Sets Of Three

The Daily Reckoning
Weekend Edition
November 3-4, 2001
Paris, France
By Addison Wiggin

MARKET REVIEW: Sets Of Three

Bad news comes in sets of three. At least, that’s the conventional wisdom. But this week, the economy went way beyond the call of duty…

Friday’s announcement that the nation’s unemployment rate soared to 5.4% in October signaled the biggest one- month increase in more than 21 years, “providing,” said a report in USAToday, “the most dramatic evidence yet that economic fallout from the terror attacks probably pushed the country into recession.” More than 415,000 jobs were lost during the month.

Earlier in the week, the 3rd Quarter GDP report (-0.4%) also showed the economy contracting. And the Conference Board Thursday reported consumers “cut back” on their spending in September by the biggest single-month decrease since Reagan was avoiding Ollie North in the hallways of Congress.

Further, the NAPM reported – also on Thursday – manufacturing activity shimmied down to its lowest level since February 1991.

Still like a 2-year old in front of a Barney video, the Dow ignored the economic chaos descending on the land and closed up 59 to 9323. The ‘big board’ lost 221 for the week. The Nasdaq slipped slightly to 1745… down just 23 for the week.

Also this week…the Fed announced, they’ve opted to cease the sale of the 30-year note in a move many see as a last-ditch effort to stymie the “flight-to-safety” crowd. (As always, more below…)

THIS WEEK in THE DAILY RECKONING
By Bill Bonner

11/02/01 A SHORT HISTORY OF THE BEAR
Guest Essay by Edward Chancellor

“…The collapse of a bubble is frequently accompanied by an economic crisis. Who gets the blame for this crisis? Not the bulls, who were responsible for it…but the bears, who are generally the lone voice of reason during a bubble, warning people of the folly of investing in an overpriced market…” < /P>

11/01/01 ST. EMILION

“…Drinking and driving is illegal in the U.S. But here in the Bordeaux wine area, the tourist office will arrange it foryou…”

10/31/01 FROM ARABIE TO THE SANDS OF CANADA
Guest Essay by John Myers

“….George W. Bush has made it clear that the U.S. reliance on Middle East oil will shift…if things turn ugly for America’s oil-rich allies in the Middle East, Athabasca Oil Sands may turn out to be one of the most valuable locations in theworld…”

10/30/01 EPISCOPALIAN’S GUIDE TO SEX

“…Sex never seems to go out of style. Still, fashions change in sex just as they do in the stock market. When the bull market was at its throbbing climax, Ted Turner described deal making as “better than sex.” Now that deals are more difficult to pull off, sex seems to be making acomeback…”

10/29/01 TSAR OF ARABIE

“…’It isn’t an overstatement to say that the economic fate of the world revolves around the reliable and unimpeded flow of oil from the fields of Saudi Arabia. Indeed, that has been the case for more than 40 years’…and now, with the delicate balance in Saudi Arabia between oil revenue and Muslim fundamentalism…it wouldn’t be difficult for terrorists to shut off the oilsupply…”

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HEADLINE, NEWS And INSIGHT: Do We Really Know What We’re Fighting For?…Rubin & The White House Powwow… Just Like ’74 – Only Worse… For Your Edification: A 225 Yr- old Absentminded Morality Professor…

Crossing The Threshold To War
by John Pugsley

“…It’s a tragic beginning of the new millennium, but it’s not the beginning of a new chapter for mankind…it’s simply a continuation of the same old story. The truth is that evil continues to triumph century after century because good men do the wrongthing…”

Does The Plunge Protection Team Exist?
by Rick Ackerman

Svengali theory and fanciful images of a White House powwow each day where guys who wear American-flag cufflinks map out contingency plans to administer the Heimlich if the tickertape should begin to choke aside… there are two reasons why the theory of the Plunge Protection Team is not so farfetched as it might sound.

Bear Distinctions
by Paul L. Kasriel

The 2001 bear market resembles the 1974 version with one critical difference: today, stocks still appear to be overvalued six quarters after thepeak.

FLOTSAM AND JETSAM: Adam Smith & The Wealth Of Nations

– from Bill Bonner, on The Wealth of Nations

“…The Wealth of Nations is the most important book ever written (save the Bible) on a practical subject.

It strongly influenced the shaping of our modern world today. Though it was written 225 years ago, it’s as valid today as before the emergence of the machine age, the welfare state, over-taxation, big government and crushing national debt.

* It helped pave the way for the American Revolution. * It helped foment the French Revolution. * It’s the foundation for understanding the financial actions of the industrialized world – whether it’s opening a new mill in Singapore or buying a candy bar at the corner newsstand.

What’s more, as this passage concerning modern war shows, it’s as relevant today, as ever:

“In modern war the great expense of fire-arms gives an evident advantage to the nation which can best afford that expense; and consequently, to an opulent and civilized, over a poor and barbarous nation. In ancient times the opulent and civilized found it difficult to defend themselves against the poor and barbarous nations.

“In modern times the poor and barbarous find it difficult to defend themselves against the opulent and civilized. The invention of fire-arms, an invention which at first sight appears to be so pernicious, is certainly favourable both to the permanency and to the extension of civilization”.

Essentially, Smith states a country’s arms capabilities are what protect its existence and permanency in times of terror and devastation.

The Wealth of Nations was Smith’s tour de force. He was the first proponent of laissez-faire capitalism:

* Dr. Smith believed true wealth comes from a country’s productive capacity, primarily in the skill of its workers. To increase wealth, he said, a country must increase its productive capacity, or efficiency. Unlike the New Era illusion… Smith was suggesting real savings and capital investment in profit generating enterprises.

* Governments are “spendthrift, irresponsible, and unproductive,” Smith said. It was his view that governments should have only a few roles such as defense, justice and some public works. You don’t have to poke around Washington too long to find examples of what Smith believed to be irresponsible…

* He didn’t like monopolies, either. He said, “people of the same trade… meet together… in a conspiracy against the public.” They are “a great enemy to good management.”

* But individuals, “from their regard to their own interest,” are led “by an invisible hand” in the direction “most agreeable to the interest of the whole country.”

* Smith forecast the perils of a nation taxing its workers to achieve wealth. (In doing so, he predicted the decline of the British Empire.)

* And he said a country overrun by big government is sure to fail. Smith originated the idea that less government is best. The first volume of Wealth of Nations was published in 1776 – the same year the Declaration of Independence expressed similar ideas…

The ideas contained in Smith’s Wealth of Nations are not just interesting, they’re essential – these are the great ideas that underpin our civilization…like the Bible, The Iliad and The Origin of Species… they are the ramparts of our culture, protecting us from economic ruin and barbarism.

By helping you understand the nature of human life and human relationships, they also help you in your private life.

Try to organize your economic life based on the confused nonsense in Karl Marx’s Das Kapital or John Maynard Keynes – and you will soon be a muddle-headed pauper.

The Wealth of Nations, on the other hand, can help you and your family build and protect real wealth…”

Bon Weekend,

Addison Wiggin,
The Daily Reckoning