The Week That Just Was

The Daily Reckoning

Weekend Edition

October 27-28, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: The Week That Just Was

The Dow ended a strong week, adding 82 Friday to a 117- point advance on Thursday. It’s now about 60 points below its close of Sept. 10, the day before the attacks. The Nasdaq fell 6 to 1768.

For the week the Dow climbed nearly 4% and the Nasdaq popped up 6%. Both the Nasdaq and S&P have already surpassed their Sept. 10 closing levels. Some strong numbers, indeed.

But, before we begin speculating about the bullishness of war, we might want to “consider the following,” suggests Greg Weldon (brought to my attention by John Mauldin), “in ‘the week that just was’ we saw a:

– New LOW price for industrial metals, like copper,

nickel, and aluminum

– New LOW price for other industrial commodities, like cotton and rubber

– STEEP sell off in Gold

– NEW LOW in U.S. industrial economy

– NEW LOW in Singapore Industrial economy

– NEW LOW in Singapore Dollar

– NEW LOW in Hong Kong trade

– NEW LOW in global trade

– SHARP slide in U.S. bank shares

– NEW LOW in U.S. Railcar Loadings

– BREAKDOWN in U.S. house prices

– COLLAPSE to NEW LOW in German Business Confidence

– NEW LOW in European credit creation

– MASSIVE Monthly DEFLATION in German State CPI

– NEW LOW in Italian Consumer Confidence

– NEW LOW in UK Export order books

– NEW LOW in Japanese Bank Index

– NEW LOW in Japanese income

– NEW LOW in Japanese consumption

– NEW LOW in Japanese confidence

– and of COURSE … NEW LOWS FOR BOND YIELDS.”

Despite all this, what you might consider, “bad” news, the Russell 2000, which measures the performance of smaller company stocks, joined the big indexes and jumped nearly 3% for the week.

Advancing “issues” outnumbered decliners by a nearly 3-to-2 margin on the NYSE on Friday…

European markets too have joined the party. The DAX index in Germany closed up 2.2%, France’s CAC-40 jumped 2.3% and Britain’s FT-SE 100 gained 2%. “Sometimes the markets just go up, because they go up,” said the Blue Team’s Eric Fry.

Oy…the disconnect between the headlines – economic and political – and the market’s performance of late is enough to make a financial editor’s head spin. (As always, more below…)

THIS WEEK in THE DAILY RECKONING
By Bill Bonner

10/26/01 TIDES OF FORTUNE

“…What is this strange new world we have entered? Enemies strike but refuse to identify themselves…or to take credit for one of the most successful surprise attacks in all of history. Someone sends deadly disease through the U.S. mail…but, for whatreason?…”

10/25/01 SOMETIMES A GREAT NATION

“…Will the ‘war’ end well? Will it ever end? We have no way of knowing. But we fear that this war against terrorism might actually make Americans lesssafe…”

10/24/01 SOCIETAL IMPLICATIONS

Guest Essay by Doug Casey

“…Freedom has been rapidly diminishing in America for many years, but our new war will put a near-final nail in its coffin. The hunt for the perpetrators, sympathizers, or even potential sympathizers has the potential to turn into a witch hunt unlike anything we’ve seen in either World War or the ColdWar…”

10/23/01 WAR AND INFLATION

“…War, by destroying the goods and services we really want, is biased towards inflation…But war also destroys confidence, credit, and trade. Fighting unsettles the nerves of millions of people. It causes consumers to clutch their money just a little bit tighter and hold onto it just a little bit longer. And it causes businessmen to forestall new capital investments. It cuts sales, squeezes profits, and quiets shipyards and truckterminals…”

10/22/01 GOD ON THEIR SIDE

“…People seem to need killing from time to time. Who are we to argue with it? Have at it. But don’t expect it to make people richer. Increasing costs does not make people more prosperous. It makes them poorer. God may shine his light on the War on Terrorism, or he may not. But he’s unlikely to make people rich…simply because they go towar…”

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

HEADLINE, NEWS And INSIGHT: Gold: Might Just Be The Right Time To Buy… Who Decides Where You Keep Your Money?… Bankrupting Against The Future…

Is It All Over For The Midas Metal?

by John Myers

Bull market Pollyannas haven’t fully digested the effect on the oil and the stock markets if the Afghanistan campaign drags on. Few are wondering what will happen to the dollar if ground operations heat up prior to the onset of winter and body bags start coming home. The concurrent drop in the gold price, therefore, represents a great buyingopportunity.

Dangerous Tax And Laundering Initiatives Introduced

by Mark Nestmann

In March, 2001, former Congressional investigator Jack Blum was quoted, without criticism, in The New York Times as saying, ‘There is no legitimate reason for an American citizen to have an offshore account.’ Uh, Jack…how aboutfreedom?

Marx Would Be Absolutely Giddy

by Doug Noland

The bubble has destroyed too much true economic wealth. Too many unsuspecting people have lost their financial security, and too many specious financial claims have been created that will cause significant grief down the road. The economic prospects for future generations are being put in jeopardy by this nonsense. And it has gone way too far, for far too long.

FLOTSAM AND JETSAM: Enemy of The State

“How many years do you give the American empire?” Lord Rees-Mogg asked me. It was September 1st. We’d just begun to “dig in” at the Bonner chateau south of Paris…duck a l’orange, if I recall correctly.

It was a pleasant evening, and Rees-Mogg’s question seemed hypothetical at best, a subject you might only broach if you happened to find yourself seated next to the former editor of The Times of London at a dinner party. But, it was a welcome diversion from the discussion of chicken farming going on to my right, so I took the bait.

“About fifty years,” I said, “barring some unforeseen catastrophe.” The audacity of the events of ten days later seemed as far from the realm of possibility as if Trajan himself were seated across the table, awaiting an answer.

In The Sovereign Individual, co-authored with James Davidson, Lord Rees Mogg anticipated the grisly attacks on the WTC. “Fourteen empires have disappeared already in the twentieth century,” they wrote in early 1997.

“The breakdown of empires is part of a process that will dissolve the nation-state itself. And as the modern nation-state decomposes, latter day barbarians will increasingly come to exercise power behind the scenes. Groups like the Russian Mafia, other ethnic criminal gangs, drug lords and [terrorist cells] will be laws unto themselves.”

Today, the “War on Terrorism” is in embryonic stages, on the pages of every newspaper, and you can see nation-states grasping at the straws they’ll need to fashion a global architecture. But in a world where, as NY Times correspondent Thomas Friedman notes, “individuals can increasingly act on the world stage directly – unmediated by the state,” that requires former enemies and rivals, are discovering a need for one another. And a need to rewrite the story of the west.

In a cartoon from October 20th, Economist depicts a dragon and an eagle screeching at one another. Over the course of six evolving pictures the caricatures morph into the shapes of President Bush and the president of China, extending hands in a friendly gesture. A bubble caption appears above each of their heads saying: “I see a change in him since September 11th.” Fidel Castro has even had kind words for the U.S. lately.

“It took a long time time for leaders and analysts of that era to fully grasp the real nature and dimensions of the Cold War system,” Friedman wrote in his landmark analysis of globalization the Lexus and The Olive Tree. “They emerged from World War II thinking this great war had produced a certain kind of world, but they soon discovered it had laid the foundations of a world very different from one they anticipated. Much of what came to be seen as great Cold War architecture and strategizing were responses on the fly to changing events and evolving threats. Bit by bit, these Cold War strategists built the institutions, the perceptions and the reflexes that came to be known as the Cold War system.”

In some ways, “As the technological revolution unfolds, predatory violence will be organized more and more outside central control,” suggest Rees-Mogg and Davidson. “Efforts to contain violence will also devolve in ways that depend on efficiency rather than on magnitude and power.” And “nation states” will likely attempt to counter these efforts by legislating control of even the most minute of individual transactions.

President Clinton saw it coming. In his State of the Union address in 1997, with not more than a hint of triumph in his voice, he suggested that “In the 21st Century, the only enemies this great nation will have will be the enemies of the nation-state itself.” As Mr. Bush & Co develop the architecture for “homeland defense” this editor, at least, hopes they’ll keep in mind the freedoms this particular state was designed to protect. Somehow, the prospect seems unlikely.

Bon weekend,

Addison Wiggin,
The Daily Reckoning

P.S. We still have a few copies of The Sovereign Individual on hand in the Baltimore office…if you’re interested click here:

The Sovereign Individual