"Monster Rally" Didn't Stop The Bleeding

The Daily Reckoning

Weekend Edition

July 14-15, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: “Monster Rally” Didn’t Stop The Bleeding

With the usual spin, pomp and ceremony Wall Street analysts this week brayed away less than stellar earnings reports…and encouraged their clients to buy, buy, buy! The result? A “Monster Rally” – the best week on Nasdaq in three months… and a little gleem in the eye of every tech bull still looking for latent signs of a “second half recovery”. Perhaps, they are confusing stock market gains with the real economy… do ya think?

The Dow closed Friday up a “modest” 60 at to finish the week at 10,539 – up a total of 286. The Nasdaq rose 9 to 2084 on Friday and ended the week up nearly 4%. The S&P 500 gained slightly to 1215 on Friday up just over 2% for the week.

Still, “not even Thursday’s monster rally could stop the bleeding at sagging stock mutual funds,” reports USAToday. “The average diversified U.S. stock fund fell 1.2%, and is off 8.1% for the year, according to Lipper, the fund trackers.”

Only one fund category ended the week strongly… Gold! The average gold fund climbed 1.2%. Gold funds are up 11.7% on average for the year.

If mutual funds are down…401(k)’s aren’t faring much better. On Tuesday, the NYTimes reported that “for the first time in the 20-year history of the popular 401(k) retirement savings plan, the average account lost money last year, even after thousands of dollars of new contributions.”

The average account shrank to $41,919 in 2000 from $46,740 in 1999, according to a report from Cerulli Associates, a benefits consulting firm.

With mutual funds and 401(k)’s in the dumper it might just be time to rethink that good ol’ “Buy N’ Hold” strategy.

ADD’L PRICES FOR THE WEEK: Dollar hits 18-year high mid- week

Gold: $267

Crude Oil: 26.59

Natural Gas: 3.25

CRB Index: 207

Dollar Index: 119

The Euro: .85… so sad

British Pound: 1.39

Japanese Yen: .80

By Bill Bonner


“…every industry loves regulations. It imposes costs, but the costs are passed along to consumers. The real benefit to the regulated is that it helps prevent competition. So, I am grateful to the regulators. For business reasons, I welcome the regulation of newsletters with the same malicious delight as a dentist looks forward to Easter candy…”


“…Popularity is poison. Today, I bring you a poison stock…and a possible antidote. Laying itself out on a bed of quicksand, IBM has – so far – avoided sinking, but its popularity won’t pay off. On the other hand, an easily-overlooked stock featured in this week’s Barron’s, Consolidated Tomoka, is pretty ‘darned cheap’…”

Wednesday Guest Essay by Paul Kasriel

“…[A]ll you have to do is look at the behavior of the current account deficit in recent years to know that Americans are spending more than they are producing. No matter how you cut it, the combined American saving rate for households, businesses and any other group you want to include not only has gone down in recent years, but it has gone deeper into negative, or dis-saving, territory…”


“…Webvan, one of the most majestically hollow business concepts of the Internet bubble, has finally given up the ghost – after having wasted more than a billion dollars of investors’ money. Excuse me if I get a little misty-eyed; I will miss Webvan. Next to Amazon.com, no dot.com company has served as such a bright, shining illustration of how blockheaded people can be…”


“…On or before this coming Thursday, from the cloud- capped towers of Waltham, Massachusetts, the nation will get a small preview – I think – of where borrowing against equity can lead. It is not likely to be pretty. Polaroid ‘took out the equity’ when taking out equity was in style. Now, there may be nothing left…”

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HEADLINE, NEWS And INSIGHT: Gold Funds Rising…China And Big Government…Sham Wisdom and The Stock Market…Japan In Trouble – Again…. and more…

Will Mr. G’s “Midas Touch” Restore Gold’s Luster?
by John Myers

A decade ago I was 14,000-feet deep in a South African gold mine, sweating bullets and reaching for a bottle of water. My tour guide, a hardened South African mine executive, seemed immune to the heat. “Mr. Myers. Mr. Myers!” I could barely hear him above the buzz of the rock drills only a dozen feet away. “You must understand,” he yelled into my cupped ear, “the price of gold always comes down to one thing and one thing only. The number of U.S. dollars out there.”

What China Could Have Been – And Its Lessons For The
by John Pugsley

Unlike Europe, medieval China was unified under one government. But in the mid-15th century, an anti- technology faction overthrew the pro-technology faction. Innovation and development came to a standstill. China stopped sending fleets, dismantled the shipyards, and outlawed oceangoing shipping. The rest is history.

Wall Street And The Business Of Sham Wisdom
by Lynn Carpenter

Most of us who are in the market have a better idea of how to run a business-we’ve done it-and therefore how to size one up, than you can find in the drivel that comes out of New York.

Godzilla Crunches Japan!
by Jay Akasie

Whatever became of the world’s second-largest economy? As Japan’s economy sinks further, questions arise as to whether the new prime minister has answers for long-term recovery.

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FLOTSAM AND JETSAM: A Rainy “Bastille Day” in France

As elsewhere, it’s July 14. In France it’s a national holiday. Great parades, feu d’artifices (fireworks) and dances are scheduled to commence any minute now. Trouble is, it’s raining like the dickens. Already the aerial demonstration of France’s elite air force, that traditionally takes place over the city of Paris, has been cancelled.

On July 14th, 1789 a band of disenchanted and hungry “sans culottes” – literally “without britches” – sought to rescue their brethren downtrodden held captive in La Bastille. What they didn’t know was, due to very bad conditions in the prison, for some time it had been all but empty. When the dust cleared… only seven prisoners had been freed. Still, the act of storming the Bastille became a rallying cry for the Revolution.

According to the historian Russell Kirk, the French revolution was the first true revolution – an attempt to remake society through man’s capacity to “reason”. The revolutionaries destroyed the Ancien Regime – the monarchy and its ties with Catholic Europe – converted the churches into “temples of reason,” and began the French Republic at the calendar year one.

Kirk contrasts the idea with the American revolution… which he states was not a revolution at all, but a war of preservation. American colonists, learned the hard way, a rugged individualism on the frontier. There was no need for a strong hand from patriarchal government in the traditional European style, it wouldn’t have done much good anyway. Says Kirk, the Americans waged their war to preserve a liberty they had learned of necessity.

And here’s an interesting historical factoid: La Fayette, French hero of the American Revolution, fled Paris during in the early 1790s – eventually joining with an Austrian unit and leading an invasion of France, in an attempt to restore the monarchy here.

None of this is really important, of course… just a few random observations from a newsletter editor on a rainy holiday in Paris.

Vive la Liberte,

Addison Wiggin,

The Daily Reckoning

The Daily Reckoning