Market Review: Well, No One Can Predict The Future

"Bull decoder rings malfunctioned during the Greenspan speech Friday," writes the Prudent Bear’s Rob Peebles. "Another rate cut may or may not be in the cards."

"I would emphasize that we continue to face significant risks in the near term," the Fed Chairman was heard to say. And, echoing our own Dr. Richebacher, "for much of last year, the resulting decline in investment outlays was fierce and unrelenting." But, once profits improve, he said, "capital spending should begin to recovery noticeably."

Uh…okay.

Selling stocks seemed the only appropriate response to such obvious wisdom… losses on Friday helped the Dow shed 272 for to week to close below 10,000. Again. The Nasdaq fell 24, coming to rest slightly above 2000. The S&P 500 declined 11 to 1145.

Gold closed the week nearly $10 bucks ahead of Monday’s opener at $287. As Outstanding Investments editor John Myers notes below, early signs of inflation appear to be seeping in to the resource markets…

THIS WEEK in THE DAILY RECKONING
by Bill Bonner

01/11/02 UNSAFE AT ANY SPEED

"…Fed economists cannot forecast anything worth forecasting. If they could, they’d move to New York and try to make a buck or two from it…"

01/10/02 PREDICTIONS FOR 2002

Your indefatigable editor offers up new predictions for the year 2002. What do you suppose is in store for investors thisyear?

01/09/02 COMPOUNDING THE PAIN
Guest Essay by James Davidson

Notable author, James Davidson vents an irritating consequence of September 11, and suggests a technological solution could put forward looking investors in a finespot…

01/08/02 ANNO 2001, R.I.P.

Bill Bonner reviews how The Daily Reckoning’s year 2001 predictionsfared…

01/07/02 THE EURO – AT LAST

"…All paper currencies, sooner or later, end up in the trash bin. But while the euro dallies, the dollar seems to be headed to destruction with a greater sense ofurgency…"

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

HEADLINE, NEWS And INSIGHT: Signs of undefined What’s This? – Inflation in the Resource Markets…But Not Soon Enough For The Dollar or The Swiss Franc… And Our Buddy Jim Davidson Revisits The ‘New Era’ (Hmmnn…Didn’t We Buried That Idea In March 2000?)…

FLOTSAM AND JETSAM: Et Tu, Switzerland?

Keeping one eye on ‘competitive currency devaluation’ across Asia, and another on the Fed, John Mauldin notes, the trend to deflate seems to be gaining some favor in Europe, too. What’s that portend for the US? The inflation undefined deflation debate continues…

– from John Maudlin

"…It seems that European Central Bankers would like a somewhat stronger Euro, which would be fine by me. We need some countries to show some sanity and stop this competitive devaluation. Competitive devaluation on the scale it is being practiced today can only lead to one thing: further deflationary pressures.

According to market analyst Greg Weldon, the SWISS might be next in line. In light of recent Swiss Franc strength against the euro, they are making noises about devaluing their currency! I remember in the 80’s when low paying Swiss Annuities were sold as the paragon of stability. Investors suffered the low yields in order to get a piece of the economic rock that everyone considered the Swiss to be.

Greenspan has to be asking: ‘Why can we increase the money supply at such huge rates as we have done this past year, and especially the last few months? Why can’t our economic tires find traction?’

The answer suggest: it’s because of the ‘beggar thy neighbor’ policies of other countries. They are exporting their deflation to the US… and at a dramatic rate.

Greenspan is trying to ‘re-inflate’ the economy, just like the Swiss want to, but he has a problem. Normally, his efforts would mean a lower dollar. That is part of the ebb and flow of currency valuations. But today, the dollar is the reserve currency of the world. As fast as he prints it, other nations are buying it. Either that, or it goes into the current ‘Son of Bubble’ stock market.

If he prints it too fast, bringing back inflation, the world would lose faith and the dollar could drop like a rock. It could lead us into a serious world recession. Print it too slow and we have deflation, a slow economy and a very weak recovery. The trick is too find the level that is ‘just right.’

The problem is that the ‘just right’ level of today’s massive money supply growth will create more problem’s tomorrow. But, say the central bankers, we will worry about tomorrow’s evil tomorrow. Today’s evil is deflation…"

Addison Wiggin,
The Daily Reckoning
January 12-13, 2002

P.S. For more on Mauldin’s deflationary analysis visit the Millenium Wave website and sign up for his weekly e-mail – it’s free – or send John an e-mail at JohnM@2000wave.com.