Market Review: Middle of the Muddle

Greenspan decoder rings were operational this week. The Fedchairman tried to talk down the bond market in a speech beforeCongress…  and investors apparently got the message. The Dowlept up 137 points Friday to end the week at 9,188…  68 pointsahead of the Monday opener.

Despite similar gains Friday, both the Nas and S&P 500 were downfor the week; -25 points to 1708 for Nasdaq…  -4 to 993 for the S&P. Year to date? Of the major stock market indices, the Nasdaqis still in the running for the most brownie points; it’s 28% inthe black thus far for the year. The Dow and S&P are ahead by 10% and 13%, respectively.

"Earnings week" continues this Monday…  but one wonders if what is reported will really make a difference. Investors are soconvinced that the ‘second-half recovery’ is in the fix (wherehave we heard that before?) money is streaming back into stockfunds. According to Trim Tabs, by way of USAToday, stock fundsthat invest primarily in U.S. stocks saw inflows of $2.9 billionin the week ending July 16th…  a boost of some $600 millionfrom the prior week.

Gold traded as high as $348 this week, but ended about .50 centscheaper than where it began: $344. The euro, however, got alittle cheaper…  you can now buy one with US$1.12. Lucky forus, your Paris based editors, eh?

Cheers,

Addison Wiggin,
The Daily Reckoning
March 19-20, 2003

P.S. "The modern-day, limited-government movement has beenco-opted," Congressman Ron Paul told his colleagues the day after my son was born (July 10th). "The conservatives have failed intheir effort to shrink the size of government. There has notbeen, nor will there soon be, a conservative revolution inWashington. Political party control of the federal government has changed, but the inexorable growth in the size and scope ofgovernment has continued unabated. The liberal arguments forlimited government in personal affairs and foreign militaryadventurism were never seriously considered as part of thisrevolution.

"Since the change of the political party in charge has not made a difference, who’s really in charge?

"If the particular party in power makes little difference, whosepolicy is it that permits expanded government programs, increased spending, huge deficits, nation building and the pervasiveinvasion of our privacy, with fewer Fourth Amendment protectionsthan ever before?"

THIS WEEK in THE DAILY RECKONING

PRAY FOR DAWN (07/18/03)
by Bill Bonner

"… Both French and Americans believe themselves exceptional.That they are different, we do not deny… But that they are also very much the same is also true; neither can make the world stand still. The centralized welfare state took a big leap forward inFrance in the 1930s under Léon Blum… and in America underFranklin Roosevelt in the same period. And now, a kind of heady,vainglorious, feeblemindedness has taken hold in Washington. Ledby the neo-cons, Americans see themselves as gods… as mastersof the universe who intend to remake the world in their ownimage… "

PREMEDITATED FRAUD (07/17/03)
by Karim Rahemtulla

"… Companies that still pay a pension are obligated to use aconservative rate of return – usually based on the 30-year U.S.Treasury bond – to calculate the future benefits from a plan.Well, what if you could raise the rate of return with the strokeof a pen? The answer: the amount of your liability would actually decrease… which means Corporate America would be perpetrating a massive fraud on retirees… "

CHINA CALLING (07/16/03)
by Robert Tracy

"… Companies of substance are rare… and they do notnecessarily operate in the United States. China Mobile (HongKong) Ltd., the world’s largest mobile phone operator (asmeasured by number of subscribers), is a company that hascaptivated our attention lately. It is, we believe, a company ofsubstance with both a low valuation and a promising growthprofile… "

THE BLESSINGS OF DEFLATION (07/15/03)
by Llewellyn H. Rockwell, Jr.

"… There is no radical disconnect between the interest ofconsumers (who always want lower prices) and overall economichealth. You can only marvel at the many economists andcommentators who try to convince the public that deflation is avery scary thing. In doing so, they enjoy the cachet associatedwith generating a counterintuitive conclusion, but in this case,it is simply wrong. The first intuition that bargains are a great thing is precisely the right one… "

BASTILLE DAY (07/14/03)
by Bill Bonner

"… A poll taken in the early 1780s might have shown the Frenchto be extremely optimistic and confident. And why shouldn’t theybe? The last major financial crisis – caused by John Law’sMississippi Bubble – blew up over 60 years before. And had theworld ever seen anything approaching the splendor of Versailles?But in 1789, Paris mobs came to the crossroads of history andveered left. They replaced an absolute monarch who had verylimited power, with a people’s republic restrained neither bycommon sense nor common decency… "

———————

HEADLINE, NEWS And INSIGHT: "Extreme" Central Banking…

The Monster That Credit Created
by Dan Denning

"… We have now entered the era of ‘extreme’ central banking,where bankers must turn everything they can into cash to promoteinflation. It’s a kind of reverse Midas touch, where everythingbecomes currency and where debts can magically become new moneyin the economy. This is how the end begins, with more and moredesperate measures to pay off the debt with new money. The onlyproblem is that each new unit of currency decreases the values of all the others in existence. Prices rise. Inflation is born. Andthe currency is destroyed in a blizzard of paper. Later, fire…
"

The Economy: Place Your Bets
by Andrew Kashdan

"… Commodity prices should lay to rest any lingering fears ofdeflation. Meanwhile, economists ignore the negatives and placetheir bets for a strong second half, while rising bond yieldsthreaten to take a bite out of an already feeble recovery… "