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-->The Modern-Day Poverty Syndrome

The Daily Reckoning

Paris, France

Thursday, 4 March 2004


---------------------

*** Deficits don't matter... until they matter...

*** Gold down... dollar up... Dr. Copper seems confused.

*** And oh là là! The big bad wolf asks for 5 million
euros... will Suzy pay?

---------------------

Just as there are two points of view on outsourcing - both
of them puerile - so are there two opposing perspectives on
federal deficits. On one side, neo-conservative Republicans
tell us that 'deficits don't matter.' On the other, neo-
conservative Democrats tell us that we must raise taxes
immediately to fill the gap.

It is hard to know which one to laugh at first.

It's true that 'deficits don't matter' - as long as
creditors don't seem to care. A man can run up as much debt
as he wants. It doesn't matter... until it matters. That is,
as long as he is able to go even deeper into debt, it
doesn't matter. It's a bit like a man jumping off a tall
building; it's even exhilarating... right up to the end. But
when creditors want their money back... or refuse to lend
him more money... all of a sudden, he hits the sidewalk, and
the lights go out.

There was a time when America's creditors were America's
savers. Even then, deficits mattered; but they mattered
less, because the feds could rip off our own citizens
easily. All they had to do was to stimulate a little
domestic price inflation... which undermined the value of
their bonds and savings; the lumps should have known better
anyway.

But when Americans stopped saving, the nation had to turn
to foreigners. Now, it takes nearly 80% of the entire
world's savings just to allow Americans to continue living
in the style to which they had become accustomed. The
gollywogs and krauts are probably as dumb as Americans,
especially their central bankers, but they are more mobile.
They can shift their money out of dollars into euros... or
yen... or yuan. When the foreigners decide they've had
enough... when they stop lending and sell off their U.S.
dollar assets - that is when it will matter. U.S.
government benefits will be cut whether Americans like it
or not. Standards of living will fall. Jobs will be lost.
Then, the U.S. economy will go into a long, dark night of
recession, deflation, and financial crisis.

Raise taxes? Well, yes... why wait for the foreigners to
kill the economy when we can do it ourselves? If Americans
have to pay more in taxes, they will have less to spend.
Consumer spending is 70% of the economy. When people begin
to consume less... the consumer economy goes into
reverse... and then comes the splat... and the long, dark
night.

Either way, the lights are going out. Buy candles.

And now... more news:

--------------

Eric Fry in the Empire State...

- Yesterday's trading action exhausted bulls and bears
alike, while satisfying neither camp. Gold tumbled, then
rallied; the dollar rallied, then tumbled; and the stock
market finished the day with a split decision: Dow up,
Nasdaq down.

- Stocks greeted the new trading day by continuing the
selloff they started on Tuesday. But the market reversed
course - as it so often does - and headed higher throughout
the afternoon. The Dow closed out the session with a 2-
point gain at 10,593, while the Nasdaq eased 6 points to
2,033. But the stock market was more"tail" than"dog"
yesterday, wagging back and forth in response to the
extremely volatile action in the foreign exchange and
commodities markets.

- The dollar, which has become as volatile as a 2000-
vintage Internet stock, rocketed nearly 2% against the euro
yesterday morning. But shortly before lunchtime in New
York, the world's currency traders seemed to conclude that
enough was enough - or more than enough. The greenback
reversed course and plummeted. By the end of the session,
the dollar had surrendered all of its earlier gains to
finish at $1.2206 per euro.

- Meanwhile, over in the metals markets, gold dropped as
much as $5.40 to $387.95 an ounce, while the dollar was in
rally mode. But once the dollar headed south, the gold
price sprinted north to finish the day with modest $1.10
loss at $392.70 an ounce.

- What does it all mean? We are neither sufficiently
brilliant nor sufficiently naïve to provide a ready answer.
We do know, however, that volatile markets - while
treacherous for short-term traders - are a long-term
investor's best friend. Short-term dips often provide
excellent investment opportunities... at least with the
benefit of hindsight.

- To wit: While sipping my triple tall cappuccino yesterday
morning in Union Square park, your New York editor
overheard a guy on a nearby bench chatting into his cell
phone."I feel so stupid," he complained,"I KNEW I should
have taken all my IRA money and bought Martha Stewart stock
while it was tanking, and just hoped for the best. I would
have made thousands."

- Alas, another buying opportunity lost... But there will be
others, and a few selling opportunities as well. Mr. Market
is a very egalitarian sort of fellow; every day he offers
both buying opportunities and selling opportunities. The
problem is that many investors confuse the two.

- And what about today? What should we make of the recent
drop in the gold price? The yellow dog has fallen $21 since
the February 18 close of $412.80. Buying opportunity or
selling opportunity? What say ye? Is gold, perhaps, the
Martha Stewart of investments - widely disdained by the
masses, but ready to have the last laugh?

- Use the recent volatility in the gold market to your
advantage, says Pierre Lassonde, president of Newmont
Mining."Don't tell me that the gold bull market is over.
It has hardly even started," Lassonde declared to the
attendees of the 2004 BMO Nesbitt Burns Global Resources
Conference in Tampa, Florida.

-"The last real gold bull market was in the 1970s,"
Lassonde explained."It went on for 9 years from 1971 to
1980. What we've had in the past 20 years are bear market
rallies. So when you read... that the average gold bull
market is 40 months and we're 36 months into it; and that's
bad... Well, you know what, they haven't seen anything until
you go back to the 1970s."

- Underpinning Lassonde's confidence in the gold rally is
his skepticism that America's fiscal imbalances can be
corrected painlessly."We haven't even started to correct
the U.S. financial imbalance of the last three years," he
explained.

-"America is currently funded through the foreign largesse
of Asian central banks, who are soaking up dollars to avoid
U.S. consumers from losing purchasing power that would dent
their appetite for imports. There is not one central bank
that needs to accumulate as many dollars as the [Asians]
have, just to keep the cycle going... It's the biggest
vendor financing take-back you've ever seen in the history
of the world."

- Lassonde predicts a"manic depressive dollar" that will
become increasingly volatile as its value erodes.

- On the supply side, Newmont's president predicts that
gold production will begin to decline."Back in the 1990s,
we had huge patches of ground being opened up in Africa,
South America and behind the iron curtain. We're in a
different stage in production [now]."

- The official Daily Reckoning conclusion: There are
probably worse investments than gold.

--------------

Bill Bonner, back in Paris....

***"My big wolf... don't take useless risks; the earlier
the better. Give me your instructions. Suzy"

- A personal ad in Libération

Oh là là... the War on Terror has found a new battlefield -
here in France. The whole country is being held hostage by
a mysterious, evil group called AZF, otherwise known as the
'big wolf.'

Ten thousand railway workers are now searching the tracks
for AZF's bombs. The group says it has planted 10 of them
along important railway lines. One has already been found
on the Paris-Toulouse line. Communicating with the
government - aka 'Suzy' - through personal ads in the
leftist newspaper, Libération, it demands 5 million euros
or threatens to blow up a train.

Oh dear reader... what a wicked world we live in!

*** If that weren't enough... yesterday, bonds went
down....and so did Dr. Copper, along with oil and gold.
That is the problem with indeflation; it can't seem to make
up its mind. It is indecisive... and indecipherable. The
dollar went up a bit. Gold went down a bit.

*** The LA Times says that executive insiders are selling
more stock than ever...

*** House prices rose 8.4% nationwide in 2003, says the
Chicago Tribune.

*** For more news of no importance... mortgage requests are
rising... and auto sales rose 4.8% in February...

---------------------

The Daily Reckoning PRESENTS: As living standards in the
U.S. alter (dare we say 'improve'?) and the trappings of
the middle class grow more and more elaborate... bankruptcy
is becoming alarmingly prevalent. Could the American middle
class be disappearing?


THE MODERN-DAY POVERTY SYNDROME
by Marc Faber

I have just returned to Thailand from several trips, which
took me to the Middle East, Europe, Argentina, the U.S.,
and Japan. It struck me during my travels that there are
very few bargains at present in the various investment
markets, and that in most Western industrialized countries,
the prices, or the cost of living, are very high indeed. It
is true that for most manufactured goods prices have come
down, but the cost of the basket of goods that people have
become accustomed to, and in many cases actually require,
in order to work and to function in today's modern society
has risen considerably.

While I was growing up my family had just one car, one
television set, one radio, record player, camera,
refrigerator, toaster and cooking stove. Readers will know
what kind of arsenal of electrical appliances and
electronic gadgets today's households are littered with,
especially if they have children. My point is that, as
technology has progressed and as standards of living have
changed (I am doubtful that they have risen much in the
Western world), the cost of the basket of goods that one
requires in order to participate in this"new economy" has
vastly increased, so that, along with soaring healthcare,
education, and insurance costs, there is a very heavy
burden placed on anyone who isn't seriously rich.

In this respect I have just read a recently published book,
The Two Income Trap, by Harvard Law School professor
Elisabeth Warren and Amelia Warren Tyagi (Basic Books,
2003) who explain"why middle-class mothers and fathers are
going broke."

According to Elisabeth Warren, who conducted extensive
research on the subject:

"The families in the worst financial trouble are not the
usual suspects. They are not the very young, tempted by the
freedom of their first credit cards. They are not the
elderly, trapped by failing bodies and declining savings
accounts. And they are not a random assortment of Americans
who lack self-control to keep their spending in check.
Rather, the people who consistently rank in the worst
financial trouble are united by one surprising
characteristic. They are parents with children at home.
Having a child is now the single best predictor that a
woman will end up in financial collapse.

"Consider a few facts. Our study showed that married
couples with children are more than twice as likely to file
for bankruptcy as their childless counterparts. A divorced
woman raising a youngster is nearly three times more likely
to file for bankruptcy than her single friend who never had
children.

"Over the past generation, the signs of middle-class
distress have continued to grow, in good times and in bad,
in recessions and in booms. If those trends persist, more
than five million families with children will file for
bankruptcy by the end of this decade. This would mean that
across the country nearly one in seven families with
children would have declared itself flat broke, losers in
the great American economic game.

"Bankruptcy has become deeply entrenched in American life.
This year [Ed note: 2003], more people will end up bankrupt
than will suffer a heart attack. More adults will file for
bankruptcy than will be diagnosed with cancer. More people
will file for bankruptcy than will graduate from college.
And, in an era when traditionalists decry the demise of the
institution of marriage, Americans will file more petitions
for bankruptcy than for divorce."

According to the authors, it is not over-consumption that
is driving many middle-class families into bankruptcy, but
the lack of a safety net. Middle-class families don't
qualify for all kinds of programs that are available to the
poor. Moreover, the family safety net no longer exists for
the modern two-earner couple, which makes them"actually
more vulnerable than the traditional single-breadwinner
family."

Professor Warren explains that a generation or so ago, the
typical family consisted of the father being responsible
for the economic health of the family, while the mother
fulfilled roles such as homemaker or helpmate. The mother's
role was, in the words of the authors, the one of a
"careful guardian of what her husband brought home" and"if
her husband was laid off, fired, or otherwise left without
a paycheck, the stay-at-home mother didn't simply stand
helplessly on the sidelines as her family toppled off an
economic cliff; she looked for a job to make up some of
that lost income. Similarly, if her husband had a heart
attack and was expected to stay home for a while, she could
find work and add a new income source to help the family
stay afloat financially. A stay-at-home mother served as
the family's ultimate insurance against unemployment or
disability-insurance that had a very real economic value
even when it wasn't drawn on."

The problem with the two-income family is that it doesn't
plan its financial commitments geared to a single income by
saving the extra income that is derived by the mother.
According to Warren,"millions of two-income families used
that second income to purchase opportunities for their
children - a home in a safe neighborhood with good schools,
a comprehensive health insurance policy, two reliable cars,
preschool, and college tuition. They made long-term
commitments to ongoing expenses - and they counted on both
incomes to make ends meet."

So, when one of the members of a two-income family loses
his or her job, the safety net (the mother entering the
workforce) that was available to the single-breadwinner
family is no longer available. And once the combined income
of the two-income family collapses as a result of one
member losing his or her job,"the modern couple doesn't
have a prayer of making ends meet."

The Two Income Trap, which is, incidentally, a highly
readable book and saddening at the same time, struck a
chord with me. As I suggested above, the high and
continuously rising cost of living in the Western
industrialized countries has created something I call
modern-day poverty, or poverty in affluence, whereby a
large number of middle- and even upper-middle-class
families have very little left by the time they have paid
for their mortgages, taxes, insurance premiums, food, and
children's education. These families may have a combined
income of 70, or even 100, times that of my gardener in
Chiangmai, who earns US$150 per month (but would do the job
for US$100 per month), but, despite their relatively high
incomes, they are highly vulnerable in the event that one
member is laid off or can no longer work for whatever
reason.

While I am fully aware that those of my readers who are
either prospering in the financial sector or are seriously
wealthy don't have the financial problems that middle-class
families have, I am mentioning this"modern-day poverty"
syndrome because I simply don't buy the argument -
repeatedly advanced by economists and strategists at
investment conferences - that the U.S. consumer, or for
that matter any average consumer in the Western
industrialized countries, is in"great shape."

This should concern all of us who are fortunate to be
financially independent, because modern capitalism has
created a widening wealth inequity whereby a small sector
of our advanced Western societies is living in style, while
most families are increasingly dependent on asset inflation
(notably in real estate) which enables them to take on
additional debts in order to maintain their standard of
living. At the same time, it ought to be clear that the
poor, who don't own any assets, have become totally
disenfranchised, since with home prices continuously rising
their ability to purchase them has diminished.

The"two-income trap" is a sobering and saddening fact of
our modern society. Moreover, after having recently visited
Argentina and seen first-hand the decline of a formerly
rich country, I am deeply concerned about the economic
future of the West.

Having said that, no matter how unappealing the economy
might be, for investors and speculators, opportunities for
substantial capital gains will still present themselves
from time to time. They are simply that much harder to
identify.

Regards,


Marc Faber,
for The Daily Reckoning

-->Die Amerikaner sollten Kerzen kaufen!

von unserem Korrespondenten Bill Bonner

Wenn es um Haushaltsdefizite geht, dann gibt es zwei gegensätzliche
Einschätzungen. Das merkt man, wenn man sich den gerade beginnenden
Wahlkampf in den USA ansieht. Auf der einen Seite sind die
neo-konservativen Republikaner, die sagen, dass"Defizite egal sind".
Auf der anderen Seite sind die neo-konservativen Demokraten, die
sagen, dass sofort die Steuern erhöht werden müssten, um den Haushalt
auszugleichen.

Es ist schwer, zu entscheiden, wen man zuerst auslachen soll.

Es stimmt, dass"Defizite egal sind" - solange sie den Gläubigern egal
sind. Ein Mann kann so viele Schulden anhäufen, wie er will, wenn das
dem Gläubiger egal ist. Das ist egal... bis es nicht mehr egal ist.
Solange er sich immer weiter verschulden kann, ist es egal. Das ist
ein bisschen so wie der Sprung von einem Hochhaus... das kann ganz
schön aufregend sein... bis ganz zum Schluss. Wenn die Gläubiger
plötzlich ihr Geld zurückhaben wollen... oder kein neues Geld mehr
leihen wollen... dann ist das so, als ob der vom Hochhaus Springende
plötzlich den Betonboden erreicht hat. Und dann gehen in beiden Fällen
die Lichter aus.

Es gab einmal eine Zeit, als die Gläubiger des amerikanischen Staates
die amerikanischen Sparer waren. Selbst damals waren Defizite nicht
egal; aber sie waren nicht ganz so wichtig, denn die Regierung konnte
ihre eigenen Bürger leicht ausnehmen. Sie musste nur ein bisschen die
Inflation anfachen... was den Wert der Anleihen und Ersparnisse
fallen ließ; die kleinen Sparer hätten es besser wissen sollen.

Aber als die Amerikaner mit dem Sparen aufhörten, da musste sich die
US-Regierung an die Ausländer wenden. Jetzt benötigen die USA fast
80 % der gesamten Ersparnisse der Welt, nur damit die Amerikaner
weiterhin auf die Weise leben können, an die sie sich gewöhnt haben.
Die durchschnittlichen Anleger in Japan und Deutschland sind
wahrscheinlich auch nicht klüger als der durchschnittliche
amerikanische Anleger, aber sie sind mobiler - besonders ihre
Zentralbanken. Sie können ihr Geld schnell aus der Dollarzone abziehen
und in Euro tauschen... oder in Yen... oder in Yuan. Wenn die
Ausländer entscheiden, dass sie genug haben... wenn sie aufhören, den
USA Geld zu leihen, und ihre US-Vermögensanlagen verkaufen - dann wird
der Zeitpunkt erreicht sein, an dem Defizite nicht mehr egal sind.
Dann werden die amerikanischen Sozialausgaben gekürzt werden müssen,
ob die Amerikaner es mögen oder nicht. Der amerikanische
Lebensstandard wird fallen. Jobs werden abgebaut werden. Und dann wird
die US-Wirtschaft in eine lange, dunkle Nacht der Rezession, Deflation
und Finanzkrise fallen.

Steuern erhöhen? Nun, ja... warum sollte man darauf warten, dass die
Ausländer die eigene Wirtschaft zum Zusammenbruch bringen, wenn man
das selbst erledigen kann? Wenn die Amerikaner mehr Steuern bezahlen
müssen, dann werden sie weniger für den Konsum übrig haben. Und die
Konsumausgaben machen 70 % des Bruttoinlandsproduktes aus. Wenn die
Leute beginnen, weniger zu konsumieren... dann wird die
Konsumwirtschaft stocken... und auch dann kommt die lange, dunkle
Nacht.

So oder so gehen die Lichter aus. Die Amerikaner sollten Kerzen
kaufen.

Und jetzt... mehr News:



Freitag, 5. März 2004

Es gibt wahrscheinlich schlechtere Investments als Gold

von unserem Korrespondenten Eric Fry in New York

Sowohl Bullen als auch Bären sind derzeit erschöpft; kein Lager ist
wirklich zufrieden. Der Goldpreis ist gefallen, hat sich dann wieder
erholt; der Dollar stieg deutlich, dann sackte er wieder ab; und der
Dow Jones wusste auch nicht so recht, was er machen sollte.

Was bedeutet das alles? Ich bin weder besonders brillant noch naiv
genug, um Ihnen das beantworten zu können. Ich weiß allerdings, dass
volatile Märkte langfristig der beste Freund der Investoren sind -
wenn sie auch für kurzfristige Trader gefährlich sind. Denn die
kurzfristigen Rückschläge bieten oft exzellente Kaufmöglichkeiten...
zumindest im Nachhinein.

Während ich gestern Morgen im Union Square Park aus einem
Plastikbecher meinen morgendlichen Cappuccino trank, hörte ich einen
Typen, der nicht weit entfernt auf einer Bank sitzend in sein
Mobilfunkgerät sprach."Ich fühle mich so dumm", beklagte er sich,
"ich WUSSTE, dass ich mein ganzes Geld hätte nehmen sollen, um damit
diese Aktie zu kaufen. Ich hätte Tausende verdient." Ach, schon wieder
eine Kaufgelegenheit versäumt... aber es wird andere gehen, und auch
ein paar Verkaufsmöglichkeiten. Der Markt ist sehr gerecht; jeden Tag
liefert er sowohl Kauf- als auch Verkaufsmöglichkeiten. Das Problem
ist, dass viele Investoren beide verwechseln.

Und was ist mit dem Hier und jetzt? Was soll man vom jüngsten Rückgang
des Goldpreises halten? Seit dem 18. Februar hat das gelbe Edelmetall
rund 20 Dollar verloren. Kaufgelegenheit oder Verkaufsmöglichkeit?

Pierre Lassonde, Präsident der riesigen Goldminengesellschaft Newmont
Mining, meint, dass man von der Volatilität am Goldmarkt profitieren
sollte."Sagen Sie mir nicht, dass der Bullenmarkt bei Gold schon
vorüber sei. Er hat kaum begonnen", so Lassonde während einer
Konferenz in Florida.

"Der letzte reale Bullenmarkt beim Gold war in den 1970ern", erklärte
Lassonde."Der lief 9 Jahre, von 1971 bis 1980. Was wir in den letzten
20 Jahren hatten, waren Bärenmarkt-Rallys. Also, wenn man liest, dass
der durchschnittliche Bullenmarkt beim Gold 40 Monate dauert, und wir
haben schon 36 Monate davon hinter uns, und das sei schlecht... nun,
wissen Sie, dann hat derjenige, der das geschrieben hat, nicht bis in
die 1970er zurückgeblickt."

Die Zuversicht von Lassonde in Bezug auf eine weitere Goldpreis-Rally
wird gestützt durch seine Skepsis, dass die amerikanischen
fiskalischen Ungleichgewichte schmerzlos korrigiert werden können.
"Wir haben noch nicht einmal begonnen, die amerikanischen finanziellen
Ungleichgewichte der letzten drei Jahre zu korrigieren", erklärte er.

"Amerika wird derzeit durch die ausländischen Geschenke der
asiatischen Zentralbanken finanziert, denn die pumpen Dollar ins Land,
um zu verhindern, dass die US-Konsumenten ihre Kaufkraft verlieren,
die ihren Appetit für Importe dämpfen könnte. Es gibt nicht eine
Zentralbank, die so viele Dollar anhäufen müsste, wie es die Asiaten
tun, nur um den Zyklus am laufen zu halten... Das ist der größte
Verkäuferkredite-Zyklus, den man jemals in der Geschichte der Welt
gesehen hat."

Lassonde sagt einen"manisch depressiven Dollar" voraus, der mit
fallendem Wert zunehmend volatil werden wird.

Außerdem prognostiziert der Präsident von Newmont, dass die
Goldproduktion beginnen wird, zu fallen."In den 1990ern gab es große
neue Goldminen, die wir in Afrika, Südamerika und hinter dem zuvorigen
Eisernen Vorhang eröffnen konnten. Wir befinden uns (jetzt) in einem
anderen Produktionsstatus."

Die Schlussfolgerung des Investor's Daily: Es gibt wahrscheinlich
schlechtere Investments als Gold.

----------------------------------------------------------------------

Freitag, 5. März 2004

Bombendrohung in Frankreich

von unserem Korrespondenten Bill Bonner in Paris

***"Mein großer Wolf... geh keine nutzlosen Risiken ein; je früher,
desto besser. Gib mir Deine Anweisungen. Suzy."

So lautet eine persönliche Anzeige in der französischen Zeitung
"Libération".

Oh là là... der Krieg gegen den Terror hat ein neues Schlachtfeld
gefunden - hier in Frankreich ist derzeit das ganze Land die Geisel
einer mysteriösen, bösen Gruppe, die sich AZF nenne, auch bekannt als
"großer Wolf."

Derzeit suchen 10.000 Bahnarbeiter die Gleise nach von AZF gelegten
Bomben ab. AZF hat gesagt, dass an wichtigen Eisenbahnstrecken 10
Bomben platziert worden seien. Eine ist bereits gefunden worden, auf
der Strecke Paris-Toulouse. In ihrer Kommunikation mit der
französischen Regierung - mit"Suzy" - durch Anzeigen in der Zeitung
Libération hat AZF mitgeteilt, dass sie 5 Millionen Euro wollen. Oder
sonst würde ein Zug in die Luft gesprengt.

Oh, liebe(r) Leser(in)... was für eine gemeine Welt, in der wir da
leben!

*** Als ob das noch nicht genug wäre... gestern fielen die
Anleihenkurse... und auch der Ã-lpreis und der Kupferpreis. Das ist
das Problem mit einer"Indeflation" (dieses Wort habe ich in den
letzten Tagen erfunden); sie kann sich einfach nicht festlegen. Sie
ist unsicher... und unentschlüsselbar. Der Dollar war zu Wochenbeginn
ein wenig gestiegen. Gestern wieder ein wenig gefallen. Ähnlich die
Situation beim Gold.

*** Laut der Los Angeles Times verkaufen die Unternehmensinsider
derzeit soviele Aktie wie nie zuvor...

*** Und in der Chicago Tribune steht, dass die Preise für
Einfamilienhäuser in den USA im letzten Jahr um 8,4 % gestiegen sind.

*** Und es gibt noch weitere unwichtige News... die Anträge auf
Hypotheken steigen in den USA... und im Februar stiegen die Umsätze
mit Autos um 4,8 %...

----------------------------------------------------------------------

Freitag, 5. März 2004

Die moderne Armut

von Marc Faber

Ich bin gerade aus Thailand zurückgekehrt, von einer langen Reise, die
mich im Mittleren Osten, Europa, Argentinien, den USA und Japan
herumgebracht hat. Ich habe bei meinen Reisen bemerkt, dass es derzeit
an den diversen Investmentmärkten nur sehr wenige Schnäppchen gibt.
Ich habe außerdem gemerkt, dass die Lebenshaltungskosten in den
meisten westlichen Industrieländern in der Tat ziemlich hoch sind. Es
stimmt, die Preise vieler Güter sind gefallen, aber genauso sind die
Kosten für viele Güter, an die sich die Leute gewöhnt haben,
gestiegen.

Als ich ein Kind war, da hatte meine Familie ein Auto, einen
Fernseher, ein Radio, einen Plattenspieler, eine Fotokamera, einen
Kühlschrank, einen Toaster und einen Herd. Sie werden wissen, wie viel
elektrische Geräte sich heute in den privaten Haushalten finden,
besonders in denen mit Kindern. Was ich damit sagen will: Während es
technologischen Fortschritt gab und sich der Lebensstandard geändert
hat (und ich bezweifle, dass er sich in der westlichen Welt stark
erhöht hat), haben sich die Kosten, die notwendig sind, um an dieser
"New Economy" teilhaben zu können, deutlich erhöht.

Zu diesem Thema habe ich gerade ein vor kurzem herausgegebenes Buch
gelesen, mit dem Titel"The Two Income Trap", von den
Harvard-Professorinnen Elisabeth Warren und Amelia Warren Tyagi. Die
erklären,"warum die Familien der (amerikanischen) Mittelklasse pleite
gehen."

Ich zitiere Elisabeth Warren, die zu diesem Thema extensive
Untersuchungen angestellt hat:

"Bedenken Sie ein paar Fakten. Unsere Studie zeigte, dass verheiratete
Paare mit Kindern doppelt so wahrscheinlich Pleite gehen als
kinderlose Paare. Eine geschiedene Frau, die ein Kind aufzieht, wird
dreimal so wahrscheinlich Pleite gehen wie eine Single-Frau, die
niemals Kinder hatte."

"Im amerikanischen Leben ist es ganz normal geworden, dass Leute
Pleite gehen (damit sind persönliche Bankrotterklärungen wegen
Überschuldung gemeint). In diesem Jahr (2003) werden mehr Bürger
Pleite gehen, als Leute einen Herzinfarkt bekommen werden. Es wird
mehr Pleiten als Krebsdiagnosen geben. Es wird mehr Pleiten als
Universitätsabsolventen geben. Und (...) es wird mehr Pleiten als
Scheidungsanträge geben."

Laut den Autoren ist es nicht etwa"übermäßiger Konsum", der die
Familien der Mittelklasse in die Pleite treibt, sondern das Fehlen von
Sicherheitsnetzen. Denn für die Armen gibt es staatliche
Unterstützungsprogramme, für die sich die Mittelklasse-Familien aber
nicht qualifizieren.

Das Problem mit Familien, bei denen beide Elternteile arbeiten, ist,
dass sie nicht einplanen, dass einer von beiden arbeitslos werden
könnte. Eigentlich sollten sie versuchen, mit nur einem
Arbeitseinkommen klar zu kommen, und das zweite Arbeitseinkommen
sparen. Denn für Familien mit zwei arbeitenden Elternteilen gibt es in
den USA kein Sicherheitsnetz.

Das Lesen dieses Buches fand ich sehr interessant, und auch traurig.
Wie ich bereits oben gesagt habe: Die steigenden Lebenskosten in den
westlichen Industrienationen haben dazu geführt, was ich"moderne
Armut" nenne. Ein großer Teil der Mittelklasse hat es schwer, seine
Hypotheken, Steuern, Versicherungsprämien, Essen und Ausbildung
bezahlen zu können. Diese Familien mögen zwar das 70 oder 100fache
eines Gärtners in China verdienen, aber trotz ihrer relativ hohen
Einkommen sind sie sehr anfällig gegenüber dem Arbeitsausfall eines
Elternteils (bei Doppelverdienern).

Nun, aber egal, wie schwarz das wirtschaftliche Bild sein mag - für
Investoren und Spekulanten werden sich immer wieder die Möglichkeiten
für substanzielle Kapitalgewinne bieten, selbst auf dem derzeitigen
Niveau. Sie sind einfach nur schwieriger zu identifizieren.

-->Imperial Over-Stretch Marks

The Daily Reckoning

Paris, France

Friday, 5 March 2004

--------------------

*** Does it matter yet? Mr. Mizoguchi will decide when the
end comes...

*** Slow news day... Dow down (or was it up?)... Gold
up... dollar up...

*** Buy a Hummer... Take out a mortgage... Have a good
weekend...

--------------------

The half-a-trillion dollar trade deficit?
Doesn't matter.

The $1.5 billion-per-day federal deficit?
Doesn't matter.

Consumer debt-to-income levels the highest in history?
Doesn't matter.

Total debt levels at 350% of GDP?
Doesn't matter.

Jobs outsourced to India... lost to China...?
Doesn't matter.

Dollar down 25% last year?
Doesn't matter.

Gasoline rising 3 cents/gal. per week?
Doesn't matter.

Does anything matter?

Well, nothing matters... until it matters. Or, as Bill Gross
suggests, it never rains in sunny California,
either... until it pours.

Nothing matters now, according to the Financial Times,
thanks to largely to one man, Zembei Mizoguchi.

Without Zimbei... or someone like him... the dollar would
have fallen a lot more than 25%... gasoline would be much
more expensive than it is now... the U.S. wouldn't be able
to finance its trade and federal deficits, homeowners
wouldn't be able to refinance their houses, and consumers
wouldn't be able to continue borrowing and spending... and
George W. Bush would be sweating re-election far more than
he is now.

"Mr. Mizoguchi is not a campaign strategist, U.S. Federal
Reserve chairman or even an online pundit," the FT
explains. But he is the man who matters more to preserving
Americans' self-delusions than the president himself.

"He is vice-minister in Japan's Ministry of Finance..." the
report continues."Mr. Mizoguchi decides how many American
dollars Japan will buy each week. Every dollar he buys has
a direct impact on long-term interest rates in the U.S. And
long-term rates this year will go a long way towards
deciding who walks into the Oval Office next January.

"If you think this is an exaggeration, consider that, in
January alone, Mr. Mizoguchi bought a record $70bn and
poured nearly all of it into the U.S. bond market. He has
the authority to buy $100bn more this year and a bill
moving through Japan's parliament would double that figure
- more than enough to cover even the wildest estimates of
next year's U.S. budget deficit.

And that is exactly what is happening. Without Mr.
Mizoguchi, U.S. rates would have to rise sharply in search
of other buyers."

Last year, Mr. Mizoguchi spent $250 billion. His goal was
merely to keep the yen down... so Americans would continue
buying Japanese products. The effect was to coax them
further into debt and stimulate a hiring boom in China.

Of course, the debt doesn't matter now. Nor the dollar. Nor
the job losses in America. None of it matters... until Mr.
Mizoguchi decides that it should matter. Then, it will
matter a lot to a lot of people.

But not to us, dear reader. It will be the end-of-the-
world-as-we-have-known-it. But it was a fraud anyway. Good
riddance.

More thoughts... from Addison...

---------------

Addison Wiggin covering the day's financial news, or lack
thereof...

- Nothing much happened yesterday. The European Central
Bank left rates at 4%. The Bank of England, too, left rates
unchanged. Still, the dollar rose about a penny. Gold rose
too - 50 cents. The Dow barely budged. Nobody said anything
especially amusing or ridiculous.

- The world is waiting. Will the non-farm payroll numbers
validate the Fed's goose-and-pray stimulus strategy? Not
likely, we think.

- Here's a good example of why. We spent the better part of
last week traveling to and from Puerto Vallarta. The sleepy
little resort village in the Mexican sun is a long way from
the chilly, rain-drenched streets of Paris. But we didn't
go for the sun; we went to check out a meeting of The
Supper Club - an exclusive gathering of accredited
investors who vet venture capital deals... and occasionally
invest in them.

- One of the companies presenting a deal to SC members had
developed an innovative software package. Their proposed
platform would be able to introduce Congress' newly
approved Health Savings Accounts (HSAs) into the network of
health insurance options already out there. Their company
would lose money in their first and second years, they
said; but they would make roughly $20 million in gross
revenue by the end of the fifth year.

- Whether the financial projections were realistic or not
was the subject of much debate among the members, as you
might expect. But watch how their plan unfolds.

- The company employs six people. Three were present at the
meeting... the CEO, CFO and VP of Marketing. The first two
were straight out financial guys, quite fluent in the
language of venture capital. The third was a specialist in
all things human-resource related (We sat next to her at
dinner, so we know. If we never hear another word about
"consumer-directed health care," we will shed no tears.)

- The key IT guy, who developed the software they plan to
market, stayed back at their home office. Two other
employees do the grunt work. Six in all. But in their
financial plan - even as the company plans to grow to $21
million - they don't plan to hire a single employee. They
already outsource any kind of programming support they need
to a firm in India... and customer service is next. In other
words, the company will presumably add $20-$35 million to
GDP over the next 3-5 years, but they will not create a
single job.

- Please recall that, two weeks ago to the day, Easy Al and
the Fed's team of superhero governors came out to deliver
once again the same old sermon: jobs will come, jobs will
come! In his particular version of the homily, Greenspan
told the nation's workers they would have to be willing to
retrain at higher skill-levels to secure work, but that the
reward would be higher pay.

- The company presenting the HSA plan to the Supper Club
gives us a candid glimpse of the kind of economy Greenspan
has in mind. Each of the"employees" in the company has a
key skill that cannot be outsourced. They are primarily
actors in the"financial" economy. One of the directors
suggested they couldn't afford to outsource the
"architecture" work - the actual design of the program. But
the rest is expendable, expensable... and much, much cheaper
in the land of curry and rice.

- The story wasn't much different for the other deals on
the table, either. One company made automatic ice chains,
deployable on the fly, for large commercial trucks. Of
course, the parts are manufactured and assembled in China.
Another - a manufacturer of snowboards and bindings - had
as part of its unique selling proposition a"Made In The
USA" tag; but they share a parts outsourcer in Taiwan with
the ice chain guys. The third deal was a couple of
attorneys who'd figured out a way to make big bucks
investing in lawsuits... not exactly a labor intensive
enterprise.

- The fourth was a real estate development deal in Puerto
Vallarta itself... where the land is selling for $5,000 an
acre. Try getting that price anywhere on the coast of
California! It's not only labor that's expensive in
America; it's the very land itself.

- These companies are on the front-line of the"growth
economy." Our pedantic question for day: what happens if
you're not highly skilled in IT or financial services, and
you lose your job? One thing is for sure... your person
won't end up as a stat on the fictitious jobs list being
created by the great stimulus boom of 2003.

---------------

Bill Bonner, back in Paris...

*** Forget the Navigator - buy a Hummer! Sales of the beast
are down 21% over last year. GM has been forced to offer
more EZ credit terms - no money down, pay nothing at
settlement, 48 months of payments.

*** A DR reader wrote to say that he had invented the term
"indeflation" and that we should at least give him credit
for it. Instead, we return it to him; we didn't much care
for it anyway.

*** What happened? No trains blew up. The SNCF called off
its search of the rail lines. No more bombs were found. The
terrorist group, AZF, 'went silent,' say the news reports.

*** A reader comment:"Americans pride themselves on being
free, but how can we possibly be free if we have debt? We
are bound to our creditors.

"If so, what happens when the U.S. goes bust? Is the
country, the land, and the people the collateral? Could the
debtor claim us or our country? Who or what is the
collateral?

"I've heard religious prophecy claim in the end times there
will be an invasion from the 'East' and a big war.

"It occurred to me that biggest holders of U.S. dollars are
the countries in the east: China, Japan, Russia and all the
Arab oil-exporting countries.

"What if this war is just on their side and they are just
claiming their legal right?

"The US debt is often described as X [sic] amount of
dollars per man, woman and child in America - they actually
state that. If we have a social security number and are
"U.S. Citizens," we must be the surety. Is it not our
future earnings (tax receipts) that guarantee the loan?

"If this is correct, then we are slaves.

"I feel that I am both Morpheous and Neo, telling myself
that I am a slave!

"It says in the end times, anyone with the mark (Charagma -
slave number) cannot buy or sell, we are almost there now.
Without a SSN you almost cannot buy or sell, get a bank
account, a driver's license or even get work..."

*** And an update from colleague Dan Ferris:

"You may recall the message I wrote below, back in October.
That's when I first started saying that Countrywide
Financial, the #3 mortgage lender behind Washington Mutual
and Wells Fargo, was going to have some real problems,
since the refinancing boom had come to an end.

"Now, six months later, we know at least one sort of the
'problems' I was talking about, even though I didn't even
really know it at the time.

"Countrywide reported profits of $2.4 billion on $8.5
billion in revenue in 2003, an astounding performance by
any business of this size. You don't have to look very long
or hard to figure out what's wrong with these numbers.

"Countrywide reported $6.1 billion in gains from the sale
of loans and securities in 2003. Trouble is, these gains -
if you can call them that - are mostly future gains the
company expects to make from collecting mortgage payments
and tracking down deadbeats.

"Turns out that counting future profits ('servicing
revenue') is a typical practice in the mortgage business. I
suspect the inevitable abuse of that practice will be the
undoing of many a post-boom mortgage servicing firm.

"Lacking a crystal ball, the mortgage lenders must make
estimates about how much they're going to make on a given
loan. You and I normally refer to estimates as guesses.

"So it's perfectly legal to book your guesses about how
much you're going to make from a given mortgage.

"If Countrywide turns out to be world-class guessers, I'd
be all wet saying that they're looking at bad times. But
they took $1.9 billion in write-downs in the first nine
months of 2003... so, I guess they're lousy guessers.
Washington Mutual aren't much better guessers. They took
$1.1 billion worth of write-downs in the past two years,
about 18% of its $6.2 billion in mortgage assets at the
beginning of 2002.

"The Mortgage Bankers Association guesses that overall
mortgage issuance will fall nearly in half this year, to $2
trillion from last year's $3.8 trillion."

---------------------

The Daily Reckoning PRESENTS: The Dollar Standard System -
and perhaps American preeminence - is on the way out. But
you can't say we didn't tell you so. This DR Classique was
originally aired on 14 October 2002.


IMPERIAL OVER-STRETCH MARKS
by Bill Bonner

"America remains the unrivaled leader of the world - the
big power... without which nothing good happens."

- Thomas L. Friedman, hallucinating

America is the"single surviving model of human progress,"
said George Bush the younger, to the West Point graduating
class, perhaps exaggerating just a little. He might have
conceded, if he'd thought about it, that there are elements
to the American model that might not yet have attained
perfection.

The American model of human progress, it turns out, depends
heavily on the kindness (or naïveté) of strangers: America
prints money; foreigners make products. The foreigners send
their products to the U.S.; Americans send their dollars
abroad.

Alert readers will notice the defect immediately... for what
would happen if foreigners changed their minds? Then who
will pay so that Americans can continue living beyond their
means? And who will finance the U.S. budget deficit,
expected to rise about $400 billion thanks to increased
military spending? [Ed note: This year, the budget deficit
is projected to reach $521bn... ]

The system survives as long as foreigners are willing to
accept U.S. paper assets for more tangible ones. We don't
know how long that will be, but we note that the value of
paper tends to vary inversely with the amount of it
available. No Fed chief provided so much American paper as
Alan Greenspan. In fact, as reported here on several
occasions (we keep mentioning it because we can barely
believe it) Greenspan has increased the world's supply of
dollars more than all the Fed chairmen and all the Treasury
secretaries in U.S. history.

Still, the foreigners schlep and sweat and gratefully take
surplus dollars in payment - about $1.5 billion per day.
Typically, when a nation's trade deficit rises to 5% of
GDP, something has to give. What usually gives is the
nation's currency; it goes down, making imports more
expensive and exports more attractive. So far, this has not
happened, we are told, because the dollar is no ordinary
currency - but an imperial currency, the leading brand of
the world's only remaining super, superpower. How that
protects it from the age-old cycles of over-stretch and
regret, we don't know. More likely, the dollar will
eventually do what all over-stretched currencies do,
imperial or otherwise; it will snap.

"I see one possible way out," writes Stephen Roach," a
sharp depreciation of the US dollar... a significant
depreciation of the dollar - at least 15% to 20% on trade-
weighted basis, in my view, would go a long way in cracking
the mold of US-centric global growth..."

[Ed note: Since this essay was penned, the dollar has
fallen as much as 30%, and is still 24% down. Yet there is
still a long ways to go... ]

"Oh no, I guess this means Mr. Bush will begin his war
soon," said a neighbor this weekend. She was a woman of
about 70, in a hunting get-up, with knee socks and a big
brown sweater. Her low voice, mannish hair and bright red
face was slightly comical. But she was also carrying a 44-
caliber pistol and waving it around the room."But, heck,
what's life without wars," she roared."Every so often,
maybe we need a war. I just hope the price of gas doesn't
go up."

What set off my neighbor was the news that Congress has
given the go-ahead, not by declaring war as required by the
constitution, but by passing the buck to the president;
Bush is free to attack America's enemy du jour - Iraq. How
Iraq achieved this honor is anybody's guess. But enemies
come and go... along with models of human progress.

In the 40s, Germany and Japan were our enemies and the
Soviet Union was our friend. Then, the roles reversed for
the '50s and '60s. And then, in the '70s, Iraq was our
friend and Iran was an enemy. And, of course, Cuba, North
Vietnam and North Korea... were our enemies at various
times.

But who knows? Maybe a change of government will do as much
good for Iraq in 2002 as it did for England in 1066. Today,
we write not to criticize the president's war plans... nor
Congress's pusillanimous dereliction - it may all work out
for the better, for all we know. Instead, we merely wallow
in the absurdity of it all.

The durability of Christianity, we thought to ourselves
during this Sunday's sermon, comes not just from the
enormous promise that it makes, but also from its
adaptability. Christians believe that if they can just get
God on their side, everything will work out. Even dying is
nothing to worry about;"Even unto the grave, Halleluiah"
we chant, with faith that death leads to a better life
without mortgages or election campaigns. And in the
meantime, people are free to do almost any lunatic thing
they want.

Jean Mayol de Lupe was an army chaplain in the French army
in WWII. He was wounded, held prisoner by the Germans and
eventually decorated with the same award later given to
Alan Greenspan - the Legion of Honor. Greenspan, a cynic
might say, got his"cravate" for proving that you could
inflate the currency and get away with it... Mayol de Lupe
proved that you don't have to be an analyst or a politician
to be a fool.

The 1930s were a great time to be a fool... there was a bull
market in foolishness such as the world had never seen. It
seemed as though nearly half the world was keeping company
with socialism, communism or fascism. Mayol de Lupe was
convinced that bolshevism was a great threat to
Catholicism... and that the only thing that might save it
was Hitler's national socialism. After France had
surrendered, he organized a voluntary corps of French
soldiers to go to help the Germans in their war against the
Soviet Union. Already 66 years old, he nevertheless went to
the Eastern front himself along with his troops. The priest
wore a SS Waffen uniform, ended his sermons with"in the
name of our Holy Father Pious 12th and our Führer Adolf
Hitler," and described the French volunteers' work..."what
a beautiful mystery, a wonderful tale, that our boys write
with the points of their bayonettes."

In Mayol de Lupe's eyes, the Soviet Union was the Iraq of
the hour... and Nazi Germany the world's superpower. Many in
Europe - including many in France and England - felt that
the dynamic new Germany represented the force of the
future, that it was"the only surviving model of human
progress."

And so the poor old coot stretched on the Nazi uniform and
went to war.


Your editor...
Bill Bonner

P.S. After the war, Jean Mayol de Lupe was arrested and
jailed for notorious collaboration.

-->Egal!

von unserem Korrespondenten Bill Bonner

Egal!

von unserem Korrespondenten Bill Bonner

Das amerikanische Handelbilanzdefizit von einer halben Billion?

Egal.

Das amerikanische Haushaltsdefizit von einer 1,5 Mrd. Dollar pro Tag?

Egal.

Konsumentenschulden, die auf dem höchsten Niveau der Geschichte
stehen?

Egal.

Die Gesamtsumme aller amerikanischen Schulden liegt bei 350 % der
Wirtschaftsleistung?

Egal.

Arbeitsplätze, die nach Indien verlagert werden... und nach China?

Egal.

Der Dollar, der 25 % im letzten Jahr verloren hat?

Egal.

Der Benzinpreis, der jede Woche steigt?

Egal.

Was ist denn nicht egal?

Nun, alles ist egal... bis es dann irgendwann nicht mehr egal ist.
Oder, wie der Fondsmanager Bill Gross sagt: Im sonnigen Kalifornien
regnet es niemals... bis es dann irgendwann richtig vom Himmel
schüttet.

Aber laut der Financial Times ist derzeit hauptsächlich wegen einem
einzigen Mann - Zembei Mizoguchi - alles egal. Ohne Zimbei... oder
jemanden wie ihn... hätte der Dollar nämlich noch deutlich mehr als
die 25 % vom letzten Jahr verloren. Und der Benzinpreis in den USA
wäre dann deutlich höher, als er heute ist... und die USA würden ihr
Handels- und Haushaltsdefizit nicht finanzieren können, die
Hausbesitzer würden ihre Hypotheken nicht erhöhen können, und die
Konsumenten würden nicht weiter Schulden machen und Geld ausgeben
können. Und George Bush würde wegen seiner Wiederwahl noch mehr als
jetzt schwitzen.

"Mr. Mizoguchi ist kein Wahlkampfleiter, kein Fed-Vorsitzender oder
kein Online-Betrüger", erklärt die Financial Times. Aber er ist der
Mann, der für den Erhalt der Illusionen Amerikas keineswegs"egal" ist
- sondern sogar wichtiger als der US-Präsident.

"Er ist der japanische Vize-Finanzminister...", erklärt der Artikel.
"Mr. Mizoguchi entscheidet, wie viele amerikanische Dollar Japan jede
Woche kauft. Und jeder Dollar, den er kauft, hat direkte Auswirkungen
auf die langfristigen Zinssätze in den USA." Und die langfristigen
Zinssätze werden sich dieses Jahr außerdem danach richten, wer im
nächsten Jahr voraussichtlich US-Präsident sein wird.

"Wenn Sie denken, dass dies eine Ãœbertreibung ist, dann sollten Sie
bedenken, dass Mr. Mizoguchi alleine im Januar den Rekordwert von 70
Milliarden Dollar gekauft hat, und fast alles von diesem Geld hat er
am US-Anleihenmarkt investiert. Er hat die Autorität, dieses Jahr
weitere 100 Milliarden Dollar zu kaufen, und derzeit liegt dem
japanischen Parlament eine Gesetzesvorlage vor, die diese Zahl
verdoppeln würde - mehr als genug, um selbst die wildesten Schätzungen
für das US-Haushaltsdefizit vom kommenden Jahr abzudecken."

"Und genau das passiert gerade. Ohne Mr. Mizugochi würden die
US-Zinsen stark steigen müssen, da sie andere Käufer (von
US-Staatsanleihen) anziehen müssten."

Im letzten Jahr kaufte Mr. Mizoguchi 250 Milliarden Dollar. Sein Ziel
war es eigentlich, einen Anstieg des Yen-Wechselkurses zu
verhindern... damit die Amerikaner weiterhin japanische Produkte
kaufen könnten. Aber im Endeffekt führten seine Bemühungen dazu, dass
sich die Amerikaner weiter verschuldeten und einen Boom am
chinesischen Arbeitsmarkt begründeten.

Natürlich sind die Schulden derzeit egal. Und auch der Dollarkurs. Und
auch die Arbeitsplatzverluste in den USA. Das alles wird erst dann
wichtig... wenn Mr. Mizoguchi entscheidet, dass es nicht mehr egal
ist. Dann wird es plötzlich eine Menge Leute betreffen.

Aber nicht uns, liebe(r) Leser(in). Das wird das"Ende der Welt, wie
wir sie kennen" sein. Aber die war ohnehin ein Betrug. Und tschüss.

Mehr von Addison...

----------------------------------------------------------------------

Montag, 8. März 2004

Wachstum ohne neue Arbeitsplätze

von unserem Korrespondenten Addison Wiggin

Letzte Woche passierte - bis auf die US-Arbeitsmarktdaten am Freitag -
eigentlich nicht besonders viel. Die EZB ließ die Leitzinsen
unverändert. Die Bank of England ließ die Leitzinsen auch unverändert.
Der Dow Jones bewegte sich kaum. Niemand sagte etwas besonders
Erheiterndes oder Lächerliches.

Ich war ja vor kurzem in Mexiko, in Puerto Vallerta. Dieses
verschlafene kleine Nest in der mexikanischen Sonne ist weit entfernt
von den kühlen regnerischen Straßen Europas. Aber ich bin nicht wegen
der Sonne dorthin geflogen; ich war da beim Treffen eines
Investment-Clubs.

Dort wurde eine Gesellschaft in Gründung vorgestellt, die eine nach
eigenen Angaben innovative Software-Plattform entwickelt hat. Ich
erspare Ihnen in Details; jedenfalls stellten Vertreter der Firma uns
das Geschäftskonzept vor, und demnach wird die Gesellschaft noch zwei
Jahre Verluste machen; und am Ende des fünften Jahres würde sie
ungefähr 20 Millionen Bruttogewinn einfahren.

Die Anwesenden diskutierten, ob das realistische Zahlen sind oder
nicht. Nun, jedenfalls beschäftigt dieses Unternehmen 6 Leute...
darunter den Vorstandsvorsitzenden, den Finanzvorstand und die
Marketing-Chefin. Diese Drei waren anwesend, da sie auf Investitionen
der Anwesenden hofften. Die ersten beiden waren klassische
Finanz-Typen, ziemlich bewandert in der Sprache, die man im Sektor
"Venture Capital" so draufhat. Die dritte war eine Spezialistin in
allen Dingen, die das Marketing betrafen. (Ich saß beim Abendessen
neben ihr... wenn ich noch einmal so etwas wie"maßgeschneiderte
Systemlösungen" höre, dann werde ich mir die Ohren zuhalten).

Der Informatiker, der die Software entwickelt hatte, blieb zu Hause,
in seinem Büro. Und die restlichen beiden Angestellten verrichten
weniger anspruchsvolle Arbeiten. 6 Leute insgesamt. Aber laut ihrem
Finanzplan planen sie, ohne einen einzigen weiteren Angestellten zu
wachsen, zu einem Unternehmen mit 21 Millionen Dollar Gewinn. Sie
haben bereits jetzt Programmierarbeiten nach Indien verlagert... und
der Kundendienst ist als nächstes dran. Mit anderen Worten: In den
nächsten 3-5 Jahren könnte dieses Unternehmen das Bruttoinlandsprodukt
um 20-35 Millionen Dollar erhöhen, ohne einen einzigen Job zu
schaffen.

Bitte erinnern Sie sich daran, dass"Easy Al" (Alan Greenspan) und
sein Fed-Team der Superhelden versichert haben: Jobs werden kommen,
Jobs werden kommen! Greenspan teilte der amerikanischen Nation mit,
dass die Arbeiter der Nation sich auf anspruchsvollere Arbeiten
vorbereiten müssten, aber der Lohn dafür würden höhere Löhne sein.

Die Gesellschaft, die sich auf dem Treffen in Mexiko vorstellte,
könnte uns einen Vorgeschmack von der Art von Wirtschaft gegeben
haben, die sich Greenspan vorstellt. Jeder der Angestellten dieser
Gesellschaft hat eine Fähigkeit, die man nicht ins Ausland verlagern
kann. Hauptsächlich agieren sie auf der"finanziellen" Ebene. Einer
von ihnen meinte, dass sie es sich nicht leisten könnten, die
grundlegende"Architektur" der Software ins Ausland zu verlagern. Aber
der Rest, das weitere Programmieren, ist viel, viel billiger im Land
von Curry und Reis (Indien) zu haben.

Es wurden weitere Unternehmen vorgestellt. Darunter zum Beispiel eine
Gruppe von Rechtsanwälten, die mit dem Finanzieren von Prozessen viel
Geld machen wollen... und das ist kein sehr Arbeitskraft-intensives
Unternehmen.

Und dann gab es eine Firma, die in Puerto Vallerta in Land investieren
will... da kostet ein Morgen Land 5.000 Dollar. Versuchen Sie mal,
einen solchen Preis in Kalifornien zu erhalten! Es ist nicht nur die
Arbeit, die in Amerika teuer ist; es ist auch das Land, das teuer ist.

Das waren also ein paar typische"Wachstumsunternehmen". Meine
pedantische Frage des Tages: Was passiert, wenn man kein hoch
qualifizierter Informatiker oder Finanzdienstleister ist und seinen
Job verliert? Eins ist sicher... man wird kein Statist auf der
fiktiven Jobsliste sein, die durch den großen aktuellen Boom
geschaffen wurde.

----------------------------------------------------------------------

Montag, 8. März 2004

Anzeichen für eine imperiale Überdehnung

von unserem Korrespondenten Bill Bonner

"Amerika bleibt die unangefochtene Führungsmacht der Welt - die
Großmacht... ohne die nichts Gutes passiert."

- Thomas L. Friedman, halluzinierend

Amerika sei"das einzige überlebende Modell des menschlichen
Fortschritts", sagte George Bush der Jüngere zu den Absolventen von
West Point, wobei er vielleicht ein bisschen übertrieb. Er hätte auch
einräumen können - wenn er daran gedacht hätte -, dass das
amerikanische Modell Elemente hat, die vielleicht noch nicht
Perfektionsstatus erreicht haben.

Das amerikanische Modell des menschlichen Fortschritts hängt - wie
sich zeigt - stark von der Freundlichkeit (oder der Naivität) der
Ausländer ab: Amerika druckt Geld, die Ausländer stellen Produkte her.
Die Ausländer senden ihre Produkte in die USA; die Amerikaner senden
ihre Dollar ins Ausland.

Wachsame Leser werden die Gefahr dabei sofort bemerken... denn was
würde passieren, wenn es sich die Ausländer anders überlegen würden?
Wer würde dann dafür bezahlen, dass die Amerikaner über ihre
Verhältnisse leben können? Und wer würde das US-Haushaltsdefizit
finanzieren, das dank der erhöhten Militärausgaben auf schätzungsweise
500 Milliarden Dollar steigen wird?

Das System überlebt solange die Ausländer bereit sind, US-Papiergeld
gegen reale Waren einzutauschen. Ich weiß nicht, wie lange das noch so
sein wird, aber ich bemerke, dass der Wert von Papiergeld dazu
tendiert, mit zunehmender Papiergeldmenge zu sinken. Und kein
Fed-Vorsitzender hat die Menge an Papiergeld so stark erhöht wie Alan
Greenspan. Ich habe es hier im Investor's Daily schon mehrfach erwähnt
(und ich wiederhole es, weil ich es kaum glauben kann): Alan Greenspan
hat die amerikanische Geldmenge stärker erhöht als ALLE seine
Vorgänger zusammen!

Und dennoch nehmen die Ausländer dankbar die Dollar an, die die USA
für die Lücke in ihrer Handelsbilanz - rund 1,5 Milliarden Dollar pro
Tag - bezahlen. Normalerweise muss etwas passieren, wenn das
Handelsbilanzdefizit einer Nation auf 5 % des Bruttoinlandsproduktes
steigt. Normalerweise passiert dann etwas mit der Währung eines
solchen Landes; sie fällt, was die Importe dieser Nation teurer und
die Exporte attraktiver macht. Aber uns wird gesagt, dass der Dollar
keine normale Währung sei - sondern eine imperiale Währung, die
führende Marke der einzig verbleibenden Supermacht der Welt. Wie das
vor den Jahrtausende alten Zyklen der Ãœberdehnung und des Bedauerns
schützen kann, das weiß ich nicht. Wahrscheinlicher ist es, dass der
Dollar schließlich das tun wird, was alle Währungen in seiner
Situation tun, egal ob imperial oder nicht; er wird zerbrechen.

"Ich sehe einen möglichen Ausweg", schreibt Stephen Roach,"eine
starke Abwertung des Dollars..." Nun, im letzten Jahr hat der Dollar
bereits 25 % verloren. Aber er hat noch einen langen Weg vor sich...

-->The People's Business

The Daily Reckoning

Paris, France

Monday, 8 March 2004

--------------------

*** Economic cycles made easy: you produce things to earn
money... then, you spend money to get rid of it.

*** Jobs, jobs, jobs... where are the jobs? In China, of
course!

*** Gold over $400... exploring our own minds, and other
fantasies...

--------------------

"It's completely natural," we explained to the reporter
from"20 Minutes" on Friday,"people try to improve their
living standards in the easiest way possible. But it's
unnatural when they can print the world's money whenever
they need some spending cash. Then, it is too easy. People
begin to think you can get rich by not saving... or by
borrowing and never paying back. It is dangerous; you
almost can't resist slitting your own throat."

We had been asked to condense the theme of our book
(recently a best-seller in France) into a sentence or two,
for a broad audience."20 Minutes" is a newspaper read by
thousands of people on the metro in Paris every morning.

"Americans were on top of the world after WWII," we
continued."Gradually, they lost the habits that had made
them rich... they became less thrifty and more immodest.
Over 5 decades, my countrymen switched from making things
to buying things, from saving money to spending it, and
from lending money to the rest of the world to borrowing
from it. The economy gradually changed from production to
consumption, from manufacturing to retailing, from GM to
Wal-Mart. And Wall Street mutated, too... from investing in
industries, to investing in speculative finance."

"But the latest GDP numbers show the U.S. economy doing
very well," protested the reporter.

"Ah... but there are different kinds of economies," we
replied."There's the kind of economy that makes people
wealthy - in which people make things and sell them at a
profit. And there's the economy that helps rich people get
rid of their money... a consumption-led economy, with few
factories, but plenty of credit and shopping malls.

"Unfortunately, most economists can't tell the difference.
And the GDP numbers make no distinction between a
productive, wealth-creating economy and a declining,
wealth-consuming one. GDP only measures activity. It is a
bit like taking the temperature of a shooting victim; you
mightn't spot the problem until the body cools."

"Every day, the lifeblood of the U.S. economy dribbles
overseas," we went on."Profits, jobs, revenues... all flow
towards lower-cost production centers. Today's [Friday's]
job report out of the federal government, for example,
shows about 100,000 fewer jobs than economists expected.
Where are the jobs that should have been created by this
stage of the 'recovery?' No one knows. All they can think
of is the novel idea that productivity and innovation [see
more below] have now made labor unnecessary - just as they
said the New Era made savings unnecessary. But is all fraud
and chutzpah..."

The Feds try to rescue the situation; they attach jumper
cables of credit... stand back... and give the body a jolt.
The poor schmuck jumps from the table, refinances his
houses, and falls again in a heap. But the juice ends up
stimulating economies in China, Malaysia and India! That's
where they make the things Americans want to buy.

Thank God for Zembei Mizoguchi. The VP of the Japanese
Ministry of Finance keeps the patient on life-support. He
spent $250 billion of Japanese taxpayers' money last
year... buying U.S. debt. This year, he may spend $270
billion.

As long as the money pumps back into the U.S. economy,
Americans' home prices rise... and they borrow and spend
happily. No one, neither Republican nor Democrat, high nor
low, drunk nor sober, seems to notice that the patient is
bleeding to death.

Over to Eric for more news...

------------

Eric Fry in the heart of the beast, NYC...

-"Guilty as charged!"... Friday morning, the Labor
Department's unemployment report indicted the"Greenspan
recovery" on 21,000 counts of feeble job growth. The most
serious charges were as follows:

a) Pathetic payroll growth of 21,000, which fell woefully
short of Wall Street's expectation that 130,000 new jobs
would show up in February.

b) The net new jobs number was a mere 279,000 jobs LESS
than the White House's projection that payrolls would grow
by 300,000 per month for 2004.

c) January's payroll gain was revised down to 97,000 from
112,000... 76,000 of which were a seasonally adjusted
mirage.

d) The average duration of unemployment rose to 20.3 weeks,
the highest in 20 years.

e) The manufacturing sector lost jobs for the 43rd straight
month.

So you see, acquittal was simply not an option.

- The Greenspan recovery has been producing many
statistically pleasing data points, like booming GDP
growth, rising consumer sentiment and strengthening surveys
from the Institute for Supply Management. Unfortunately,
the most important data point, job growth, continues to
disappoint.

- Payrolls have risen for six months in a row, but job
growth has been tepid, averaging only 61,000 a month, and
February's numbers were downright awful."This is another
terribly dreary number," said Bill Cheney, chief economist
for John Hancock Financial."Yuck," said Joshua Shapiro,
chief economist for MFR.

- The financial markets rendered their verdicts
immediately: The dollar plummeted 1.5% to $1.237 per euro,
while gold soared $8.20 to $401.25 an ounce and bonds
yields tumbled to their lowest levels since July. Like a
hungry vulture, the bond market feasted on the carrion of
the nation's labor market, until the yield on the 10-year
Treasury bond fell to 3.85%.

- The jobs report was even weaker than the Daily
Reckoning's Paris office had predicted earlier in the week,
implying that the economy is weaker than most folks had
believed. As Addison pointed out midweek, the jobs that
should be showing up inside the 50 states are, instead,
cropping up in distant lands like China and India.

-"Aren't jobs showing up in India, at lower wage rates?"
he asked."Won't any new jobs in the U.S. have to be
competitive with those wages? Effectively mutating the
'jobless recovery' into the 'wageless recovery'?" We
suspect that we have not yet seen our last"surprisingly
weak" employment reports.

- Meanwhile, as investors rendered their collective verdict
about the Greenspan recovery, a different sort of courtroom
drama was unfolding: Martha Stewart was convicted Friday of
obstructing justice and lying to the government about her
well-timed sale of Imclone stock. The shocking verdict
could mean that the homemaking maven will soon be
scattering doilies around a prison cell. Predictably,
Stewart issued a statement maintaining her innocence and
promising an appeal.

- But holders of Martha Stewart Living (MSO) shares are not
waiting around for the next trial. After Martha's
conviction became public, MSO stock tumbled like a share of
Imclone, ending Friday's session down 22% at $10.86. Ahead
of the verdict, hopeful speculators and die-hard Martha
fans had bid the stock up 16% to $16.27. Obviously, Ms.
Stewart's convictions put her media empire in jeopardy. For
one thing, the nationwide market for 400-count percale
prison dungarees simply isn't nearly large enough to power
a lucrative"Martha Stewart" brand extension.

- Meanwhile, the rest of the stock market was relatively
quiet. The Dow gained 7 points to 10,595 and the Nasdaq
Composite slipped 7 points to 2,047. For the week, the Dow
eked out a 12-point gain, while the Nasdaq added 0.8% to
break its six-week losing streak.

- But the weight of evidence continues to point to lower
stock prices, lower dollar values... and a higher gold
price.

------------

Bill Bonner, back in Paris...

*** When we are in need of a laugh we turn to the editorial
pages. We count especially on NYTimes columnist Thomas
Friedman. The man is all at once the Three Stooges of
intellectualism... picking up ideas as if they were 2 x
4s... clumsily whacking everyone and everything, poking
himself in the eyes, bopping himself on the head... nyuk,
nyuk, nyuk...

After doing heavy slapstick in Iraq for several weeks -
describing America's fighting men as if they were the Peace
Corps,"nurturing" a model democracy for the desert tribes,
he's slacked off his cheerleading for nation-building and
made his way to India. There, he discovered outsourcing and
found that he likes it. He's not worried about the loss of
jobs because our secret, says he, has nothing to do with
savings, capital machinery, nor even making
things... instead it is that"America allows you to explore
your own mind." The quotation is not from Friedman himself,
but from an Indian information worker who was trained in
Oklahoma and Virginia, but now works in Bangalore.

What do Americans find when they explore their own minds?
They find things such as Post-It Notes... and
Starbucks... and Wal-Mart... and outsourcing! Americans
invented outsourcing, so it must be a good idea, of course.

Friedman uses the following example, still quoting his
Indian source, to show how innovative America is... and how
outsourcing is no threat to our innovating genius:

"I just read about a guy in America who lost his job to
India and he made a T-shirt that said, 'I lost my job to
India and all I got was this (lousy) T-shirt.' And he made
all kinds of money."

Ha, ha, ha... what a clever innovation! Found, no doubt, in
some dusty attic of his own mind. What will he find in
there next?

*** But what's this? Foreigners can peek into their minds
too... Here's a little item from Tobin Smith:

"In the Beginning (two years ago) there was Wi-Fi, and it
was Good. Wi-Fi provides 'hot spots' where anyone can
piggyback onto an already established broadband connection
and hop on the Net wirelessly.

"But coverage doesn't extend far beyond the doors of your
local Starbucks or hotel. And while Wi-Fi is cheap, it's
also low-powered.

"Now comes WiMax, and it is Better. It is also already a
total WAY OF LIFE in Seoul, San Paulo, Antwerp, Shanghai
and Hydrobad.

"It's the U.S., for once, that's playing catch-up here."

Looks like others can innovate, too.

*** Taking an opposite but equally moronic point of view
from Friedman, the Senate voted to try to put a stop to
outsourcing - at least where it involved public money. The
legislation rose up after Gregory Mankiw, Chairman of the
Council of Economic Advisors, said publicly that losing
jobs was not a problem. Press reports tell us that Mankiw
later"apologized" for his remark. It was not clear to whom
he was apologizing... or for what.

*** We recall that in the final years of the Japanese
miracle, any news at all was taken as a reason for stock
prices to go up - even an earthquake in downtown Tokyo.

Now comes our friend Gregor with this observation from
CNBC:

"Reasons for the market to rebound from the sorry job
report, were:

1) Lower interest rates
2) Short covering

Then came this real gem:
3) The weaker dollar!"

The dollar fell on the news. Bonds rose. Stocks fell... then
rose... and ended up about where they started.

*** Gold rose above our target buying price of $400 on
Friday. Did you buy, dear reader? Friend Trey Reik offers
this perspective:

"Gold fell from an intraday high of $416.80 on February 18
to an intraday low of $387.95 on March 3. While people buy
gold and gold shares for many reasons, there has clearly
been a large contingent of 'investors' who have played the
'dollar carry trade,' shorting U.S. dollars and buying
Euros, commodities of all sorts and gold and gold shares.
To these folks, there is little difference between gold and
the Euro, they are simply anti-dollar bets.

"We believe strongly that when the knee-jerk 'euro-down-
sell-gold' dust settles, inquiring minds will conclude Euro
debasement is bullish for gold, not bearish! Indeed, we
believe events of the week of February 23 represent the
starting gun of gold's appreciation versus all fiat paper,
as opposed to versus the dollar exclusively. This marks the
beginning of the real bull market for gold."

*** Finally, we noticed an error in our essay from Friday.
Jean de Mayol was decorated for his actions in WWI. For his
WWII service, he was prosecuted.

---------------------

The Daily Reckoning PRESENTS: Mogambo on Monday! This week
our hero lowers a bucket into his Bottomless Well of Anger
and comes up with some choice words for the government's
"puerile posse of putzes"... including a few haute reserves
for the Fed Chairman.


THE PEOPLE'S BUSINESS
By The Mogambo Guru

Greenspan dragged his filthy fat fanny to Capitol Hill
again a week back, plunked himself down in the seat,
adjusted the microphone, and with that patented Greenspan
monotone lectured to the House about how the Congress has
to finish killing the American economy from the fiscal
side, as he is doing everything he can to destroy us from
the monetary side, but the damn economy just won't die.

The crux of his message was, get this, that he was no
longer content to destroy retirees and the small savers of
the country by forcing interest rates down below the rate
of inflation, year after year after year, thereby
encouraging more idiotic debt accumulation by over-extended
borrowers, who are borrowing the money and credit that he
so generously creates for them. So he is actively
destroying the dollar, and now he wants Congress to destroy
the Social Security and Medicare program by curtailing
those benefits, too! Richard Benson of Specialty Finance
Group encapsulated the whole thing with his essay entitled
"The Federal Reserve's Policy: Punish Savers and Rob the
Retired."

But that's not all. The Fed chairman also wants to come up
with some new way to statistically massage more inflation
out of price increases, so that the government can screw
retirees out of more money and benefits. This is the
natural expansion of the work done by the horrible Boskin
Commission, who are the nasty lackey bozos who came up with
the methodology of doing that to the CPI, namely turning
raw numbers into lies. The ludicrously low inflation
figures that Greenspan and that whole lying crew constantly
refer to, that are now the butt of jokes, are the result of
that Boskin bunch of lying creeps doing the dirty work for
the Fed and Congress.

Boskin and his puerile posse of putzes invented the concept
of adjusting prices for"quality" and the equally infamous
"substitution effect." In short, if ordinary food is up
100%, but hay is still cheap, then you, trying to feed your
family on your pathetic budget, will substitute hay for
Oreo cookies. This is the infamous"substitution effect."
And if hay has less cow manure in it than usual, then the
"real" price of hay is lower because the quality has gone
up!

And therefore, and I hope you are still following this,
because it is the essence of the Boskin system of lies,
food is actually cheaper! They have completely eliminated
inflation in food, although prices are up 100%! Now he
wants to do the same to Social Security benefits! I was
hoping that Ron Paul would leap over the dais, grab that
little twerp Greenspan by the throat, screaming,"You
filthy little bastard!" But he did not, even though that is
what I would have done, and that is why Ron Paul is in
Congress and I am not, I suppose.

And it's not just the money!

I mean, the money is plenty, and by"plenty" I mean that if
it was piled up in front of your house, it would literally
blot out the sun and you would think it was nighttime and
then you'd get undressed and ready for bed and people would
laugh at you and say,"Hey! It's only three o'clock in the
afternoon, jerk!"

But think of the veritable army of faceless government
employees who need empires of fawning underlings to
administer the programs, and more empires to check up on
the programs, and those that monitor the programs, and all
their little sub-programs, and all the more government
employees it takes to regulate all those people, and how
they all need offices and desks and humongous salaries
because they are now allowed to unionize, and like all
unions have taken to gouging for more and more money and
benefits as a full time job-on-the-job, and their defined-
benefit retirement programs that are so richly generous
that there is literally no equivalent in the private
sector, and nothing that even comes close, to tell the
truth.

And there is a large spillover into the private sector, as
all that money from the programs and the salaries of the
government employees gets spent and reverberates throughout
the economy. And I will go farther than that and say, with
a completely straight face so that you know that I am
serious, that the combined local, state and federal
governments ARE the damned U.S. economy. And Greenspan
wants to rein in THAT ravenous beast? Hahahaha! The man IS
a fool! Hahahaha!

If you don't think that the government IS the economy, then
listen to a guy named Steve Meyer, who wrote to the Wall
Street Journal and told how his job paid $68,000. After
paying state and federal taxes, including the Social
Security/Medicare bite, he took home $32,878, which means,
by simple arithmetic, that the governments took $35,324.
Who's in charge here?

One other guy who is probably in agreement with me,
although I am pretty sure he is not, like me, confined in a
straightjacket and screaming out obscenity-laden threats
against the government and trying to jam a full clip of
armor-piercing ammo into an assault rifle with his teeth,
is Carroll Cox, editor of the Pioneer newspaper in
Snowflake, Arizona, who writes:"In my county of Apache,
Arizona, 2/3 of employed people with full-time jobs work
for some level of government and education. In the
neighboring county of Navajo, close to half of people are
employed by government." So, this demonstrates that my
original argument was correct: the government IS the
economy.

And not only that, but Cox also bolsters my original
complaint, that allowing government employees to unionize
was a big, big, BIGGGG mistake, as there is no
countervailing force against their rapacious greed, as he
demonstrates when he writes,"We determined that the
average government job (in these two counties) pays $7,000-
$10,000 more annually than the average private sector job,
not counting benefits." When you DO count benefits, which I
do, since I have to pay for them out of my taxes, then
government employees are ludicrously overpaid.

"Once created and funded, how many government programs have
gone away?" asks Strategic Investment's Dan Denning. Then
he answers rightly:"Very few. These programs develop a
constituency of bureaucrats whose paychecks depend on them,
and/or taxpayers on the receiving end of the wealth
distribution."

So cutting down the size of government, no matter how right
it is, ain't a-gonna happen. The morons in Congress, as all
morons in all governments, see it as their sacred duty to
spend as much as they can in exchange for the votes of the
electorate, who are, in effect, grubby little prostitutes
who trade their mindless vote for money and benefits. And
government employees vote, too, and since there are so dang
many of them, their voting block is a powerful
constituency. So allowing government workers to unionize is
a one-way ticket to economic hell.

In fact, it was the loathsome Clinton administration that
actually said, in so many words, that passing more and more
laws and spending more and more money was, and I quote,
"the people's business," which is a phrase that will
reverberate in infamy, although for the nonce it is only
reverberating around in my head, going"Bonk! Bonk! Bonk!"
as it careens off one synapse and then another, until it
finally smashes into that nerve center known as the
Bottomless Well of Anger of the Mogambo.

But I will agree, and it really galls me to agree with
Greenspan about anything, that reining in the out-of-
control Social Security and Medicare monsters is necessary.
But it is already too late to do that without enormous
pain, I am sorry to say. It is too, too large, and too, too
intertwined in the very fabric of the economy. Any attempt
to enact changes, much less sweeping changes, will
necessarily collapse the whole economy. That is why it is
so necessary, so vitally crucial, that you NOT get into
that filthy, bankrupting business in the first place.

And this is the same doofus Greenspan who just the day
before made the extraordinary speech that Fannie Mae and
Freddie Mac ought to be reined in, lest their monstrous
book of mortgages, estimated at about three-fourths of all
mortgages in the country, have some unexpected reversal,
and thus caused systemic economic damage! Where in the hell
has HE been the last decade or so, while that gigantic book
of mortgages was being assembled?

This Sir Greenspan-the-Clueless is, as I understand it,
completely unaware that his unprecedented creation of
colossal amounts of money and credit worked their way
through the economy, and ended up in mortgages and the
other bubbles, including the bubble of massive and
suffocating, pervasive government spending! Can he be so
stupid? Can one ignorant old man be so preposterously
inept?

The answer is, I am sorry to report, yes, as evidenced by
his actually going before the House and telling them that
THEY need to cut spending! And where did all the money come
from that they are spending? From him! He creates oceans of
money and credit, which goes out into the economy, driving
up prices, and then a bunch of it ends up in the hands of
Congress, who spend it, permanently increasing the size and
expense of government, and then he has the gall to tell
them that they should cut spending!

So the next time you are in Washington DC, please stop by
the Federal Reserve and disregard the knot of security
guards who are wrestling the Mogambo to the ground for
daring to even show his face around there, after being
warned what would happen the next time he did that. When
all of them are busy teaching me a lesson that they hope I
will not forget anytime soon, it will be easy for you to
sneak into the Federal Reserve building, and you can inform
Alan right to his face that he can make the government cut
back on spending anytime he wants to!

All he has to do is stop creating the money and the credit
necessary to fund the Congressional spending! That's it!
That's all he has to do! Then, when the massive spending
bills passed by these boneheads cause massive increased
demand for borrowing, which must now come from real
savings, versus a static supply of loanable savings, this
will cause interest rates to spike through the roof!

In one stroke he can cancel government spending, and
dissuade them from trying that crap in the future, too! All
it takes is a guy who is not so gutless, so inept, so
ignorant, to just get up and do it. And then, maybe, the
next time he parks his fat worthless patootie in front of
the microphone to testify before Congress, I will not be
throwing Cheeze Doodles at him and screaming obscenities at
the TV screen... and that will make my wife happy, too.


Regards,

The Mogambo Guru,
for The Daily Reckoning

Mogambo Sez: Oil is bumping up against $37 a barrel, which
seems like a lot. But it is not, in the grand scheme of
things, and in a very short time you will long for the
halcyon days when oil was"only" $37 a barrel.

And you will spend your future sighing with weary
resignation as you huddle in your cold hovel and consider
the unbelievable and unbearable price of all commodities,
which will get so expensive that your raggedy children will
laugh at you in disbelief for reminiscing about the"old
days" when bread was less than $10 a loaf.

This is the sorry fate of any nation of morons, like us,
that pursues a policy of inflation.

-->

-->Pulling Out The Rug

The Daily Reckoning

Paris, France

Tuesday, 9 March 2004

---------------------

*** The Baby Boomers' economy... signs that housing may
crack...

*** Intel down... Buffett out...

*** Gold... Bollywood... and more!

---------------------

It is the great circle of life, dear reader.

People start off with nothing; they work hard, save their
money, and gradually - if they are in the right time and
the right place - they get rich. Then, they get older. As
they acquire a taste for silks and SUVs, their attention
shifts from making money to spending it. Their economy
changes with them... switching from steel mills and the
smell of diesel fuel to shopping malls that sell Diesel
jeans.

Then come the lies and illusions. They are rich, they come
to believe, not because they (or their parents) worked hard
and saved their money, but because they have some special
gift that guarantees they will be lucky forever. Let
someone else do the hard work of making things, they tell
each other... we're so smart, we don't have to schlep and
save anymore - we can borrow and innovate!

Finally, the lies give way in a bear market of falling
asset prices... recession... and collapsing living
standards... studded with entertaining lawsuits,
bankruptcies, work-outs, and Martha Stewart-type show
trials.

No people were in a better place or a better time than
America after WWII. The baby boomers were delivered into
Eden itself. They had barely to stand on two legs and the
low-hanging fruit fell into their mouths. For not only did
they have the world's most advanced factories... they owned
most of the world's gold. And every day, they got richer,
because they sold more things to the rest of the world than
they bought from it.

But they also had the astonishingly good fortune to control
the world's money. In 1971, Richard Nixon cut the link
between the dollar and gold. From then on, America could
pay its debts in a currency of whatever value it chose.
This was a stroke of luck so puissant it must have caused
brain damage, for they began to believe the most incredible
things: that they could spend their way to wealth... that
the rest of the world would lend them money forever, and
never ask for it back... that 'things' no longer mattered in
the modern, globalized economy... and that their new post-
modern economy was based on 'information and innovation.'

By the time the oldest baby boomers were in their mid- and
late-30s, the U.S. economy was already rolling over from
being focused on production to concentrating on consumer
spending.

By the time they were 42 years old, Alan Greenspan was
already at the Fed, and their nation crossed the threshold
from its position as net-creditor for the rest of the world
to net-debtor status. Instead of building
factories... America was building malls and condos.

By the time these same boomers reached their 50s, the
country was putting up new retail space at a rate 5 times
greater than the increase in population.

Now, the most decrepit of the baby boomers are nearing
60... and what's this? After a long summer in the sun... the
boomers are facing some cold winter arithmetic.

Currently, they are more likely to go bankrupt than get
divorced. Their homes went up about 10% last year. But the
Fed says total debt in the U.S. went up at about the same
rate - 10%, the fastest growth in 15 years.

And if they lose their jobs, they are likely to wait 20.3
weeks before getting a new one - the longest in 20 years.
The average length of joblessness is not far from the
record of 20.8 weeks - set in 1948, before most baby
boomers were born. But the worst is yet to come.

"Recovery Built on Retirees' Backs," begins an article in
TheStreet.com. A boomer couple retiring in 2011 are
expected to cost taxpayers $700,000 in Social Security and
Medicare. The Bush administration estimates the cost of
Medicare alone at $10 trillion over 75 years. But economist
Laurence Kotlikoff says current estimates are much too low.
The real shortfall between Social Security and Medicare
obligations and expected revenues is more like $51
trillion. This leaves only two choices: either raise taxes
immediately 69%... or cut benefits 45%.

Either way, the boomers are more likely to get what they
deserve than what they expect.

In the meantime, here's boomer Eric Fry in Boomtown, USA:

------------

Eric Fry from New York City...

-"Intel Inside"... that was the stock market's biggest
problem yesterday. Intel, which represents 6% of the Nasdaq
Composite Index, skidded 4.3% to a five-month low of
$27.70. The entire stock market followed along. The Nasdaq
Composite Index closed at the session low, down 39 points
to 2,009, while the Dow fell 66 points to 10,529.

- The stock market's weakness chased investors into the
bond market, where the yield on the benchmark 10-year
Treasury note dropped to 3.77% - an eight-month low.

- Meanwhile, the dollar and gold both took a breather from
their recent volatile trading action. The dollar dipped
slightly against the euro, while gold eased 70 cents to
$400.90 an ounce.

- Despite the Nasdaq's 7% drop over the last 6 weeks, the
stock market is still too pricey to entice America's
savviest investor. Warren Buffett, in his annual letter to
the shareholders of Berkshire Hathaway, had nothing good to
say about U.S. stocks... or about the currency in which they
trade: the U.S. dollar.

-"Yesterday's weeds are today being priced as flowers,"
lamented Mr. Buffett."I made a big mistake in not selling
several of our larger holdings during 'The Great Bubble.'
If these stocks are fully priced now, you may wonder what I
was thinking four years ago when their intrinsic value was
lower and their prices far higher. So do I."

- Mr. Buffett, who amassed his billions by buying stocks
whenever they are cheap and amassing cash whenever they are
not, is now amassing cash inside Berkshire Hathaway.
Berkshire's coffers swelled by $23 billion in 2003 - taking
its total cash pile to a record-breaking $36 billion. And
Buffett is diversifying much of that cash into foreign
currencies.

- Buffett, who owns more dollars than any other human being
besides Bill Gates, is becoming increasingly concerned
about the future purchasing power of those dollars. The
American investment guru-turned-macro-trader warns that the
U.S. is deluging the world with dollars to fund its huge
trade deficit, the consequences of which could be
"troublesome," reaching far beyond the currency markets.

- As a result, Buffett is plowing Berkshire's massive cash
horde into foreign currencies. The foreign exchange
purchases, made in five different currencies, represented
Buffett's biggest investment in the last two years. Buffett
started betting against the dollar in 2002. Since then, the
greenback had lost about one third of its value against the
euro.

-"Our capital is under-utilized now," says Mr. Buffett.
"It's a painful condition to be in - but not as painful as
doing something stupid." Hmmm... if Buffett is under-
utilizing Berkshire's capital, aren't most folks OVER-
utilizing their capital... (and the capital of others)?
Aren't most folks spending every available cent buying
stocks that Warren Buffet wouldn't touch with a barge pole?

- In a world where most mutual fund managers and
professional investors live by the credo,"Use it or lose
it," Buffett suspects that investors who use their cash
buying today's overpriced stocks are very likely to lose
it. The last time that Buffett"underutilized" his capital,
the stock market was only one year away from crashing.

- Cash may not be the very best thing to put in an
investment portfolio, but it might turn out to be a whole
lot better than putting"Intel inside."

------------

Bill Bonner, back in Paris...

*** Gold is right at our target buying point - $400. We
don't need to remind readers that God does not tell us his
Whole Plan. It could be that He has some way of making the
dollar go up against gold...

It is true, also, that Americans are likely to be desperate
for dollars in the years ahead. Once Zembei Mizoguchi
decides to pull the plug, interest rates in the U.S. will
pop up - as the dollar collapses on world currency markets.
Still, Americans will need dollars to pay their mortgages,
their credit card bills, and their bankruptcy lawyers. In a
declining economy - with falling asset prices - dollars
could be hard to come by.
We cannot know what will happen. We buy gold and keep our
fingers crossed...

*** We are continuing our detailed market research into
India...

This weekend, we watched two more movies from Bollywood and
didn't quite know what to make of them. As near as we can
tell so far, all Pakistanis are stupid and evil. And all
Indians are ready to kill almost anyone, anytime, for
almost any reason. In fact, in one film the citizens of two
villages begin killing each other for no reason at all.

Additionally, we discovered that when Indians are not
killing, they are singing and dancing. We have seen them
singing and dancing before killing other people... and after
killing other people. We await the film in which they sing
and dance while killing other people at the same time.

*** Our tango lessons have fallen by the wayside. We left
town. Then Elise, our instructor, left town. But recently
we found that Democratic presidential candidate John Kerry
also likes the tango. We think we may have to give it up
for good.

---------------------

The Daily Reckoning PRESENTS: In the wake of last Friday's
jobs report, can anyone yet claim that the U.S."recovery"
is self-sustaining? On the contrary, Dr. Richebächer sees a
"variety of accidents" in store for the market... and chief
among them, a dollar rout.


PULLING OUT THE RUG
by Kurt Richebächer

Apparently, the consensus economists are still convinced
that the growth acceleration in the second half of 2003,
and above all a sharp rise in profits, have laid the
foundation for sustainable growth. In particular,
sustainable growth with sufficient creation of employment.

We disagree.

But we must admit that our own assessment is prejudiced by
the postulate of the Austrian school, that"the thing which
is needed to secure healthy economic growth is the most
speedy and complete return both of demand and production to
its sustainable long-term pattern, as determined by
voluntary consumer saving and spending."

Friedrich Hayek said in 1931:"If the proportion as
determined by the voluntary decisions of individuals is
distorted by the creation of artificial demand, it must
mean that part of the available resources is again led into
the wrong direction and a definite and lasting adjustment
is again postponed. And even if the absorption of the
unemployed resources were to be quickened in this way, it
would only mean that the seed would already be sown for new
disturbances and new crises."

We think this precisely describes what has been happening
and continues to happen in the United States. The Greenspan
Fed has discovered a new, amazingly easy and quick way to
create higher consumer spending virtually from thin air -
by way of so-called wealth creation through asset bubbles.
It began with the stock market bubble, to be followed by
bubbles in bonds, house prices and mortgage refinancing.

Measured by real GDP growth, it seems a successful policy.
But measured by employment and income growth, it is an
outright disaster. The so-called"wealth effects" are not
for real, neither for the economy as a whole nor for the
individual asset owners. The reality in the long run is
only the horrendous mountain of debts that consumers,
corporations and financial institutions have piled up.

Given the general euphoria about the U.S. economy and its
recovery, there appears to be a general apprehension in the
markets that the Federal Reserve will be forced to raise
interest rates in the foreseeable future. The Fed is
clearly anxious to dispel any such fears - and this, in our
view, is for a compelling reason. U.S. economic and
financial stability have become inexorably dependent on the
existence of a steep yield curve allowing and fostering
unlimited carry trade in long-term bonds. Any major rise at
its short or long end would shatter this artificial
stability and send the economy and financial system
crashing.

Considering all the imbalances impairing U.S. economic
growth, we are unable to see the sustained, strong
recovery. A closer look at the recent economic data [and
last Friday's jobs report] confirms this skepticism.
Possibly, if not probably, economic growth has already
peaked. For us, the question rather is when general
disappointment will gain the upper hand.

That, of course, is sure to soothe the bond market,
allowing moreover the Fed to maintain low interest rates.
But it will conjure up another, even greater risk at the
currency front. It will pull the rug out from under the
dollar.

In our view, the U.S. trade deficit is big enough to cause
a true tailspin of the dollar against all currencies. So
far, two things have prevented this threatening dollar
collapse: the gargantuan dollar purchases by Asian central
banks and the still rather positive perception around the
world of the U.S. economy. In our view, few people realize
its true weakness and vulnerability.

There is widespread hope that the falling dollar will go a
long way to lower the U.S. trade deficit. It takes a lot of
wishful thinking to believe that. Its persistent growth has
various reasons. One of them is that the gap between
exports and imports has simply become too big to be
reversible. Last year, exports amounted to $1,018.6 billion
and imports to $1,507.9 billion. Just to prevent a further
rise of the deficit, exports would have to rise 50% faster
than imports.

Principally, the trade flows of a country are exposed to
three major influences: first, relative prices and the
exchange rate; second, relative demand conditions; and
third, relative supply conditions.

Empirical experience suggests that exchange rate changes by
themselves have very little effect on trade flows. One
obvious reason is that Asian as well as European exporters
readily adjust their prices to maintain their market
shares.

For years, the United States has been top in the world with
its domestic demand growth propelled by the loosest
monetary policy in the world. For sure, lacking demand
growth in the rest of the world has played a role in
boosting the U.S. trade deficit. Yet what matters most for
the trade balance is not U.S. growth in relation to other
countries, but U.S. demand growth in relation to U.S.
capacity and capital-stock growth. In essence, such a
deficit indicates an equivalent excess of domestic spending
over domestic output.

More precisely, the U.S. trade deficit reflects gross
overspending on consumption on the demand side and a
grossly unbalanced investment structure on the supply side.
There was gross underinvestment in manufacturing versus
gross overinvestment in retail, finance and high-tech.

Our assumption is that there is no intention or will on the
American side to correct any of these maladjustments. Given
their enormous size, it is a Herculean task, too Herculean,
in fact, to be seriously addressed.

Principally, American policymakers and economists take only
two economic problems seriously: high rates of inflation;
and, in particular, slow growth and rising unemployment.
They could not care less about the dollar. The low
inflation rate is the excuse for more of the same extreme
monetary looseness.

There is quite a variety of accidents waiting to happen in
the markets, but the most predictable and biggest risk is a
dollar crisis. In addition to the gargantuan trade deficit,
looming in the background are existing foreign holdings of
dollar assets in the amount of $9 trillion.

As explained, the tremendous vulnerability of the U.S. bond
market due to its underlying heavy leveraging prohibits any
defense of the dollar through tightening.

Instead, the plunging dollar will pull the rug out from
under the bond and the stock markets.


Regards,

Kurt Richebächer
for The Daily Reckoning

-->Make It Stop!

The Daily Reckoning

On the train to Bonn, Germany

Wednesday, 10 March 2004

---------------------

*** Ashes to ashes... dust to dust... when will we find a
bubble we can trust?

*** Fat and deeply in debt... Baby Boomers resist the
inevitable correction as if it were death itself...

*** How do working mothers do it?... and other wonders...

---------------------

Isn't modern life wonderful? There is no longer any excuse
for relaxing... or thinking... even for a single minute. Palm
pilots, laptops, cell phones... wifi... you can always be
connected to all the latest misapprehensions... all the
time, from almost anywhere.

Here on the Thalys train between Paris, Brussels and
Cologne, there are even electric outlets to make sure your
devices do not run out of juice. At 7am, we plug in... gaze
out the window wistfully... and begin our day...

We went to Edward's school spectacle last night (More about
that below... ). We spent much of the time reflecting on the
way America's Baby Boomers are living through an almost
complete economic cycle... from cradle to grave... from ashes
to ashes... from bust to boom... and back again.

From the '40s to the '90s, the world went from one in which
things couldn't get much worse to one in which they
couldn't get much better. In the late '40s, you could buy
an ounce of gold for $35. Today it will cost you more than
10 times as much. And stocks? You could have bought all the
Dow stocks for less than you'd pay for a single ounce of
gold today. When the boomers were still in diapers, stocks
rose hesitantly. Nobody really believed in them. People
feared that the Great Depression might return after the
war. They bought stocks at 5, 6, 7 times earnings... and
considered it risky.

But that was the time to buy. Americans had savings,
energy, growth, investment, factories... and they still had
the habits, attitudes and prices left over from the
depression. America was a screaming BUY! Since the end of
the '40s, stocks have gone up 30 times. Real estate is much
more a local phenomenon, but you could hardly go wrong... as
long as you didn't buy in Detroit, Newark, Baltimore, Gary
or Donora. Old, heavy industry was the first to go, peaking
out before the boomers entered high school.

By the time the boomers entered college, the nation was
nearing the top of its first post-war stock market
exuberance. Stocks had reached a cyclical peak in which you
needed 28 ounces of gold to buy the Dow (currently, it
takes about 26). From there, they declined for the next 14
years, to the point where, on the 18th of January of 1980,
you could have taken a single gold kruggerand and exchanged
it for the entire list of Dow stocks.

While gold and stocks made headlines, who noticed that,
year after year, the U.S. economy continued to follow the
Baby Boomers' life cycle? Full of beans in their
youth... the boomers revolutionized their economy... from
production to consumption, from savings to debt, from the
world's biggest creditor to its debtor, from Detroit to
Bentonville, Arkansas. They rebelled against the
constraints of parents, priests, took up credit cards, and
- with great expectations - proceeded to debauch themselves
with debt.

Now in fat middle age, they resist the inevitable. Their
jowls and finances both sag - under the weight of excess -
and they become delusional: their houses cannot fall in
price; their stocks will never go down; they will never
die.

Interest rates are loose... looser than they been since the
boomers were born. But the economy is tight. People spend
more than ever. But jobs and incomes barely budge. It is
not at all the same economy they found when nurses first
wiped the dew from their eyes and slapped them on their
bottoms... It is now a screaming SELL!

Over to you, Addison, for more news...

-------------

Addison Wiggin from Paris...

- A woman walked into a Wal-Mart in Covington, Georgia on
Monday, rang up $1,675 worth of merchandise, then tried to
pay for it with a fake $1 million bill. She was arrested.

- In Hong Kong, that same day, a company that makes toilet
paper released news of an IT subsidiary and saw shares
skyrocket 94% in one day... (more below... )

- The Nasdaq, one day shy of the four-year anniversary of
its peak, closed below the psychologically significant
2,000. On March 10th, 2000, the Nasdaq closed at 5,048... but
yesterday, the Nasdaq slid 13 points to close at 1995 -
wiping out all of 2004 gains. After four years, the Nasdaq
is still 60% below its bubble top.

- Incredibly, out of these three stories... Nasdaq investors
actually look like the wisest characters! Yesterday, at
least they seem to be recognizing the worthless paper in
their hands for what it is.

- On second thought, maybe not."While companies sell fresh
paper [no pun intended]," TrimTabs president Charles
Biderman says of the market action in '04,"insiders bail
out [and] individuals fuel the mania."

-"A sharp divergence of views now exists in the stock
market casino," Biderman explained in his weekly report on
market trends."The house - companies and the insiders who
run them - is selling heavily, while players - individual
investors - are buying heavily. Who is correct? We will
place our bets on the house."

-"To really keep you up at night," writes Dallas Morning
News' Danielle DiMartino, covering the Biderman release,
"margin debt, or borrowing to buy stock, jumped $5.6
billion in January, five times more than the previous
month. That means, we've made a swift return to 1999, when
individuals were not only sinking their last dime into the
stock market, they were mortgaging the farm to do it."

- DiMartino points out that even big dogs like GE are
recognizing the public fleecing for what it is. On Monday,
GE brought its first stock offering to market since
1961... and raised about $3.8 billion. En totale, public
companies raised $28 billion in February. For the first two
months of 2004, Wall Street has raised more capital from
public offerings than in all of 2001 and 2002 combined.
Vive le bull!

- Sadly, a quick look at the stock markets and today feels
a lot more like early spring 2001 than 1999. The Dow lost
72 points to close at 10,456. The S&P shed six to 1,140.
Across the globe, we find the same story: Nikkei down, Hong
Kong down, Sydney down... the CAC 40 in Paris, the DAX in
Germany, The FTSE in London all down, down, down.

- Perhaps... just maybe... the jobs report on Friday is
having a bigger effect on the markets than we had suspected
it would. The world's growth engine, it would seem, just
isn't producing the kind of earnings and incomes one would
expect from this stage in a"recovery" - stimulus-led or
any other kind.

- The harsh data from Friday's report keep spewing forth...
400,000 thousand people fell off the back of the
government's unemployment statistics wagon in February. If
you bothered to stop the tractor, wheel back, and let them
climb aboard the hay bales again, the official unemployment
rate would be a staggering 10%. Factories actually laid off
3,000 more people in February. And the report included a
downward revision for December and January - the months Fed
governors and Labor Dept. officials alike were pointing to
as evidence of an 'improving jobs picture.' These months
now show 23,000 jobs lost... wiping out all but 2,000 of the
November gains.

- Regardless, madness reigns. The Washington Post reported
Sunday that the demand for new town homes priced in the
$560,000 to $1 million range is so high, people are camping
out three and four days ahead of contracts on the homes due
to be released by contractors. One nutcase, a network
engineer - or do we repeat ourselves - told the Post he was
"not prepared" when he showed up at the work site, so he
ran to his apartment a few miles away to grab his North
Face tent."I had to run home [again, to get supplies] and
pay somebody to stay in my spot..."

- Tent spreads along the historic Old Town are one of the
more public manifestations of the"hot" real estate market
in Washington, the paper says. Er... three, four days in the
mud, workmen and the great unwashed... and you can imagine
the smell. If this isn't the sign of a bubble top for the
area, we can't imagine what God has in store for us.

-"It was amazing," an architect holding the No.9 spot
said."If you didn't know what was going on, you would have
thought, 'who are these people?' They didn't look like
people who are qualified to buy million-dollar homes."

- Our gratuitous comment? They probably aren't.

-------------

Bill Bonner, back on the train...

*** Like a warm puppy in a boa constrictor, Baby Boomers
made their way through the guts of the American system, and
nourished it.

They changed the economy... and businesses, too. Large
companies had typically been created by innovators, risk-
takers and entrepreneurs. Then, they were taken over by
Wall Street's greedy shareholders, who exploited workers
for their own advantage. But when the boomers entered the
large intestine of late American capitalism, they turned
the system to their own ends. Henceforth, businesses would
be run for the benefit of the workers!

While stockholders get measly dividends - under 2% on
average - and pray for capital gains, the workers give
themselves corporate perks, pensions, golden parachutes,
and healthcare plans.

The subject is in the news lately, after it was revealed
that Disney CEO Michael Eisner paid himself $285 million
since 1996, even as the company stock fell 63%.

Why do capitalists put up with it? Because modern
shareholders are not really capitalists... but
lumpeninvestors, with no real power, no clue and no hope.

*** We went to a school spectacle last night expecting to
be proud of our son Edward and left feeling very proud of
his mother. Unexpectedly, Elizabeth played a star role. The
whole spectacle was a song and dance routine, recalling a
trip the class had taken to an abbey. But, in the
accompanying film presentation, Elizabeth appeared, giving
the parents' point of view; she did a fine job. We wouldn't
have known she wasn't French.

We're beginning to understand what immigrants to America
must have felt like. After nearly 10 years, we still have
trouble understanding what is going on. And every time we
open our mouths we risk making fools of ourselves.

The work of integrating the family into local life falls
mostly upon the wives and mothers. It is they who must
figure out the schools and social system. Somehow,
Elizabeth seems to have figured it out. She has the kids in
good schools... with tutors and after-school
activities... and even has the boys in"rallyes" - which
seem to be like the cotillions we were never invited to
attend in America.

*** How do working mothers do it? How do they manage to
keep up with all of the complexities of running a
family... and still hold down a regular job? We don't know.

But one of the great frauds of the Baby Boomer era was that
two incomes were better than one. Stay-at-home moms were
relics of an earlier, more gracious, era that the Baby
Boomers rebelled against. Women should go out into the
world, they said - and pretend to do important things, just
like men. Yes, I could have stayed at home baking cookies,
explained Hilary Clinton famously, but it was much more fun
making a mess of the entire world!

As Marc Faber explained last week, two-income, Baby Boomer
families are not really better off financially.
Surprisingly, they are now declaring bankruptcy faster than
everyone else. What goes wrong is obvious. Nobody saves
anything. Nobody has any cash. Nobody has food or fuel
stockpiled. Everything is 'just in time,' and not a minute
sooner. Every line of credit is maxed out. Every budget is
stretched. But at least a family with a non-working spouse
holds a little labor in reserve. If the main breadwinner
gets drunk and insults his boss, the distaff side of the
house can help fill in the gap until the big lunk gets back
on his feet.

*** As Addison writes above, the latest Asian stock story
just doesn't smell right. Colleague Porter Stansberry sends
details:

"Guys... you won't believe this one... here's the report:

"'Previously known just as a Hong Kong-based maker of
toilet paper, this company has attracted the interest of
the momentum crowd after last week announcing plans to
acquire a China-based company in the information technology
sector as a new business unit. While there were few details
associated with the announcement, the stock has enjoyed a
125% advance since issuing the press release. Today, DFCT
shares have rallied 94% on enormous volume of 30.6mn shares
(25x avg).'

"A Chinese maker of toilet paper is up nearly 100% on the
day... because it is launching an I.T. [information
technology] subsidiary.

"Toilet paper... seems an adequate description of the shares
themselves..."

---------------------

The Daily Reckoning PRESENTS: How much debt are you towing?
If your load is anything like America's - or John Myers's
boat, below - you may want to"lighten up" before it's too
late.


MAKE IT STOP!
By John Myers

The American economy has no rivals... at least on paper. The
nation has a gross domestic product (GDP) over $10
trillion. The next-largest economy is China, with a GDP
only half as large. On a per-capita basis, America's GDP is
8 times larger than China's and 40% larger than that of the
United Kingdom.

You might think that such a powerhouse would be immune to
recessions, stock market crashes or currency crises. Yet
America faces all three of these risks - risks so real that
the Federal Reserve has pegged interest rates at their
lowest levels in half a century. The answer to why the
central bank has taken such extraordinary measures comes
down to one word: DEBT. As powerful as America is, it is
towing trillions of dollars of debt.

Most of us have at some time or another taken on more debt
than we can chew. I know I've done it. In 1991, my brother
and I bought a used cabin cruiser. It cost us less than
$20,000, but I thought our old Sea Ray was the most
beautiful boat on Lake Pend Oreille, a glacial lake in
Idaho with 111 miles of shoreline.

When you buy a boat, you need to tow it to your final
destination. I found the perfect vehicle - a Chevrolet
Suburban. I told my wife Angela that it made sense to buy
it because we could tow the boat to storage in Spokane
rather than pay someone else to do it. I even got the
optional towing package to prove my point. But the truth is
I was smitten by the black 4x4 with its big block V-8 the
moment I saw it.

I had witnessed a Suburban plow through three-foot
snowdrifts and pull a tractor from a muddy quagmire. I
wanted that kind of power for myself, even if I had to
borrow to get it. Besides, according to the owner's manual,
the beefy Chevy could safely tow 7,000 pounds. That was
roughly the dry weight of our boat.

On a warm autumn weekend Angela and I drove out to
Sandpoint, Idaho, to tow the boat back to storage. On paper
there shouldn't have been a problem. However, I forgot to
take everything into account. Besides being loaded with
personal effects, the boat was carrying a small outboard
engine and half a tank of gas. Added up, the boat and its
trailer probably weighed close to 10,000 pounds. As we
entered onto the highway, it began to feel more like the
boat was pushing us than we were pulling it.

The boat trailer was taking up every inch of the lane we
were traveling on. I was afraid what could happen if the
right tires slipped off the pavement and onto the sandy
shoulder.

Suddenly we came upon a sharp turn and my fear came true.
The trailer tires slipped onto the shoulder. The boat began
to shake us the way a Doberman would shake a gopher. The
Suburban was being tossed left and right, across both lanes
of the highway. Angela grabbed my right arm and screamed,
"Make it stop!"

"I can't," I yelled back. There wasn't a thing I could do.
As powerful as the Chevy was, it simply wasn't big enough
to handle the weight of the boat.

Luckily, there was no oncoming traffic. I prayed I would
slow down enough to regain control. I gently applied the
brakes and slowed our speed down to 40 miles per hour. The
trailer finally straightened out. It took us awhile, but we
made it home.

As strong as America's economy is right now, the question
remains - is it sturdy enough to handle the massive debt
load it is towing? If America is NOT strong enough, then
the economy could be whipsawed, facing inflation on one
side, deflation on the other. If that happens, I can
picture President George W. Bush screaming,"Make it stop!"
and Fed Chairman Alan Greenspan yelling back,"I can't!"

If forced to choose, Greenspan will pick an inflationary
spinout rather than a deflationary crash. In fact, the
economy might be heading in that direction already.

America's money supply is growing almost uncontrollably.
Since 1990, the money supply has nearly tripled. This
excess of dollars, along with the fact that America
continues to pile on even greater debt, has been reflected
in the devaluation of the dollar against other major
currencies and the rise of commodity prices.

This trend seems entrenched. If it continues, it will mean
a major reduction in bond prices and at best a stagnant
stock market.


Regards,

John Myers
for The Daily Reckoning

P.S. So what should we do? By investing in real assets, you
can protect yourself from the calamity of stagflation.
Resource investments are well equipped to handle an
inflationary payload. While most investors are happy to
ride along, unaware of the risk ahead, the real asset
investor is sitting safe, collecting profits rather than
risking his neck.

-->The Value Of Garbage

The Daily Reckoning

On the train again... in a different direction

Thursday, 11 March 2004

---------------------

*** Dow down sharply... the bear market rally that began in
October 2002 may be over...

*** Deficits up to record levels... maybe a 'currency
crisis' this way comes...

*** GDP fraud... real growth in Europe... mercenaries and
honest government... banana republics... and more!

---------------------

It is still snowing... odd, this late in the year. A bad
omen... winter hanging on when spring should be here.

When we left Bonn last night, it was snowing. As we make
our way to London, the snow is still swirling about here
and there. To the right of the tracks, somewhere in Pas de
Calais, a small cemetery appears, looking ghostly in the
early-morning light.

The tombstones are dusted white... and a row of trees along
one side is pruned in the odd French manner. The trunks
rises thick and solid, but only about as high as a farmer's
shears can reach... and then the limbs spread out all at
once into a dozen wispy branches... all bent towards the
graves like a row of spectral chorus girls waving to the
dead.

In the train, the business travelers hunch over their work,
making notes, reading the paper, or tapping away on their
laptop computers. Not one bothers to look out the window.
The train could pass a squadron of space ships from Jupiter
sitting in a cow pasture... no one would be the wiser.

Not noticing things is one of the great talents of modern
times. We have our TV and Internet connections... our
endless talk radio and newspapers. From these sources we
know that America is on track for a full 'recovery.'
Europe, as usual, lags behind. Old Europe is said to have a
slower growth rate... lower standards of living... lower
earnings per capital.

Americans innovate, we are told, Europeans and Asians
emulate. Europe... say the pundits... is on its way to
becoming a vast museum. But if you merely look out the
window from the Thalys going down the Rhine valley or from
the Eurostar on its way to London, you realize that these
notions are one part misinformation, one part
misapprehension, and one part pure humbug.

You do not see consumer-led development in Europe the way
you do in America. You do not see acres of new condos and
strip malls. But you do see what appears to be solid
construction... new office buildings, new apartment
buildings, and even new industrial plants. Everywhere,
people go about their work in nice clothes and nice cars.
Restaurants are bright and expensive. The women are
attractive, the food is good and the newspapers are
unreadable. What else matters?

While GDP growth numbers are lower in Europe, the old world
numbers seem to measure real growth... not the phony
progress of debt-fed consumption. In terms of output per
hour and output per capita, European nations are doing as
well or better than America. And what the Europeans are
putting out brings them a positive balance of trade with
the rest of the world. Unlike America, they are producing
more than they consume, in other words.

"U.S. deficit in trade hits a record," says today's
Associated Press report."The trade imbalance widened to
$43.1 billion in the first month of 2004," continues the
article."For all of 2003, the trade deficit posted an
annual all-time high of $489.9 billion."

The U.S. deficit on the trade account has been growing at
about 28% per year for more than 10 years. As a percentage
of GDP, the deficit has recently been rising five times
faster than the economy as a whole. This puts America in
the category of"banana republics," writes Peter Bernstein.

No major currency has ever had current account deficits of
5% of GDP, he points out:"The hole Americans and our
trading partners have dug for this country is now so deep
that the road back to sustainable conditions appears to be
not only long, but paved with risks."

Bernstein says the U.S. may be setting itself up for a full
blown"currency crisis." We cannot know for sure, he points
out, but investors should probably approach it as
philosopher Blaise Pascal nudged into Christianity. Hell
may not exist, said he, but the consequences of being wrong
about it - roasting in the infernal fires for all eternity
- are so bad, you're better off being a believer, even if
it turns out you're wrong.

A dollar crisis would be Hell on earth for most Americans.
The U.S. has reserves of only $137 billion, of which $90
billion is in gold. The Japanese spent more than that last
year alone - trying to hold up the dollar. In a few weeks,
U.S. reserves could be wiped out and the dollar could
collapse like... well, the Argentine austral.

We have nothing against banana republics, but America
doesn't have the weather for it.

When the crisis hits, our guess is that Americans will both
shiver and sweat. Barely able to afford oil from
Araby... and sweating their mortgage payments... they'll wish
they'd taken Pascal's wager, and set a few euros and gold
aside... just in case.

Here's more news, from Eric...

-------------

Eric Fry on the scene in New York...

- Happy Birthday, Bubble! Four years ago yesterday, the
Nasdaq Composite Index kissed its all-time high of 5,132.52
- a mere 158% above its current level... Four years ago
yesterday, stocks were absurdly expensive, yet most folks
could think of absolutely no reason NOT to buy them.
"Haven't stocks been rising for years?" they asked
themselves."Don't stocks always go up over the long run?"
they reasoned.

- Indeed, in March of 2000 the stock market had been rising
- more or less - for the previous 18 years. And, yes,
stocks do tend to go up over the long run. But over the
short run, the stock market - like the wind -"blows where
it pleases."

-"You hear [the wind's] sound," Jesus observed 2000 years
ago,"but you don't know where it comes from or where it is
going. So is everyone who is born of the spirit." Life in
the domain of"filthy mammon" is not so different. We may
observe the effects of the stock market's movements, but
still have no idea where it will blow next.

- For three years, Hurricane Nasdaq buffeted the complacent
capital, destroying much of the capital that stood
helplessly in its path. The Nasdaq's gale force winds
toppled many icons of the era, like Cisco Systems and
Lucent Technologies, which both fell more than 90%. The
Nasdaq itself dropped nearly 80%.

- Mercifully, the winds of destruction died down about one
year ago. And the balmy breezes of capital appreciation
have been blowing ever since. Investors have become relaxed
and complacent once again, which is just about the time
that gale force winds usually start kicking up on Wall
Street... Did you feel a gust yesterday, dear reader?

- The Dow Jones Industrial Average opened Wednesday's
session with small gains, but quickly reversed direction
and cascaded 160 points to 10,297. The Nasdaq Composite
Index also forfeited its early gains. After bouncing back
above the psychologically rewarding 2,000-level early on,
the tech-heavy index tumbled to a 31-point loss at 1,964.
The stock market's steep losses dropped the Dow and the
Nasdaq into the red for 2004. The S&P 500 still clings to a
1% gain for the year...

- Mother was right; you can't judge a book - or a trade
report - by its cover. America's trade deficit ballooned to
$43.1 billion in January. Judging from the report's cover,
a $43 billion trade deficit would seem to be a bad thing,
especially since the Federal Reserve and Treasury have been
destroying the dollar for the express purpose of NARROWING
the trade deficit.

- Therefore, on the surface of things, the ballooning trade
deficit would seem to be a scathing indictment of the Bush
Administration's de facto"weak dollar" policy. After all,
didn't President Bush, Alan Greenspan and Treasury
Secretary Snow all assure us that the road to an improving
trade deficit could be paved with devalued dollars? And
have they not been trying to pave such a road by dumping so
many newly minted dollars on the foreign exchange markets
that the U.S. currency has lost a third of its value over
the last two years?

- And still, the U.S. trade gap widened nearly 1% in
January to $43.1 billion - a new all-time record. Taking a
peak inside the report, we find that exports and imports
both fell in January, but exports fell more. Specifically,
January exports dropped 1.2% - the biggest decline since
last August. Curiously, the August edition U.S. dollar was
about 15% stronger than the January edition... and still the
trade gap worsened.

- Yesterday's news of the embarrassingly large trade
deficit would seem, on the surface of things, to have
presented an ideal occasion for investors to unload dollars
and to buy gold. (After all, if a weak dollar has not yet
wrought its intended magic, won't the Administration try to
engineer even more weakness?) Instead, investors scurried
to do the exact opposite.

- Presumably, the most motivated of yesterday's dollar-
buyers were those foreign central banks that have a multi-
billion dollar axe to grind. The Japanese Central Bank, for
example, in an effort to weaken the yen, has sold ¥10.5
trillion, or $95.3 billion, during the first two months of
the year. That's more than half of the annual record amount
spent last year to weaken the yen. Perhaps the Japanese
Central Bank was busily scooping up unwanted dollars again
yesterday.

- On the surface of things, a 30% devaluation of the dollar
over 24 months would seem sufficient to BEGIN correcting
our nettlesome trade imbalances. But the evidence-to-date
argues to the contrary. Nevertheless, up on Capitol Hill,
overt policy failure is never reason enough to discontinue
a failing policy. In fact, the dollar devaluation campaign
is twice a failure.

- Isn't the weak dollar supposed to boost job growth here
at home, while narrowing our trade deficit overseas? But
neither one is happening. In February, the average length
of joblessness rose to 20.3 weeks, the longest since
January 1984.

- As Sen. John Kerry quipped after last week's dismal jobs
report,"At this rate the Bush administration won't create
its first job for more than 10 years." We suspect a Kerry
Administration would not have any better luck creating
jobs, unless it encouraged the kinds of economic behavior
that lead to long-term prosperity.

- Here's a thought: Maybe devaluing the dollar isn't such a
great idea after all. And here's a related thought: If we
wish to boost exports and add jobs, maybe we should make
more of the things that the rest of the world wants to
buy...

- Just a thought.

-------------

Bill Bonner back, now, in London...

*** Oh là là... the top seems to be in. The great bear
market rally of 2003-2004 seems have run its course. The
Dow fell sharply yesterday and now is in losing territory
for the year... along with the Nasdaq.

*** GDP numbers seem to mislead everyone. The numbers
themselves are silent. They do not say whether they measure
production or consumption... that is, the rate at which one
gets rich or the pace at which he races to the poorhouse.
But the world loves humbug... and no people love it more
than Americans. They think they are getting rich... and rush
to spend their new fortunes before they've even been
created.

*** Here comes news of suspected coup attempt in Equatorial
Guinea - a country so Godforsaken that that even God
himself has probably forgotten where He put it. But we turn
to our handy Atlas and find that it is in a particularly
dark corner of the Dark Continent. Until recently, that
is... when the country began pumping oil in large
quantities.

Apparently, a group of mercenaries from South Africa were
on their way to take over the country when their plane was
delayed by the gendarmes of Zimbabwe. African dictators
look out for each other, so the one now in charge of
Zimbabwe put the cuffs on the South Africans and signaled
his indignation that anyone would have the bad taste to try
to knock off one of his buddies, who had staged his own
coup back in 1979 and has been torturing people ever since.

There's something so refreshing about seizing power by
force. It is the old-fashioned politics - simple and pure,
with neither the conceits of ideology nor the props of the
ballot box, just honest, naked government with its
corruptions out in the open for all to see.

*** Are you codependent, dear reader? Do you have repressed
memories? Does the Rorschach inkblot test show you hate
your mother? Are you the victim of sexual
addiction... caused, perhaps, by some critical incident? Or
maybe you are plagued by multiple personalities?

Well, get over it. You're nothing but a cringing, weak-
minded, self-absorbed psycho-hypochondriac, trying to
explain away your slimy shortcomings in clinical terms. At
least, that's what we make of an article in the New York
Times. Most of these syndromes are just faddish poppycock,
say a group of academic psychologists.

-----------------------

The Daily Reckoning PRESENTS: Wall Street fraught with
fraud, criminals and miscreants?"So what!" says Extreme
Values' Dan Ferris. Sometimes there's money to be made in
the wreckage...


THE VALUE OF GARBAGE
By Dan Ferris

It certainly pays to invest in quality businesses.

The S&P 500 index includes some of the greatest business
enterprises ever created: Microsoft, ExxonMobil, Wal-Mart.
All the big names are there.

Those 500 big names earned investors an average of 28.7% in
2003, an excellent one-year return. Many 401(k) plans
invest in the S&P 500 index. So a vast number of investors
did well investing in those companies that most people
agree are the safest places for your money...

.. but you could have made twice as much money last year
simply by focusing on those companies that failed
miserably. Some of them actually turned out to be staffed
by criminals!

That's not a typo error. I just said that the worst
failures, the companies run by the most devious managers,
made investors twice as much money in 2003 as the most
successful businesses, run by the most capable managers. If
you break out the top 10, 20, or 30 stocks in the S&P 500,
the results are similar. The worst businesses made more
money for investors than the most successful businesses.

The stocks I'm talking about are the components of an index
called the Feds Index. The equity investment department at
Guardian Life Insurance Company created the Feds Index.
It's a list of several companies that are under
investigation by the federal government and/or the
Securities Exchange Commission for possible wrongdoing.

The Feds Index contains stocks like Tyco, formerly headed
by the now infamous Dennis Kozlowski. Also in the Fed Index
are El Paso, HealthSouth, Qwest, Symbol Technologies and
Computer Associates.

HealthSouth, for example, was down 98% while under
investigation for accounting fraud. But it staged a
miraculous 5,365% comeback. It's still rising, even though
the size of its fraud has been raised from $2.7 billion to
as high as $4.6 billion.

The Feds Index doesn't have a monopoly on these stocks.
There were plenty of companies that did lousy last year and
made plenty of money for investors. Williams Cos. fell as
low as 78 cents a share in the post-Enron energy meltdown.
It had to sell billions of dollars worth of valuable
natural gas assets to survive. Within a year, it had
climbed as high as $9.

AmeriCredit Corporation, the company that buys sub-prime
car loans, fell as low as $1.55. Management got its act
together and it's now at around $19.

The reason why lousy companies bring you great returns is
simple. Since nobody wants to own them, their share prices
get far cheaper than those of the popular, successful
companies most investors want to buy.

Right now is an especially good time to focus on the
losers. A year-long rally has pushed many stocks up so that
they're either overvalued or simply no longer cheap. There
isn't much worth buying today, except the failures and
criminals.

To find the next Gateway, HealthSouth or Williams Cos., set
your favorite stock screener to find"meltdowns." Look for
companies trading at huge discounts to book value. There
are a several insurance companies out there that fit this
bill. Insurance premiums have been up the past two years,
after falling for two decades. I found one that has taken
its share of licks in Hurricane Andrew and again on 9/11.
It's still below my maximum buy price today.

Besides big discounts to book value, you can usually set a
stock screener to show you all the stocks that have fallen
by a given amount during the last 52 weeks. Look for those
that have fallen at least 50%. Remember, you want the
worst, not the best.

One caveat: You'll want to be careful once you start
looking for companies that have failed in some way. You'll
find some real garbage, including companies that have
declared bankruptcy. They have a letter 'Q' on the end of
their trading symbol. Oglebay Norton, for example, now
trades under the symbol OGLEQ. Gadzooks is now GADZQ.
Ignore the bankruptcies and move on.

Focus your efforts on finding the beaten down companies
that have enough money and/or net assets to survive. If you
do that, I think you'll do much better over the next year
or so than the vast majority of investors.


Regards,

Dan Ferris
for The Daily Reckoning

-->Debt And Dying

The Daily Reckoning

On the train again... back to Paris

Friday, 12 March 2004


---------------------

*** Long lines, tight security on the Eurostar...

*** Stocks get hit... by Madrid explosions... or has the bear
market resumed?

*** Debt and Dying... and more...

---------------------

Never have we seen such long lines and tight security on
the Eurostar. Luggage was searched... travelers
frisked... passengers eyed each other suspiciously,
wondering who might want to blow it up.

"I might as well have taken an airplane," said an American
standing in line in front of us.

The proximate cause of all this security was, of course,
the bomb blasts in Madrid.

"It is being called Europe's 9/11," said newscasters on
British TV this morning.

We doubt that the event will rank with the destruction of
the Twin Towers in history books, but like 9/11, it is
almost certain to raise terrorists' stock beyond book
value.

European stocks fell... yesterday morning, followed by Wall
Street in the afternoon. American analysts attributed the
decline to"fears of more terrorist incidents." Perhaps,
but we warn readers that the Dow was already headed
down... and has much, much further to go before it gets to
where we think it is going to go.

The 'recovery' was a fraud, we keep saying. The Feds
splashed enough money and credit around to stimulate
consumer borrowing and spending."You give me a trillion
dollars to spend, and I'll show you a good time too," as
Buffett put it. This activity looked like 'growth.' But it
was actually no more than a temporary acceleration on the
road to ruin.

As in Japan 10 years ago... the rally seems to have stalled,
topped out... and now has rolled over. Mr. Bear is back... or
at least, that is how it appears today. Yet, investors,
analysts, and economists are bullish... almost to a man.
They are sure the good times are here to stay - forever.
Were it not for terrorists, they will tell each other,
everything would be okay.

In finance, as in politics, terrorists are overrated. They
are deadly, but not serious.

Over to Addison with more news:

------------

Addison Wiggin, in the City of Light...

- Here's a freaky little stat. The blasts in Madrid
happened 911 days after 9/11... Coincidence?

- Whatever the case, Mr. Market didn't like the odds. In
early trading yesterday, while most of the world seemed to
suspect the terror attack was the work of Basque
separatists, the Dow trended sideways... waiting. Then at
roughly 3pm New York time, the London-based al-Quds al-
Arabi received a letter reading:"This is part of settling
old scores with Spain the crusader, and America's ally in
its war against Islam."

- The Dow then set its sights southward and never
recovered. The blue-chip index closed out the session 169
points lower at 10,128. The S&P 500 lost 17 points, and the
Nasdaq was down 21 points. Stocks fell all across Asia and
Europe... Paris was down by 3.1%, Frankfurt 3.5%... and they
were down over 2% in London.

- Surprisingly, after a brief spike to $403 in Hong Kong
overnight, gold lost $1.50 to $398.50. But another
traditional"safe haven" did get a boost yesterday - the
Swiss franc. It leapt nearly 2% versus the dollar, and hit
4-week highs against sterling and the euro.

- The deaths in Madrid mark the one-year anniversary of the
reflation bull market of 2003-2004, but it's clear the
rally was already straining under its own weight. Following
two straight 160+ losses in a row, the Dow is now down 3.1%
for the year and nearly 6% from its high on February 11th.
The Dow's recent dip marks the first 5% correction for a
major index in 244 trading sessions.

- You might have expected yesterday's bombs to rip a hole
in the euro, too. But instead, it jumped 0.5 cents to
$1.22. Dollar weakness is more prevalent than ever. Why?
Well, isn't it obvious? It is to Dan Denning, who has
recently quit the rainy climes of Paris for the equally
soggy environs of London.

-"The monthly e-mail bulletin from the U.S. Treasury
reveals quite a surprise," Dan blurted out to our
colleagues in the London office this morning."Of course,
as you might expect, the U.S. government ran a deficit
again in February, but it's the magnitude that's
surprising... $96 billion! That's billion with a 'B' - in
one month! A short one at that. I believe that's the
largest single monthly government deficit in the history of
the Republic..."

- Data junkie that he is, Dan can't help but note:"$15.2
billion of the total went directly to interest on existing
public debt. In other words, 8% of the government's outlays
were just to pay lenders. Meanwhile, total spending for the
first five months of this fiscal year, compared to the
first five of last year, has grown 4.2% from $898 billion
to $937 billion. The deficit is up 16.4% year-on-year."

- Everbank's Chuck Butler, our guru on the euro-dollar
trade, pointed out, too, that the Lehman Bros. currency
desk put out a report this morning saying that"it's time
to sell the dollar vs. the euro, and that the dollar's
current rally isn't justified..."

-"Good!" writes Chuck,"That's the kind of message I want
the markets to hear... Now if the other Big Boys could get
their collective soap boxes out, to sing from the same song
sheet, we could have something!"

-"If you had access to no data other than a graph of U.S.
Treasury yields," Bloomberg's Caroline Baum wrote
yesterday,"you'd think the U.S. economy was in big
trouble." But it's not just the massive spending habit of
the U.S. government Dan Denning refers to above.

-"Never has job growth lagged economic growth to the
degree it's lagging now," says Baum. Of the supposed 21,000
jobs created last month, not a single one came from the
private sector. It was the first month since August that no
jobs were created outside the government. Last Friday's job
report set off an explosive rally in bonds that lasted
through Monday and Tuesday. Friday's gain itself was the
largest one-day gain in 13 years. Bond investors, rightly
so, fear that the continuing effluence of bad news from the
jobs front means the"economy will roll over in coming
months." Yesterday's attack in Madrid only exacerbates
those fears...

------------

Bill Bonner, arrived in Paris and off the train...

*** If we are right... if we have begun the next phase of
the Great Bear Market of 2000-??... we would not be
surprised if, this time, we see some panic selling. You
will recall that the first phase was marked by calm. Paper
profits in the Nasdaq were wiped out... huge losses were
taken in the Dow... but who really cared? It was just a
temporary setback on the way to wealth. Americans still
believed that average people - with no knowledge of
specific stocks or specific companies - could get rich
simply by"being in the market for the long haul." All they
had to do was to get into a good mutual fund. The geniuses
at the mutual fund would take care of everything else.

This next phase should challenge this comfy view. People
now know that stocks can go down substantially... and take
years to come back. This time, they may not want to wait.

Gustave le Bon explains how panics develop:

"The precise moment at which a great belief is doomed is
easily recognizable; it is the moment when its value begins
to be called into question. Every general belief being
little else than fiction, it can only survive on the
condition that is be not be subjected to
examination....Finally, when the belief has completely lost
its force, all that rested upon it is soon involved in
ruin."

At some point in the next few years, people will begin
asking questions. Was putting all our retirement money in
stocks really such a good idea? What if this bear market
lasts longer than we expect? What do we know about the
stock market? What if the whole idea is a fraud... what do
we really know about the silicon chip business... what
business do we have putting our money in it?

When the questions get asked, the answers are not likely to
be reassuring.

*** Dan Dorfman:"What's cheap? Over the past several
decades, the average stock has sold for about 15 times
earnings, 1.7 times book value (corporate net worth) and
0.9 times revenue. Today, the average stock sells for about
23 times earnings, 3.4 times book value and 1.4 times
revenue. Those are pricey multiples by historical
standards."

*** After a day in Germany and a day in London, we are back
in Paris, dear reader. For a few hours, that is... tonight,
we go to the countryside for the weekend.

---------------------

The Daily Reckoning PRESENTS: Why London gangsters should
always pay their debts... as John Q. Public should, too. Mr.
Bonner weighs in with"life after debt," below...


DEBT AND DYING
By Bill Bonner

"Tony was such a kind man, he had a big heart. He shone
like gold."
- Lou

We went, as usual, to the obituaries this morning... and
found them crackling with good humor and good advice.

Obsequies for gangster Tony Lambrianou must have been
entertaining. The East End hoods and mobsters gathered -
dressed in dark glasses, black leather coats, and heavy
gold jewelry - and watched the hearse go by."On the roof
was perched a huge, ungainly floral boxing ring in vivid
red, white and blue and a card-board cut-out of Elvis
Presley,' explained the press reports.

But the affair was a bit of a disappointment to
journalists. The scribblers were hoping for some glamour.
In the past, gangsters were real celebrities... and brought
out the stars. Judy Garland, Sonny Liston and Lord Boothby
used to hobnob with the London underworld. Now, many of
these stars of stage and crime are dead or washed up.
Today, the world's attention focuses on terrorists; old-
fashioned hoodlums go to their graves like an accountant to
the Laundromat. Nobody cares. The local shops remained
opened, says the article in the Daily Telegraph. In the old
days, they would have closed out of respect for the fallen
crime boss. And people would have lined the route of the
funeral cortege and doffed their caps as the dead man went
by. Yesterday, hardly anyone noticed.

Tony was remembered as a 'gentleman' and a 'good man' in
the bouquets. The papers recalled that in 1969, he and his
brother Chris lent a hand to their pals, the Kray brothers.
The frères Lambrianou carried off the body of Jack"The
Hat" McVitie, after the Kray boys had gone to work on him
with a carving knife. But what fine thanks you get when you
help a friend; Tony and Chris were grabbed by the Bobbies
and got 15 years in the hoosegow.

What attracted our interest was how 'The Hat' came to be in
such trouble in the first place. Apparently, 'The Hat' had
lost his head... and failed to settle his accounts as
gangland honor required. The Krays - unschooled in modern
banking's loan workout procedures - had their own way of
dealing with deadbeat debtors.

Henchman Tony, dead suddenly at 61, will not come back this
time. He'll have to settle his own accounts, and good luck
to him.

Meanwhile, in another part of town, the Lewis family
continues to grieve over their man, Stephen. Like 'The
Hat,' Stephen might be considered a victim of EZ credit.
The average man in Britain has far less debt than the
average American. He is said to have only two credit cards
with about $1400 on each one. But Stephen Lewis managed to
run up bills equal to 3 times his annual income. At the
time of his death at 37, he owed 71,913 pounds - over
$100,000 - on 19 credit cards.

He is described as a"vibrant, popular man who was such a
lovely personality." But for all his vibrations, he
couldn't seem to get in tune with the modern credit
industry. He took it all too seriously, in our opinion.
Rather than stiff his foolish creditors like everyone else;
the poor man killed himself last July. He must have thought
he had to pay it back; someone should have explained. But
now his pretty widow is in the papers, suggesting that the
credit industry ought not make it possible for people to
dig such deep holes for themselves.

"The credit boom of recent years has brought great
advantages to many individuals and families, and helped to
raise standards of living," sympathized the Citizens Advice
Bureau,"but it is also taking a huge toll on the those who
have found themselves on the wrong side of the very narrow
dividing line between successfully managing credit
commitments and plunging into serious debt."

"We have become a debt-laden people," added the Daily
Telegraph in editorial comment."Unsecured borrowing on
credit cards and personal loans averages 4,400 pounds per
person. The average new mortgage is about 100,000 pounds.
In short, debt is darkening a great many lives."

Well, so far debt is probably brightening more lives than
it darkens. As long as interest rates are low and
falling... and asset values do not fall... the lights should
remain on for most people. It's when the juice stops
flowing that the trouble begins. That's when you wish you
hadn't borrowed so much... and feel faintly like blowing
your brains out.

But at the Lambrianou funeral, Tony's surviving sibling
looked on the bright side. He warmed hearts with this
remembrance of how the two brothers-in-crime felt as they
were on their way to prison:

"We were going away for a long, long time. We were in the
darkness and we began to comprehend what was happening. You
find something there in that darkness; there is a life
there. There is always hope, a future."

Fear not, dear reader, there is life... even after debt.


Bill Bonner
The Daily Reckoning

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-->Anschläge in Spanien

von unserem Korrespondenten Bill Bonner

Ende letzter Woche fuhr ich mit dem Eurostar von Paris nach Köln.
Niemals zuvor gab es so lange Warteschlangen und einen so intensiven
Sicherheits-Check. Das Gepäck wurde durchsucht... die Reisenden
sprangen herum... und die Passagiere sahen sich gegenseitig
misstrauisch an und fragten sich, wer wen in die Luft jagen könnte.

"Ich hätte genauso gut fliegen können", sagte jemand, der vor mir in
der Schlange stand.

Der wahrscheinliche Grund für diese Sicherheitsmaßnahmen waren -
natürlich - die Bombenanschläge in Madrid.

"Das wird der 11. September Europas genannt", so Kommentatoren im
britischen Fernsehen letzten Freitag.

Ich bezweifle, dass dieses Datum in den Geschichtsbüchern mit dem 11.
September gleichgesetzt werden wird. Aber wie am 11. September ist es
fast sicher, dass die Aktien der Terroristen über ihren Buchwert
hinaus steigen werden.

Die europäischen Aktien fielen nach den Anschlägen. Amerikanische
Analysten nannten als Grund für die Kursrückgänge"Angst vor weiteren
Terror-Zwischenfällen". Vielleicht... aber bereits vorher war der Dow
Jones nach Süden gerichtet gewesen, und er wird noch deutlich tiefer
fallen, bevor er da ist, wo ich denke, dass er hingehört.

Die wirtschaftliche"Erholung" in den USA war ein Schwindel, das habe
ich immer wieder gesagt. Die Fed und die US-Regierung haben genug Geld
und Kredite geschaffen, um das Schuldenmachen und Geldausgeben der
Konsumenten zu stimulieren."Wenn man mir eine Billion Dollar gibt,
die ich ausgeben kann, dann werde auch ich Ihnen eine gute Zeit
zeigen", wie Warren Buffett gesagt hat. Diese Aktivität sah wie
"Wachstum" aus. Aber es war eigentlich nicht mehr als eine temporäre
Beschleunigung auf der Straße zum Ruin.

Wie in Japan vor 10 Jahren... scheint sich die Rally festgefahren zu
haben... sie hat ihren Höchstpunkt erreicht... und ist jetzt wieder
auf dem absteigenden Ast. Der Bärenmarkt ist zurück... oder zumindest
sieht das heute für mich so aus. Dennoch stehen die Investoren,
Analysten und Ã-konomen weiterhin auf der Bullenseite... fast ohne
Ausnahme. Sie sind sich sicher, dass die guten Zeiten für immer
anhalten werden. Sie sagen sich: Wenn es die Terroristen nicht geben
würde, dann wäre alles ok.


Montag, 15. März 2004

USA: Anleihenkurse steigen deutlich

von unserem Korrespondenten Addison Wiggin in Paris

Hier eine kleine erschreckende Zahlenspielerei. Die Anschläge in
Madrid ereigneten sich 911 Tage nach dem 11. September 2001. Zufall?

Was auch immer - den Aktienmärkten Markt gefiel das nicht. Ein
Beispiel: Als die Welt noch dachte, dass die Anschläge das Werk der
ETA waren, da beachtete der Dow Jones den Terrorangriff kaum... aber
als dann die Nachricht kam, dass ein Brief gefunden wurde, der auf die
islamistische Terroristen als Täter hinwies, da sackte der Dow Jones
durch.

Überraschenderweise fiel der Goldpreis leicht zurück, auf unter 400
Dollar. Aber ein anderer traditioneller"sicherer Hafen" wurde
beflügelt: Der Schweizer Franken. Er gewann gegenüber dem Dollar fast
2 %, und gegenüber dem britischen Pfund und dem Euro stieg er auf
4-Wochen-Hochs.

Die Toten in Madrid kommen zum einjährigen Geburtstag des
Bullenmarktes 2003/2004. Aber diese Rally litt auch ohne die
Terroranschläge unter ihrem eigenen Gewicht. Man hätte übrigens
erwarten können, dass auch der Euro Federn gelassen hätte. Aber er
hielt sich relativ stabil bei 1,22. Warum? Nun, ist das nicht
offensichtlich? Zumindest für Dan Denning ist das offensichtlich:

"Das monatliche (...) Bulletin des US-Finanzministeriums brachte eine
ziemliche Ãœberraschung", so Dan Denning letzten Freitag in London.
"Natürlich hatte die US-Regierung letzten Februar wieder ein
Haushaltsdefizit, wie man erwarten konnte, aber die Größe war
überraschend... 96 Milliarden! In einem Monat! Und auch noch in so
einem kurzen Monat wie dem Februar. Ich glaube, dass das das größte
monatliche Haushaltsdefizit ist, das die USA jemals hatten..."

Und weiter:"15,2 Milliarden Dollar der neuen Schulden mussten als
Zinsen für alte Schulden aufgewendet werden. Mit anderen Worten: 8 %
der neuen Schulden wurden nur gemacht, um alte Schuldner zu bezahlen.
Und die Gesamtausgaben der ersten fünf Monate des laufenden
Fiskaljahres (Start: 30.09.2003) sind gegenüber ihrem Vorjahreswert um
4,2 % gestiegen, von 898 Milliarden Dollar auf 937 Milliarden Dollar.
Das Defizit ist im gleichen Zeitraum um 16,4 % gestiegen."



Und auch Chuck Butler von der Everbank betonte letzten Freitag in
einer Analyse, dass die Devisenabteilung von Lehman Brothers meint,
dass es"Zeit ist, den Dollar gegenüber dem Euro zu verkaufen, und
dass die aktuelle Rally des Dollar einfach nicht gerechtfertig
ist..."

"Gut!" meint Chuck Butler,"das ist die Botschaft, von der ich will,
dass die Märkte sie hören... und wenn die anderen großen Jungs auch
dasselbe Lied singen könnten, dann wäre das schon etwas!"

"Wenn man keine anderen Daten als nur eine Grafik der Renditen der
US-Staatsanleihen hätte", schreibt Caroline Baum von Bloomberg,"dann
würde man denken, dass die US-Wirtschaft ziemliche Probleme hätte."

"Niemals zuvor war die Zeitverzögerung zwischen Wirtschaftswachstum
und der Schaffung von neuen Arbeitsplätzen so groß wie derzeit", so
Baum weiter. Von den geschätzten 21.000 Jobs, die im letzten Monat
geschaffen worden waren, kam nicht ein einziger neuer Job aus dem
Privatsektor. Denn es war der erste Monat seit August, dass alle neuen
Jobs nur der Regierung zu verdanken waren. Diese Arbeitsmarktzahlen
führten zu einer explosiven Rally bei den Kursen der
US-Staatsanleihen. Der Kursanstieg, den wir unmittelbar nach
Bekanntgabe der Zahlen sahen, war der größte Tagesgewinn seit 13
Jahren.

Die Anleihen-Investoren denken, dass die weiterhin schlechten News vom
Arbeitsmarkt bedeuten, dass"die Wirtschaft in den nächsten Monaten
durchsacken wird." Das würde zu tendenziell sinkenden Renditen und
damit zu steigenden Anleihenkursen führen. Und die Terrorangriffe in
Madrid verstärken diese Tendenz noch...

----------------------------------------------------------------------

Montag, 15. März 2004

Wenn ich Recht habe...

von unserem Korrespondenten Bill Bonner in Paris

*** Wenn ich Recht habe... wenn wirklich gerade die nächste Phase des
großen Bärenmarktes (2000 bis??) begonnen hat... dann wäre ich nicht
überrascht, wenn wir dieses Mal Panikverkäufe sehen werden. Sie werden
sich daran erinnern, dass die erste Phase durch"Ruhe" geprägt war.
Die Papiergewinne bei den Titeln der Nasdaq und des Dow Jones lösten
sich zwar in Luft auf... aber wen kümmerte das schon wirklich? Das
war nur ein temporärer Rückschlag auf dem Weg zum Reichtum. Die
Amerikaner glaubten immer noch, dass der durchschnittliche Anleger -
ohne Wissen über bestimmte Aktien oder bestimmte Unternehmen - reich
werden könnte, wenn er einfach nur"langfristig investieren" würde.
Alles, was man tun musste, war, in Aktienfonds zu investieren. Die
Genies bei den Aktienfonds würden für alles Weitere sorgen.

Diese neue Phase sollte diese komfortable Ansicht herausfordern. Die
Leute wissen jetzt, dass die Aktienkurse deutlich fallen können...
und dann Jahre brauchen, um sich wieder zu erholen. Dieses Mal werden
sie nicht so lange warten wollen.

Gustave le Bon erklärt, wie sich eine Panik entwickelt:

"Der genaue Moment, an dem der allgemeine Glaube zusammenbricht, ist
leicht erkennbar; das ist der Moment, wenn der dahinter stehende Wert
in Frage gestellt wird. Jeder allgemeine Glaube ist nur wenig mehr als
eine Fiktion, die nur solange überleben kann, solange sie nicht allzu
genau untersucht wird... schließlich, wenn dieser allgemeine Glaube
seine Macht komplett verloren hat, dann liegt alles, auf dem er
beruhte, bald in Trümmern."

Irgendwann in den nächsten paar Jahren werden die Leute beginnen,
Fragen zu stellen. War es wirklich so eine gute Idee, seine ganzen
Ersparnisse - die den Ruhestand sichern sollten - in Aktien zu
stecken? Was, wenn dieser Bärenmarkt länger anhalten wird, als wir
erwartet haben? Was wissen wir schon vom Aktienmarkt? Was wäre, wenn
das alles ein großer Schwindel wäre... was wissen wir eigentlich
wirklich über das Geschäft mit Computer-Chips?

Wenn diese Fragen gestellt werden, dann werden die Antworten
wahrscheinlich nicht beruhigend ausfallen.

*** Dan Dorfman:"Was ist billig? In den letzten Jahrzehnten lag das
durchschnittliche Kurs-Gewinn-Verhältnis (KGV) bei ungefähr 15, und
der durchschnittliche Kurs-Buchwert-Verhältnis bei 1,7... Heute haben
die Aktien ein KGV von durchschnittlich 23 und ein
Kurs-Buchwert-Verhältnis von 3,4. Diese Kennziffern sind nach
historischem Maßstab hoch."

*** Nachdem ich einen Tag in Deutschland und einen Tag in London
gewesen war, bin ich jetzt wieder zurück in Paris, liebe(r) Leser(in).

Ich genieße es, zu reisen... und zu schreiben. Gerade habe ich einen
längeren Artikel zum Thema"Schulden" verfasst - siehe nächster
Artikel!

----------------------------------------------------------------------

Montag, 15. März 2004

Schulden und Tod

von unserem Korrespondenten Bill Bonner

"Tony war so ein guter Mann, er hatte so ein großes Herz. Er glänzte
wie Gold." - Lou

Was das für ein Zitat ist? Nun, wie üblich las ich heute Morgen zuerst
die Todesanzeigen... und ich fand in ihnen guten Humor und gute
Ratschläge.

Denn das war ein Nachruf für Tony Lambrianou, einen Gangsterboss in
London. Zu seiner Beerdigung kamen die Gangs aus Ost-London zusammen -
mit schwarzen Sonnenbrillen, schwarzen Ledermänteln und auffälligem
Goldschmuck. In einem Artikel zu der Beerdigung konnte ich lesen, dass
die Beerdigung selbst für Journalisten wenig ergiebig war. Denn heute
ist die Aufmerksamkeit der Welt auf die Terroristen gerichtet;
altmodische Gangster werden so beerdigt, wie ein Buchhalter zur
Waschmaschine geht. Niemand kümmert sich darum. Die lokalen Geschäfte
blieben offen, so der britische"Daily Telegraph". Kaum jemand nahm
von dieser Beerdigung Notiz.

Tony wurde als"Gentleman" und"guter Mann" bezeichnet. 1969 halfen
Tony und sein Bruder Chris ihren Kumpels, den Kray-Brüdern. Die hatten
einen anderen Gangster, Jack"The Hat" McVitie, mit einem Messer
bearbeitet, und Tony und Chris schafften ihn weg. Aber als Dank dafür,
dass sie ihren Freunden halfen, wurden sie verhaftet und für 15 Jahre
ins Gefängnis geschickt.

Mich interessierte, wieso"The Hat" überhaupt solche Probleme bekommen
hatte. Offensichtlich hatte er es versäumt, seine Schulden in der
Unterwelt zu bezahlen, wie es die Ehre der Unterwelt verlangt. Die
Kray-Brüder - die in der Praxis der modernen Kreditvergabe nicht
ausgebildet waren - hatten ihre eigene Art, wie sie mit säumigen
Schuldnern umgingen.

Tony, der mit 61 Jahren plötzlich starb, wird diesmal nicht
zurückkommen. Er wird jetzt andere Dinge zu regeln haben, und ich
wünsche ihm viel Glück dabei.

Währenddessen scheinen in Großbritannien auch andere Leute Probleme
mit Schulden zu haben. Ich las in der Zeitung, dass der
durchschnittliche britische Schuldner zwar deutlich weniger Schulden
als der durchschnittliche amerikanische Schuldner hat. Es gibt aber
dramatische Einzelfälle. Wie Stephen Lewis, der es schaffte, Schulden
anzuhäufen, die das Dreifache seines Jahreseinkommens erreicht hatten.
Als er mit 37 Jahren starb, da hatte er Schulden im Wert von 71.913
Pfund - erheblich über 100.000 Euro. Verteilt auf 19 Kreditkarten.

Er wurde als"beliebter Mann mit liebenswürdigen Eigenschaften"
beschrieben. Aber er kam mit der modernen Kreditindustrie nicht
zurecht. Meiner Ansicht nach nahm er das alles zu ernst. Statt seine
dummen Gläubiger zu betrügen, wie es jeder tut, tötete er sich letzten
Juli. Er muss gedacht haben, dass er seine Schulden zurückzahlen muss;
jemand hätte ihm das erklären sollen. Aber jetzt ist seine schöne Frau
in der Zeitung zu sehen, und sie schlägt vor, dass es für die
Kreditindustrie nicht so einfach sein sollte, die Leute in den
Schuldensumpf zu ziehen.

Nun, bis jetzt erleichtern die Schulden wahrscheinlich eher die Leben
der Leute, als dass sie sie erschweren. Solange die Zinsen im Keller
sind und weiter fallen... und die Aktienkurse und Immobilienpreise
nicht fallen... aber wenn sich das ändert, dann wird der Ärger
beginnen. Dann wird man sich wünschen, dass man sich nicht so stark
verschuldet hätte... und dann wird man sich ein bisschen so fühlen,
als ob man sich das Gehirn weggepustet hätte.

Aber bei der Beerdigung des Gangsters Tony Lambrianou verwies sein
überlebender Bruder auf die positive Seite des Lebens. Er wärmte die
Herzen mit seiner Rede darüber, wie sie beide zusammen ins Gefängnis
gingen:

"Wir gingen für eine lange, lange Zeit weg. Wir waren im Dunkeln, und
wir begannen zu verstehen, was passiert. Man findet da im Dunkeln
etwas; es gibt Leben dort. Dort ist immer Hoffnung, eine Zukunft."

Keine Angst, liebe(r) Leser(in)... es gibt ein Leben... sogar nach
den Schulden.