Renaissance America, Inc.
The Daily Reckoning Weekend Edition
January 17-18, 2004
By Addison Wiggin and Eric Fry
As an Arctic chill descended on New York City this week, the gold market fell into a deep freeze. The safe-haven metal tumbled each and every day of the week, losing nearly $20 over the five-day span to $407 an ounce. Meanwhile, on Wall Street, stocks provided all the warmth investors needed. All week long, the lumpeninvestoriat basked in the radiant glow of a rallying stock market.
The Dow Jones Industrial Average soared 147 points for the week to end Friday’s session at 10,600 and the Nasdaq Composite rocketed 2.6% to 2,140.
Like crumpled pages of the Wall Street Journal tossed onto flaming logs, one tech company after another caught fire after reporting fourth quarter earnings "above expectations." IBM, in particular, dazzled investors with a surprisingly strong report.
"With few exceptions, the company performed well across the board," crowed IBM’s CEO Sam Palmisano. "We enter 2004 with good momentum… We are enthusiastic about our prospects for this year and beyond."
General Electric’s CEO, Jeff Immelt, sounded a similarly upbeat note about his company’s earnings. Parroting Palmisano, Immelt beamed that GE operations are showing "strong momentum going into
2004. We were encouraged by a 19 percent rise in fourth-quarter orders," said Immelt, "The increase was broad based, with all of our industrial businesses experiencing growth.”
Interspersed among the delightful fourth-quarter earnings reports like daffodils along a picket fence, an array of economic reports showed that the economy is in full-bloom. Industrial production edged ahead for the fourth straight month, while more factories said production was improving than at any time since February 1997.
Touchy-feely statistics like consumer sentiment also continued to improve. For example, manufacturing executives polled by research group, Manufacturers’ Alliance/MAPI, said they are more optimistic about their company’s prospects for the next three to six months than they’ve ever been in the 32-year history of the survey.
"I think it’s going to be a heck of a good year," says Steve Lyons, president of Ford Motor Co.’s North American Division… And why not?… When so many people are feeling so good about things, what could possibly go wrong? The University of Michigan’s consumer sentiment index soared in early January to its highest level in three years… What, we repeat, could possibly go wrong?
The free-spending American consumer wakes up every morning with a smile on his/her face and an ample supply of credit cards in his/her wallet. Recall that two years ago, even when consumers were lacking in both confidence and savings, they still charged into the nation’s malls week after week, buying things they didn’t need with money they borrowed from someone else. Imagine how much money they might spend if some of it actually belonged to them!
Now that consumers find themselves emboldened by the year-long stock market rally and the prospect of economic growth, they’ll buy baubles and trinkets as freely as foreigners buy Treasury bonds and tech stocks. Net foreign purchases of long-term domestic U.S. securities soared to $83 billion in November from $41 billion in October, and a meager $4.3 in September.
In other words, November’s net foreign inflow into U.S. securities was more than 20 times higher than September’s. And given the massive stock market rally in December and bond market rally in January, we’d wager that foreign money is continuing to pour in to "America Inc."
The Daily Reckoning
January 18, 2004
P.S. Mysteriously, until this week, the surge in foreign buying of U.S. securities had not boosted the dollar’s value one bit. In fact, the dollar had been suffering a widely publicized swoon. But the greenback finally "caught a bid" last week, rocketing nearly 2% against the euro on Friday to cap a 3.7% gain for the week.
The dollar’s snap-back rally was long overdue, and we suspect that the dollar will snap back many more times before it snaps for good. In the meantime, you may want to think about exchanging some of your pricey dollars for various non-dollar assets. Happily for us Americans, the strong U.S. dollar still buys a lot of gold and a lot of Mexican beer and a lot of South American real estate.
THIS WEEK in THE DAILY RECKONING
DO GOODERS GONE BAD (01/16/04)
By Bill Bonner
"… It is a shame that do-gooders don’t set off some signal before they go bad… like a fire alarm that is running out of
juice. Maybe some adjustment could be made. But the most successful of them – such as Mussolini and Hitler – actually gain market share as they go bad. We wonder, too, at America’s latest breed of do-gooder, the neo conservatives. Is their stock rising… or falling?… "
CAUTION AHEAD (01/15/04)
By John Mauldin
"… I do not see a continual below-trend state of growth ahead of us. Then again, we have yet to do the difficult work of
re-balancing the economic scales which were decidedly tilted in the last boom. Until we have adjusted these imbalances, we will be fighting an uphill battle for growth. It can and will be done, but it will not be easy. It may take the rest of this decade… "
THE ONE WAY BET (01/14/04)
By Steve Sjuggerud
"… You never make and keep extraordinary profits by doing what ‘the common people’ are doing. You’ve got to do something extraordinary… and different. With ‘the common people’ chattering about nanotech, China, and safe stocks, it gives me the willies about the stock market. Instead, I’m looking where mainstream investors still aren’t (though perhaps not for much longer)… "
THE HARD TRUTH ABOUT CRUDE (01/13/04)
By John Myers
"… Decline in oil production flies into the teeth of rising world oil demand, projected to grow by about 1 million barrels per day in 2004. Crude oil, already expensive, will become more costly in 2004 and considerably more expensive during the second half of this decade as domestic production and oil reserves decline. I’m sure you’ll agree there’s money still to be made from black gold… "
THE CURRENCY CHAIN GANG (01/12/04)
By William Rees-Mogg
"… [The U.S.] boom in consumption… has been financed by a boom in debt, based on the huge borrowings from Japan and China. The prosperity of the United States in 2003 has not been the product of U.S. earnings but of borrowing the earnings of Asian countries. The world trade and currency relationships reflect this tension, and have been following exactly the forecasts we have been making… "
HEADLINE, NEWS And INSIGHT : Chronic, pathological liars in government? (yawn)… America’s biggest drug problem… and more…
Politics, Lies and Really Big Government
by Doug Casey
"… Michael Moore [in his book, ‘Dude, Where’s My Country’?] accuses Bush of being a chronic and pathological liar. The kind of people who survive in the game of politics long enough to become President are, almost necessarily, pathological liars. It would appear that Boobus americanus doesn’t much care. Certainly not if the domestic economy is good. In which case who cares who’s lying? Or if there’s a war or emergency going on?… "
America’s Total Debt Report
by Michael Hodges
"… Since 1990 it is clear the economy was ‘driven’ almost entirely by the biggest injection of new debt in history, which
produced a much diminished lower return in national income per dollar. Just as one hooked on drugs needs ever increasing amounts of drugs to ‘survive,’ it appears America needs ever increasing amounts of new debt to eke out diminishing amounts of growth – even with 2 wage earners per family… "