Rose-Tinted Spectacles

The Daily Reckoning Weekend Edition
Sunday, July 18, 2004
London, England
By Addison Wiggin and Tom Dyson

On Wednesday, your editor attended the Annual General Meeting for the troubled British retailer, Marks and Spencer. Your editor has been a shareholder since 1987, when we bought the shares for £1.68.

This was probably the most eagerly anticipated meeting in the company’s 110-year history, because the company is the target of a take-over bid. Over 3000 people turned up at London’s Royal Festival Hall, perched on the South bank of the Thames.

We were hoping for an electric meeting, full of anger, dissent and revolt. What we found was more like a mothers’ meeting. 2999 senior citizens had shown up for the free lunch and a nice day trip up to London. We were disappointed.

As for the shares, we are still disappointed. The bidder, Phillip Green, offered £4.00 cash per share and the board rejected the offer. On Friday the shares closed at £3.48. On Monday, your editor will sell… [Ed. Note: For more on the M&S saga, including a near punch-up between two CEOs, see the MoneyWeek article posted on our site:

Rose-Tinted Spectacles or Green around the Gills

Tech investors don’t believe the hype either, at least, they didn’t last week. A raft of disappointing earnings and gloomy forecasts have had got investors in the mood for selling. The Nasdaq fell every day, shedding 64 points, to make a new 8-month low at 1,883. It has now fallen 166 points in the last two weeks, a fall of over 8%.

Last week, the Dow and the S&P declined too. The S&P lost 6 points to 1,101 and the Dow lost 73, to close the week at 10,140.

The dollar has been tanking too and your editor, on a jaunt in London, is feeling the pinch. On Friday, the dollar made a five-month low against the British Pound, now trading at $1.875. Strangely, we still see plenty of American tourists visiting London. We wonder why they bother.

The euro made a four month-high at $1.246, gaining over a cent on Friday.

The same news that made the dollar sell-off caused bonds to rally sharply: core inflation data. The consumer price index rose 0.3% in June, raising the annual rate of inflation by 0.2% over May to 3.3%. An unexpected increase in energy prices explains the slightly higher than expected reading. Core inflation rose just 0.1%, however, although the annual rate of change in this index also increased by 0.2% to 1.9%.

"This is getting ridiculous," sighs Peter Schiff, our ubiquitous West Coast correspondent. "Since the Fed has done nothing to contain the growing inflation threat, but instead has continued to stoke its flames, 2005 CPI increases should be twice as large as those experienced during 2004, putting U.S. inflation solidly into double digits. I wonder just how high inflation will have to rise before Wall Street analysts stop pretending that it will still only be 2%."

Bond traders cheered the news by buying Treasurys. The 30-year bond rallied 10 basis points to 5.12, its lowest yield since 12th April.

Your editor is off on a boat trip down the river Thames this afternoon,

Shame it’s raining…

Regards,

Tom Dyson
The Daily Reckoning
July 18, 2004

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— Daily Reckoning Book Of The Week —

Ayn Rand and Business
by D. Greiner and T. Kinni

Ayn Rand was Alan Greenspan’s mentor. So even if you disagree with her ideas, it’s imperative that you must at least be aware of what she proposed. Here’s what Trader Vic had to say:

"Ayn Rand has had the greatest impact on my being a successful trader. The dedication to reality in admitting that you have made losing trades and taking action (selling), is summed up in her quote `a wish is not a claim on reality.` This concept along with dozens of others should prevent failure and create victory no matter what business is discussed. A must for thinking people."

– Victor Sperandeo, author of Trader Vic: Methods of a Wall Street Master

This is an easy-to-read introduction on the Ayn Rand and the Objectivist movement. We suggest you take a look:

Ayn Rand and Business

THIS WEEK in THE DAILY RECKONING

LOVE IN THE TIME OF VIAGRA 7/16/04
By Bill Bonner

"…There’s something about American women. They just don’t want to put up with us anymore…did you know that most divorces over the age of 40 are initiated by the woman, not the husband? It’s true. I don’t know what it is…"

DOCTOR DISINFLATION7/15/04
By Gary Shilling

"…One troubling thought: few speculative trades have been unwound so far. This is worrisome since market-leverage is much greater than it was 10 years ago when Fed rate increases last caught speculators off guard. In 1994, the Fed managed not only to kill Kidder Peabody, but also the finances of Orange County, California as well as the Mexican economy…"

AN EVENTUAL INEVITABLE CRISIS 7/14/04
By Marc Faber

"…So, at the very least, investors should gradually take out some insurance against what, in my opinion, is an eventual inevitable crisis, by being well diversified in every aspect of the investment universe…"

HENPECKED 7/13/04
By John Mauldin

"…So, there are lots of facts that should make us nervous and others that give us reason to be a housing bull. But that still does not answer the question, is there a housing bubble…?"

A SLAP IN THE FACE 7/12/04
By The Mogambo Guru

"…Now, if we take GDP to be $11 trillion, and divide it by the $2.73 trillion 1-year increase in debt, we come up with…my guts twist into a knot as I look at the calculator…0.248. After a few moments spent in some form of suspended animation, it finally impresses onto my tiny little brain that this increase in debt is equal to a quarter of GDP! A fourth of total annual income is borrowed and spent! In one year! One! Year! In one lousy freaking year! My mouth goes dry with panic…"

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HEADLINE, NEWS And INSIGHT:

Rose-Tinted Spectacles or Green around the Gills
by MoneyWeek

"…Shortly after the newly installed Rose rejected Green’s first bid, the two reputedly ‘almost came to blows’ outside M&S’s headquarters in Baker Street, with Green grabbing Rose by the lapels and berating him for joining M&S rather than his bidding team. Green feels his ‘chum’ lied to him…"

A Reliable Foe
by Paul Mampilly

"…The scenarios presented amount to a very bleak picture. Some of this is rhetoric. Only time will demonstrate how much. I’m certain though that things change and solutions will be found. Our path to those solutions will cause significant economic and social change. Doomsday will be avoided at a steep price…"