Market Review: The September Jinx

And now…  Eric Fry, live from New York!

The September jinx remains alive and well.

“It wasn’t a good week to own anything,” one professional investorgriped to your New York editor yesterday. “Gold fell, stocks fell,and gold stocks REALLY fell.” The XAU Index of gold stocks tumbled6% for the week, despite hitting a fresh six-year high on Thursday.

But almost no one cared about the pain and suffering of the goldbulls; most investors were preoccupied with their own pain andsuffering, as the Dow fell 3.5% to 9,313 and the Nasdaq dropped5.5% to 1,792. The steep stock market losses plunged all of themajor market averages into the red for the month…

The bond market, meanwhile, floated comfortably above the fray. The 10-year Treasury note gained ground for the sixth straight week,lowering its yield to 4.02% from 4.15% at the close of last week’strading. For the week, the dollar slumped about 1% against the euro to $1.1483.

Despite the slumping dollar and stock market, gold ended the weekwith a loss of more than $1 an ounce, just one day after hitting aseven-year high of $394.80. The yellow metal seemed to have trouble acclimating itself to the rarefied air near $400. Gasping forbreath, it stumbled to lower and lower elevations until collapsingFriday afternoon at $381.80 an ounce, its lowest close since Sept.18.

Oh well, maybe next week will be better for the gold market.

Thursday morning, your Paris editor anticipated the gold market’sunnerving volatility by observing, “We remember urging you to buygold when it fell below $350. We don’t remember buying itourselves. Now we don’t know what to do. The price will go up anddown. If it does what we expect, buying at $388 – today’s price –will turn out to be a brilliant move; gold will go over $1,000before this bull market is over. But if it falls back below $350,we will feel like idiots for buying at $388… 

“Likewise, the euro. We suspect that the euro will rise to $1.50 or $2.00 before this cycle is over. We feel a little stupid buyingeuros at $1.14 when we could have bought all we wanted at 88 cents. But how much stupider will we feel when the euro hits $2.00?”

We would feel stupid, all right, but still not as stupid as a CNBCcommentator. In a departure from his habitual creative process,your New York editor did not “mute” the television while working in his office. So, while typing away at his keyboard on Thursday, heoverheard a parade of experts on CNBC offering up a series ofabsurd comments about the stock market.

Your editor learned, for example, that the Dow “would have”produced a nice gain Thursday, “if only Eastman Kodak’s 4-pointdrop hadn’t pulled the blue-chip average into the red.”  He alsolearned that retail sales “would have” been much stronger, “if only Hurricane Isabel hadn’t dampened economic activity.”

It is equally true, we suppose, that the stock market averages“would have” advanced last week, if only fewer stocks had fallen.Or that Amazon “would have” earned billions of dollars last year,if only it hadn’t deducted its expenses from its gross revenues. Or that the Titanic undefined ex-icebergs — “would have” completed its maiden voyage.

So you see, the world is a perfect place, and the U.S. financialmarkets are perfect in every detail, except for the imperfect items that do not rightfully belong in a perfect world.  The stock market has been near-perfect all year, despite the various imperfectionsplaguing the U.S. economy — the most glaring imperfection of which is the weakening U.S. dollar, which has slipped 12% against theeuro year-to-date and more than 35% against gold over the last twoyears… Of course, the dollar would have been much stronger, ifonly the euro and gold had been much weaker.

For several months, Fed Chairman Greenspan has been damning thedollar with faint praise. Not surprisingly, he is succeeding. Thedollar’s value tends to slide downhill, even when ChairmanGreenspan isn’t pushing from behind.

In the olden days, of course, the Fed was supposed to pursue“monetary stability.”  But in the enlightened 22nd century, the Fed pursues much grander designs. It imagines itself a kind ofmarionette to the world’s largest economy, making it dance whenever it wishes, simply by tugging on one little interest rate… or bytugging on the dollar. And so it tugs, hoping to revive theeconomy.

The dollar as a “store of value” is anathema to the shamans at theFed. Rather, for the sake of the economy, the Fed seems to desirethat each crisp new dollar bill begin losing its value the momentforeign creditors drive them off the U.S. mint’s showroom floor.

Who else besides Alan Greenspan and Treasury Secretary Snow wouldimagine that a feeble currency could pave the road toprosperity?… Investors, at least, seem to have some doubts. Asthe dollar slips, so do stocks and so does the bravado ofinvestors.

We’ve seen this movie before… and it doesn’t have a happyending.


Eric Fry,
The Daily Reckoning

P.S. You’ll find this week in The Daily Reckoning…  Bill’s essay“Hurt” is a classic. If you didn’t get a chance to read it yet, wehighly recommend it.



HURT (09/26/03)
by Bill Bonner

“… When the Grim Reaper comes around for a politician ofconsequence… a Roosevelt or a Lincoln, for instance… apologists make a great effort to turn him into a kind of plastic archangel.An honest man, on the other hand, ought to get an honest send off.John R. Cash brought dew to our eyes when he died a couple of weeks ago. Now that the man is dead, we feel poorer. We have lostsomething. Not a fulminating vote-getter, but a real man withdecent instincts and genuine feelings… ”

THE NEXT EMPIRE (09/25/03)
by James Boxley Cooke

“… Even with the current global economic slowdown, China is still likely to grow at more than 7% a year. That’s a huge number for aneconomy this size. And it represents huge potential profits for usas investors. Yet for all its potential, many investors stillblanch when it comes to investing in this part of the world, noting that China is still a communist nation with a notoriously corruptbureaucracy and only a gradually evolving rule of law. Are thereenough positives to justify risking his capital in this part of the world?… “ 
by Dr. Kurt Richebächer

“There has been much talk to the effect that America has just hadits slightest recession in the whole postwar period. That ismeasured in real GDP growth, being bolstered by many statisticaltricks. Measured, however, by job losses, which certainly are thefar more important gauge, it is already America’s worst recessionby far.” 
NEPAL (09/23/03)
by Marc Faber

“… [Would] Asian stock markets… suffer should the U.S. stockmarket experience a serious correction or a crash in the next fewmonths? This question prompted me to look at some very simpleeconomic, financial, and social statistics in Asia, and to comparethem to the rest of the world. My conclusion? The long-termfavorable potential of the Asian region may remain intact even ifthe Western economies were to weaken once again. In fact, adecoupling of the Asian stock markets from the performance of theU.S. is a distinct possibility… “ 
by the Mogambo Guru

“… Just as Michael Boskin showed the government how to lie withstatistics about inflation – as if the government ever needed anyhelp with lying, since they seem to cleave to it so naturally – our sainted leaders make ludicrous assumptions about adjusting pricesfor quality and the substitution effect and all the rest of thatlying crapola that any second-grade kid can easily see through. But to get with the program and show that I am a team player, I want to prove to you that the Mogambo can be just as clever, and has justas many tricks up his economic sleeve… “

The Daily Reckoning