Saving Short

The Daily Reckoning Weekend Edition
August 28-29, 2004
Baltimore, Maryland
By Addison Wiggin and Tom Dyson

"There’s nothing sustainable about the growth dynamic of an increasingly saving-short U.S. economy," says our favorite Morgan Stanley analyst, Stephen Roach.

"Driven by a veritable collapse in personal saving," he continues, "in conjunction with a dramatic deterioration in the federal government’s budget position, America’s gross national saving rate – the combined saving of households, businesses, and the government sector – fell to an all-time low of 12.8% of GNP in early 2003."

As Roach put it: "Market pressures would lead to the demise of the saving-short growth dynamic, and a full-blown U.S. consumption adjustment would then be under way."

Or, as Addison put it yesterday: "The consumer is f*****!"

We found an interesting print out sitting on our desk this morning…a list of median house prices – and their changes since 2003 – for every metro area in the U.S.

And the winner is…Las Vegas, Nevada…with a 52.4% gain in real estate prices since 2003! Orange County comes second with a 38% gain, just ahead of L.A. at 30%.

Loserville is Knoxville! Prices declined 7% there. Akron, Ohio came second bottom with declines of 3%.

GDP growth estimates for Q2 were revised lower yesterday from 3% to 2.8%. But it wasn’t as bad as people had expected, and didn’t hurt the market too badly.

Besides, oil dropped $4.68, nearly 10%, to $43.18 last week, which helped chivvy the market along.

By close on Friday, the Dow had gained 95 points, up just shy of 1% on the week, trading to 10,195. The S&P also limped ahead, adding 9 points to 1,108 for a 0.8% gain. Finally, the Nasdaq pushed 24 points higher, closing at 1,862.

Gold wins this week’s booby prize. The yellow one dropped 7 bucks, but still remains above $400…for now. It closed the week at $403.

Your editor has been invited to dinner by a colleague and must dash. She said she would try to get us drunk.

She may not have to try too hard…

Bon weekend!

Regards,

Tom Dyson,
The Daily Reckoning
August 28, 2004

P.S. It’s fun trading oil at the moment…and we think it’s going to retest $50 before receding again. We could easily be wrong though…Lord knows we’ve been wrong before!

What we are sure about is oil’s long-term trend. It’s going higher, much higher. Find out why, when and the best way to play it…

— Daily Reckoning Book Of The Week —

The Mystery of Capital by Hernando de Soto

Yesterday, Addison Wiggin called this book "the most important book of a generation." Addison should know…he once sat next to de Soto in a classroom presentation in Paris, and ended up operating de Soto’s overhead projector! He was so impressed by de Soto’s message, that he wrote an essay about ‘The Mystery of Capital’ the very next day, and published it in the Daily Reckoning.

Now he has persuaded Bill Bonner to read it – and Bill quoted de Soto in Friday’s Daily Reckoning.

This is essential reading.

The Mystery of Capital

Readers note: Last week’s book, Adventure Capitalist, by Jim Rogers – the man who wrote the foreward to Financial Reckoning Day – was not linked correctly. We apologize if you tried to purchase it. Here’s the link again…

Adventure Capitalist

THIS WEEK in THE DAILY RECKONING

THE DAY THE EARTH STOOD STILL – PART II 8/27/04
By Bill Bonner

"…Every man with a social security number believes he has the blood of Jefferson and Franklin somewhere in his veins…he sees no difference between himself and Daniel Boone, save the coonskin cap, and he imagines he is as ready as a Roosevelt to charge up San Juan Hill…"

CYBER-COLT .45 8/26/04
By Richard A. Viguerie

"…Drudge grew up in Takoma Park, Md., a politically far-left suburb of Washington, D.C., also known as "the People’s Republic of Takoma Park." He graduated 325th in his high school class of 350, but loved current events and was hooked on talk radio…"

A FEDERAL U-TURN 8/25/04
By Gary Shilling

"…Despite the widespread belief that inflation is much higher than reported, the evidence is that the consumer price index is overstated. A congressional study found that the CPI is biased upward in four areas…"

THE EVIL GENIUS OF JOHN MAYNARD KEYNES 8/24/04
By Sean Corrigan

"…Monetary inflation can price people back into work so long as they are under the illusion that they are not suffering a real cut in their wages, concluded Keynes…and the message spread…"

A BIG OL’ DUMPOLA 8/23/04
The Mogambo Guru

"…And now I probably have to listen to another witless lecture about how Alan Greenspan and the Fed are NOT incompetent, mental-defective charlatans, and how it is a Good Thing (GT) that people are suffering falling standards of living, and how this is actually the earmark of successful monetary management or something…"

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HEADLINE, NEWS And INSIGHT:

Dead Fish
by Christopher Mayer

"…Most people want to buy strong companies with growing sales and expanding markets and a bright future. No one wants to buy a company that has problems to work through, that has been hit with one setback or another and where the near-term outlook is murky and uninviting…"

Americans’ Income Shrank for 2 Consecutive Years…
by David Cay Johnston

"…While the recession that hit the economy in 2001 in the wake of the market plunge was considered relatively mild, the new information shows that its effect on Americans’ incomes, particularly those at the upper end of the spectrum, was much more severe…"