our economy is measured in one way: jobs. Sure, the number of jobs rises every month, but the truth is not as reassuring. We are losing high-paying jobs in manufacturing and replacing them with low-paying jobs in health care, retail, and other menial job markets.

Our mantra of "Yankee ingenuity can accomplish anything" is gradually being replaced with a new mantra: "Would you like fries with that?"


Addison Wiggin
The Daily Reckoning

September 03, 2005

Each month, Addison, along with some of the greatest investment minds in the world, meet to debate gold, technology, oil, natural gas, penny stocks and real estate. It is during these secret meetings that most profitable investment ideas that we publish are born. Now, for the first time ever, Addison is opening these gatherings to the public – but only to a select few, and only for a limited time…