The Daily Reckoning Weekend Edition

August 5-6, 2000

Paris, France

By Addison Wiggin

MARKET REVIEW: A Bull Run for the Dow?

Easing employment numbers for the second quarter, released Friday, led analysts to speculate the Fed will do nothing come August 22. Interest-rate sensitive shares J.P. Morgan and Merrill Lynch lept at the news… JP got an 8 point boost to 143 and MLynch climbed shy of 5… to 135.

Good news in the financial sector encouraged the Dow to end the day up 61… the index skyrocketed 256 for the week to 10,767 – slightly higher than the 50% retracement level (marking the halfway point between January’s high and the March low).

Does this burst of optimism signal a new bull phase for the Dow? Or just a farewell ‘summer of love’ rally before the fall liquidation party begins. We’ll have to wait and see. In any case, advancers were way out in front of decliners on the NYSE… 1696 to 1103.

The Nasdaq, too closed higher, but marginally… up 27 to 3787. The tech heavy index recovered almost 7% of last week’s losses as it ended the week up 124.

The S&P 500 was up 10 at 1462, a 43-point gain for the week. But, “the S&P 500, has gone exactly nowhere since the first of the year, from 1460 to roughly 1460,” says Fleet Street Letter’s Lynn Carpenter. By contrast her “super- conservative hi-yield portfolio” is up 7.5% since it was opened in April. “And that’s not even counting the additional 6-30% these companies are paying annually in dividends.” (http://www.fleetstreetletter.com)

Short on the heels of the employment numbers this week… the Labor Department will report productivity numbers for Q2 on Tuesday… and Wednesday the Fed will reveal its “beige book” survey of regional economic conditions… both numbers will provide analysts, if not a clue to what the Fed’s action will be the following week, at least another bundle of fodder with which to put their kids through college.

Prices this morning:

Gold: $278, down $.90

Silver: $4.94, down $.06

Crude Oil: $29.92, up $1.30

Natural Gas: $4.29, up $.04

CRB Index: 219.32, down .03

Morgan Dollar Index: 110.75

Yen: 109 down a fragment

Euro: $.91 up a skosch

British Pound: $1.50, up $.0078

MARKET COMMENT: Electricity: Y2K All Over Again?

“Managers at the fast food chain ‘Jack in the Box’ in the San Diego area got a phone call Thursday warning them they might have to do without power for an hour or two. The company is dusting off its Y2K plan to deal with the crisis…

The electricity shortage could get worse before it gets better. One estimate says 15% of our nuclear capacity will be idled by as early as September. That means more demand for all the new natural gas-fired capacity.

Natural gas is the fastest-growing electricity fuel on the globe. Enron, the world’s largest marketer of natural gas and electricity, estimates that 77% of natural gas demand will come from electricity generation over the next decade. We’re holding three positions which are already enjoying benefits from the crisis…”

Dan Ferris

Real Asset Investor

HOT PICK OF THE WEEK: Capital One… Up 63.5%

“This week we made 63.5% on Capital One in three day’s time in Contrarian Speculator. We sold half at 100% and the rest at 27%, for 63% overall. We are also looking at 20% or better profits so far on a small regional airline and expect that to give us a big jump next week.”

Lynn Carpenter,

The Contrarian Speculator

HEADLINES, INSIGHTS and NEWS:

The Danger of Consumer Overconfidence

by Ned Harper

American Consumers are feeling cocky. But they’re deeply in debt. Worse, they’re using stocks as savings accounts.

Greenspan: Out of Time and Options

by Dr. Kurt Richebacher

The Fed’s greatest hazard still looms ahead: the currency markets. Runaway monetary expansion and a consumer borrowing and spending binge has propelled the economy to unsustainable heights. What will happen to the dollar when equities melt down?

Bridging the Great Divide

by James Davidson

Today’s technological revolution is reminiscent of past periods of grand economic innovation. We can expect profound changes in the way people govern themselves and the way they organize their livelihoods.

A Time for Truth, a Time for Action

by Doug Casey

June 2000 saw the passing of William Simon and Peter McWilliams. Both decent human beings. But only McWilliams suffered the consequences of talking the talk… and walking the walk.

Mutual Funds–The Danger No One Notices

by Lynn Carpenter

Diversity, professional management and risk control–if that’s what you expect from your funds, you’re probably dead wrong.

THE DAILY RECKONING

By Bill Bonner

“Thatched Roofs” below wraps up both Bill’s vacation to the Emerald Isle and the segment we have affectionately referred to as Daily Reckoning Greatest Hits, 1999…

08/04/00 THATCHED ROOFS

“…in Ireland, the house that evolved over the centuries – the thatched cottage – was a pretty building. The white- washed stones had pleasing shapes and textures…and the thatched roof softened the chilly, white surface of the stones. The overall effect was harmonious and inviting. But when the thatch was replaced with slate or tile, the house looked small, boring and harsh…”

08/03/00 SCREENPLAYS OF THE WRASSLIN’ GENRE, OR FAULKNER AND THE INTERNET

“…there are those who say that the Internet will revolutionize life on earth… There are others, fewer in number who say that it is just a lot of hoopla about nothing. It’s just a fad, like CB radio, they say. I will not hedge or wiggle…but will state my own prediction without so much as a soupcon of equivocation: Both views will turn out to be correct…”

08/02/00 THE UNTOLD STORY OF HOW A BULL TURNED INTO A BUBBLE

“…they bought office buildings and land too. Everything went up. The “psychological cycle” that made Keynes rich functioned at least as well in the Orient as it did in the Occident. The higher stocks and properties were valued…the more people thought they were worth. So they bought more. And eventually, the boom turned into a bubble, as interest rates remained at 2.5% and the yen rose. Americans were buying more and more Japanese goods. The idea was to get market share. Forget profits…”

08/01/00 ONE HUNDRED YEARS OF INVESTING

“…what happened in the late `80s? Where did the juice come from? Where did the stock market get this sudden input of energy, enough to carry it from 3,000 to 11,000…from the late `80s until about 15 months ago? Why, after eight decades of “reasonable” behavior, compared to oil, gold and the dollar, should it suddenly go bubble? The bulls have their explanations…”

07/29/00 SYMPATHY FOR THE DEVIL

“…of course, in this post-modern age…with its Internet, online trading, Geraldo and Howard Stern…we no longer believe in the devil. We believe in psychologists and chronic fatigue syndrome. We are logical beings. We are alone in the universe with markets that are computer- driven, efficient and nearly perfect. If the price of AOL discounts earnings to the year 2200…it must be right. The price is always right…there is no room for human emotion…folly, wishful thinking, chicanery, tomfoolery or a severe case of Seasonal Disaffection Disorder…”

FLOTSAM AND JETSAM: A tad of Contrarian Humor

And the Lord spoke to Noah and said:

“In six months I am going to make it rain until the whole Earth is covered with water and all of the evil people are destroyed, but I want to save a few good people and two of every kind of living thing on the planet. I am ordering you to build me an ark.”

And in a flash of lightning, he delivered the specifications for the ark.

“Okay,” Noah said, trembling in fear and fumbling with the blueprints.

Six months later it starts to rain. Thundered the Lord, “You had better have my ark completed or learn to swim for a very long time.” And six months passed. The skies begin to cloud up. Rain began to fall. The Lord saw that Noah was sitting in the front yard weeping. And there was no ark.

“Noah,” shouted the Lord, “where is my ark?” A lightning bolt crashed to the ground next to Noah.

“Lord, please forgive me,” begged Noah. “I did my best, but there were big problems. First, I had to get a building permit for the ark’s construction project, and your plans did not meet code. So I had to hire an engineer to redraw the plans. Then I got into a big fight over whether or not the ark needed a fire sprinkler system.

“My neighbors objected, claiming I was violating zoning by building the ark in my front yard. So I had to get a variance from the City Planning Commission. Then I had a big problem getting enough wood for the ark because there was a ban on cutting trees because of the spotted owl. I had to convince U.S. Fish and Wildlife that I needed the wood to save the owl, but they would not let me catch any owls. So, no owls.

“Then the carpenters formed a union and went out on strike. I had to negotiate a settlement with the National Labor Relations Board before anyone could pick up a saw or hammer. Now I have 16 carpenters going on the boat and still no owl. Then I started gathering up animals and got sued by an animal rights group. They objected to me taking only two of each kind. Just when I got the lawsuit dismissed, EPA notified me that I could not complete the ark without filing an environmental impact statement on the proposed flood. They did not take kindly to the idea that you had jurisdiction over your conduct and you were the supreme being.

“Then the Army Corps of Engineers wanted a map of the proposed new floodplain. Right now I am still trying to resolve a complaint from the Equal Employment Opportunity Commission over how many Croatians I am supposed to hire, and the IRS has seized all of my assets, claiming I am trying to avoid paying taxes by leaving the country, and I just got a notice from the state about owing some kind of use tax. I really do not think I can finish your ark for at least another five years,” Noah wailed.

Then the skies began to clear. The sun began to shine. The rainbow arched across the sky and Noah looked up with a smile. “You mean you are not going to destroy the Earth?” Noah asked hopefully.

“No,” said the Lord sadly. “The government already has.” end WP import block