Gary North: die chinesische Wasserfolter

verfasst von kingsolomon, 31.12.2002, 11:10

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Gary North's REALITY CHECK
Issue 202 December 30, 2002
THE WALL STREET WATER TORTURE
Back when I was a boy, radio dramas involving American
spies going into Asia sometimes introduced something called
the Chinese water torture. The good guy, or the good
guy's partner, was captured by the wily orientals. They
would try to get him to talk. He wouldn't. So, as a last
resort, they would tie him down on a bench and place over
his forehead a bucket with a tiny hole in the bottom. Then
they would fill the bucket with water. Drip, drip, drip:
the drops of water would eventually drive him mad. There
would be no marks, no signs of torture. The risk to the
torturers was never mentioned: nut-cases may supply nutty
information. The torturers were betting on his cracking
before he went mad.
The Chinese water torture was great for low-budget
movies about World War II, because the wily orientals --
Japanese, of course -- could use the technique on a woman,
and the censors would leave it in. Even today, I cannot
mentally recall a scene of this form of torture without
also recalling an image of either Richard Loo or Philip
Ahn.
Without being rescued, anyone suffering this form of
torture was doomed, or as my generation occasionally put
it, didn't have a Chinaman's chance.
It's politically incorrect today to identify a
particular form of torture with a racial or national group.
So, we never see movies with the Chinese water torture any
more, probably because it has been designated"Chinese" for
so long that it has no other name.
THE JAPANESE WATER TORTURE
In those World War II movies, we learned that the
Japanese had imported the technique from China. That
sounded reasonable to my generation.
Having watched the Nikkei index since late 1989, I am
convinced that the technique still works. It drives
investors mad.
The Nikkei was just under 39,000 in late 1989. Then
it began to fall. Today, it is in the range of 8500 --
about where the Dow Jones Industrial Average is.
Year after year, stock brokers have told Japanese
investors not only to stay in the market, but to buy more.
The very existence of retail brokerage houses testifies to
faith in the future of any market. For 13 years,"buy and
hold and buy some more" has been a suicidal policy in
Japan. Any investor who took the advice oh his broker has
lost his wealth. He should have bought boring U.S. T-
bills. Of course, the stock brokers selling into the
retail market would have gone out of the stock business.
It would have been better for the Japanese investor had the
entire retail stock brokerage industry had gone bankrupt in
1989.
I would call the Nikkei-225 the Japanese water
torture. Of course, it's the reverse process from the
movie version: liquidity disappears permanently into the
bucket. It's more like a blood transfusion. Now I'm
imagining Bela Lugosi. (I had a politically incorrect
youth.)
The water torture is now happening in the West's stock
markets. Like the Japanese investor in 1992, the American
investor thinks,"This will be over soon." But without a
rescue, he will eventually go mad.
He looks to Alan Greenspan to rescue him. But this
slow-motion movie is more like a Saturday morning serial in
the pre-television days:"Continued Next Year...."
I located a chart on the Web that overlays the graph
of the S&P 500 since 1992 (red) and the Nikkei 225 since
1982 (blue). There is an amazing correspondence. The
chart then extends the hypothetical graph of the S&P 500 to
2012.
http://www.mrci.com/pdf/parthenon.pdf
I assure you, no Web site posting this overlay in late
1999 or early 2000. Back then, any suggestion that what
happened to the Nikkei after 1989 could happen to the DOW
or the S&P 500 would have been regarded as the silly dream
of some Old Economy crackpot.
We are now in the early years of the Wall Street water
torture. I has only just begun.
OPTIMISTIC FORECASTS FROM THE EXPERTS
In his Friday afternoon newsletter, John Mauldin
quoted the Grand Old Man of stock market newsletter-
writing, Richard Russell. Russell was a bull throughout
the 1980's and 1990's. He is now a bear. Mauldin wrote:
It's the season when so many analysts participate
in a group masochistic ritual: the annual yearly
predictions. Like lemmings, they rush to the edge
and leap. That they are so often wrong does not
seem to deter them from making the same mistake
the next year. And there they differ from
lemmings, in that they live to repeat the act
every year.
As we will see, they often recycle the same
mistakes from the previous year, in the hope that
this year it will be right.....
Today we will look at how well the predictions of
mainstream analysts have done over the past few
years: basically they have been abysmal. Then we
explore why they have been so bad. I will also
give you at least two reasons as to why they will
be so bad this coming year.
What piqued my interest in this topic, aside from
the fact that I am gathering a lot of information
to make my own predictions, was a note from
Richard Russell and the arrival of the year end
Business Week.
Writing on Christmas Eve, Russell led off this
observation:
"Early in the year 2001 twenty-two
'expert' Wall Street analysts from
Louis Rukeyser's"Wall Street Week"
gave their estimates as to where the
Dow would be at the close of the year.
The estimates ranged from 11,400 to
12,300. But the actual Dow close was
10,021. Not one of the 22 panelists
guessed that the Dow would close under
11,000.
"Again, early this year the same
twenty-two top analysts gave their
estimates as to where the Dow would
close in 2002. The estimates ranged
from 10,750 to 12,100. As of today, the
Dow is at 8,460. Not one of the 22
experts saw the Dow closing below
10,000.
"How can this be? My answer is that
none of these analysts is able to
recognize change. Although we are in a
primary bear market, evidently NONE of
these experts understands what this
means. Either that or they are so
inculcated with the optimism of the
last 25 years that they are not able to
envision an extended, disastrous bear
market."
Then comes Business Week. We are told that BW
"polled some of the smartest players on Wall
Street." They polled 67 analysts. Only 3 see the
Dow going down.
http://www.2000wave.com/subscribe.asp
MY PREDICTION
I began warning subscribers to my paid newsletter,
REMNANT REVIEW, in February, 2000, that the NASDAQ was
looking close to a peak, and that it would soon crash. I
did the same in the March issue. The NASDAQ peaked in the
week that my March issue arrived: 5040.
I warned throughout 2000 that a general bear market
was imminent. In the November issue, I told my subscribers
to short the market. Anyone who did is up about 100% on
his money, and he missed out on the collapse.
With this as background, I think the S&P 500 will be
lower one year from today than it is today. I think year 4
of the bear market will walk through the portfolios of the
ever-trusting lemmings.
The Wall Street water torture relies on trust and
optimism -- both deeply entrenched American characteristics
-- to pin the victims to the bench. The drip-drip-drip of
the stock indexes will continue.
In the old movies, there was always a rescue. We
never saw the results of the water torture: a babbling
victim who could no longer think straight. This time, we
will.
The rescue must come soon. Everyone knows what begins
in 2011: the baby boomers of 1946 hit age 65, and they will
begin to retire. Well, actually, this will be in 2012.
The government has changed the retirement date in order to
delay the bankruptcy of the Social Security Ponzi scheme.
Those born in 1946 must wait to age 66 to retire.
http://www.ssa.gov/retirechartred.htm
So we have a decade for the stock market to rise to
such a level that the retirees can sell their stocks and
invest the money in fixed-income assets, in order to live
off the income. They will have to sell their stocks
because dividends are locked into a range below 2%, and
fund management fees are usually above 1%. Meanwhile, a CD
or insured savings account pays 1%. And this income is
subject to the income tax.
We are familiar with bull markets and bear markets.
This is the elephant market, as in the famous elephant in
the living room. Nobody mentions it except H. Ross Perot's
crazy aunt in the basement.
The rescue operation is based on the Federal Reserve
System's expansion of money, which has driven down the
overnight bank-to-bank lending rate, or federal funds rate.
The FED has no other significant tool besides its ability
to lower the fed funds rate. Yet the fact is, this rate
today is primarily affected by demand for loans, not the
supply of loans. We know this because the increase in the
adjusted monetary base, which the FED can control, is still
below 8% per annum. This is high -- doubling in less than
a decade -- but not wildly inflationary.
http://research.stlouisfed.org/publications/usfd/page2.pdf
--- Advertisement ---
For the past twenty-eight years, Gary North has brought
his razor sharp analysis and inimitable opinions to the
pages of Remnant Review, his highly esteemed and widely
read financial information bulletin. In fact, it's an
in-depth, hard-hitting and often startlingly candid big
picture analysis of what's really going on in the markets,
in the economy and in the world at large.
Remnant Review is serious information for serious investors.
Readers and followers of Dr. North's recommendations have
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to safeguard their wealth and secure their financial future
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http://www.publishers-management.com/rem/remsub1
-----------------------
CONTINUED NEXT YEAR....
In the old days, the serials ran 12 chapters. This
was increased to 15 in the late 1940's. If we date Chapter
One of the U.S. stock market's serial as late 2000, there
are 13 chapters, 2000-2012. The baby boomers will start
retiring, and downward pressure on the stock market will
become permanent.
Of course, the downward pressure will begin earlier
than 2012. People will see where their futures are headed.
They will see that the promised rescues, year after year,
aren't working. They will do what the Japanese have done:
sell in advance of retirement.
One of the escapes used by script writers was to
switch last week's ending. For example, a car would go
over the cliff. The hero was inside. We would see it
crash into smithereens at the bottom of the cliff.
"Continued Next Week...." The following week, we would
see a replay. The car went off the cliff. But, wonder of
wonders, it would splash into a lake.
"Boo!"
I remember a chapter of"The Masked Marvel" (1943),
where the gimmick was the a one-dollar mask. The Marvel
wore a gray suit and a Lone Ranger-type mask. Given the
quality of the scripts, the lead actor must have been
grateful. In the history of serials, the Masked Marvel was
the least plausible American hero. He was an insurance
investigator. Actually, there were four of them. Until
Chapter 12, we didn't know which one was the guy who wore
the mask. By then, most of us didn't care. His enemy was
master spy Mura Sakima. I don't remember if Sakima ever
used the water torture on a victim. He sure used it on the
audience.
At the end of one week's chapter, the Masked Marvel
was fighting a bad guy on top of a water tower. It was six
or seven stories tall -- kind of like the S&P 500 in early
2000. The bad guy threw him off the water tower. I
remember clearly next week's segment. He lands on his feet
and walks away.
Whenever one of these miraculous escapes took place, a
few of us would boo. That's where my generation of bears
learned how lazy script writers could keep the hero alive
and therefore kept the serial alive.
There is no question in my mind who the Masked Marvel
is today. It's Alan Greenspan. Only instead of a Lone
Ranger mask, he uses those eyeglasses. Nobody recognizes
him. Who is he, really? We viewers are asked to guess
which actor is the real Masked Marvel: Milton Friedman,
Arthur Laffer, Paul Samuelson, or...?
He can fight in complete safety on top of any water
tower, no matter how high. Meanwhile, it's drip, drip, drip
for investors. They are already beginning to hallucinate,
yet it's only Chapter Three of"The Return of the Masked
Marvel." Tomorrow, December 31, we know what will be on
screen:"Continued Next Year...."
The fed funds rate is 1.25%. The Masked Marvel's
rescue of the investor, still tied to the bench by cords of
optimism, had better work soon. If it doesn't, then
"Continued Next Year...." will sound less and less
plausible. Fewer and fewer ticket sales will occur.
I began to worry about the plausibility of the script
when I looked at the credits at the end of Chapter Two.
There were two names under"screen writers": Abby Joseph
Cohen and Louis Rukeyser. When I re-ran the tape for
Chapter One, their names were missing. Two others were
credited: Henry Blodgett and Jack Grubman.
I haven't checked the credits for Chapter Three.
We'll see tomorrow.
CONCLUSION
The Wall Street water torture is drip, drip, dripping
along. The victims still have high hopes that the rescue
will come soon. The experts say that the stock market's
recovery is just around the corner. And when they say
"just around the corner," they mean just... around...
the... corner! (OK, I'm lifting this from a comedy
short by Robert Benchley, Peter's humorist father, in which
he was doing a spoof of an optimistic economic forecaster
sometime in the late 1930's. It was a funny skit because
nobody in the theater audience believed him.)
I wonder: How can anyone do a spoof of Louis Rukeyser?
It would be like doing a spoof of Saturday Night Live.
Calling Al Gore!
Anyway, Happy New Year. Please limit your consumption
of mind-altering refreshments tomorrow night. In short,
when you watch the Nightly Business Report, you can watch
Paul Kangas, but as soon as Susie Gharib comes on-screen,
turn off the sound. Otherwise....

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• Gary North: die chinesische Wasserfolter - kingsolomon, 31.12.2002, 11:10