Bargains, Bargains Everywhere...

The Daily Reckoning
Weekend Edition
December 22-23, 2001
Paris, France
By Addison Wiggin

MARKET REVIEW: Bargains, Bargains Everywhere…

“Bargain hunting” is what the folks at USAToday called it. They got the idea by diligently polling Wall Street analysts. The Dow shoots up 50 pts. for the day on Friday, up 220 for the week, to close above 10,000… and the Street calls it bargain hunting.

“Analysts,” says USAToday, “said the less-than-dismal consumer spending and sentiment reports gave investors hope that the worst was over, and a turnaround would begin in early 2002.”

“According to an old saying,” says our own Dr. Kurt Richebacher, “bull markets rise on a wall of worries. No such wall is in sight this time. In fact, the signs of optimism are everywhere.”

Forget earnings warnings from JDS Uniphase and Nortel (again)… forget the fact that the US GDP for Q3 was revised down this week (again) … forget that consumer prices for November in Canada fell faster than any month in the last 42 years… forget the fact that with p’s getting soft – e’s are softening faster… forget that the 11th rate cut had about as much impact on the US economy as the first…

Forget all that, go out and hunt yourself down some bargains! (More, of course, below… in your Holiday Deflation Issue of The DR Weekend Edition…)

THIS WEEK in THE DAILY RECKONING
by Bill Bonner

12/21/01 THE GHOST OF CHRISTMAS PAST

A Christmas Carol for the 21st Century: PartOne

12/20/01 MORE CLASHING OF CIVILIZATIONS

“…World politics gives people an opportunity to care about things so far from home that they look simple. Ignorant of the details, the nuances, the contradictions and infinite complexity of the situations…they can form a sleek opinion, unburdened by anything that comes close to realknowledge…”

12/19/01 IMPACTS OF DEFLATION
Guest Essay by Martin Weiss, PhD

“…Until recently, deflation had been mostly overseas or limited to certain sectors. Now, it’s lapping at our shores and beginning to spread rapidly…the die has been cast. There is no turning back to the old era of nonstop growth or nearly endlessinflation…”

12/18/01 NOT ENOUGH RECESSION

“…We wondered where all that hot money that the Fed was creating would end up…now we have a hypothesis – into a housing bubble. Sales and prices have leveled off in the last few weeks. Maybe the bubble has already begun to deflate. Then again, maybenot…”

12/17/01 RESTRAINING INFLUENCES

“…There are advantages and disadvantages to having two nearly-grown daughters: A man scarcely gets through a single day without an emotional crisis…but then, he can go out with a beautiful young woman without worrying about running into someone heknows…”

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

HEADLINE, NEWS And INSIGHT: The Deflation Tsunami Approaches… And The Underpinnings Of The US Economy Still Growing Weaker…What’s An ‘Austrian’ To Do?

Crossroads: Will Deflation Destroy The Commodities Market?
by John Myers

Do darkening clouds of deflation mean tough times for commodities…or will a tidal wave of new money push real asset prices through theroof?

The U.S. Economy: Termites In The Foundation
by Marshall Auerback

The current downturn has been characterized as “broad- based and shallow recession,” with less unemployment than the recessions of the early 1980s and 1990s. Still, it is worth noting that the speed of this downturn may be the quickest since World War I, and it’s still in its earlydays.

Deflation Flattening Foreign Economies
by Martin Weiss, PhD

“…The commodities sector is where deflation first began to set in years ago. Now, deflation has spread everywhere. But that doesn’t mean commodity prices are ready to turn around – far from it. As the world economy sinks, it automatically drives commodity prices stilllower…”

FLOTSAM AND JETSAM: On This Pre-Holiday Weekend, The World’s Foremost Austrian Economist Continues To Sound The Alarm.

NO WALL OF WORRIES
– Dr. Kurt Richebacher

“…Barely a year ago, the world’s leading economic and financial organizations and most economists predicted that the U.S. economy would grow by 3.5% this year and by a similar rate next year. Just six months ago, the forecast for the two years was down to 1.7% for 2001 and 3.1% in 2002.

The numbers for the third quarter put the year-over-year increase of U.S. real GDP at merely 0.8%. Considering that new data show an economy that is rapidly deteriorating right across the board, a final outcome of less than zero growth until year-end 2001 presently seems the best bet. [Ed note. According to a revised report from the government this week, the US economy shrank in the third quarter at an annual rate of 1.3%, it’s worst performance since the early ’90s.]

With recession now the generally accepted fact, the questions that have taken over as the hotly debated issue are how deep and how long it will be, and how robust will the following recovery be. What shape will the course of this downturn have – V, U or L? [Or even a W?]…

The fact is that the speed with which economic conditions are deteriorating in the United States has taken everybody by surprise, even most of the bears.

Yet faith in the resilience of the economy and the ability of policy makers to turn the economy promptly around again prevail. According to an old saying, bull markets rise on a wall of worries.

No such wall is in sight this time. In fact, the signs of optimism are everywhere.

Barron’s recently-published Big Money Poll found that two-thirds of the poll respondents described themselves as bullish or very bullish on the market’s prospects through June 2002. It was the highest level of optimism the poll has seen in years. An incredible 84% of the institutional investors approved of Fed Chairman Alan Greenspan’s job performance.

The International Strategy & Investment (ISI) group’s poll of institutional investors has also found near- record levels of bullishness among professional money managers.

The absurd result is that stocks are getting more and more expensive because profits have been falling much faster than stock prices. For Dow Jones stocks, the P/E ratio is up to 27 against 19 a year ago and from 27 to 37 for the S&P Index…”

Oy…what’s and Austrian to do?

Addison Wiggin,
The Daily Reckoning

P.S. Last week in a round of meetings in Baltimore, Bill Bonner urged even his closest business colleagues to catch up on their Richebacher.

“Dr. Richebacher is the only writer/thinker out there,” says Bill, “with a clear idea of what’s happening to the world economy today. And you’d be wise to take heed.” If you haven’t already, now might be a good time to take a look for yourself:

Truth In The Age Of Misinformation