Market Review: Greenspan's Growth Rocket

"Growth is back! The Recession Is Over!" says analyst Ken Mayland. Talking to USAToday, Mayland suggested "the economy is getting back on good growth track, which down the road will mean good things for jobs and companies profits."

If the government’s numbers can be trusted, GDP grew an annualized 5.8% in the 1st quarter 2002. Meaning the US economy has not only "emerged from recession," but the slowdown will likely go down as the mildest in US history.

Greenspan suggested the recovery would unfold like a "two-stage rocket" with "the initial liftoff in the first quarter of this year with a big swing in inventory restocking by companies." (USAToday) For the rebound to be sustained, suggests Herr Greenspan, it would have to be followed by a second stage of business and consumer spending.

Perhaps. Here at the Daily Reckoning, we’re not prone to prognostication, but there is one possibility left out of the rosy scenario being lauded in this weekend’s press. Namely this: what if, rather than the mildest slowdown in history, we simply haven’t begun to feel the effects of a slowdown at all. The second stage of Greenspan’s rocket – consumer spending and business investment – could by all intents and purposes burn out in sputtering disappointment.

For example, U.S. consumers, whose spending habits make up two-thirds of the US economy, increased spending at 3.5% for the first quarter… but the number has slowed considerably from last fall’s burn rate. The red-hot 6.1% spending rate of the fourth quarter in 2001 was largely fueled by 0% interest rate car loans. Meanwhile, consumer sentiment numbers released by the University of Michigan fell more than expected for the month of April.

The stock market was equally unimpressed by the government’s report on Friday. Lack of corporate profits – the obvious fuel needed for any reinvigoration of business spending – helped stocks plunge all week long. The Dow was down 346 for the week – the biggest weekly loss since the market opened following 9-11.

At 9910, the Dow closed below 10,000 for the first time in more than two months. The Nasdaq plunged 132 for the week to 1,663 its lowest close since October 18. The S&P 500 dropped 48 for the week to close at 1,076.

Addison Wiggin,
The Daily Reckoning
April 27-28, 2002 Paris, France

p.s. Let me ask you a question: are you an "investor" or a "speculator"? When the stock market is reacting inversely to the news – as we saw this week – there’s no better question to ask yourself… especially if you’re approaching retirement and expecting to preserve your nest egg.

"As an investment newsletter writer," writes The Fleet Street Letter’s Lynn Carpenter (below), "my goal isn’t to stop people from making mistakes so much as it is to help them do the right thing in the first place. It’s become clear to me that good investors and bad investors not only do things differently – they have entirely different attitudes."

Misunderstanding the difference between "investing" and "speculating" is at the top of her list. Luckily, Lynn can help you be sure you’re on the right track for building lasting wealth with a simple self-quiz… see Flotsam $ Jetsam, below.

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

by Bill Bonner


"…The impulse to do something has driven men to madness many times in the last century…yet the way to make things better in life is quite simply to do nothing…in politics, tattooing, and – often – investing…"


"…if you’re going to spend your life scribbling pathetic gobbledygook, better to do it in Paris than in a double-wide outside ofNashville…"

Guest Essay by Capital Insight’s Sean Corrigan

For some time, the economies of both the U.S. and the UK have been grappling with the twin evils of deflation and inflation. Which way will they go? It not so easy to say from thesigns.


"…Recently, gold has been outperforming all other currencies and every other major asset category. If the newborn trend continues, even central bankers will grow to likegold…"


"…No nation had ever made a sustained success out of paper money. Instead, each episode reads like a cautionary tale: paper money is not merely a mistake, but a kind of sin; like bestiality, it is unnatural…like larceny, it is repugnant…like sloth, it isruinous…"

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

FLOTSAM $ JETSAM: Why good "investors" know the difference between an investment and a lottery ticket.

Are You An Investor. Or A Speculator?
The Distinction Is Vital To Your Wealth

– by Lynn Carpenter,
the Fleet Street Letter
(excerpted from John Mauldin’s weekly e-mail)

"…Over the last five years, when talking to people (those who aren’t regular Fleet Street readers, at least) one problem has become clear. and so has one trait that separates the savvy from the hapless. By my seat-of-the-pants calculations, it seems as though nine of every 10 people who cornered me to talk about their investing prowess during the late bull market had never invested a dime in stocks in their lives. They weren’t liars. They just didn’t realize that the stock market is only a place where you go to do your buying and selling. Being there doesn’t make you an investor.

A polite atheist might get down on his knees in church, but that doesn’t mean he’s praying. Most of the people who came alive in the late, great, bull market were speculators, not investors. The difference is profound. But let’s make it easy.

If you go to the garden center and buy a peach tree for your orchard, counting the future bushels of peaches you’ll get, knowing the cost of planting and upkeep, and understanding when and where to plant for the best yield, that’s investing. If you buy a peach tree when they’re almost gone and stand in the parking lot waiting for a desperate latecomer to rush toward you and make you a higher offer, that’s speculating. An investor doesn’t buy stocks to trade them. He buys stocks to harvest the peaches. He buys a piece of a business. The stock certificate is just a symbol and a convenient way to keep track of ownership.

* If you don’t understand what the company does, you’re speculating.
* If you don’t know its competitors and their potential-present and future-you’re speculating.
* If you’re buying with an eye to making big profits fast and bailing in a matter of months, you’re speculating.
* If you feel the need to do something to your portfolio every week, you are probably speculating.
* If you are afraid to wait because you might miss out on a stock that’s about to "take off" when (a) the FDA approves its newest drug, (b) it’s going to get a new contract with Microsoft, (c) you heard rumors that Warren Buffett is buying it, (d) any kind of urgent news. you are speculating.

None of this is bad behavior. It just isn’t investment behavior. You could do all those things as a speculator and succeed. but only if you realized that it was speculation and acted accordingly…"

Editor’s Note: I alerted you to an excellent source of speculative gains – 60%, 67% 38% in the last few month’ – on Friday: Dan Denning’s proprietary CXS trading system.

But, if you’re interested building a lasting and secure nest egg, speculation is probably not the way to go. You will find no better source of sound wealth-building advice than Lynn Carpenter.

As the architect of the Fleet Street Letter’s 10-Stocks For-10-Years portfolio, Lynn has selected a bevy of sturdy dividend-paying stocks, that could help you build lasting wealth… without laying awake at night for fear of speculative losses.

The Daily Reckoning