The Daily Reckoning - Epileptic Fits (James Boric)

verfasst von Firmian, 06.02.2004, 19:10

-->Epileptic Fits

The Daily Reckoning

Paris, France

Thursday, 5 February 2004


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

*** Mood swings... from too good to too bad.

*** Get ready for Slumpflation... prices go up... assets go
down...

*** Slurs... Gilder... Bush... the Sino-Japanese war... and -
would you believe it - more!

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

"All we can tell you," we told a lawyer at last night's
dinner party,"is that things in nature seem to have a
certain symmetry. For every right hand, there is a left
one. For every mood of ebullience, there is one of
despair. For every boom there is a slump. America enjoyed
a spectacular boom during the 1990s. The slump that
followed was not spectacular. It was hardly noticed."

Which makes us think there is more slump coming.

But what intrigues and titillates us is that what is
coming will be spectacular. For the last few years,
economic trends lined up in such a delightful way, we
could hardly believe it.

Deeply in debt already, Americans were able to borrow and
spend even more... while their assets rose in price. They
spent money they didn't have on things they didn't
need... and then, the nice people in China and Japan gave
them back the money so they could spend it again. Mortgage
payments went down, while housing prices went up.
Meanwhile, the Bush Administration returned some of their
tax money... while it too spent more money, also provided
by helpful foreigners.

Coming soon, we expect, is a period in which the major
trends are so unfavorable, we will hardly be able to
believe they could be so bad.

How so? Here we offer not a prediction... but a
possibility.

Everyone now seems to expect a continued decline of the
dollar. A few Americans are taking precautions. At
Everbank, for example, deposits in non-U.S. currencies
rose from $135 million a year ago to $525 million now.

But we cannot believe that Mr. Market will go along with
what everyone expects. Nor can we believe that the dollar,
under the weight of 'twin deficits' of half a trillion
each - trade and federal - will go up. But while people
expect a decline in the dollar, very few - indeed, none of
the economists recently surveyed by the Wall Street
Journal - expect a sharp or disruptive drop. The surprise
is likely to come - as George Soros suggests - on the
downside... with a panic out of the greenback.

As the dollar falls, prices on imported goods - notably
oil - would rise steeply. The falling dollar would also
cause the collapse of the bond market... even central
bankers would be forced to sell U.S. bonds in order to
protect their reserves. This would increase the cost of
money throughout the U.S. economy....causing asset
prices... houses and stocks... to fall. [Ed note: We are
putting the finishing touches on our long-awaited report
on the dollar crisis... watch this space to learn how you
can protect yourself in the event of a dollar rout.]

Americans have enjoyed inflation while it has been
confined to their assets. They will not enjoy it when it
strikes their living costs, especially when their houses
begin to go down in price.

Readers may recognize this set of trends as a bad case of
"stagflation." But stagflation describes a world of rising
consumer prices without economic growth. Slumpflation will
serve as a handle for an economy that is in decline... even
while consumer prices rise.

Slumpflation will be neither a gay nor a carefree time.
Mortgage payments will rise with interest rates, but house
prices will fall. Prices for imports - and practically all
'things' - will rise, while available income - after debt
service - will drop.

If it comes to pass, Americans are likely to experience a
mood swing. The economy that seemed almost 'too good to be
true' of the late '90s and early '00s... will become the
economy that is 'too bad to be true.'

Too bad it will be true.

Over to colleague Addison Wiggin, now in London:

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

Addison Wiggin, fresh back from a building-clearing fire
alarm at Centre Point Tower...

-"Instead of blaming Mr. Greenspan," columnist Steven
Rattner wrote in the NYTimes on this date in 2001,"we
should reflect on the willing suspension of disbelief that
allowed us to ignore everything we have been taught about
sound investing." Mr. Rattner was, of course, referring to
the collective delusion gripping the investing public
throughout the bubble years of 1996-2000.

- While we might not go so easy on the Fed chairman,
especially given his complicity in the 'echo bubble' of
2003, we cannot help but agree with Mr. Rattner's leveling
of charges at the lumps. For, willing"suspension of
disbelief" has been all the rage on Wall Street for about 6
months now. Are investors about to get swatted in the face
with the wet sock of reality, yet again?

- Market action over the past week suggests it's possible.
The financial media is littered with comparisons of the
twin bubbles 1999-2003. Some overt, others unintended:
"Glut of Money Chasing Too Many Tech Start Ups [in Silicon
Valley]" reads a headline in this morning's Financial
Times. And we moan... déjà vu all over again.

- We suspect even Johnny 401(k) must be getting
nervous... and wondering if this rally is running low on
adrenaline. In a very volatile day, the Dow dropped 34
points yesterday to close at 10,470. The S&P 500 and Nasdaq
had similarly down days yesterday. The S&P slid 9 points to
1126... the Nas was off 52 to 2014.

- You want to try something eerie? Try opening a 10-day
chart of the Dow, Nasdaq and S&P 500 and leave them open
side by side on your computer.

* Since Tuesday (January 27th) of last week, the blue-chip
index has lost 278 points and failed repeated attempts to
reclaim the intra-day 52 weak high of 10,748 set that day.

* In the same span of time the S&P 500 has lost 29
points... and the Nasdaq 139.

* During the first bubble, the Dow peaked in mid-January
(the 14th to be exact). Will Tuesday January 27th be an
equally auspicious day?

- We note, too, curiously, that the next day, January 28th,
was the day the Fed removed the phrase"considerable
period" from its post-FOMC press release. Hmmmmn... Bubble
top 2004?! Is nature really that symmetrical - that cruel
and ironic? We wait, like an expecting father, to find out.

- Meanwhile, the finance ministers of the G7 nations are
gathering in Boca Raton, Florida. Following their last
meeting in Dubai on September 24, in which tacit agreement
to let the dollar fall was reached, the"orderly decline"
dollar really got underway. The greenback has fallen 8%
against the euro since, trading this morning at $1.25. What
would happen if the decline became"disorderly"? We can't
help but wonder.

- The wildcard in tomorrow's meeting will be Jean-Claude
Trichet and his cronies at the European Central Bank."The
U.S. and Asia have entered a symbiosis, in which Asia is
financing the American recovery," opines Thomas Mayer, the
chief European economist for Deutsche Bank, in the NYTimes.
"For Asia, that's fine, and for the U.S., that's also fine.
The problem is for the bystander." The bystander, of
course, being the euro.

- Morgan Stanley published a report yesterday, warning its
clients that the"euro zone" could"break up due to the
political discord over the Constitution and the euro
rules.""[We] believe markets will have to attach a higher
probability to a break-up of EMU and/or EU at some future
date... despite the costs of leaving the euro, a country
might still conclude that the benefits of re-introducing a
national currency outweigh the costs."

- Robert Mundell, the Nobel-prize-winning"father" of the
euro, responded to Morgan Stanley's warning by suggesting a
dollar rout is more likely than a break-up."So much hinges
on the dollar now," comments our own Dan Denning, watching
the greenback burn from Paris."This isn't clear to most
investors. It's not perceived as a threat, and probably
won't be until it's too late. But the twin deficits are
grinding the currency into a mush pulp."

-"Sometime this year," Denning predicts,"you're going to
hear the dollar break. It's going to start costing everyone
in ways they can't imagine. The big risk is that the weak
dollar leads to a sell-off in U.S. financial assets AND a
powerful surge in inflation. Which means Americans will
wake up to find that their decaf latte just got 40% more
expensive."

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

And Bill Bonner, back in Paris...

*** There is a time for sages and a time for fools.
Lately, it's been a fool's market. The worst stocks -
those that have the highest prices, lowest profits, and
most implausible prospects - are the ones investors have
favored.

Only someone who didn't know any better would buy such
stocks at such prices. Which is why it's been a great time
to be a young lump....with no fear, no history, and no
money. With nothing to lose, and nothing to worry
about... you could have made a fortune in the Bubble
Reloaded of 2002-2003.

*** Take the Cisco Kids, for example. Profits are going
down. Sales are going up. Investors sold the stock
yesterday, disappointed by the slow profit growth. The
company only made 10 cents a share in the last
quarter... which still puts the price at about 65 times
earnings. Hmmm...

*** We ridiculed George Gilder in our book. But the
Gildered Age is back... and so is Gilder himself... with
what is, for now at least, the last laugh.

"Love him or hate him, stock analysts know that George
Gilder - in both the short-term and the long run - has
made a small fortune for his Gilder Technology Report
subscribers," begins an email sales message.

"How? By investing in a tiny group of innovative and (for
the most part) little-known companies that are building
tomorrow's key technologies 2 to 5 years ahead of their
competitors. In 2003, his portfolio was up 123.5%.

"Despite the tech-stock meltdown of April 2000, and the
subsequent 3-year bear market in high tech, overall Gilder
has continued to earn handsome profits for his readers.

"Since its launch in 1996, the Gilder Technology Report
has comfortably doubled the returns of the S&P 500 -
through both bull and bear years.

"In 2003, the market began to come out of its 3-year bear
slump into a gradual recovery, and Gilder Technology
Report subscribers profited handsomely, with an annual
gain of 123.5%.

"Had you invested $100,000 in GTR's companies in 2003,
your portfolio would have grown to $223,500 - in just 12
months. But don't just take our word for it. Check out the
January 2004 issue of the Hulbert Financial Digest. It's
right there in black and white, Gilder Technology Report
up 123.5% in 2003.

"In 2004, George Gilder remains cautiously optimistic..."

And so it is a more amusing world than it was 14 months
ago.

*** A thoughtful reader writes:"I read the Daily
Reckoning regularly and am very impressed with the ideas
you put forth. I know you get lots of questions and
comments, but I was reading about Chinese History
yesterday and came across a paragraph that caught my
attention. It refers to the period directly following the
Sino-Japanese war and it is so simple and basic in concept
that I was surprised at the similarities between Chiang's
policies then and our government's monetary policy now:

"'The most virulent cancer attacking the body politic (of
the Guomindang) was inflation. While prices rose
approximately 40 percent during the war's first year, from
the time of Pearl Harbor in 1941, prices increased more
than 100 percent each year. Thus, a trinket that cost 1.04
Yuan at the start of the war would have cost 2,647 Yuan at
war's end. Nothing guts out the political support of a
people for its government faster than inflation, even of
the slowly rising kind, much less the marauding strain of
inflation seen here. It was produced by simply printing
more money when there was an insufficient supply. Its
results included hoarding commodities, creating scarcities
and even higher prices; corruption that spiraled out of
control; and ravaged standards of living among officials,
soldiers, intellectuals, people on fixed incomes, and
students. Some, if not all of these, were groups that were
dangerous to offend. For sowing inflation through the
printing of money, Chiang (kai-shek) would reap the
whirlwind.' - 'Revolution And Its Past' by R. Keith
Schoppa (pg 275)

"I realize that this severe inflation was largely the
product of an overstretched military regime fighting a
huge war against a foreign power while simultaneously
fighting internal rebellion. That's what makes it all the
more shocking to me that, in an age where historical
information is readily available, a government that
doesn't need to fight any wars, and that doesn't need to
be overstretched, would seek to create internal rebellion
and make enemies abroad by starting wars and by pursuing
inflation and the devaluation of their currency through
the printing of money. It seems kind of like the same
process but in reverse. I guess that's the beauty of
Democracy. Keep up the good work guys.

***"Democratic Caucus... Feb. 17th... Be there! We must get
George W. Bush Out of Office! You must bring your American
passport to vote."

Thus begins an email invitation to a political event. Here
in Paris and all over the world, Democrats are mobilizing
the rank and vile to put their man in the Oval Office.

We could not imagine a worse person to have in the White
House than the one we have now."No absurdity left
behind," is George W. Bush's private motto. Who else would
embrace every foolish adventure that comes along - both at
home and abroad? Who else would be stooge enough to
approve every sordid piece of pork that crossed his desk?
Who else would favor boondoggles for the rich, the poor,
democrats, republicans, Rosicrucians, Rotarians, the old,
the young... everybody?

Bush is surely the nation's worst chief executive since
Bill Clinton. We couldn't imagine anyone worse... that is,
until we looked at the Democrats running against him. That
is the problem with the two party system, we conclude;
only one side loses.

*** We are unable to muster the contempt the Bush
administration deserves. Our reserves of sarcasm have been
depleted; we find them replaced by a peculiar admiration.
George W. Bush is a perfect imposter... which makes him
oddly appropriate in relation to today's fraudulent stock
market, economy, currency, and culture. He is also the man
most suited to today's great challenge... keeping America
on the road to ruin.

There is a sublime poetry at work. In his State of the
Union address, Mr. Bush said he was rising to 'the tasks
of history.' By a kind of lyrical accident, Mr. Bush seems
to have spoken the truth.

George W. Bush really is doing the heavy lifting of
history: He is helping to destroy the dollar, the economy,
the nation's security, it's citizens' liberties and almost
everything else we hold dear. Even our souls may be at
risk. All of this is the natural consequence of increasing
spending while already being terribly in debt and going to
war when you don't need to. Looking for trouble... he is
sure to find it. But this 'task of history'... it is work
that needs doing. Why? Because nature abhors monopolies,
vacuums and bubbles. When a man sits on the top of the
world, some instinct enters his empty head... and drives
him to move... to stretch and bend... until he slips off.

*** Give us your slurs, dear readers, your tired, your
poor, your huddled masses of epithets... and we'll give
them right back! A reader comment:

Re: A CYNIC'S GUIDE TO INSENSITIVITY: HOW TO DISCOVER YOUR
INNER BIGOT

Hating another human being because of their race,
religion, or membership in some other broad demographic
group is simply a sign of laziness. After all, with just a
little time and effort you can really get to know someone
and learn to hate them on a more personal level.

*** And another on the same subject:

Hey! You left out Pommy-bastard, whingeing pom, gwailo
(Cantonese for Foreign Devil), sambo, golliwog, gringo,
and dag.

And while we're at it and lest we be less than
inclusive...

How many feminists does it take to change a light bulb?

Three actually.
One to hold the ladder.
The second to screw in the light bulb and the third to
make the documentary!

Great for dinner parties that one. My wife just loves it
when I drag it out.

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

The Daily Reckoning PRESENTS: From Japanese sensation to
worldwide phenomenon, the story of a small-cap wonder...


EPILEPTIC FITS
by James Boric

It was Dec. 17, 1997 - 6:30 p.m. Anxious school kids all
over Japan were huddled around their TV sets to watch the
38th-ever Pokemon episode -"Computer Warrior Polygon." It
seemed harmless enough...

The main character, Pikachu, had a mission. He had to go
inside a computer and stop a deadly"virus bomb" from being
dropped by the evil Polygon.

The anticipated confrontation between good and evil came to
a head twenty-one minutes into the show. Pikachu and
Polygon met face to face to battle. Not wasting any time,
Pikachu used his electric powers to destroy Polygon and
stop the bomb from being detonated. It was an intense
fight. And to heighten that intensity, the directors
rapidly flashed a series of blue and red lights on the
screen.

Within minutes of the battle airing on TV, hospitals were
flooded with calls. Pokemon viewers were suddenly suffering
from acute nausea, blackouts and epileptic fits. There were
even kids who entered into trance-like states, similar to
hypnosis. One little girl described her sudden illness like
this:"As I was watching the blue and red lights flashing
on the screen, I felt my body becoming tense. I do not
remember what happened after that."

It turns out the combination of the colors, the flashing
effect on the screen, and the duration of the fight scene
created an optical stimulus that triggered instant attacks
in thousands of Japanese viewers - leaving many temporarily
helpless.

Within hours the Japanese Ministry of Health, Labor and
Welfare was investigating the Pokemon episode. TV Tokyo
issued an apology and took the cartoon off the air. Even
Japan's Prime Minister Ryutaro Hashimoto weighed in with
comments on the unfortunate situation.

Clearly, this marked the end of Pokemon, right? I mean,
come on. This cartoon sent a wave of panic over all of
Japan. Twelve thousand kids experienced some form of
temporary illness. And 618 children were hospitalized -
suffering from bouts of memory loss, stiffening limbs and
epileptic-type fits.

Pokemon had its 15 minutes of fame; now it was over.

WRONG!

By April 1998, four months after the infamous fight scene,
Japanese kids and parents demanded Pokemon re-air. They
missed the lovable monsters.

Sure enough, Pokemon was brought back. And by year's end,
it was the third-most watched show in Japan!

The obvious question that comes to mind is - how could
parents actually allow (let alone demand) Pokemon to re-
air? The answer is simple.

Pokemon was an engaging show. It had children sitting at
the edge of their seats wondering what would happen next.
Plus, with its long list of characters, animation style and
timely topics, Pokemon proved to be a tremendous learning
tool for young kids. Seven-year-olds could rattle off more
facts about Pokemon than they could about any other subject
- period.

Pokemon had appeal. And in 1999, it tipped from a Japanese
sensation to a worldwide phenomenon - it was introduced to
the United States on Nov. 22. The rest is history.

Today there are Pokemon video games, action figures, DVDs,
CDs and, of course, the TV show. The company that owns the
rights to Pokemon, 4Kids Entertainment, Inc., went from a
$739,138 company in 1997 to a $38.8 million company in
2000. Its stock price shot up from $1 to a high of $37.31
(after splitting several times) in that three-year span.
Investors who recognized the power of the Pokemon monsters
made a killing. And you can, too.

At $28.50 a share, it's probably too late to invest in
4Kids Entertainment now. But there are hundreds of other
stocks on the market today that are just like 4Kids was in
1998 - on the verge of tipping from a small business to an
internationally recognized corporation. And historically,
these are the most lucrative stocks to invest in - far
better than even the biggest blue-chip stocks.

Unknown small-cap companies like 4Kids Entertainment
average about 12% returns year in and year out. By
comparison, large blue-chip companies will give you about a
10% return on your investment. Big deal, right? We're
talking about two points. Who cares?

Before you decide"not to care," consider this...

Over an average five-year holding period, a basket of
small-cap stocks will give you a nice 84% return on your
money. A similar basket of large-cap stocks will only give
you a 47% return. And the longer you are willing to hold,
the bigger the difference between small-and large-cap
returns.

Over a 10-year holding period, small-cap stocks have been
good for a 197% return - compared to 119% for its large-cap
counterparts. Hold for 20 years and your unknown, never-
talked-about small-cap stocks will average 762% returns -
more than twice as much as the highly touted, often-
publicized blue chip stocks.

And if you really have time on your side, you should know
this...

Over a 35-year holding period, small-cap stocks have ALWAYS
outperformed large-cap stocks. Always.

Of course, investing in small-cap stocks can be a risky
business - especially in the short term. Some companies
will go out of business - and their stocks will fall to
nothing. But others will go on to make you 3,631% profits
in three years - like 4Kids Entertainment did between 1997
and 2000. The question you need to ask yourself is...

Is short-term volatility worth it for the long-term
profits?

Those investors who bailed on 4Kids Entertainment in
December 1997 took a 17% loss when Pokemon was pulled off
the air. But more importantly, they missed out on 3,631%
profits over the next three years. That's hard to swallow.
In fact, I wouldn't be surprised if those people
experienced acute nausea, stiffening of the limbs and the
occasional epileptic fit every time they happened to flip
past the latest Pokemon episode. Only this time I guarantee
it wasn't from the flashing red and blue lights...


Regards,

James Boric
for the Daily Reckoning

Thread gesperrt

 

gesamter Thread:

• The Daily Reckoning - Epileptic Fits (James Boric) - Firmian, 06.02.2004, 19:10
  • Re: The Daily Reckoning - Epileptic Fits (James Boric) - Firmian, 06.02.2004, 19:14
    • Und wieder den Beitragstitel nicht geändert... grmpf (owT) - Firmian, 06.02.2004, 19:19
    • Danke! (owT) - Tofir, 06.02.2004, 23:07