The Daily Reckoning Weekend Edition

September 23-24, 2000

Paris, France

By Addison Wiggin

MARKET REVIEW: Dow and Nasdaq Get a Late Friday
Reprieve… But End the Week Lower All the Same.

“We got a reprieve from the hangman today,” says an
analyst in Reuters of Friday’s action. The ‘buy the dip’
crowd moved in at mid-session and brought the Dow to a
positive close – up 81 to 10,847… after the blue-chip
index had shed more than 140 points early. The Dow lost 80
points this week.

The Nasdaq shimmied down 25 to close the week at 3803 – an
overall loss of 32. Not bad considering… Intel’s poor
earnings announcement had driven the home of the Big Techs
down 210 early in the day. More below…

The S&P 500 shed 37 for the week… heading for Happy Hour
at 1448. Comparatively, the Nasdaq is now down below it’s
moving average for the first time since early June and has
under-performed the S&P 500 since last March.

And in case you hadn’t noticed… there was some
noteworthy political meddling in the markets on Friday…

…According to the Wall Street Journal President Clinton
“directed the release of 30 million barrels of oil from
the government’s emergency reserve in an attempt to drive
down oil prices.” Even though “the release is a drop in
the bucket, not even enough oil to sustain the U.S. for 48
hours” (John Myers) oil dropped $1.32…

…and the Fed, Bank of England and the European Central
Bank announced they would intervene in the market to stem
the hemorrhaging euro – giving it a quick bounce back to
US$.87.

The Russell 2000 rose 4 to 518, down 12 since your last
arousing issue of the Weekend Edition. The Wilshire
Smallcap closed at 857…up 5.5 Friday, but down 16 for
the week.

PRICES for the week… The FED, Bank of England and
European Central Bank agree to put the euro on ‘life
support’…

Gold: $2.73, down $.03

Crude Oil: $32.68, down $3.24

Natural Gas: $5.13, down $.07

Platinum: $585, down a buck

Palladium: $727, up seven

CRB Index: 226.6, down 1.7

Dollar Index: 113.5 down 1.46

Yen: $.009 same ol’, same ol’

The sad, sad Euro: $.87 up a penny

British Pound: $1.45, up $.06

Today, in Paris, you can buy 7.48 French Francs with one
crisp US dollar…

MARKET COMMENTS: Poster Child for The New Era gets a taste
of Creative Destruction…

“Intel became the poster child of limitless growth when
co-founder Gordon Moore asserted the amount of information
storable on a chip could roughly double every 18 months…
But on Thursday, Intel warned of disappointing third
quarter earnings. It was a surprise announcement. On
Friday Intel fell more than 13 to 48, way down from its
September high of 75. With Intel showing its Achilles
heel, the tech sector looks to be facing rough seas.”

John Myers,

Real Asset Investor

HOT PICKS OF THE WEEK: Hot Calls in the Energy
Sector…And A Quick Short In Transportation…

“70% on Dynergy in just 5 days… 47% on Continental
Airlines… 39.5% on El Paso gas.”

Lynn Carpenter,

Contrarian Speculator

FLOTSAM AND JETSAM: You think the search for “Pi” will
drive you mad…?

Every week, the world awaits numbers crunched by the BLS.
Fortunes are won and lost, jobs and lives impacted, by the
mathematical musings of a few government quants. Did you
ever wonder how the Bureau of much Labored Statistics comes
up with all those numbers? CPI, PPI, GDP, GNP,
Productivity…

Here’s a few “basic formulas” from the Bureau of Economic
Analysis website:

“Basic Formulas for Calculating Chain-Type Quantity and
Price Indexes Annual indexes

The formula used to calculate the annual change in real GDP
and other components of output and expenditures is a Fisher
index (Q_t_^F^) that uses weights for 2 adjacent years
(years t-1 and t).

The formula for real GDP in year t relative to its value in
year t-1 is

Q_t_^F^ = {? p_t-1_q_t_? p_t-1_q_t-1_} x {? p_t_q_t_?
p_t_q_t-1_},

where the p’s and q’s represent prices and quantities of
detailed components in the 2 years.

Because the first term in the Fisher formula is a Laspeyres
quantity index (Q_t_^L^), or
Q_t_^L^ = {? p_t-1_q_t_? p_t-1_q_t-1_},

and the second term is a Paasche quantity index

(Q_t_^P^), or Q_t_^P^ = {? p_t_q_t_? p_t_q_t-1_},

the Fisher formula can also be expressed for year $t$ as
the geometric mean of these indexes as follows:

Q_t_^F^ = Q_t_^L^ x Q_t_^P^.

The percent change in real GDP (or in a GDP component) from
year t-1 to year t is calculated as 100(Q_t_^F^ – 1.0).

Similarly, price indexes are calculated using the Fisher
formula

P_t_^F^ = {? p_t_q_t-1_? p_t-1_q_t-1_} x {? p_t_q_t_? p_t-
1_q_t_},

which is the geometric mean of a Laspeyres price index
(P_t_^L^) and a Paasche price index:

(P_t_^P^), or P_t_^F^ = P_t_^L^ x P_t_^P^.

The chain-type quantity index value for period

t is I_t_^F^ = I_t-1_^F^ x Q_t_^F^,

and the chain-type price index is calculated analogously.
Chain-type real output and price indexes are presented with
the base year (b) equal to 100; that is, I_b_ = 100.

The current-dollar change from year t-1 to year t expressed
as a ratio is equal to the product of the Fisher price and
quantity indexes:

{? p_t_q_t_? p_t-1_q_t-1_} = P_t_^F^ x Q_t_^F^. < P >

“Chained-dollar” Estimates

The chained-dollar value (CD_t_^F^) is calculated by
multiplying the index value by the base-period current-
dollar value (? p_b_q_b_) and dividing by 100.

For period t, CD_t_^F^ = ? p_b_q_b_ x I_t_^F^ / 100…”

Well, what do you think…GDP, CPI? …piece of cake. I’ll
have the figures for you by Monday.

Have a good weekend,

Addison

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“The un-philosophical majority among men are the ones most
helplessly dependent on their era’s dominant ideas. In
times of crises these men need the guidance of some kind of
theory; but, being unfamiliar with the field of ideas, they
do not know that alternatives to the popular theories are
possible. They know only what they have always been
taught.”

– Leonard Peikoff