The Markets This Week: Bear Hunting Is Back!

Last week, the state of New Jersey issued bear hunting licenses forthe first time in 33 years.

Apparently, the bear population had become so large that it wasbeginning to annoy people. "Bears have broken into 58 homes in NewJersey this year," Fox News reports. "Fifty bears have been hit byvehicles… Black bears have killed eight people over the past threeyears in North America, but none in New Jersey."

Nevertheless, the state of New Jersey issued licenses to 5,200 luckybear hunters, hoping to trim the 3,200-strong bear population byabout 500. We don’t really understand the appeal of shooting a large, unarmed, slow-moving mammal.  It doesn’t seem like a fair fight. Butneither do we understand the appeal of paying 100 times earnings fora share of Amazon.com.  Both seem like a bad idea. Hunter HarryMcDole, 63, of Sussex Borough bagged the first bear of the New Jersey hunting season, a 160-pound female. "I’ve waited 33 years to shootone in New Jersey. This is the best one because I got it in Jersey," McDole said.

The happy hunter also said he planned to have "a rug or something"made from the pelt and to eat the meat.

"Bears were hunted annually in New Jersey from 1958 to 1970," saysFox News. "Hunting was suspended when their numbers dwindled to about 100."

Over on Wall Street, bear hunting never goes out of season, no matter how small the bear population becomes. Indeed, on Wall Street, theobject is not merely to eradicate the bears, but to inflict as muchpain as possible while doing so. Even when the bear population thinsto near-extinction, as it did in 2000, the bears are alwaystargets… And now they’re on the run again.  The stock market’spowerful, 12-gauge rally over the last year and a half hasdramatically reduced the bear population.

Most of the popular investor sentiment surveys show an extremelysmall population of bears. And as we have noted previously, bearishinvestors tends to become very scarce, immediately before stockmarket sell-offs.

But the stock market keeps chuggin’ along. The Dow rose 1.8% thisweek, closing above 10,000 for the first time since May 24, 2002. The S&P 500 added 1.2%. The Nasdaq Composite Index climbed 0.6%. But thebuoyant stock market was no help whatsoever to the U.S. dollar, which slipped to a new record low of $1.2276 per euro.

On Wednesday morning, the Bank of Japan’s aggressive dollar-buyingboosted the greenback nearly 1%. But by Wednesday afternoon, the U.S. currency had forfeited all of its manipulated gains.

On Thursday morning, the dollar again rallied nearly 1%, beforecoughing up its gains in the afternoon. On Friday the greenback could muster no rally whatsoever; in merely tumbled to a new record lowagainst the euro. "The surest bet around seems to be that the dollarwill fall more," my colleagues in the Paris office predicted thisweek. Even TIME magazine is talking about ‘hedging’ against thedollar’s fall. Meanwhile, the smart money – Soros, Buffett,Templeton, Rogers – is betting against the dollar, hoping to makeepic profits as the dollar declines."

Happily, the dollar’s struggles are gold’s strength. The yellow metal rallied gained $2.60 for the week to $408.90 an ounce. "In the goldmarket, ‘buy-the-dips’ has replaced ‘sell the blips,’" we observedearlier this week. "Every time the metal falls a few dollars, eagerbuyers start showing up. The gold market has not known such steady,bullish buying for a long, long time. Ever since the gold pricetopped out above $800 an ounce 23 years ago, the gold market hasdoled out far more agony than ecstasy.

But the new millennium has been very kind to gold investors…  andto investors in almost all other commodities. The steady drop of theU.S. dollar and the steady rise of our national indebtedness hasrekindled a keen interest in the ancient monetary metal."

As investors flock to the gold market , they will inevitably flee the bond market. The steady drop of the U.S. dollar and the steady riseof our national indebtedness has rekindled a keen interest in theancient monetary metal.

"Central banks have made the riskiest bets in modern history," Morgan Stanley economist Stephen Roach asserts. "policy rates of ‘zero’ inJapan, 1% in America, and 2% in Europe. At the same time, fiscalauthorities have upped the ante as never before, with governmentbudget deficits of 7% in Japan, 4% in America, and 3% in Europe. Andthe authorities have colluded in currency management in a period ofunprecedented external imbalances.

Equally disconcerting is the possibility of an accelerating declinein the dollar. If that occurs, it seems reasonable that foreigninvestors would finally demand compensation for taking currency riskon dollar-denominated assets — pushing long-term US real interestrates higher.

All this points to the bond market as the next arena in whichmounting global tensions are vented. The confluence of several forces — central bank exit strategies, undisciplined fiscal policies, anddollar risks — underscores the potential for a sharp backup inlong-term interest rates.

Ironically, in this climate, it doesn’t take inflation to be bearishon bonds…

Hope you’re having a good weekend,

Eric Fry,
The Daily Reckoning

December 13-14, 2003

P.S. Sell bonds, sell the dollar… and don’t forget to buy little gold

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THIS WEEK in THE DAILY RECKONING

THE RAPE OF NANKING 12/12/03
by Bill Bonner

"… [The Rape of Nanking] provides evidence against those whobelieve in the perfectibility of man. Beginning in December 1937…only 65 years ago… the world was reminded of what evil was allabout. Previous records in political depravity were broken when thedevil worked overtime for a six-week period. When it was over, anestimated 377,000 people had been slaughtered… "

JAPANESE PHANTOM GROWTH 12/11/03
by Kurt Richebacher

"How to reconcile [the Bank of Japan’s] dismal description of theeconomic situation with the officially reported stellar real GDPgrowth rate of 3.9% for the second quarter? Putting it bluntly: It is exactly the same statistical hoax as the 3.3% simultaneously reported for the U.S. economy. Japan’s statisticians have learned from theirAmerican colleagues how to conjure up the perception of an economicrecovery that does not exist… "

THE FIVE YEARS ‘TIL TRAGEDY RULE 12/10/03
by Steve Sjuggerud

"… After a major stock market peak, there are five years untiltragedy… five years until a dollar crisis – and soaring commodityprices. Five years after the stock market peak in 1857, thegovernment got down to the business of creating inflation… crashing the dollar and causing gold and commodity prices like oil to soar.This was the first of many times this would occur. The same story isnow unfolding once again… "

GREAT EXPECTATIONS 12/09/03
by Bill Bonner

"… Modern economists no longer believe in ‘ought’. They don’tappreciate her moral tone and try to ignore her. The whole method ofmodern economics [has] shifted from exploring what a man ought todo… to statistical analysis. Economists attach sensors to variousparts of the great machine as if they were running diagnostics on anauto engine… and of course, it was absurd. Today, we take anotherlook at ‘ought’ – and hope to discover more of life’s secrets… "

WEEP FOR AMERICA 12/08/03
by The Mogambo Guru

"… I think that a 30% devaluation in the purchasing power of thedollar is entirely achievable, if that is the term that one uses todescribe such a catastrophe, and I have a hard time conceiving thatall foreigners would [continue to] elect to invest in dollars,especially considering the economic ramifications of what ishappening today. And all this is inflationary, which is The ThingThat Is To Be Feared, according to that loudmouth Mogambo, which isme… "