Discounting The Future

The Daily Reckoning
Weekend Edition
October 06-07, 2001
Paris, France
By Addison Wiggin

“Normally men are judged by their ability to produce, except in war, when they are ranked according to their ability to destroy.”

Will Durant

MARKET REVIEW: Discounting The Future

Twice this week, the commander-in-chief of the US, racked up credit in the eyes of the nation, for boosting the markets.

As the Daily Reckoning’s eyes-on-Wall Street, Eric Fry, reported Thursday, Bush’s appearance in Lower Manhattan – on the heels of the Fed’s 9th rate cut for the year – helped boost the market for the day.

Then again on Friday, Bush announced plans for a $60 billion tax-relief bailout package to “stimulate” the economy. The Dow jumped 58 points and closed the week at 9119, up 3% from Monday’s opening. The Nasdaq closed up 8 points to 1605 – a boost of over 7% for the week.

Of course, “the central issue of the bear market [remains]” says Prudent Bear’s Lance Lewis. “We are unwinding a bubble. Stock prices are still trying to ‘discount’ a return to the bubble days that is not going to happen. And at these prices, there’s nothing supporting stocks but hope.”

Still like good Keynesian’s, Bush & Co. have placed deficit spending on the front lines. Surely, they must think, the government of the good Ol’ USA, checkbook in hand, will defeat “evil” (terror AND depression) in the world – y’know just like WWII.

Trouble is, as Fleet Street Letter contributor John Mauldin points out: “We are now in a new type of War. The enemy is a few thousand individuals in 60 countries hidden in communities of millions, unknown to 99% of their neighbors, sympathized with and supported by nations and peoples who hate us for reasons most of America does not comprehend.”

As this drama unfolds… will we “avoid the most costly and typical of all military mistakes: using the tactics of the last war to fight the current war”? Probable not. (More in Flotsam & Jetsam below…)

THIS WEEK in THE DAILY RECKONING
By Bill Bonner

10/05/01 INFLATION OR DEFLATION?

“…The same people who once believed a peace dividend was good for the economy now believe a war will be even better…Wars may be lost or may be won…but either way, a nation’s currency always seems to be among thecasualties…”

10/04/01 STILL TURNING JAPANESE

“…Without profits, as Keynes once pointed out, “the whole process [of capitalism] comes to a halt.” No profits, no new investments. No new employees. Instead, companies cut costs – including laying off employees – in order to become profitable again. That is the real source of the slump – not consumers, not terrorists, not high interest rates…”

10/03/01 AWAITING THE BIG V’S
A Guest Essay by Dr. Gary North

“…September 11 marks the end of an era…The markets will still function. People will still go to work in New York City and move all that money around. But the ones who moved it around from the caverns of lower Manhattan will never again move it around with the same confidence or arrogance…”

10/02/01 RETIRED IN ORDER

“…A year ago, Americans thought they had nothing to fear. No more wars. No more bear markets. No more recessions. Now, they have them all…3 out of 3. The illusions of the late 20th century have all retired in order, as they say in baseball…”

10/01/01 HONOR INSOLVENCY

“…A kind of Esperanto madness – a common language of absurdities – seems to be spreading across borders and seeping into casual conversations between grown-ups. Everywhere, patriotism, nationalism, jingoism, militarism, religion, culture, and finance seem to have gotten jumbled up…”

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HEADLINE, NEWS And INSIGHT: The West’s Wicked Legacy… Wind, Water, Coal and Oil… Paper Wealth, Paper Loss – Real Pain…Voltaire in the 21st Century…

Nous Sommes Tous Assassins (We Are All Murderers)
by Dr. Marc Faber

Combating future attacks will require much more than just military retaliation. It will require us to strike a balance between wealth in our Western civilisation and the large number of destitute people in the world who have no other means to fight and express their grievances than through acts ofatrocities.

Battling Windmills
by John Myers

Of course, wind power is a wonderful idea… in theory. But if we had to depend on the wind, we would be in the Dark Ages. Fact is, fossil fuels are what powered the world in the 20th century, and they will be our energy mainstays in the new century. Those who don’t understand that are as daft as Don Quixote.

False And True Prosperity
by Dr. Kurt Richebacher

The boom in stock prices created wealth for the stock owners, but for them only, not for the economy as a whole. Generations of economists would never have thought of rising stock and house prices as “wealth creation.” They would have derided it as pseudo or paper prosperity.

FLOTSAM AND JETSAM: A Collection Of Crimes Follies And Misfortunes

– The Blue Team’s Dr. Marc Faber

“…the only way for the very poor to fight us and defend themselves is with terrorist attacks and guerrilla warfare; actions I certainly don’t support, but which, given the circumstances I have just highlighted, I can understand. The problem is really that we have created a world in which far too many people – at least a billion of them – have nothing to lose except their (mostly miserable) lives. They are disenchanted with our Western society and the way we have treated them.

We may be at the dawn of a new era in warfare, whereby future wars may involve not political power blocs fighting each other over territories, but the disenfranchised poor fighting by means of terrorism, piracy, crime, and urban guerrilla activities for whatever they might consider to be their rights and for a larger share of the world’s economic pie.

In this situation, to retaliate against whoever was responsible for the attack would only remove one symptom of a very unbalanced and largely impoverished world, which is increasingly suffering from a malaise. To combat successfully future disastrous attacks on our civil liberties will require much more than just military retaliation. It will require us to think more carefully about how we can strike a balance between progress and wealth in our Western and highly developed civilisation and the large number of destitute people in the world who have no other means to fight and express their grievances than through acts of atrocities.

Moreover, just taking out the leader of the recent attack may only increase his status to that of a martyr. Other terrorists, guerrillas, freedom fighters, or whatever we may wish to call them, will then follow in his footsteps and see to it that history continues to be, as Voltaire observed, “a collection of the crimes, follies and misfortunes” of mankind.

From an economic point of view, the recent events can only be negative. Often, the purchase of equities in a crisis is rewarding and, based on the experience of the Gulf War in 1990, investors will be tempted to buy into any weakness.

But I am afraid that, in this particular case, the crisis may lead to further social and geopolitical tensions and, when combined with the anti-globalisation movement, to less trade and a more protectionist agenda. It will probably also lessen foreigners’ enthusiasm for US assets and weaken the already wobbly dollar.

In turn, if tensions around the world increase, as I think they will, gold and gold shares should benefit. Having said that, the present crisis occurring at a time when the stock markets around the world are already moderately oversold may lead to a late September/early October low from where a decent bear market rally could take place…”

Addison Wiggin,
The Daily Reckoning