Doomsday For The Dow?

The Daily Reckoning

Weekend Edition

July 7-8, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: Doomsday For The Dow?

Gone are the days when stocks were the subject of every polite dinner table discussion… gone, too, are the gains from this spring’s “surprise” rally.

For month’s Wall Street has been expecting weak earnings, but this week the mood has changed… warnings have been coming from an array of unexpected sectors – rather than just tech – and joblessness is beginning to weigh on consumer consciousness.

Friday, the Dept. of much Labored Statistics said the nation’s unemployment rate has risen to 4.5%. Significantly demand for workers in “service industries” – often cited as the savior of the new US economy – dropped to its lowest level in 10 months.

The Dow fell 227 Friday, ending the truncated trading week at 10,252. The Nasdaq lost 75, down for the fourth straight day, ending the week at 2004… The S&P 500 also lost ground for the third straight session – down 28 to 1190…

“Is it finally doomsday for the Dow?” asks the DR Blue Team’s Dan Denning in this week’s Blue Weekly Update – “…by inter-market calculations… the Dow is headed to 9400 by July 18th. That would mean a drop of almost 850 points – and our Dow futures options would go to the moon…” For more see: The DR Blue Weekly Update

ADD’L PRICES FOR THE WEEK: Dollar up… yen down…

Gold: $266.60

Crude Oil: $28.21

Natural Gas: $3.21

CRB Index: 207

Dollar Index: 120

The Euro: .84

British Pound: 1.40

Japanese Yen: .79

THIS WEEK in THE DAILY RECKONING
By Bill Bonner

07/06/01 THE WORST POSSIBLE WAY

“…The only way consumers can continue borrowing and spending is by going further into debt. What is the worst thing a person who is deeply in debt can do? Borrow more money, of course. And when would be the worst time for a debtor to borrow more? Just before a period of major deflation. And there we have our answer: the worst possible way for Greenspan to try to avoid recession would be by tempting American consumers to borrow in advance of a serious decline in prices…”

07/05/01 CRAMER VS. CRAMER

“…There was a time, believe it or not, when people treated Cramer, Abby Joseph Cohen, Henry Blodget, and Mary Meeker as if they had not lost their marbles or their scruples. Why, you may ask, would anyone care what James Cramer thinks? I have an answer: because knowing what Cramer thinks can be very rewarding…but only if you remember to do the opposite…”

07/04/01 THE NATION’S MOST MILD-MANNERED REVOLUTIONARY
Guest Essay’s by Addison Wiggin and Dr. Gary North

“…The basic plan for today’s Federal Reserve, a financial innovation of the first degree, was drafted at a secret meeting held in November of 1910 on Jeckyll Island. It was the brainchild of Paul Warburg, “the mildest-mannered man that ever conducted a revolution.” In the midst of today’s 4th of July celebrations, don’t forget the unsung revolutionaries who have also given us our nation… and our currency…”

07/03/01 BELLS RINGING

“…In the Belle Epoque, it seemed as though things just couldn’t be better. New technology was transforming every aspect of commercial life – making things faster, more efficient, and more productive. And yet, in August of 1914, the bells tolled, summoning the French to arms. After 44 years of peace, Europe began a very mean regression. Today, the world’s financial systems may follow suit…”

07/02/01 MAKING THE WORLD SAFE FOR PROFLIGACY

“…And so, dear reader, the much-anticipated second half arrives today. And we greet it with a familiar question: will there be a ‘recovery’ as predicted…or must the economy and the stock market sink lower, so that the long-term averages can be re-established?…”

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

HEADLINE, NEWS And INSIGHT: Retirement Secret in Panama
– Exposed…The Good Dr. Asks: Will It Work?…
“Socialist Europe”… and Playing The Sideways Market…

The World’s Best-Kept Retirement Secret – Won’t Stay That Way For Long
by Kathleen Peddicord

Despite what you read in the mainstream press, Panama’s economic performance is better, year after year, than just about every other country in Latin America. Over the past 40 years, the country’s inflation rate has averaged less than 2% – that’s simply unheard of south of the United States. This country is an anomaly in Central America. And right now… it’s still very cheap.

The Central Question Behind All Others…
by Dr. Kurt Richebacher

American monetarists believe there exists a virtual link between money growth and GDP growth. In their view, once available money balances exceed desired balances – spending increases. Financial markets and the economy take off. No further question is asked. But in reality…

Update: Europe
by Harry Schultz

A quick look at the machinations behind the sad, sad Euro. Brussels’ puppeteers want political union – but a union of widely disparate nations. We, at the International Harry Schultz headquarters, guess it will not work & forcing it to happen will make heavy going in 3-5 yrs when some nations want to pull out.

Is That Churing Sound My Stomach – Or The Market?
by John Mauldin

The cheerleaders tell us to ignore the problems of today, and “if you look to the future everything will be all right.” Of course, they said the same thing when the Nasdaq was at 5000. Here are 6 reasons I believe the markets are still headed for rough waters.

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

FLOTSAM AND JETSAM: Remembering America’s Unsung Heroes

– from the 4th of July Daily Reckoning

“God, who hath given the world to men in common,” said John Locke, Jefferson’s philosopher, and spiritual leader behind the Declaration of Independence, “hath also given them reason to make use of it to the best advantage of life and convenience.”

Reason, it is believed by many, empowers man to remake the world to his advantage. At the Daily Reckoning, we often take a more skeptical view. In fact, on this 4th of July, 2001, it might be worth a look at what reason hath also wrought: The Creature From Jeckyll Island.

In a book of the same title, Edward Griffin, notes the basic plan for today’s Federal Reserve was drafted at a secret meeting held in November of 1910 at the private resort of J.P. Morgan on Jeckyll Island off the coast of Georgia. It was the brainchild of Paul Warburg, a partner in Kuhn, Loeb & Company, representing the Rothschilds and Warburgs in their European holdings.

The purpose? According to Griffin, “a primary objective [of the meeting] was to involve the federal government as an agent for shifting the inevitable losses from the owners of those banks [being represented] to the taxpayers.”

Griffin quotes Paul Warburg: “Picture a party of the nation’s greatest bankers stealing out of New York on a private railroad car under the cover of darkness, stealthily hieing hundreds of miles South, embarking on a mysterious launch and sneaking on to an island deserted by all but a few servants, living there for a full week under such rigid secrecy that the names of not one of them was once mentioned lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance.”

“I am not romancing,” Warburg claimed in 1930. “I am giving the world, for the first time, the real story of how the famous Aldrich report, the foundation of our new currency system, was written.”

“The composition of the Jekyll Island meeting was a classic example of a cartel structure,” says Griffin. “A cartel is a group of independent businesses which join together to coordinate the production, pricing, or marketing of their members. The purpose of the cartel is to reduce competition and thereby increase profitability. This is accomplished through a shared monopoly over the industry which forces the public to pay higher prices for their goods or services than would otherwise be required under free-enterprise competition.”

At the risk of appearing too simplistic, I submit, the cartel achieved as much – and more. In 1913, the Federal Reserve act became law. At that time you could have purchased a simple pair of men’s shoes for $5.50. By 1938, when Hitler was just beginning the Anschluss of Austria and Czechloslovakia, the same pair of shoes would have cost you $7.38; in 1969, when Armstrong was taking large leaps for mankind in his own moonboots, they would have cost you $20.39… and today, on July 4th, 2001, while George W. exhorts us in his Presidential Statement On Independence Day to “remember the achievements of our great statesmen, social reformers, inventors and artists,” that $5.50 pair of shoes will set you back $100.

In 1910, “Wall Street was still the biggest kid on the block,” writes historian and former assistant managing editor of The Washington Post, William Greider, of the founding of the Fed. “This trend was a crucial fact of history, a misunderstood reality that completely alters the political meaning of the reform legislation that created the Fed. At the time, the conventional wisdom in Congress, widely shared and sincerely espoused Progressive reformers, was that a government institution would finally harness the ‘money trust,’ disarm its powers and establish broad democratic control over money and credit… the results were nearly the opposite.”

Unbeknownst to the “reformers” of the time, the world’s most wily capitalists had harnessed the machinations of government and the popular will to serve their own ends.

“Paul Warburg,” wrote his biographer Harold Kellock, “is probably the mildest-mannered man that ever conducted a revolution. It was a bloodless revolution: he did not attempt to rouse the populace to arms. He stepped forth armed with a simple idea. And he conquered. That’s the amazing thing. A shy, sensitive man, he imposed his idea on a nation of a hundred million people.”

And yet, today, as a nation, we celebrate the spirit of Independence from tyranny of the few over the many. “…Men enter into society,” wrote Locke, for “the preservation of their property; and the end, while they choose and authorize a legislative, is that there may be laws made and rules set as guards the properties of all society, to limit the power…of every part and member of that society.

“Whensoever…the legislative shall transgress this fundamental rule of society, and either by ambition, fear, folly, or corruption, endeavor to grasp themselves, or put in the hands of any other, an absolute power over the lives, liberties, and estates of others by this breach of trust, they forfeit the power of the people…and it devolves the people, who have a right to resume their original liberty, and by the establishment of a new legislative, provide for their own safety and security…” Who in America feels as strongly today

As you “celebrate with pomp and parade…guns, bells and bonfires,” the revolutionaries who’ve long since past, don’t forget the unsung among them, who have also given us our nation… and our currency.

Addison Wiggin,
The Daily Reckoning