BRAIN-DAMAGED CONSUMERS

verfasst von Standing Bear, 17.01.2002, 17:07

BRAIN-DAMAGED CONSUMERS

THE DAILY RECKONING

PARIS, FRANCE

THURSDAY, 17 JANUARY 2002

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

*** Dollar okay so far...but foreigners are catching
on...

*** Dow gets hit hard as the truth comes out..."no signs
of recovery," says Intel...

*** Balance sheets stink...who's buying IT?...one nut's
opinion...and more!




The dollar is still holding up. Will it buck our
Daily Reckoning forecast for a 3rd year in a row?

Maybe. But sooner or later, foreigners are likely
to get worried about U.S. financial assets. They've seen
how billions of dollars in capitalization can disappear
overnight...and how even the biggest companies can cook
the books until the pan burns.

"The Germans are on to us,"(Ein Idiom, das ich nicht kenne, dessen Sinn ich mir aber denken kann.:-)) says yesterday's
Prudent Bear's Market Summary. A German press story
reveals that S&P 500 companies are reporting earnings
that are 70% higher than GAAP would permit."America's
pro-forma disease," says the headline on FAZ.net.

The prices that Germans and other investors will
pay for U.S. stocks depend on earnings. Not only are
past earnings hugely overstated...estimated earnings for
the future turn out to be complete fantasy.

The S&P 500 is expected to produce about $28 in
average earnings for 2001. Estimates for 2002 are all
over the place...but bunch up in the $40 to $50 range.(Fragt sich, ob die alle unter Drogen stehen)

Almost never have earnings increased so much from
one year to the next. And in the coming year, what could
make them do so? Consumers will only buy a car if the
manufacturer is willing to lose money selling it to him.
And what industry is so exuberant as to trigger a new
burst of capital investment? Suppose earnings don't rise
much at all next year?

Sooner or later, we predict, foreign holders of
U.S. dollar assets are going to become suspicious of the
numbers and doubtful of the integrity of the people who
prepare them. They may even want their money back...

"A major top is forming," say the Aden sisters,
"and the dollar remains vulnerable. Once the dollar
index declines and stays below 115, it will be a strong
sign it's headed even lower this year." Pamela and Mary
Anne recommend"keeping a 40% position" in CD's of Swiss
francs, British pounds and euros.

Eric...bad day on Wall Street?

*****

Eric Fry in New York...

- In a stunning reversal of the recent trend, investors
took bad news to be bad news. Will this temporary lapse
into sanity last more than one day?

- A couple of minor little companies named Intel and
J.P. Morgan Chase (:-)) reported that business conditions are
not that swell in their neck of the woods.(Xerxes, bitte mal übersetzen.)

- Meanwhile, in other news from the"recovering economy"
file, industrial production slid for the 14th month out
of the last 15. Capacity utilization also slipped to
another new low for this cycle.

- The consensus - you know who you are - had been
expecting both of these measures of economic health to
improve during the month. But it was not to be. And
neither was a rally on Wall Street.

- In response to the bevy of bad news, the Dow slid 212
points, to 9,712. And the Nasdaq tumbled into the minus
column for 2002 by dropping 3% yesterday to 1,944.

- Output of the nation's factories, mines and utilities
fell 5.8% in 2001, the worst calendar-year performance
since 1975. Capacity utilization also dropped 5.8% last
year.

- Consumers might be brimming with confidence, but the
manufacturing sector can't seem to break out of its
funk. And the prospects for a rebound are not very
encouraging.

- "Corporate balance sheets are in grossly worse shape
today than they were in 1929-30," asserts Dr.
Richebacher."[Therefore], cuts in capital spending have
been aggressive as never before." Toss in deteriorating
cash flow and the outlook turns ugly in a hurry.

- Which brings us to Intel - an iconic representation of
the economy at large.

- Intel announced yesterday that it will slash its
capital-spending budget for 2002 by 25% to $5.5 billion.
"We've seen no signs of an economic recovery," Chief
Financial Officer Andy Bryant told Reuters.

- Bryant's stark assessment says it all."After years of
unprecedented support for their investments,"
InformationWeek Magazine laments,"IT [information
technology] executives face mounting pressure to pick
and to pay for only those technologies that offer a
quick and measurable payback."

- Like paper clips, perhaps?

- In a recent survey of 300 IT executives last month by
InformationWeek, only 33% of respondents said that they
expect to increase their IT budgets this year. (aber das interessiert keinen. Was zählt, sind die großen und die reden so wie es sich in Bubblevision gehört) That's
less than half the 72% that planned to increase their
spending last year. And remember, these results reflect
PLANNED spending."Actual results may vary," as the
disclaimer goes.

- Still,"Many remain in a state of denial regarding the
resounding collapse of activity in the high-technology,
Internet and telecommunications industries," Moody's
observes. High technology/telecommunications companies
alone accounted for nearly one-fifth of all credit
rating downgrades in 2001.

- And their credit-worthiness, on average, continues to
erode.

- Back in 2000, the fear of getting left behind powered
IT spending. These days, it's all about cutting costs.
"Caution is the guiding principle," says
InformationWeek.

- Caution however, is something that J.P. Morgan Chase
executives seem to believe is best thrown to the wind.
Find an area of high-risk banking and you will almost
certainly find"The Morgan."

- Atop its roster of bad loans we find now-infamous
debtors like Enron and Argentina. J.P. Morgan has also
racked up sizeable losses investing in tech and telecom
venture capital deals. (Sie sollen bluten..) All of which makes one wonder,
"Does this swashbuckling money-center bank have any feet
left to shoot?"

- Time will tell, of course. But yesterday, J.P. Morgan
reported a pro-forma (there's that term again) fourth-
quarter profit of 12 cents a share, barely a third of
Wall Street's consensus estimate. Under GAAP accounting,
the company reported its first quarterly loss in five
years.(es war ein netto-Verlust von 18 Cents)

- But write-offs were the real story, both because they
were so large and also because they might become even
larger. The gang at Grantsinvestor.com is pretty darn
sure that JPM has not finished airing its dirty laundry. (Ganovensprache...)

-"Despite the abysmal performance of JP Morgan's
venture capital arm - with total unrealized and realized
losses topping $1.2 billion last year - it appears more
charges could come down the road," Grantsinvestor
reports."For one thing, the fair market value of its
top ten public holdings has plummeted nearly 20% just
since the beginning of the year!"

- For now, Morgan's write-offs for loans to Enron,
Argentina and other deadbeats produced a net quarterly
loss of $332 million. And the total non-performing loans
at America's second-largest bank have doubled to nearly
$4 billion.

- Non-performing loans are like cockroaches; if you spot
a couple scurrying across the floor, you're probably
living with 1,000s.

*****

Back in Paris...

*** What are we worrying about? Abby Cohen says we'll
finish this year with the Dow at 13,000. (sperre doch mal endlich jemand dieses Weib ein!!!!!Nach diesem Jahr ist sie erledigt.) That should be
good enough for anyone. Still, we here at the Paris
office of the Daily Reckoning are a skeptical lot. We
decided to seek confirmation.

*** There is a puzzling, oracular character who loiters
in our neighborhood from time to time. He is not French,
but of some Oriental hue that no one seems to recognize.
All we know about him is that he dresses in rags and
sings at the top of his lungs when he gets drunk.

***"We're all going to paradise..." he shouts the words
of a the popular song, while lolling in front of the
Paradis Bar across the street. Then, he passes out on
the sidewalk.

*** It's been cold and rainy in Paris lately. I had not
seen the strange little man for several days. But
yesterday, upon leaving the office, I found him in the
building, asleep on the first floor landing, with his
head on the bottom step and an empty whiskey bottle
still in his hand.

*** I stopped. And with the toe of my shoe I gave his
tattered coat a little nudge.

*** No response.

*** I tried again...and again...finally, kicking him as
though I were playing a field sport, he snorted and
opened his weary eyes.

*** Bending over, I asked:"Will the Dow be at 13,000 by
the end of the year?"

"Not a chance," he said."We'll all go to paradise
first..."


BRAIN-DAMAGED CONSUMERS
by Bill Bonner


"There ARE a lot of voters out there..."

John Forde,
Writer-in-Residence,
Paris, France


The news media reports"consumer confidence" numbers as
if they mattered. "Consumers remain confident," (pleite aber zuversichtlich) say the
headlines. Two years ago, doubting that consumers could
knock out any economic slouch who came along was a form
of heresy.

Now, it is close to treason.

There are probably even those who believe that a person
without faith in the fighting spirit of the American
consumer...or confidence in the elastic band of credit
that holds up his trunks...should be shot. And perhaps
they're right. But let us hope they keep their opinions
to themselves.

The average consumer - like the average investor...the
average Congressman...or the average financial kibitzer
- is a knucklehead. Aggregate the opinions of any number
of them, and what do you get? A bigger mass of nonsense.
Still, if consumers are confident, say the economists,
they will buy more...and their spending will give the
economy a kick in the pants. The same could be said for
investors. If they believe stocks will go up...well, by
gosh, they do go up.

At least...until they go down.

You may recall, dear reader, that in the late '90s
consumers and investors reached such sizzling levels of
confidence that the future appeared not merely bright,
but blinding. It was as if the bartenders had gone mad
and opened all the taps...and the lawyers had all gone
on strike. In short, it looked like paradise.

Thus, in the early spring of the last year of the 2nd
millennium, with smiling faces and eyes dulled by the
flash of too many New Era bulbs, investors locked arms
and staggered off the biggest cliff in a quarter
century.

Not only did stocks fall, the U.S. economy defied almost
all the analysts and dropped like a dipsomaniac down a
stairwell.

"Let us briefly take stock of what has happened to the
economy," Dr. Kurt Richebacher invites in his latest
letter."From 1998-2000, U.S. real GDP grew at an annual
rate of 4.1%. In the third quarter of 2001, it was a
negative 1.1% annual rate, as against 4.7% in the same
quarter a year ago. This is the steepest decline in
economic growth that has ever happened in the United
States."

As reported above, manufacturing has just registered its
14th consecutive month of negative growth. Bankruptcies
and late payments are at all-time highs. And the profit
growth of the last 7 years has been wiped out. Profits
are back where they were in 1995 - before the boom. (Wo stand der Dow damals?)

And yet, after the worse economic break of all time,
where are the homeless, the destitute, the hungry? They
are nowhere to be found. Remarkably, in the very year in
which the U.S. economy produced its worst performance
since Kevin Costner in The Postman, consumers bought a
record number of new cars...house prices rose at double
digit rates in many parts of the country...retail
spending went up...and consumers borrowed more money
than they ever did before.

"I think the American consumer is brain-damaged," said
Marc Faber at Barron's Roundtable Discussion."He should
be pulling back and increasing his savings rate
dramatically. But, no. He's pushed by CNBC and the
authorities...into consuming more."

But, according to most economists, the fate of the
entire world economy rests in the hands of these brain-
damaged consumers. (Das Schicksal der Welt in der Hand von Wahnsinnigen...=

"The American economy is a disaster waiting to
happened," Faber continued."Greenspan's interest-rate
cuts have supported consumption artificially and
borrowed from the future. The so-called booms in car
sales and housing will come to a very bitter end.
Greenspan basically moved the bubble from Nasdaq into
other sectors of the economy, and these bubbles also
will burst. Whether they burst right away or in 2004 is
immaterial."

"In every other recession," added Felix Zulauf, another
Barron's Roundtable discusser,"investments in fixed
equipment and residential investments led the economy
out. Now housing has been kept at a high level due to
the Fed's aggressive stance, so there's no bounce coming
there."

As everyone knows, there are three exits from a
recession. Spending must increase. Either by
business...a foreign economy...or domestic consumers.

This time, the business spending door is barred.
"Spending by the corporate sector is the result of
profits and the profit outlook," Mr. Zulauf continued,
"but U.S. corporations have gone through the worst
profit slump since the 1930s."

Is there any hope that Japan, the world's #2 economy,
might come to our aid? Or Europe? Not really.

So, that leaves the brain-damaged U.S. consumer. If he
should suddenly have an attack of frugality or financial
prudence, the entire global economy would be in even
more serious trouble. So, the whole world sits on the
edge of its chair and holds its breath. Does the U.S.
consumer have the money to continue spending, people
wonder? Can he keep borrowing and spending - even if the
recession doesn't end quickly? Is he fool enough to try?

But the American consumer may not be the fool he appears
to be.

"Consumer spending was by no means immune to the
downturn," writes Dr. Richebacher."It has kept growing,
but at a sharply diminished pace. Its contribution to
real GDP growth in the 3rd quarter of 2001 was less than
one-fourth of what it had been in the same quarter a
year before..."

At the margin, consumers are cutting back.

Not necessarily because they want to do so."The problem
now is that American consumers and the corporate sector
have piled up a mountain of debt."

For the last 12 years, added Art Samberg, offering
corroborating evidence, both business and personal debt
rose at 6% per year. Assets, however, grew at only half
that rate. Falling interest rates made that debt load
easier to carry. But an uptick in the economy would
almost certainly lead to higher levels of inflation and
higher interest rates.

The benefit of a real recession is that people return to
their senses. They typically slow their spending and pay
down their debts. Then, when the recession ends, they
are in a better position to spend. Recessions also
eliminate the weakest businesses, so the stronger ones
have more room to grow when growth returns. But
Greenspan's quick, sharp rate cuts - so admired by
economists - have stalled the process. American
consumers have barely begun the cutbacks they need to
make. And businesses that should have closed down their
websites years ago are still sending out quarterly
reports.

The bubble, to simplify things, was caused by too much
money. Entrepreneurs could get capital for any silly
project they could dream up. And consumers could spend
money they didn't have, because they were sure that
there would be plenty more where that came from. In
trying to fight the inevitable correction, the Fed has
offered even more money at the lowest interest rates in
6 decades. This easy money has kept marginal enterprises
in business...and allowed consumers to"unlock" even
more of the equity trapped in their houses. Thus were
consumers able to spend more...even as their earnings
fell.

But the doors that might offer an escape from recession
are closed. No foreign economies will heat up - not with
the chill of the U.S. recession so near.

Businesses will not invest in new plant and equipment -
not without stronger profits to encourage them. And
consumers - brain-damaged or not - will not continue
spending money they don't have.

"It has now been 12 months since the Fed made the first
move of its current monetary easy campaign," writes Dr.
Richebacher."Yet the data shows that downward forces
keep worsening.

"What is the possibility of the U.S. economy's V-shaped
recovery that the consensus is better on?...The
precedents allow no other conclusion than that such a
recovery is completely out of the question...we doubt
even the possibility of a sustained slow recovery."

Cheerfully,

Bill Bonner


Aber zu einem Teil muß man die Amerikaner sogar in Schutz nehmen. Wer jeden Tag von früh bis spät mit Müll im Fernsehen und in den Zeitungen überschüttet wird, wem Junk Food als wertvoll verkauft wird, wer von frühester Zeit dumm gehalten wird etc., der muß einfach wahnsinnig werden. Cui bono?

SB

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gesamter Thread:

• BRAIN-DAMAGED CONSUMERS - Standing Bear, 17.01.2002, 17:07
  • Re: BRAIN-DAMAGED CONSUMERS -wenn du noch den Quellink nennen könntest? - SchlauFuchs, 18.01.2002, 09:53
    • Re: BRAIN-DAMAGED CONSUMERS -wenn du noch den Quellink nennen könntest? - Diogenes, 18.01.2002, 10:27