"Profits Plunging Precipitously"

The Daily Reckoning

Weekend Edition

October 13-14, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: “Profits Plunging Precipitously”

Investors shucked caution this week… and stepped out to stretch their legs a little. Neither a slew of foreboding quarterly reports (due out in the next two weeks), nor reports of anthrax in the city could keep these shut-ins, shut in.

Despite a 66 downer day on Friday, the Dow closed 224 points in the black for the week… up 2.5% to 9344. The S&P 500 closed up 1.9%, to 1091. And the Nasdaq gained 6% overall – closing up 98 for the week to 1703.

Thursday, the S&P 500 was the first of the major indices to regain all of its losses following the route when markets reopened on September 17th.

“The bubble burst a long time ago, and now stock market valuations are far more reasonable,” noted the NYTimes, or “so goes the Wall Street line.” A closer look at the numbers, however, might be cause for some doubt.

Following Thursday’s mini-rally the P/E of the S&P 500 reached its highest level EVER – at 35.99.

“That figure,” says the Times “based on reported profits over the last 12 months, exceeded the record of 35.82 set on April 12, 1999.” How can it be? Share prices have plummeted from the 2000 peak, but so have profits.

Profits over the last 12 months were lower than leading up to 2nd quarter 1990, the last time we saw the Bush one-two punch – war and recession. And according to Dr. Richebacher, we’re not likely to see anything vaguely resembling a profit-recovery in the 3rd or 4th quarters this year.

Still, all is not lost. Lynn Carpenter of The Fleet Street Letter tells me she’s posted gains of 25% on EMCOR and another 15% on Bayer since she put the October issue to bed. (Psst… stock tip: “EMCOR’s p/e is only

11,” says Lynn, “so this one’s still a bargain.”)Bayer, by the way, makes Cipro, the only antibiotic approved in the US for use against anthrax contracted by inhaling. Orders for Cipro have jumped 27% in New York this week. (More below…)


By Bill Bonner

10/12/01 THE GOD OF WAR

“…In the group mind, the “war on terrorism” is as certain as a bull market on Wall Street. It may take time. There may be ups and downs…but the inexorable march of history is towards higher prices on Wall Street and an American victory against terrorism…this victory is so widely anticipated and so little questioned that we cannot help but wonder what surprises the gods may have in store….”


“…It is not a “buy and hold” world. It is a world dominated by fear and greed, progress and backsliding, epic levels of self-assurance followed by almost unimaginable despair. These cycles can last much longer and carry us much farther than anyone imagines. It is as if each generation had to discover for itself how bad, and how good, things can get…”


Guest Essay by Rick Ackerman

“…Like politics, all recessions are local… They take root in auto showrooms and appliance stores, then slowly steal into the malls, choking off jewelry stores, stereo dealers, restaurants, clothiers and ski shops before creeping right up to your neighbor’s door…”

10/09/01 STAR STRUCK

“…Star struck investors have stood their ground…even in the midst of war, recession, and a bear market. Stocks have gone down, but there has not been a single day of panic. They still believe that a steady hand on the tiller and a close eye on the star of “long-term buy & hold” investing – even through a bear market – will lead to investment success…They seem unaware that a good navigator needs to recognize the point of departure as well as the destination. Buying stocks at the top is almost guaranteed to be a losing proposition…”


“…Why should Americans pay attention to what happens in Japan? Maybe we could learn something…Various heads of the Bank of Japan have already done what Alan Greenspan is in the process of doing…and lower interest rates did nothing for the Alan Greespans of Japan…”

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

HEADLINE, NEWS And INSIGHT: Signs Of Life In Japan… Biopharma Value? Makers of the Anthrax Anti-biotic… Thoughts Following attack…

Darkest Before Less Dark

by Andrew Kashdan

“…When it comes to Japan, a contrarian instinct can quickly lead to financial ruin, but a few hopeful signs are worth watching. Housing starts and vehicle sales are recovering, as are corporate earnings, albeit from depressed levels…”

Take Two – This One Will Make You Feel Better

by Lynn Carpenter

“…The value of Bayer’s pharmaceutical unit as a standalone is probably worth more than the entire company. Heavyweight shareholders haven’t missed that. There’s a vociferous and hard-driving bunch of them led by Hans-Martin Buhlman a major German share holder…”http://www.dailyreckoning.com/body_headline.cfm?id=1506

The Day The World Changed – Part II

by Raymond F. Devoe, Jr.

“…The World Trade Center disaster will have a significant impact on the economy and the stock market. One thing rarely mentioned has been lost – ‘The Peace Dividend’ has been removed, one of the foundations of the long bull market. Columnist George Will stated that, ‘For America there are now only two kinds of years, the war years and the interwar years.’ It looks like the interwar years ended in early September…” http://www.dailyreckoning.com/body_headline.cfm?id=1501

FLOTSAM AND JETSAM: “Things Will Never Be The Same”

– reflections from Ray Devoe following the attacks on the World Trade Center

“…Every generation seems to have a ‘defining moment’ or ‘transforming experience’ when they realize that their lives will never be the same. For my grandmother and her generation it was April 15, 1912 when the “unsinkable” RMS Titanic went down. For my parents and their group it was “The Crash” of October 28/29, 1929. Those who experienced it always used the two dates, when the Dow Industrials fell 12.8% and 11.7% respectively.

For me and my generation December 7, 1941 “A day that will live in infamy” was the defining moment. If the Pacific War had lasted another year I could have been a Marine Corps replacement during Operation Olympic Coronet, the invasion of the Japanese home islands. Considering how foolish and reckless I was at that age, every time I think of that I have to suppress a shudder.

For the “Baby Boomers” November 22, 1963, would be their moment in time, when Pres. Kennedy was killed. The oldest of them were only 18 but the shock permeated their memories. Everyone who experienced these transforming events remembers exactly where they were and what they were doing when they first heard the news.

And then there was September 11, 2001… I have worked in the lower New York financial district all my business life, and have seen some remarkable changes. At one point the area around South Street next to the East River was filled with ship chandlers and stevedore bars offering both a shot of whiskey and a beer for 25½. On foggy days you could get a giddy sensation from the aroma of coffee in the air from the roasting houses there.

The original site for the World Trade Center was once The Washington Market, a type of farmer’s market offering exotic foods and spices from all over the world. The earth excavated for the foundation of the World Trade Center became landfill for the World Financial Center and Battery Park City-an entirely new community in the lower New York area.

Gradually office buildings took over, and the only hint of the city’s maritime history remains in the names of certain streets (Coenties Slip and Old Slip for example). That was the way it was, but I had no complaints about the tremendous growth of the area, developing into literally a ‘World Financial Center.’ This was my part of the world, and I felt that I had grown along with it.

Virtually every report I wrote this summer explored the American habit of ignoring bad news until after Labor Day-when reality intrudes. Potential terrorist activity was one of the factors I cited as possible a stock market determinant. I never considered the possibility of an act of terrorism so barbarous and deadly that it could mean that ‘things will never be the same again.’ I don’t think anyone in this country will ever feel as secure or safe as they felt before… And that is a condition that can [and will] affect stock markets, and economies….”

Enjoy your weekend,

Addison Wiggin,

The Daily Reckoning

P.S. Ray Devoe is a regular contributor to The Fleet Street Letter.