The Daily Reckoning - The Recession-That-Wasn't (Bill Bonner)

verfasst von Firmian, 04.12.2003, 18:48

-->The Daily Reckoning

London, England

Wednesday, 3 December 2003

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*** Welcome back... madness everywhere... in all its greedy,
insane glory...

*** The River-of-no-Returns at 93 times earnings - sell!

*** Cannibalism... Extreme Diet Plans... the dollar is doomed...
Soros and Buffett... and more!

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What a delight! What joy! It's back! There is madness
everywhere... How exhilarating... the pure, unmitigated greedy
insanity!

It was so much fun ridiculing the pretenses of the New Era... the
Information Age... the Dot.com bubble... the Peace Dividend...
the End of History....and the New Digital Man.

And then, boo hoo, along came the bear market of 2000-2002... All
of a sudden people seemed to sober up. For a moment, it looked as
though they might even lock up the liquor cabinet.

Then, the politicians began to drink. But politicians are mean
drunks. The madness that had made the stock market so amusing
took on a sinister regard. The Clash of Civilizations... Nation
Building... Bringing the Gift of Democracy to the Desert Tribes -
the entertainment was no less mad than the New Era, but much less
fun, for the script had been rewritten as a tragedy, rather than
the comedy it had been.

We giggle and guffaw when we see rich humbugs humbled... we laugh
out loud when puffed up IPOs finally blow up... we even smile
when the lumps get what is coming to them. But we take no
pleasure in body bags... for they never seem to contain the right
bodies. That is the trouble with war, dear reader. The bodies are
always those of the fools who undertook the errand... rather than
the fools who sent them.

But now, we are pleased to tell you, madness is back in style on
Wall Street, where it belongs... maaaadder than ever.

The"return of the tech bubble," is how London's MoneyWeek
describes it. The Bubble Reloaded is another headline we've seen.
The Nasdaq 100 is up more than 70% in the last 12 months. It now
trades at - get this, dear reader - 97 times this year's
earnings. Yahoo trades at a P/E of 112; Amazon, that great
River-of-no-Returns stock, trades at 93 times earnings.

These are not merely optimistic numbers, MoneyWeek quotes a pair
of analysts,"they're hallucinatory... Somehow this rally feels
like the... sequel to a movie you hoped never to see again."

What could possibly justify such high prices? Well, spectacular
growth. But a Goldman Sachs survey"shows that companies expect
to raise spending on technology by only a modest 1.3% in 2004,"
MoneyWeek continues.

IPOs are back. Even day trading. Our new friend Gregor, from
Houston, sends this note written by Alan Farley of
TheStreet.com:

"Hype and nonsense are back in style on Wall Street. Actually,
most of it has recently been emanating from Main Street, where
chat-room and stock-board aficionados are pumping low-float plays
to the trading masses, hoping their mangy dogs will bark for a
few days.

"For example, voice-over-Internet protocol, or VOIP, stocks
exploded last week in a tulip-inspired mania. Hound after hound,
these issues took off for the stratosphere, with superdog 8x8
Inc. (EGHT:Nasdaq) trading its entire 25-million-share float for
two sessions in a row. The move's origins came from chat rooms to
stock boards to the normally sedate Wall Street Journal, of all
places.

"... It was strikingly similar to another rocket ship that took
off during Thanksgiving week in 1999, when a questionable rally
left vacationing market makers holding large short positions into
historic losses. That half-day session left such big footprints
it forced the entire industry to change their practices to avoid
a similar fiasco.

"These manipulative rallies feed on themselves because so many
players down the food chain benefit by the short-term insanity.
Last week I saw newsletter writers, traders, and people who
should know better help their own cause by highlighting low-float
stocks that were getting sucked up by the public on every
mention, rumor and innuendo. To my industry friends and
associates, I say: Cut it out, because it's this kind of greedy
self-interest that will come back to haunt you one day."

Our calendar does not tell us which day 'one day' will be. But if
this is like Thanksgiving '99... we won't wait long.

Over to you, Addison, for more news:

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Addison Wiggin, weighing in with the market's latest...

- Is it for real? Or just election year steroids?

- The Institute of Supply Management manufacturing index rose to
62.8... the highest point it's reached in two years. The index
measures a distinct boost in factory output in November. That's
the 5th straight month for the index above the 50-point mark,
which indicates output is expanding rather than declining.

-"Activity is picking up from such an incredibly low level,"
Lara Rhame, an economist with Brown Brothers Harriman, told
Bloomberg."This sector is going to continue to be very cautious
about adding employees." Factories have ditched jobs for 39
straight months, bringing overall payrolls to their lowest point
since 1958. The latest jobs report comes out on Friday and will
be keenly watched by lackeys all over the West Wing.

-"U.S. productivity at its highest level in 20 years," reports
CBSMarketWatch.

- Stocks have borne the litany of bullish economic news with
ennuie. Yesterday was no different. The Dow slouched 46 points to
9853. The S&P and Nasdaq also slithered lower; nearly 4 and 10
points, respectively.

-"America's newfound cyclical vigor is hardly an accident,"
writes Morgan Stanley's Stephen Roach."Washington has learned an
important lesson from the early 1990s. Eight years ago, the credo
was, 'It's the economy, stupid.' This year, it's politics,
stupid. Deep in our hearts, we all know predicting the future is
next to impossible. It stretches the imagination to conjure up a
macro scenario that is based on an exquisitely timed interplay of
political and economic cycles. Yet that's precisely the mindset
today - heedless of the costs America will incur as Washington
attempts to underwrite yet another Rosy Scenario."

- A Congressional Budget Office report released yesterday
suggested that about half of the nation's baby boomers will not
have enough savings to maintain their current standard of living
during retirement."Households with inadequate retirement savings
will confront an average of 19 years of living expenses they
can't pay for," reports the LA Times. What's even more
disturbing? The conclusion was drawn from studies completed in
2000, during the very apogee of the nation's"boom."

- In the 1990s, we note in Financial Reckoning Day,"baby boomers
remade the economy in their own image. Once relatively
high-saving, high capital investment, and high valued-added, the
economy shifted from producing what the boomers needed in the
long run to giving them what they wanted short term."

- The trend has renewed with vigor over the past 8 months.
"America's seemingly open-ended appetite for leverage remains one
of the most disturbing imbalances of the post-bubble period, in
my view," Roach also points out this week."For households, the
debt culture took on a new role in the latter half of the 1990s,
as America's consumption dynamic shifted from being income-driven
to one that was increasingly wealth-dependent. The first wave of
wealth effects was supported by the equity bubble. Once that
bubble popped, however, wealth support then shifted quickly into
property markets. The difference between equity- and
property-induced wealth effects is profound: Apart from margin
debt, the former is funded mainly out of a psychological sense of
well being; in the case of property, mortgage debt and its
ever-frequent refinancing are the principal means of extracting
incremental purchasing power from housing assets.

-"The income shortfall of a jobless recovery," Roach continues,
"a far more serious problem today than in the recovery of the
early 1990s, only heightens America's dependence on wealth-based,
debt-intensive support to aggregate demand. Such a shift in the
growth paradigm appears to have limited the post-bubble fallout
in the early years after the stock market plunged.

-"In the end, however, as wealth effects have morphed into a far
more pervasive cultural phenomenon of excess leverage, the
ultimate post-bubble payback may be all the more severe. That's
especially the case if America's coming current-account
adjustment sparks the predictable consequences of higher interest
rates." Or, we may add, the dollar falls precipitously.

-"U.S. growth can be strong and the dollar can still fall," says
a currency trader in Bloomberg this morning. The Dollar fumbled
its way to its fourth consecutive historic low against the euro
yesterday. During intra-day trading in London the dollar fell to
$1.21... closing the day in New York at $1.20. A bevy of Forex
traders interviewed by Bloomberg.com said they're expecting the
dollar to go as low as $1.24 over the next few months.

- With the notable exception of the Bank of Japan, the central
bankers of all the G7 nations who met in October in Dubai, have
sung in key."The finance ministers and central bank chiefs of
the G7 and EU 'official approval' of the devaluation of the U.S.
dollar," says private banker Thomas Fischer writing in The
Sovereign Individual, a monthly communiqué from the Sovereign
Society,"now seems confirmed."

-"All G7 nations now officially acknowledge the need for a
weaker dollar. The G7 has called for an end to targeted
devaluations by Japan and to the rigid exchange rate system in
China. In addition, Wim Duisenberg, head of the European central
bank, now speaks of the need for a 'multi-faceted approach' to
address global fiscal imbalances. Currency traders interpret this
statement as a disguised pronouncement that the euro may climb
further against the U.S. dollar.

-"One way to profit from currency fluctuations," suggests
Fischer,"is to borrow funds in a currency that is falling and
invest the proceeds in an appreciating currency. This strategy is
often referred to as a 'multi-currency sandwich.' Current
conditions in the currency markets make such trades attractive.

-"Overseas private banks commonly lend money in a choice of
currencies to clients who have assets held by the bank. You can
leverage your deposit depending on the securities you purchase.
You benefit from the difference between the higher returns on the
leveraged investment and the lower cost of borrowing. Switching
between currencies and securities can occur with a single
telephone call and you can exit from the program whenever you
wish."

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Bill Bonner, back in London...

*** Readers who are getting tired of our 'Dollar is Doomed'
discussion may want to skip this little note.

"Nice growth, shame about the currency," says the Financial
Times. For while the U.S. economy has grown in dollar terms,
Americans have gotten poorer in terms of what their currency will
buy on the open, world market. So far, the decline of the
greenback has barely been noticed. There has been no stampede out
of dollars. The U.S. is still managing to fund its twin
$500-billion deficits without significantly increasing interest
rates. American consumers have noticed little price inflation of
imported goods. Only those of us who live overseas - who have
seen our purchasing power cut by 50% in the last 18 months - have
cause for complaint; and who cares about us?

Surveying press reports, it appears that the average macro
analyst expects the dollar to continue to fall... say by another
20% or so. Dr. Richebächer, our favorite and most virulent dollar
critic, predicts it will plummet by half its value.

A brutal collapse of the dollar is"in nobody's interest," the
journalists point out. But being the worrywarts we are, we can't
help but note that WWI wasn't in anyone's interest, either. Nor
was the Great Depression. Nor is rap music or 'modern' art, for
that matter. Still, nasty stuff happens.

*** What kind of a cynic would not love this wonderfully mad
world? The Chinese work around the clock... save their money...
and then lend it to rich spendthrifts who cannot possibly pay it
back. The Americans take the money, mortgage their houses... and
their government... and their children's solvency... to buy
gee-gaws and gadgets that they don't need from the Chinese, even
stomping on old ladies in their rush to load up on bargains at
Wal-Mart. The Chinese then build more factories and hire more
workers to create more products for the people who couldn't pay
for the last products they sold... while the Americans, noticing
only the rate of spending and borrowing, think they are
'recovering'... getting rich again, without actually saving any
money. Meanwhile, the currency in which all these transactions
take place loses its value, day after day.

*** Rumor has it that two of the world's richest and shrewdest
investors - George Soros and Warren Buffett - are selling the
dollar short."Find the trend whose premise is false and bet
against it," is Soros's famous advice. Soros made a billion
dollars in a single day - about 10 years ago, as we recall -
betting against the British pound. At the time, the British
government was assuring the world that that pound would not fall.
Soros kept his mouth shut and held his short positions. Suddenly,
the pound gave way and Soros was a richer man.

Could the dollar give way suddenly, too? There is not much to
stop it. Foreigners hold $9 trillion of U.S. dollar positions.
Each day they lose millions of dollars. They must be getting
tired of it. Even central bankers get tired of losing money,
eventually. Would it be so surprising if they suddenly rushed to
the exits and made Soros a richer man still?

*** Those readers still with faith in science and the perfection
of man by rational thinking may find these items from the English
press interesting: First, a"holy man" from India says he has
neither eaten nor drunk for 70 years. Medical science took his
claim as a challenge and put him in a sealed hospital room for 11
days under constant surveillance, reports The Times of London. To
their amazement, the man neither ate nor drank... yet still
seemed to be in perfect health. No explanation was offered by
science, but the holy man said that he had been visited by
spirits as a child and given the gift.

Balanced against this apparent affront to science was another
article from Germany detailing an excess of rationalism. A man
apparently went onto the Internet to a site specializing in
cannibalism and offered himself up as a meal. His offer was
accepted. According to the report, he was slaughtered, cut up and
eaten by another German. The Polizei are looking in to it.

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The Daily Reckoning PRESENTS: With the bubble's excesses still
unmitigated - and with even more hot air billowing into the
balloon - the job left undone by the 2001 'recession' becomes
more formidable by the minute. This DR Classique, originally
published on 14 March 2002, inspired themes in Chapter 8 of
Financial Reckoning Day.


THE RECESSION-THAT-WASN'T
By Bill Bonner

Phony boom, phony recession... what next? A phony recovery! What
a strange recession. It was like a zebra - but without the
stripes. And only one leg... on which he seems to hop...
underwater...

Recessions typically correct attitudes and asset prices - and
repair balance sheets. Debts are written off or paid down while
savings rates mount.

But none of that happened. Stocks are higher than ever.
Businesses are more heavily in debt than last year. Savings rates
are pathetic. And the consumer?

"Emboldened by low interest rates, board discounting and ready
cash from their mortgage refinancings, consumers spent through
the recession as if they were flush," says a TIME article on the
subject."Now they are in debt and won't be able to pick up the
spending pace much in 2002."

How can you have a recovery without a boost in spending? And what
would happen if consumers actually slowed spending instead?

"Equity market strategists are relying on U.S. consumers to
maintain their strong demand for goods so that manufacturers can
increase production and earnings," writes Hugh Whelan."Better
corporate earnings, especially if associated with high
productivity growth, allow robust wage

increases, which then feed back into more consumption. It will be
something of a miracle, though, if this rosy scenario pans out...
the consumer has been the beneficiary of several one-time
occurrences: energy price declines, low interest rates, tax
refunds and last year's tax rebate."

Miracles do happen. But our advice, gentle reader, is to play the
odds.

The one thing that the 'recession' did do - and do impressively -
was lower corporate profits. But thanks to new productivity, we
are told, corporate profits are going to come back - justifying
share prices and boosting the economy. Consumers may be in no
position to increase spending, say the bulls, but businesses can
increase capital investment and profits and lead the economy into
another boom.

And so, today's important question: What happens next? Do profits
shoot up - making the investors and economists feel like geniuses
again? Or, does a real recession sneak into the patsies' assets,
like a Democrat into the public treasury?

The entire economics profession and almost every investor in the
world seem to have crowded into one side of this trade. We will
take the other.

Will the recovery be sharp and robust? Or will it be soft and
easy-going? No other possibility seems to have occurred to the
pundits on CNBC...

But what if there were no real recovery at all? You are reminded,
dear reader, that we have no crystal ball... nor has God
whispered the answer in our ear. But, as a matter of principle,
markets often give investors what they least expect and most
deserve.

Readers will also recollect that getting rich is neither as
simple nor as easy as some might think. If lower interest rates
could really make people wealthy, why not lower them to zero tout
de suite? And why would Japan - with its zero-rate policy for
nearly five years - not be the richest nation in the world?

Nor is the money supply itself the magic ingredient. If
introducing more currency into an economy could make it rich,
Argentina would have been fabulously wealthy in the late '80s,
instead of at the edge or ruin.

No, it is not that easy. Like everything else worth getting in
life, getting rich requires giving something up. Even love
requires an investment... and one gets a kiss by giving one. And
for the faithful... Jesus could not have risen from the dead had
he not been crucified. Every bit of human progress requires some
sacrifice. Could it be any different for an economy?

To achieve wealth, one needs to set aside assets and invest them
for a return in the future. Seems simple enough. But in the New
Economy of the late '90s, investors came to believe that they
could have the gain without the pain. And consumers - the patsies
of the new economy - believed they could spend more and more
money they didn't have. The central bankers lured them to their
ruin, telling them that spending was the 'patriotic' thing to
do!

But instead of investing in productive new plants, equipment and
technology, businesses switched their attention to raising share
prices. Mergers, acquisitions, share buybacks and employee stock
options were all the rage.

Most people think that huge amounts of money were invested in new
Information Technology, which produced a glut of capacity. This
is not true. Small amounts were invested - which were then
magnified by the number crunchers using their 'hedonic'
amplifiers. Information technology does not require a lot of
capital investment. Then again, it produces little in extra
profit.

After pretending to invest big money in the new technology, the
number crunchers in the private sector then pretended that the
investments were profitable. More reckless than most, Enron's
accounts show to what extent the pretenders would go.

But you can't produce real profits without making real
investments. That is why profits have fallen so sharply - so
little was invested to produce them. And that is why profits are
not likely to rise quickly or easily. First, businesses need real
savings - ones that they can invest in real projects that might
make people richer. Then, consumers have to reduce their debts so
they can afford to buy them. All this takes time - maybe a decade
or more.

A society that invests heavily and carefully in new plants,
equipment, technology, training and research is a society that
gets richer. It can produce more of the things in which wealth is
measured. A society that consumes its capital instead... gets
poorer. And sooner or later realizes it.

Your editor,

Bill Bonner

Thread gesperrt

 

gesamter Thread:

• The Daily Reckoning - The Recession-That-Wasn't (Bill Bonner) - Firmian, 04.12.2003, 18:48
  • Re: Dt. Fassung - Firmian, 04.12.2003, 18:50
    • Re: Danke für Dt. Fassung - Goldfinger, 05.12.2003, 20:07