So Long, Dennis Kozlowski...

Fare thee well, Dennis Kozlowski. We will miss you. We will
miss you each and every day of your 8 1/3 to 25 year
sentence…We only regret that we will not have the
opportunity to miss you for longer.

Yesterday, a bailiff slapped handcuffs on Kozlowski and led
him out of a New York City courtroom to begin serving his
multi-year sentence. The judge also ordered Kozlowski to
pay nearly $200 million in restitution and fines.

"Family members wept in the gallery as the sentences were
imposed," the Associated Press reported. Meanwhile, most of
America cheered.

We will miss you, Dennis Kozlowski.

We will miss your beaming mug on the cover of sycophantic
business journals. We will miss the adoring columns about
your "can do" management style. We will miss your bravado,
tinged with condescension, that wowed the press and cowed
your critics. We will miss your ostentatious misuse of
stolen funds: your $6,000 shower curtain; your $17 million
apartment; and your $2 million dollar birthday parties,
complete with ice sculptures of Michelangelo’s David
spewing vodka from his private parts.

In short, we will miss your pathetic caricature of

I never liked Dennis Kozlowski. He was – and is – a
selfish, predatory jerk. He’s the kind of guy who can’t
seem to enjoy his own life unless he’s destroying someone

Dennis Kozlowski used to be the embezzling CEO of Tyco
International, a company once hailed as the "Next GE" by a
widely read business magazine. Now he is a convicted felon.
Justice is served.

Tyco was not the next GE, nor was it ever going to
be…Kozlowski was not the next Jack Welch, nor was he ever
going to be. Kozlowski was no Jack Welch…and he was
certainly no Jack Kennedy. Kozlowski was not even a Jack
Lalane. In short, Kozlowski wasn’t Jack.

But he was a marvelous imposter.

Dennis "the Menace" was not a capitalist, he was merely a
thief. His masquerade cost millions of investors billions
of dollars. But he did not fool everyone. Jim Chanos, a
legendary short-selling hedge fund manager here in
Manhattan, identified Tyco as a questionable corporate
entity, long before the rest of the world recognized that

Taking my cue from Chanos, I quickly reached a similar
conclusion. In the early days of 2001, aided by a savvy
securities analyst named Robert Tracy, your editor
published the following observation:

"Even as Tyco International CEO Dennis Kozlowski stacks
floor after floor on the Tyco revenue edifice, the
structure’s financial underpinnings are rotting away. Sure,
Kozlowski’s GE wannabe has engineered some aesthetically
pleasing numbers. But the numbers-behind-the-numbers give
cause for concern. Essentially, Tyco is a growth stock
without the growth. Free cash-flow growth pales next to the
net cash spent on acquisitions, and the marginal increase
in cash from operations also looks pretty skimpy alongside
the increase in cash spent. Meanwhile, tangible book value
– the stuff that you can put a real value on – has
literally disappeared, falling from $701 million at the end
of fiscal 2000 to a negative $4.4 billion as of the second

Eventually, Tyco’s mysterious accounting became less
mysterious. The English language, helpfully, provides a
word to describe Tyco’s accounting. The word is "fraud."
The same word aptly describes Dennis Kozlowski. He is a
fraud…a preposterous fraud.

So long, Dennis Kozlowski. We will miss you…we only
regret that we will not have the opportunity to miss you
for longer.

You don’t have to break the law to get rich….

Did You Notice?
By Sean Brodrick
Investment Director, Sovereign Society

The British pound is taking it hard on its aristocratic
chin, but gold is soaring. Something very odd is happening
here.  For the longest time, the pound and gold have moved
together.  But a few months back, their paths began to
diverge. And now they are heading in completely opposite
directions. Yesterday, for example, gold soared to a 17-
month high while the pound fell against the U.S. dollar.

Gold looks to be breaking out against the dollar, probably
on its way to $500 by the end of the year.  If gold is
decoupling from the pound, serious changes may be afoot
within the global monetary system. Could it be that gold
has finally entered a bull market against ALL of the
world’s major currencies, and merely against the dollar?

Whenever I run into a currency conundrum, I call Boris
Schlossberg, one of the editors of The Money Trader. So I
got Boris on the phone yesterday…

"Stagflation," Boris said. "That’s what’s boosting the gold
price…and pulling down the British pound. Consumers are
dying (metaphorically speaking).  The housing bubbles
around the world are being extinguished one by one: The
Netherlands a long time ago … Britain now … probably
Australia next and the U.S. after that."

Deflation is bad news for any economy-just ask the
Japanese, who may finally be sticking their noses out of
the muck (economically speaking) after 15 years of grinding
deflation. In bad economic times, people seek safe havens
like gold and the Swiss franc.

What could cause global deflation in the face of rising
energy prices (the price of crude oil is up 50% this year)?
The problem is that consumers are tapped out. U.S.
consumers spent more than they earned in July. Spending
rose by 1% while personal income increased by just 0.3%.
The personal savings rate dropped to a negative 0.6%-the
lowest since monthly records began in 1959.

For a long time, consumers throughout the Anglo-Saxon
countries have been able to keep things going by tapping
the equity in their homes. But that’s over.

It gets worse! Workers’ earnings-adjusted for inflation-
fell 0.5% in August, the biggest drop since November, after
falling 0.1% in July, according to the Labor Department.
Meanwhile, energy prices rose 5% in August, the biggest
jump since March 2003, after rising 3.8% a month earlier.
Gasoline prices rose 8.3%. Ouch!

Finally, about 71,000 people joined the jobless rolls
thanks to Hurricane Katrina, and the only thing stopping
more people from hitting the dole was that their local
unemployment office was either gone with the wind or
underwater! Economists expect that Katrina will swell
jobless ranks by as many as 400,000 when all is said and

Lower savings, lower incomes and increased joblessness mean
producers simply can’t raise prices. Outside of energy
costs, producer prices were unchanged in August. And that
brings us back to Boris’ specter of deflation. Now imagine
that problem echoed all over the Western world.

"That’s why the bond market, the smartest market in the
world, keeps going up instead of going down," Boris
explained. "All of this is fascinating going into the
Christmas season."

I nodded, thinking: "Yeah, fascinating … like the

Boris expects that rising oil prices will create
stagflation.  At biggest risk are companies like Wal-Mart,
whose customers may have to choose between buying enough
gas to get to work and shopping at their favorite mega-mart
of Chinese-made crapola.

Boris warned that the worst is yet to come for the U.S.

One thing’s for sure.  As much as I worry about keeping all
one’s investments in the U.S. dollar, keeping everything in
another currency-like the British pound-could prove equally
as foolish. Indeed, keeping all of one’s savings in ANY
paper currency could prove foolish.

During times like these, the currency without a central
banker may be the very best currency to own.

And the Markets…



This week

















10-year Treasury





30-year Treasury





Russell 2000


























JPY 111.47

JPY 111.32



Dollar (USD/EUR)





Dollar (USD/GBP)





The Daily Reckoning