-->Mia's Wedding
The Daily Reckoning
Baltimore, Maryland
Friday, 6 June 2003
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*** The hullabaloo continues...Dow still above 9000...
*** Investors, analysts are very bullish...but
jobless...the dollar sinks - Panic Ahead?
*** Insiders selling...bonds in South Africa...strikes in
France
-------------------
The hullabaloo continued on Wall Street yesterday.
The latest Investors' Intelligence poll tells us that bulls
outnumber bears by more than 2 to 1. And the bulls are very
bullish. A First Call survey reveals that analysts expect
double-digit annual gains and a 25% rise in the S&P 500 in
the next 18 months.
Good luck to them! Factory orders from March to April
registered their biggest drop in 18 months, and
unemployment claims suddenly shot up ("Jobless claims
surge" is the CNN headline).
"Can stocks defy gravity?" asks Fortune Magazine. Fortune
concludes, as we do, that expecting double-digit gains from
the stock market is foolish. Where we part company with the
magazine is with our guess as to what investors are likely
to get. The magazine expects 6% to 8% annual gains. We
would put a minus sign before those figures.
For while the lumpeninvestoriat eagerly opens its brokerage
statements, the world's Big Money peaks at its own balance
sheet with dread and horror. The U.S. dollar, in which it
put so much money and faith, is giving way. It has lost a
third of its value against the euro. By one tally,
foreigners hold nearly $9 trillion in U.S. dollar assets.
Depending on how they keep score, they've lost as much as
$3 trillion. And yesterday, another big drop in the dollar
hit them again.
One of the remarkable things about the last few years has
been the lack of panic. American investors stood their
ground as trillions were taken out of the stock
market...largely because they didn't know any better. But
what about foreign dollar holders? Will they hold their
positions despite titanic losses? Or will they suddenly
panic?
We will see....
Eric...?
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Eric Fry in New York...
- The fierce tug-of-war between"outsider buying" and
"insider selling" continued yesterday. The sellers jerked
the major averages decisively to the minus side yesterday
morning. But the buyers held their ground, pulling stocks
back to the plus side by day's end. The burly buyers tugged
the Nasdaq 11 points higher to 1,646, and heave-hoed the
Dow to a slim 2-point gain at 9,041.
- Meanwhile, the dollar resumed its slow-motion collapse -
falling 1.5% to $1.1859 per euro. The greenback's weakness
sparked a rally in the gold market, as the once-and-again
monetary metal jumped $5.90 to $369.50 an ounce.
- The"outsider-buyers" of stocks don't seem to care much
about the dollar. They care about stocks, and they have
much to show for their efforts. The outsider-buyers can
proudly point to a hefty 30% Nasdaq rally since early
March. By contrast, the insider-sellers have little to show
for their toil...except, of course, the billions of dollars
they have been stuffing into their pockets by selling stock
to the outsider-buyers.
- Insider selling jumped 150% last month to $3.3 billion,
according to Thomson Financial, easily exceeding the five-
year historic monthly average of $2.4 billion. By contrast,
insider buying totaled a paltry $119 million, well below
its 5-year historic average of $180 million.
-"The resulting rise in the sell/buy ratio could signal
that the stock market's advance has run its course,"
CNN/Money speculates."The insider sell-buy ratio is the
highest since May 2001, a period that pre-dated a big fall
in the U.S. stock market."
- What should we cautious folks deduce from the fact that
the informed investor - a.k.a. the smart money - is selling
the very same stocks at the very same time that the
uninformed investor - a.k.a. the dumb money - is buying?
Maybe we should deduce that stocks are"better sold then
bought." On the other hand, maybe we should deduce that we
should"back up the truck" to buy stocks, simply because
there is a lot more dumb money than smart money, and if all
the dumb money is buying stocks at the same time, maybe the
smart money is the dumbest money of all...We suspect,
however, that dumb money is, in fact, dumb money, even if
it looks pretty darn smart for a while...But what do
dummies like us know about money anyway?
- Yesterday's economic dispatches provided little cause for
cheer, but the stock-buyers kept cheering anyway. U.S.
factory orders fell 2.9% in April, their biggest drop since
November 2001. Meanwhile, weekly jobless claims spiked to
442,000, the highest level in more than a month, marking
the 16th week above 400,000.
- It isn't easy to identify exactly what economic facts are
inspiring the feverish stock-buying. Is the buying inspired
by the fact that the economy is barely growing, that jobs
are rapidly disappearing, that the dollar is helplessly
tumbling, or a combination of all the above?
- Maybe the buyers are buying simply because stocks are
going up. After all, if stocks are going up, the economy
must be improving, right? And if the economy is improving,
shouldn't we be buying stocks?...For better or worse, the
more stocks go up, the more stock-buyers want to buy
them...until, one day, they don't want to buy them...and
that, dear reader, is how bear market rallies end.
- Or maybe investors are buying because they genuinely
believe that paying 35 times earnings for stocks is a good
idea. Today's Lilliputian earnings growth, they tell
themselves, will improve. Gulliver-sized earnings growth
will break loose from recessionary restraints...during the
second half of the year.
- Maybe so. But in the real world, earnings are growing
only because companies are slashing costs, primarily
payrolls. And it is unlikely that the road to national
prosperity, not to mention Dow 10,000, is paved with pink
slips.
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Back in Baltimore...
*** Your New York editor is not alone in discounting the
Echo Bubble. In fact, there are those who would discount
stock investing altogether...at least, Ã la '90s-bubble-
style.
"The problem investors face now is simple," writes
colleague Dan Denning."You can't make money the old way,
buying single stocks or mutual funds as if it were a bull
market. Stock prices are now determined by a multiplicity
of factors: balance sheets, interest rates, wars,
elections, trade policies, tax laws, and global capital
flows, to name a few.
"Not one single approach that worked in the bull market of
the '90s is adequate to invest successfully in this new
regime. It's time to rethink the way we build our
portfolios..."
(Ed note: for Dan's full comments, see his recent article:
Time for Regime Change on Wall Street
http://www.dailyreckoning.com/body_headline.cfm?id=3228 )
***"I see you guys were laughing at bond yields globally,"
writes our South African correspondent, Evan Pickworth.
"Check out some of the S.A. yields...pretty good value to
be had by foreigners, I'm sure you'll agree...
"I was looking at global yields and see emerging market
debt spreads have narrowed more than 450 basis points since
October last year, with Brazil yields down 700 basis points
since February and Argentine yields down a massive 2,450
basis points.
"In S.A., our 10-year government bonds have only dropped
200 basis points over the past 12 months, with our
benchmark 8-year R153 still high at a 9.74% yield. This
shows that S.A. capital market yields are still higher than
elsewhere (e.g. 5% in Australia and 5.85% in Poland, etc.).
"The newer five-year R194 reached a record low of 9.735% on
May 20, and is currently at 9.67%.
"All this while the flight to commodity currencies has
taken place (Aussie dollar up 16% vs U.S. dollar; Canadian
dollar up 15%; Brazilian real up 20% and the rand up
11.5%).
"SA's longest-dated bond, the R186, is also at record best
levels of around 9%.
"And then we're offering even higher yields on the
utility's, with power utility Eskom offering an attractive
10.07% (2008) and Umgeni Water 11.10% (2005). A major
success story on the stock market, newly listed Telkom is
offering 11.10% (2004). Of the other corporates, it remains
a fairly untapped market, but I see Standard Bank is
getting most of the interest, offering 11.23% (2005).
"On the whole, the S.A. economy has officially been in an
upward phase since September 1999 and in May 2003 exceeded
the previous record upward phase, which lasted from
September 1961 to April 1965. You'll also know that Fitch
has recently upped their rating for S.A. from BBB- to BBB
on the long foreign currency and to A- from BBB+ on the
long term local currency."
***"It's getting a little ugly," said our French
accountant yesterday. He was referring to the strikes by
government workers that have paralyzed Paris and halted
many public services - including the mail. The strikers
want to stop reforms that are intended to close the budget
deficit in the public retirement system.
"Yes, it's a mess...a couple of buildings have been burned.
I don't think there will be bloodshed. But I remember
'68...and it wasn't very nice."
An email message arrived later in the day from another
French friend...this one urging me to show up at 2PM on the
Place de la Concorde for a"manifestation" in favor of the
reforms.
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The Daily Reckoning PRESENTS: Bill Bonner, refraining from
thinking...
MIA'S WEDDING
by Bill Bonner
What makes the world go 'round, dear reader?
Is it love? Or money?
We are in town for business, but attended a friend's
wedding last Saturday. Mia and Beirne got married in the
Catholic Basilica down the street from our office in
Baltimore. The Basilica claims to be the oldest cathedral
in America. It sits on a hill between a soup kitchen and a
tawdry rooming house, like a bishop between two subway
bums. Designed in the Byzantine cruciform by Benjamin H.
Latrobe, and built of gray stone, it is more handsome
inside than out. Outside, the place is severe. But inside,
it is soft, but still dignified. Unlike the Cathedrals of
Rome, there are no naked women painted on the ceiling.
Craning our necks, we found no cherubs, no scenes of
destruction or abomination, no flayed saints, no sad
virgins or crucifixions, no purgatory or redemption.
Instead, the walls and ceiling were painted in a light
grey, highlighted with gold rosettes. The Basilica is a
Catholic Cathedral that makes Episcopalians feel at home.
By the time the beautiful bride came down the aisle, the
place was nearly full. It must have been the social event
of the season; tout Baltimore was there.
We mention this event only because it seemed to ignite a
small, philosophical candle within us. Unable to douse it
immediately, the flame flickered off and on for the rest of
the week. You see, dear reader, while we pretend to be
hard-headed financial analysts, we have a heart too. And on
certain occasions, it pumps.
The priest performed his work admirably, reminding one and
all of the seriousness of the occasion, without making a
nuisance of himself. Mia and Beirne were not just getting
together like Simon and Garfunkel or Merrill and Lynch.
They were entering into a sacred union...upon which the
entire race depends. So brightly does the allure of this
holy amalgamation shine, that practically everyone is drawn
to the altar at one time or another...and many two or three
times. Many regret it, of course...but that is a story for
a different time, not a wedding day.
Tears welled up in eyes throughout the church as the
ceremony reached its crescendo. The man in the pew in front
of us gave his wife a hug. The woman in the next pew
reached for her husband's hand. Perhaps they recalled what
made them tie the knot...or gave a silent prayer of thanks
that the tie that binds still bound.
At some point, a man has to stop thinking. At least, that
is the thought that we pondered as we watched the finale.
He has to stop because no amount of thinking can get him
where he needs to go - such as, to the altar. Getting
married is not a rational act, it is a desperate one. He
has to feel his way to it.
"Look, it's not something you can figure out by trying to
figure it out," we vaguely recall saying to a young man
later in the day."You can make money by figuring things
out. But if you spend all your time figuring things out,
you'll never figure out what you can't figure out by
figuring."
After the wedding service, the group made its way down
Charles Street to the Maryland Club. Mia and Beirne had met
as employees of our publishing company, so it was natural
that there would be many other employees at the wedding
reception. Most of these people are young...and more than a
few are contemplating marriage. They do not ask their boss
for his sage advice, but when he has been drinking, he is
likely to give it anyway.
"The most important decisions of your life are not made by
adding up columns of figures, or by making logical
deductions," he elaborated."Only a fool would choose his
work, his spouse or even his house that way."
"Everything that really matters in your life," he
continued, working himself up,"happens
spontaneously...almost miraculously. You meet someone...or
you go somewhere...or you try something. And you like it.
It changes your life. It enriches it. It makes it worth
living."
["When I met my wife Maria," said a friend later in the
week,"my life went from black and white to technicolor. I
had never felt anything like that. That was 15 years ago.
The color is still not bad."]
"Since you can't make these kinds of decisions using your
brain," the advice went on,"people who tend to use their
brains have a little disadvantage. They have to force
themselves to stop thinking long enough to feel their way
to the answer they need. Otherwise, a man will go along -
rationally, logically and reasonably - to a life of
complete misery. And if he thinks about his own situation
long enough and hard enough...he'll soon be ready to check
into a lunatic asylum or put a pistol in his mouth."
While your editor offered advice to people who didn't want
it, the party revved up around him. Spotting a cousin, he
decided to stop giving advice and ask for some.
"Steuart, you're a few years older than I am," he began.
"You've worked like a dog. But now you've done just about
everything you set out to do...I mean, you've got a lot of
money and a great family. So, here's my question...what do
you do now?"
It may seem like a silly question to most people. Steuart
can do whatever he pleases. He has plenty of money...and
time to spend it. At 60, he is still healthy and even
handsome. But Steuart understood the sense of it
immediately. A man reaches for something, but he is not
necessarily more content when he has it in his grasp. It is
the grabbing that keeps him going, not the having. (Advice
to wives: stay slightly out of range).
Before an answer had come, we were distracted by passers-
by. The band had started up; the dancing had begun. Your
editor once paid for dance lessons which proved at least as
low-yielding as his other investments. He learned a
variation of the fox trot, which he uses for any kind of
music on any occasion. The band may be doing merengue,
bossa nova, waltz, cha cha or rock and roll...your editor
fox trots.
"You dance very well," said an older woman whose left shoe
bore the imprint of his right.
"You lie very well," was the response.
Still, it was fun. Drinking. Dancing. Not thinking.
An old man walked by with his young, gorgeous wife.
"There's hope for us yet," whispered a friend.
"It is a cruel trick of nature," he went on."The more we
have, the less we want."
After the Maryland Club closed its doors, the party moved
to a hospitality suite at the Peabody Court hotel. More
rounds were poured...more advice given...and the little
fire of philosophical puzzling flamed up again. We wish we
could recall what was said.
We remember leaning close to a charming and beautiful young
woman. We recall the cut of her cheek and the fine yellow
strands of hair that fell down towards her shoulder. We
recall her boyfriend, too...a fine young man with a heart
as big as his ambition.
And then we recall saying something...to
someone...something important.
And then, finally falling into bed just before
sunrise...without thinking, your editor let out a
sound. He either laughed or wept. He can't remember which.
Bill Bonner
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