Der Rest vom Daily Reckoning

verfasst von Firmian, 08.01.2004, 19:26

-->How To Identify A Bubble

The Daily Reckoning

London, England

Wednesday, 7 January 2004

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

*** More thoughts on the year ahead - what OUGHT to
happen...

*** Consumer debt rises... mortgage debt too! U.S. heads to
Third World status... who will love us then?!

*** Falling dollar is prelude to stock market
collapse... what really happens in a presidential election
year... and more... including flying aspidistra!

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

What will happen in 2004? We won't even try to tell you.
The best we can do is try to figure out what OUGHT to
happen.

And even then, we are appalled by our own arrogance. We
cannot know what the gods intend. All we can do is try to
make out - dimly - the right and wrong of it. As we
mentioned yesterday, then... at least we can deserve what we
get.

We begin today's remarks with a disturbing question: why
ought an American earn 10 times as much as a Chinese
laborer? Does he work that much harder? Is he so much
smarter? Does he have some unseen virtue blessed by the
gods with extra spending power?

He earns more only because his parents and grandparents and
great grandparents worked hard... saved their money... built
machines and factories... accumulated wealth and know-
how... and avoided blowing themselves up in wars, hyper-
inflation, revolution, and socialist delusions.

But now he squanders his savings... mortgages his children'
s future... and willingly participates in extravagant mass
hallucinations (we will borrow and spend until we all get
rich... we will build an American-style democracy in ancient
Nineveh... our kind friends the Chinese will pay our
bills... ) Ought such a man prosper?

The remarkable thing, says a report from the Rocky Mountain
News, is that despite the furious pace of home refinancing,
other forms of consumer debt did not go down. You will
remember, dear reader, that no less of an authority than
Alan Greenspan (and, if there is less of an authority, we
can't think of whom he might be) told us what a great thing
mortgage debt was. It allowed homeowners, he explained, to
switch from expensive credit card debt to less expensive
mortgage debt. With their balance sheets thus reinforced,
they could add another few pounds of spending... without the
whole thing giving way.

Well, the Fed chief was as wrong about this as he was about
everything else. While the average household added to its
mortgage debt, it added to its other debts, too. Credit
card debt per household has grown to $7,000. Leaving out
mortgages, consumer debt has doubled in the last 10
years... to $18,700 per household. Millions of families live
'paycheck to paycheck,' says the news item, with no
provision for risk.

Of course, these families see no risk to provide for. As
long as the money keeps flowing, they ask no questions. How
can a nation with a half-trillion dollar government deficit
add expensive new programs - such as providing patent
medicines to old Americans... and new roads to young Iraqis?
How can a country with a falling currency continue to
attract foreign investment? How can a people who save less
than 2% of their income build the machinery, the systems,
the technology needed to compete in the modern, globalized
economy? The questions never seem to occur to anyone.

Reckless spending, massive deficits, collective fantasies -
if this continues, warns Paul Krugman in the New York
Times, the U.S. will soon be regarded as a Third World
nation. It has happened before. At the beginning of the
20th century, Argentina had living standards nearly equal
to those in Europe and America. Then came the mass
delusions of socialism, Peronism, paper moneyism, and debt.
Hyper inflation and recession wasted Argentina's
economy... to the point where it sunk down to near-Third
World levels.

Here at the Daily Reckoning, this does not scare us. We
like Third World countries. The weather is often good. And
the cost of living is usually low. But we doubt that many
Americans will welcome a drop in their wages, or a decline
in their living standards. And even as a Third World
country, the winter weather is not likely to improve.

Here's Addison with more news:

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

Addison Wiggin in the City of Light...

- Sunday was cold and rainy in Paris; a perfect day to
stroll through the red-light district near place Clichy and
hit up the art-house documentary: Derrida.

- Jacques Derrida, a living French philosopher, has made a
name for himself in the U.S. for pioneering a philosophy
called 'deconstructionism.' In case you're ready to rush
out and find the movie playing in a theatre near you, let
me save you the trouble. Here's the plot: A NYU student and
a California film crew follow Derrida around for two weeks
recording his every move. Derrida is very deft at buttering
toast. Other than that, I learned very little from the
film. But the theatre was warm. And empty. And the seats
were comfortable... so we had a good occasion to rectify a
bit of our post-holiday, post jet-lag sleep deprivation.
That was nice.

- We raise the point because America's stock market
investors seem like they may have OD'd on Derrida lately.
At one point in the documentary, Derrida gives the keynote
speech at a banquet given in his honor by the University of
California, Irvine. Some genius at Irvine collected all of
Derrida's work and archived it in the library's basement.
Derrida, in his speech, even thought the idea was stupid.
"Archives are useless," we misquote him badly,"except as a
monument to the ego. They tell us nothing about the past.
They are only useful if someone delves into them and tries
to apply them to the future."

- With archives of material documenting the aftermath of a
credit-goosed bubble economy and collapse only three short
years ago sitting at their finger tips [at the very least
in places like the Daily Reckoning Archives found on our
website], the nation's lumps are destined to prove
Derrida's point. The Nasdaq continued its third straight
day of gains yesterday. It climbed 10 points to 2,057 - the
highest close for the tech-heavy index in two years. The
S&P 500 tacked on a point to 1,123. The Dow gave back 5
points to close at 10,538.

- Even so, all the financial media remains agog the 50%
increase in the DOW over the past year."Equities are back,
baby!" wrote one churlish reader yesterday... forgetting all
the while that the economy and the stock market are merely
reflecting"multiple one-off stimuli"... as the good doctor
Richebächer calls tax cuts and auto sales promotions and
other schemes... (below).

-"The Depression era generation is passing on and we're
losing our values," laments Howard Dvorkin in the Rocky
Mountain News. Dvorkin is the president of the non-profit
Consolidated Credit Counseling Services, i.e. he's on the
front lines of the coming consumer debt crisis."Now we've
got an entire generation that doesn't know anything about
thrift and careful spending. It's tearing at the fabric
that made this country great." The Depression era folks
were the last to roll the baggage of credit collapse around
with them daily like a hobo's shopping cart. If the next
generation super-consumer hasn't learned how to save and
invest from their grandparents' first-hand
experience... it's not likely they'll begin seeking their
counsel in the archives of the era either. No... we fear
they will have to learn the hard way.

- Especially since the nation's pundits, analysts and
economists are busy trying to invent new reasons why the
boom is back!

- Kurt Richebächer explains:"During the third quarter of
2003," writes Dr. Richebächer,"consumer spending on goods
and services increased - nonannualized - by $27 billion,
comparing with a simultaneous increase in personal incomes
by $22.7 billion, of which wage and salary income accounted
for a miserable $7.1 billion. This source of income in the
United States has virtually collapsed, reflecting the
dismal performance of production and employment.

-"Normally, this would have similarly clipped consumer
spending. But a kind of 'new paradigm' monetary policy has
managed to replace the lacking traditional 'income-driven'
consumer spending largely by 'wealth-driven spending.'"

-"Wealth-driven spending," Richebächer continues,"is a
completely new term in economics, invented in America. What
it means is nevertheless crystal clear: increases in
spending that are fuelled by rising asset prices, providing
the collateral for higher borrowing, are now in America
positively perceived as 'wealth-creation.'

-"This new pattern of 'wealth-driven' consumer spending
started with the long and steep rise in stock prices in the
later 1990s. What truly matters, though, is not the rise in
asset prices, but the borrowing and spending binge that it
facilitates and unleashes. In the U.S. case, the protracted
stock market boom shattered personal saving from current
income. Regarding the gains in the market as a fully valid
substitute, Americans stepped up their spending at the
expense of such saving.

-"Wealth-driven economic growth is, of course, a better-
sounding synonym for bubble-driven growth," Richebächer
concludes. (More on the great reflation of 2003 from Dr.
Richebächer, below... )

- The price of oil jumped to $34 yesterday."Recall a month
or so ago," surmises Chuck Butler, sitting tight on euro
gains at the Everbank Trading desk,"our friends at OPEC
(NOT!) were suffering huge losses from their oil contracts
denominated in dollars, and that they had two choices? To
get the price of oil higher, to offset the losses, or
change their oil contracts to euros, right? So, it looks
like the former is taking place, which should start to
register on somebody's inflation meter somewhere... My
guess? Europe..." And the U.S., too, we're tempted to add.

- The dollar fell to a record $1.28 in mid-day trading
yesterday. Then currency profiteers rushed in, gobbled up
the gains and drove the buck back down to $1.26. Still a
tough pill for your hapless expat editors in London and
Paris to swallow.

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

Bill Bonner, back in England:

*** From the King Report:"The dollar is in the toilet and
gold is rallying on that jackass Fed Gov. Bernanke's
comments that the risk of a dollar crisis is low and it's
misleading to value the dollar only vs. the euro. The
market construes the dolt's remarks as either the Fed is
signaling that it wants to keep rates low for the
foreseeable future and they're not concerned about the
level of the dollar or Fed officials are clueless fools. In
either case, one doesn't want dollar exposure. These clowns
need some real world business experience.

"The dollar topped in Feb 1985 but traded slightly lower
until mid-Sept 1985 when it collapsed after the Plaza
Accord. Stocks crashed just over two years later in mid-
October 1987. But stocks in 1985 were the mirror image of
the dollar. They traded slightly higher until the dollar
collapse in mid-Sept and then more than doubled by August
24, 1987. As we keep harping, stocks love inflation and a
collapsing currency for awhile, but later there is hell to
pay. 30 months after the Feb '85 dollar peak, stocks
crashed. Or to look at it another way, 23 months after the
dollar tanking commenced, stocks peaked.

"As we forecast months ago, we'd look for a stock market
peak in January and then a rebound rally in March that
should approach if not exceed the January high. But after
that, look out.

"This view also coincides with the presidential cycle. Wall
Street pundits stridently trumpeted the bullish propensity
of the third year of a president's first term, but they've
been silent about what ensues. That's because the following
year, the election year, typically has a top in Q1, a
decline into late spring, a sharp rally into the
conventions, and then a severe decline that commences after
the conventions."

***"What about China?" an interviewer asked yesterday. The
question surfaces almost daily. China is THE BIG STORY of
the financial world. Everyone seems to want a part of it.

But what can an investor know about a Chinese company?
Almost nothing. Knowing nothing, he cannot really invest.
He can only speculate.

"Speaking of bubbles..." the Pirate Investor's Brian Hunt
writes,"I was thumbing through Barron's closed-end fund
section last night. The China Fund (CHN) changes hands at
$44.84. Net asset value is $27.11, for a premium of 65%."

Pao Mo! Pao Mo! Pao Mo! Bubble, bubble, bubble!

*** Poor Prince Charles! Poor Britney Spears! The two
hapless celebrities look out from Britain's tabloids almost
daily. Both may be lucky at cards, we conclude, because
neither seems to have any luck at love. We don't really
know who Britney Spears is, but all of Britain seems
concerned about her marriage. It lasted only 55 hours, we
are told."A publicity stunt," suggest the cynics.

And Charles... according to today's papers, the prince will
be forced to delay his own marriage by a new inquiry into
Diana's death. It seems Diana left a note telling no one in
particular that her husband, Charles, was plotting to kill
her in"an accident."

"Was she out of her mind?" asks the Daily Mail. We never
met her. But we judge from the report of her speeding
through the streets of Paris at 90 mph with a drunken
chauffeur at the wheel that perhaps she lacked good
judgment from time to time.

But we are sentimental saps here at the Daily Reckoning and
we share the nausea of anyone made a little sick on love's
tempest-toss'd seas.

*** It is love that really matters, we often hear. Why then
do we spend most of our time in pursuit of money? For men,
and here we are merely guessing, money is like the rich
plumage on peacocks. It is a handicap, of sorts, since it
takes energy to drag it around... and it draws predators.
Does it also draw admiring glances... and even love?

A reader reprises our comment from a previous Daily
Reckoning:

"'Things mean more to women than they do to men,'"
Elizabeth [my wife] volunteered. 'Status is more important.
At least for women who don't work; they get their status
from having fine things. And successful children. They have
few other ways to show off."

And adds:

"I am reading George Orwell's 'Keep the Aspidistra Flying'
(first published 1936) and what do I find on page 103 of
the Penguin Classics edition?

"The only thing a woman ever wants is money; money for a
house of her own and two babies and Drage furniture and an
aspidistra. The only sin they can imagine is not wanting to
grab money. No woman ever judges a man by anything except
his income. Of course she doesn't put it to herself like
that. She says he's such a nice man - meaning that he's got
plenty of money. And if you haven't got money you aren't
nice. You're dishonored, somehow. You've sinned. Sinned
against the aspidistra."

*** Another little item from the King Report:

"Baghdad's October murder rate is 6 murders per 100,000
people. In the U.S., the murders/100,000 rate are 17 in Los
Angeles, 19 in Philadelphia, 22 in Chicago and 46 in D.C."

Thread gesperrt

 

gesamter Thread:

• HOW TO IDENTIFY A BUBBLE by Kurt Richebächer - CRASH_GURU, 08.01.2004, 17:19
  • Der Rest vom Daily Reckoning - Firmian, 08.01.2004, 19:26
    • Re: Der Rest vom Daily Reckoning - Euklid, 08.01.2004, 19:29
      • Re: Nur die Mühe des Postens ist meine ;-) - Firmian, 08.01.2004, 19:41
    • Dt. Fassung - Firmian, 08.01.2004, 19:37
      • danke fürs übersetzen!!! (owT) - daxput, 09.01.2004, 01:29