Whispers Of A Soft Landing

THE DAILY RECKONING

WEEKEND EDITION

October 28-29, 2000

Paris, France

By Addison Wiggin

MARKET REVIEW: Whispers of a Soft landing

The Commerce Dept. rolled over and whispered sweet nothings into the market’s ear early Friday morning… releasing GDP numbers showing growth slowed considerably in the 3rd quarter to 2.7%. Like a secret shared in the dark, that number was just what investors’ wanted to hear… and the Dow swooned. The blue chip index ended up 210 for the day at 10,590 …364 points (+3.6%) higher than its Monday opening.

But its worth noting to the otherwise disinterested audience, the GDP numbers reflect an “unexpected decline” in government spending: a sharp cut back in defense and a noticeable lack of census workers to pay. Perhaps, the number-crunchers were just having their way… and enjoying rumors of the much fantasized ‘soft landing.’

Overcoming losses early on Friday, the Nasdaq edged a few points highest to 3278. But like the smallest child in a family of 12 who wants to please its mother by doing well in school goes unnoticed, positive earnings at JDS Uniphase failed to boost the Nasdaq any further… it closed nearly 6% lower for the week – down 205.

Two of Nasdaq’s biggest losers this week: Nortel fell $24 bucks, or 29%, on Wednesday reflecting fears of slowing capital investment in networks… and biotech champion Amgen lost $9 – 13% – to close at 59 Friday, citing “softening demand for their two flagship drugs.” (WSJ)

At the close on Friday the Dow was in the red 7.9% for the year, 9.7% off its January high. And – including this weeks losses – the Nasdaq has slumped 19%… down over 35% from its March 10 high of 5048. The broad market S&P 500 lost ground, too… slipping 17 to 1379.

Overseas markets: Japan’s Nikkei fell 1.86%; Germany’s DAX climbed nearly 2.5%; Britain’s FT-SE 100 and France’s CAC- 40 each rose a mite: 1.02% and 0.97% respectively.

The Russell 2000 index closed at 479 down 8 points for the week. And the Wilshire Smallcap lost 15… dropping to 802.

PRICES FOR THE WEEK…

Gold: $266.50 down $5.50

Crude Oil: $32.70 down $1.05

Natural Gas: $4.53 down $.40

Platinum: $569 down $15

Palladium: $755 down $5

CRB Index: 219 down 7 points

Dollar Index: 117 still robust

The sad, sad Euro: $.83 (saw a record low of $.82 this week)

British Pound: $1.45 same ol’

And…108 Japanese Yen will buy you one crisp US$1 on this fine October day…

MARKET COMMENTS: Corporate Debt Reaching New Highs…

“Phew!! This ought to keep the Austrian economists happy. The latest survey from PriceWaterhouseCooper found that the biggest increases in debt is coming from product makers with excess inventories already lounging on the shelves.

425 CEOs of the fastest growing product and service companies in the US say they are running up their credit lines… and are borrowing more than ever.

In the last quarter, 29% of the product sector companies signed new loans despite higher interest rates. They are now paying an average of 9.8% on this money. The borrowing companies tended to be smaller than average, with around 223 employees, and to have big cash flow problems.

Isn’t that the story of the entire Nasdaq tech stock group these days? It’s just a cash flow problem.

We don’t have any of these companies in Fleet Street Letter. Those are companies for momentum buyers… The difference between what they do and what we do is simple. The momentum chasers buy promise; we buy performance.

Promises are easily broken, not easily measured. Good performance is easily measured … and not so easily broken. Unless some fool goes out and borrows more than the sales staff can repay, that is.”

Lynn Carpenter,

Fleet Street Letter

CONTRARIAN GLOSSARY: Creative Destruction

CREATIVE DESTRUCTION – The economist Schumpeter came up with this expression. It describes the natural process of open markets – where old companies and old technologies are destroyed by new ones. Dirigisme tries to block the forces of creative destruction. By contrast, laissez-faire, another French term, lets the chips fall where they may. Bill Gates, America’s Last Great Capitalist, built his company on the dirigiste model. Linux is an example of the laissez-faire approach. Gates created vast wealth. Linux, and/or the process of Creative Destruction, will destroy it.

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