12/07/03
Well, well, well… Mr. Economy is straying from the script that Wall Street has written for him, and investors are not thrilled with his ad-libbing. According to the original script, job growth would boom in November and Intel would announce a surprisingly large jump in quarterly revenues.
But Mr. Economy seems to have forgotten his lines; Job growth fizzled and Intel’s sales fell short of expectations. U.S. payrolls increased by only 57,000 in November, well shy of the 150,000 or so that most Wall Street economists had predicted.
Equally dispiriting was the fact that the manufacturing sector shed jobs for the 40th straight month. In all, not a great report. Over the past four months, 328,000 net jobs have been created, "far from what would be needed to indicate a robust improvement in labor markets," says one analyst from Banc One Capital Markets.
Meanwhile, down in the trenches, Intel disappointed the legions of "bulled-up" tech stock investors by announcing only a modest improvement in fourth quarter revenues. The world’s biggest computer-chip maker said sales would rise no more than 19% in the quarter. 19% growth isn’t too shabby, but it’s not the sort of number that inspires frenzied tech-stock buying, especially not tech stocks like Intel that have already doubled this year and sell for 40 times earnings.
Since Mr. Economy is ad-libbing, Mr. Market has no choice but to rewrite the script… So he ditches the scene where millions of adoring investors carry him aloft through the NASDAQ 2000 and Dow 10,000. Instead, the new, tragic storyline finds our beloved Mr. Market engaging in one fleeting kiss with Nasdaq 2,000, then suffocating under a mound of sell orders.
The Nasdaq fell for the third week in three, losing 1.3% to 1,938. But the Dow Jones Industrial Average added about 1% to 9,863. The disappointing late-week economic indicators cannot claim all the responsibility for the stock market’s lackluster performance. The crippled US dollar must also shoulder part of the blame. All week long, the dollar’s persistent weakness undermined the stock market’s attempts to rally. The greenback tumbled 1.4% to a new record low against the euro of $1.217.
Meanwhile, the sadistic goldbugs delighted in the dollar’s agony. The yellow metal jumped nearly $10 on the week to $406.40, gold’s first weekly close above $400 an ounce since March 1996.
So often have the editors of the Daily Reckoning cautioned against owning dollars and suggested buying gold that the advice has become a kind of liturgy. Dollar-selling and gold-buying are articles of faith. Gold’s ascension above $400 an ounce, therefore, is almost a religious experience. $400 gold has arrived as prophesied, and the faithful are exultant. The world’s one and only true currency is finally overthrowing the false monetary idols like the U.S. dollar.
"Gold at around US$400 an ounce is probably fairly valued right now," says Pierre Lassonde, president of Newmont Mining Corp. "You are very likely to see its price trade around that for the next while, with a US$50 an ounce band on either side of it,’ he said. But, he added, that’s just the beginning."
Lassonde predicts an epic gold bull market – the sort of bull market that most investors have never seen. It’s been more than three decades since gold soared 2,200% from US$35 an ounce in 1971 to a peak of more than US$800 in the early 1980s.
Says the confident Lassonde: "Since gold hit US$250 an ounce in 2001, it is up 55%. We still have a long way to go. This is chapter two of a 20-chapter book."
Stay tuned…
Eric Fry,
The Daily Reckoning
December 06-07, 2003
P.S. Recognizing some key psychological breakthroughs in the market… most notably the dollar’s fall through $1.20 and gold’s rise… your editors at The Daily Reckoning have set about creating a series of "special reckoning" reports. The first will deal with protecting your assets in the face of continued dollar weakness; the second some unique and telling guidance for the "Trade of the Decade". Watch this space…
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THIS WEEK in THE DAILY RECKONING
THE MADNESS OF GEORGE II 12/5/03
By Bill Bonner
"… The madness of George II, reigning president of the American government, is that he believes he can do what has never been done. Our worry is not that George II will be proved wrong; we have little doubt that neither of his grand projects will yield a decent return. Instead, we worry what will happen when American hearts are squeezed harder… when the miry clay of disappointment, bankruptcy, depression, inflation, and national humiliation have Americans entrapped, struggling to stand up straight… "
THE GOLDEN MEGATREND 12/4/03
By Mary Anne & Pamela Aden
"… Gold has been in a solid bull market since reaching its lows in 2001, almost three years ago. Now, it hovers over $400 an ounce – a seven-year high in U.S. dollar terms – and it’s likely to be headed higher, probably until at least next year and possibly longer. We believe a ‘golden era’is starting, which in many ways is similar to the early 1970s. It’s NOT too late to buy… "
THE RECESSION-THAT-WASN’T 12/3/03
By Bill Bonner
"… Recessions typically correct attitudes and asset prices – and repair balance sheets. Debts are written off or paid down while savings rates mount. But none of that happened [in 2001]. Stocks are higher than ever. Businesses are more heavily in debt than last year. Savings rates are pathetic. Consumers are strung out on debt. Miracles do happen… but our advice, gentle reader, is to play the odds… "
THE ERA OF FICTITIOUS CAPITALISM 12/2/03
By Addison Wiggin
"… In 1971, when Nixon closed the gold window, the Bretton Woods system collapsed, and the dollar – the last major currency to be tethered to gold – came unstuck. Economic growth as measured by GDP was no longer restricted by the growth of material goods production. Toss in a few financial innovations, like derivatives, and the ‘fictitious’ economy assumed the central role in the global monetary system… "
UNCOMPREHENDING DISBELIEF 12/1/03
By the Mogambo Guru
"… Every living being in the nation is being plunged into more debt at an annual rate of $7,057. And a nice chunk of the money, which bought all that new debt, came from foreigners with deposits at the Fed. And when I try and imagine who the people are that decided to buy that much U.S. debt, and who were so confident in themselves that they are apparently not the least bit timid or embarrassed to use $12 billion of their valuable money to buy U.S. debt, which is denominated in the dollar, which is a depreciating currency, I am struck by the realization that these self-same foreign morons are making a huge, I mean huuuuuuuuge, mistake… "
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