Upbeat Investors & The Money Supply

The Daily Reckoning
Weekend Edition
April 28-29, 2001
Paris, France
By Addison Wiggin

MARKET REVIEW: Upbeat Investors & The Money Supply

"Upbeat investors sent stock prices sharply higher Friday,"
reports an article in USAToday, suggesting investors were
buying in response to the release of GDP numbers, which
rose over 2% - higher than expected.

The Dow did, in fact, gain 117 on Friday to close at 10,810
- up a big 230 for the week. What's more, three of the last
four weeks have produced positive closes on the Dow... for a
huge 1017 point rally, helping the blue chip index close in
positive territory for the first time since March 8th of
this year.

Coincidentally - or not - the money supply during those
weeks has reached historic levels of expansion. M-1, for example,
is up $12.6 billion, six times the average 4-week rise.

"The only plausible explanation," says Greg Weldon,"is
that the Fed fears a deflation tsunami is rolling towards
the U.S." Meanwhile, Fed Chair 'Easy Al' Greenspan was back
on his beat, assuring readers that gains in the markets are
the result of the continued technological revolution in the
work place.

The Nasdaq gained 40 to 2075 on Friday, ending the week down
87... tech earnings are apparently still an issue to some
well-intentioned investors. The S&P 500 eased up 18 to 1253
on Friday - up 10 for the week.

Do the GDP numbers bode well for a fabled"Second Half
Recovery"? The DR Blue Service:"Three themes - layoffs,
capital spending, and debt - suggest to us that the market
will be getting a lot worse before it gets any better."
(See: Flotsam & Jetsam below)

Markets Around The Globe: The Nikkei dipped 0.3%. But
Britain, France and Germany all rose - 1.4%, 1.7%, 0.8%
respectively.

The Russell 2000 inched up 6 Friday to close out the week
at 483 - 17 points higher than last.

ADD'L PRICES FOR THE WEEK: Gold making a move...

Gold: $264
Crude Oil: $28.27
Natural Gas: $4.86
CRB Index: 213
Dollar Index: 115
The Sad, Sad Euro: $.89
British Pound: $1.43
Japanese Yen: $.81



THIS WEEK in THE DAILY RECKONING
By Bill Bonner

04/27/01 WHO STOLE THE AMERICAN DREAM?

"...but that doesn't mean I don't notice that I'm being
ripped off by two governments on two different continents.
I pay a lot of money in taxes, and as far as I can see, I
get nothing for it. I don't take advantage of every tax
dodge I meet...but, like beautiful women, I've never met
one that I didn't want to. Nor have I ever heard of a tax
cheat I didn't secretly regard as a minor hero..."
http://www.dailyreckoning.com/body_index3.cfm?id=536

04/26/01 GETTING PERSONAL WITH THE TECHS

"...rather than look carefully at the big tech companies
they actually owned, for example, investors were happy to
buy into the myth of the"New Era" and the"Information
Age." And they flattered themselves by believing that they
were among the few, the New Men, who 'got it'..."
http://www.dailyreckoning.com/body_index3.cfm?id=535

04/25/01 ASIAN VALUES

"...it's not unreasonable to assume that the day of
America's high-tech hegemony are numbered, and that both
India and China will become fierce competitors in the
electronics and software industry... Could it be, dear
reader, that the best way to protect yourself from a bear
market in America, as well as take advantage of the next
phase, whatever it is, of the information revolution, is to
buy Asian technology companies?..."
http://www.dailyreckoning.com/body_index3.cfm?id=534

04/24/01 SORE LOSERS

"...the evidence will show, dear reader, that the Post- New
Era man is not much different from the homo sapiens with
which we were so familiar before the Bubble - that is,
grasping, self-centered and foolish. These words describe
not only the perpetrators of fraud and chicanery - but the
victims and their lawyers, too..."
http://www.dailyreckoning.com/body_index3.cfm?id=533

04/23/01 DEAD ANIMALS

"...Pierre has been carefully breeding cattle for a quarter
of a century. He has some of the largest Limousine bulls in
the region, I have been told. They are huge, beautiful
animals. This bull in front of us was no exception. His
muscles bulged as though he had been working out. You could
see clearly the rump, the brisket, the chuck roasts, and
the round steaks. Pumped up, he looked as though he was
ready for a pose down with another beefy champion...or a
rendezvous with an abattoir..."
http://www.dailyreckoning.com/body_index3.cfm?id=532

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

HEADLINE, NEWS And INSIGHT: Deflationary Tsunami On Its
Way?... Mistakes Were Made DURING The Boom... Argentina:
Rescue The Euro - Or Trigger A Currency Crisis?

Reading The Chairman
by Greg Weldon

Does the Fed fear a deflation tsunami? The Fed is cutting
rates as the stock market is rallying and at the same time
it is allowing the money supply to explode. The only
plausible explanation for this hat trick is that the Fed
fears a deflation tsunami is rolling towards the U.S.
http://www.dailyreckoning.com/body_headline.cfm?id=1121


When Was The Blunder Made?
by Dr. Kurt Richebacher

Truly tight money would have to show in significant credit
restraint. What we actually see is the extreme opposite: an
outrageous credit glut. Credit expansion in the third
quarter briefly slowed down. But in the fourth quarter, it
was running absolutely wild again.
http://www.dailyreckoning.com/body_headline.cfm?id=1121

Market Puppetry = Tangled Mess
by Robert C. B. Miller

On the tail end of a boom, capital flows from fixed
investment to consumer goods. Throughout the 1990s, fixed
investment in the US economy surged from just over 12% to
around 19% of GDP. Ominously, since 1996 the ratio of the
rate of increase of 'consumption goods' prices relative to
'capital goods' has doubled - implying that a recession in
the US is now in the offing. Any recovery in the US stock
market engineered by rate cuts should be viewed with
suspicion.
http://www.dailyreckoning.com/body_headline.cfm?id=1114

Argentina To Rescue The Euro?
by Harry Schultz

Argentina plans to peg its peso to both the euro and the
U.S. dollar. This event is great PR for the euro, and may
be a watershed action, opening the door to others who
peg... Hong Kong, for example.
http://www.dailyreckoning.com/body_headline.cfm?id=1112

* * * * * * * * * * * * * * * * * * * * * * * * * * * *

FLOTSAM AND JETSAM: Cracks In The Facade

- Excerpt from The DR Blue Weekly Update

"...three themes this week - layoffs, capital spending, and
debt - suggest to us that the market will be getting a lot
worse before it gets any better.

1. Unemployment is rising.

Not only is the stock market not delivering income, the
economy is not producing jobs - Lucent is laying off 16,000
workers; Motorola 22,000; Nortel 20,000; Ericsson 15,000;
Verizon 10,000; Cisco 8,000 and JDS Uniphase another 5,000.

Even Old Economy companies are getting into the act
undefined Daimler-Chrysler is enclosing pink slips with
26,000 of its workers' paychecks...Proctor & Gamble is
laying off 9,000. Whirlpool 6,000. And J.C. Penny - 5,000.

Jobless claims for last week totaled 408,000 - the highest
level since '92. How will consumers spend when they don't
have jobs?

2. Debt - personal and corporate - is a ticking time bomb.

Telecoms in particular have a mountain of debt that now has
to be serviced out of declining (or negative) earnings. The
FDIC reports that over the last two years, median expected
default rates on telecom loans have climbed 170%. Telecoms
raised $160 billion in the debt markets in the last two
years.

And banks extended over $300 billion in syndicated loans to
the industry. If the telecoms start defaulting on that
debt, look out. The banks could be left holding the bag.

Fortune magazine points out in its April 30 issue that
'...a series of big defaults could shake investors' faith
in financial stocks. We won't have to wait long to see how
the scenario plays out. Anyone feel a tremor?'

3. Capital spending continues to decline.

Capital spending - business investment in income-producing
assets - leads to higher profits and higher wages. Cost-
cutting and layoffs work in the short term. But for the
long term, the aggregate effect is that the economy gets
poorer if all firms resort to cost-cutting and layoffs to
restore profitability, rather than capital investment.

The big picture? Debt, capital spending, and layoffs spell
a gloomy picture for most investors. But the good news is
there is a bull market developing in our favorite reserve
currency: gold..."

Enjoy all your weekend,

Addison Wiggin,
The Daily Reckoning


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