Red Liquid

The Daily Reckoning Weekend Edition
August 7-8, 2004
Baltimore, Maryland

"Our enemies are innovative and resourceful – and so are we." The U.S. president was speaking at a high-level meeting of Pentagon officials. They were celebrating a new bill that gives the President $416.4 billion of your money to spend on defense next year.

"They never stop thinking about new ways to harm our country and our people – and neither do we."

Of course, Bush didn’t mean to say that. He gaffed. But here at the Daily Reckoning, we found his comment so deliciously ironic, it made us chuckle.

"So unbecoming is this mélange," wrote Bill last year, "that the Bush administration seems on the verge of doing the impossible – making Clinton look good! During the Clinton years, though probably through no virtue of Mr. Clinton himself, if there were any, the nation was at peace…and seemed prosperous. And the federal government was in surplus. Now, the nation is at war, seems to be in a slump, and the federal deficit is projected at about $500 trillion for next year – the biggest flood of red liquid since Pharaoh’s Army drowned in it!"

Yesterday, the slump got worse. Non-farm payrolls for July were so stunningly weak, we weren’t sure Yahoo Finance hadn’t made a mistake. 32,000 jobs were added last month versus expectations of over 240,000. What’s more, June’s weak figures got even weaker…they were revised to 78,000 from 112,000.

The market dropped faster than one of Bush’s lead balloons. The Nasdaq spiraled to a 2.28% loss, drooping 42 points. At 1,780, the Nasdaq is at a new 2004 low. In the last week alone, it has fallen 5.8%. The Dow gave up 148 points, which, when added to the losses of the previous four trading sessions, makes for a 3.2% loss on the week. Yesterday, the S&P was certainly not immune to the bloodshed. It fell 16 points yesterday to 1,064.

"This feels climactic," said an analyst on the phone with your editor yesterday, preferring to remain anonymous. "Besides, I was phoning around the market this morning and I couldn’t get hold of anyone. All the traders are away from their desks – I don’t know, they must all be on the golf course or something."

The traders will be back, but will Mr. Market?

Stocks weren’t the only assets affected by the job numbers…gold had a smashing day, rising $7.40 and closing just shy of $400. Treasury bonds rallied hard as yields were slashed. The 10-year bond moved 18 basis points and now yields 4.22%. The 30-year bond declined 11.5 basis points to 5.03%. Both maturities made a new 4-month low. The 30-year bond had opened the week at 5.19%.

The dollar got whacked too. The euro jumped from $1.205 to $1.2286 in a matter of seconds, while the yen moved from 111.6 to 110.37.

Next week, we have the FOMC meeting. Fed funds futures still assign a 100% probability of a quarter point rate hike, but the chances of a hike in September were reduced significantly.

"Greenspan is playing poker with the U.S. economy," said our unnamed analyst. "And worse of all, he’s playing with weak cards. Raising rates is kinda like raising the pot. Only, because the cards are so poor, it’s a bluff."

Time to fold, Greenspan!

Regards,

Tom Dyson,
The Daily Reckoning
August 8, 2004

P.S. We shorted oil. And for one day, it looked like a good trade. Then it bounced back. This pleased the clever analysts up stairs who think buying oil is the trade of the century. They have prepared this special report which details their thoughts. We seriously urge you to read it…

E-Day

P.P.S. Here’s Addison’s latest radio interview. It’s Canada’s principal financial radio show, so this was a big deal.

P.P.P.S. Want to hoard some gold bars without spending any money? Now you can…we’ve installed this great game on our website. And it’s not just another silly Internet game either, this one requires some serious brain power.

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— Daily Reckoning Book Of The Week —

The Intelligent Investor by Benjamin Graham

"By far the best book on investing ever written."

– Warren E. Buffett

The Intelligent has inspired hundreds and thousands or investors worldwide. Graham takes account of both the defensive investor and the enterprising investor outlining the principals of stock selection and portfolio management.

THIS WEEK in THE DAILY RECKONING

GOD, MAN AND FRENCH CHEFS        8/6/04
By Bill Bonner

"…C’est une catastrophe! This place is a bordello filled with the excrement of fat porcine animals of low intelligence who prostitute themselves…"

INDECISIVE DECISION                      8/5/04
By Lynn Carpenter

"…You’ve no doubt noticed it by now – any bit of news can move the market up or down a few hundred points. Then it suddenly heads in the other direction because of another bit of news…"

THE BIG BAD WOLF                           8/4/04
By Porter Stansberry

"…consider that Warren Buffett is now holding $34 billion in cash – with most of it in foreign currencies. In his previous 50 years as an investor, he’d never bought foreign stocks or currencies. Now he owns billions of both…"

A DAMNATION IN DISGUISE                      8/3/04
By Marc Faber

"…Now, in the case of Japan, the more-than-tripling in bond yields coincided with a strong recovery in the stock market (up from less than 8,000 in April to around 11,500 recently); therefore, one could argue that, in the United States, further weakness in bonds, or even a collapsing bond market, may not derail a bull market in equities…"
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LET THEM EAT CAKE                                 8/2/04
The Mogambo Guru

"…To save myself from getting hoarse in another of my patented screaming hissy-fits, I will merely point to the handy chart that reveals that the minimum wage was last increased seven short years ago, and prices have risen 17% in that time…"
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HEADLINE, NEWS and INSIGHT:

Beat the eighth grader! by A Reader Writes…

"…Question 8. Find bank discount on $300 for 90 days (no grace) at 10 percent…"
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Securities regulation doesn’t work by George Bragues

"…Interestingly, most of these studies found the volatility of stock price movements declined after mandated disclosure came into play. Riskier, more entrepreneurial firms tend to have more volatile stocks. The implication is that regulation reduced market swings by shutting out these firms from publicly traded equities, hindering a key source of economic dynamism…"
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The bomber will always get through by Lord William Rees-Mogg

"…Nothing would be easier than to create a major terrorist event in France itself. It has a large and radicalised Islamic population. There are internationally famous symbolic buildings and vulnerable high-speed trains. France has a sophisticated intelligence service, but it does not have the resources of the Anglo-American system. Yet it would serve no political purpose for Al Qaeda to knock down the Eiffel Tower…"