Creative Dyslexia

The Daily Reckoning
Weekend Edition
October 26-27, 2002
Paris, France
By Addison Wiggin

Uh, ho… stocks up three weeks in a row. What should you do?

Well, here’s one suggestion. After seven rising sessions, in which the French stock market rebounded 19%, our French colleagues were busily scurrying about he office warning their clients not to fall victim to the syndrome they call: “peur de manquant le train qui demarre”… fear of missing the train heading out of the station.

“Prospering in the financial markets requires a kind of creative dyslexia — seeing the world as most market participants do not,” explains The Daily Reckoning’s own Eric Fry in Thom Calandra’s CBSMarketWatch column on Tuesday.

Fry, who spent 10 years as a portfolio manager and is now a principal in investor service Apogee Research, dismisses the October stock-market rally with caution. By some estimates the S&P 500 is still trading at 48 times earnings… not a spot from whence sustainable rallies, let alone real bull markets, begin. The stock market’s collapse since early 2000, says Fry, ought to be proof enough, “…that running with the crowd is hazardous to your financial health.” [If not, the coming pension-fund crisis will probably do the trick. See Fry’s: Pension Fund Poison… below… scary stuff.]

C. Alexander Green, investment director of The Oxford Club, also featured in Calandra’s column, says he’s sticking to his short-selling guns. “Whether the market is going higher or lower, there are always certain companies that are battling a host of problems: lost market share, lower sales, high debt service, expensive litigation, missed earnings.”

And even when the rally goes against the long-term trend “…there’s still a way to leverage the market to your advantage,” writes Steve Sarnoff of Options Hotline. “our TRW put, for example exploded 898% on a mere 15% move in the underlying stock price. And we were able to cash in on Ocotber 17th… after just one month in the trade.” (The gain, by the way, puts Steve’s average recommendation above 105% since the beginning of his service… agony of all defeats included.)

It’s true, the Dow finished up 126… and has finished the week in 8000-land. But we continue to warn readers to beware, and expect a return to the long-term trend which is clearly down. Seek alternative investments… and steer clear of Wall Street’s darling stocks.

Cheers,

Addison Wiggin,
The Daily Reckoning
October 26, 2002

p.s. If you’re interested in learning about trading options during the bear market, Steve Sarnoff has written a basic guide for beginning options traders called: The Options Buyer’s Handbook.

p.p.s. Calandra, Fry and Green will all be featured speakers in early November at the New Orleans Investment Conference. Bill Bonner will speaking, too. I was told to expect nearly 1000 attendees, so it promises to be quite an affair.

The New Orleans Investment conference has been “carrying the torch” for alternative and contrarian investors since 1974. With the bear market in full regalia, I would suggest there will be no better place to find safe and profitable investments this year. If you haven’t made arrangements to attend but would like to – there’s still a little time left. But not much.

…hope I’ll see you there.

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THIS WEEK in THE DAILY RECKONING

10/25/02  PENSION PLAN POISON
by Eric Fry

“…Corporate pension plans that once enjoyed a plump surplus now find themselves woefully underfunded. Still, most companies continue to project robust investment returns for their pension plans…allowing them to report ‘earnings’ that aren’t really there. Eventually, however, companies will have to face the music and kick cash into their pension plans. That painful moment of truth has already arrived for a few companies…and that moment is close to arriving for a few hundred more…”

10/24/02  IMAGINE YOUR DAUGHTER AS A KE4
by Dan Denning

“…Within the next 50 years, the Chinese economy will mature. And when it does, a great shift will take place. It would not surprise me at all if, in the near future, the sons and daughters of America are serving as nannies, gardeners, or English teachers in the households of the Chinese nouveau riche…”

10/23/02  LET THE MAFIA SPEAK
by Lynn Carpenter

“Culture – as opposed to official policy – springs from below, and nothing the officials at the top can say or do will ever change that phenomenon. And that’s why brokers still rule the investment world. No matter how many journalists converge to expose crooked analysts and shady investment banks…no matter how many Congressmen spout outrage…no matter how many new laws the SEC enforces…the culture at ground level is ever the same…”

10/22/02  HOW LONG BEFORE THE BUST?
by Brian Durrant

“…The case of the “property boom is almost over” camp is largely anecdotal. The reality is that property prices in London rose by over 7% in the last three months, and by 19% over the last year. Prefering to look at the wider picture, we remain optimists about the housingmarket…”

10/21/02  LIFE AFTER DEBT – RUSSIA RESURGENT
by Eric Kraus

“…Dutch tulips…U.S. Internet shares…and now Russian equities? Russian financial specialist Eric Kraus speculates on internal reforms and subsequent prospects for foreign investors from deep within the big Bear…”