Re: The Daily Reckoning - Make It Stop! (John Myers)

verfasst von Firmian, 14.03.2004, 23:55

-->Make It Stop!

The Daily Reckoning

On the train to Bonn, Germany

Wednesday, 10 March 2004

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

*** Ashes to ashes... dust to dust... when will we find a
bubble we can trust?

*** Fat and deeply in debt... Baby Boomers resist the
inevitable correction as if it were death itself...

*** How do working mothers do it?... and other wonders...

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

Isn't modern life wonderful? There is no longer any excuse
for relaxing... or thinking... even for a single minute. Palm
pilots, laptops, cell phones... wifi... you can always be
connected to all the latest misapprehensions... all the
time, from almost anywhere.

Here on the Thalys train between Paris, Brussels and
Cologne, there are even electric outlets to make sure your
devices do not run out of juice. At 7am, we plug in... gaze
out the window wistfully... and begin our day...

We went to Edward's school spectacle last night (More about
that below... ). We spent much of the time reflecting on the
way America's Baby Boomers are living through an almost
complete economic cycle... from cradle to grave... from ashes
to ashes... from bust to boom... and back again.

From the '40s to the '90s, the world went from one in which
things couldn't get much worse to one in which they
couldn't get much better. In the late '40s, you could buy
an ounce of gold for $35. Today it will cost you more than
10 times as much. And stocks? You could have bought all the
Dow stocks for less than you'd pay for a single ounce of
gold today. When the boomers were still in diapers, stocks
rose hesitantly. Nobody really believed in them. People
feared that the Great Depression might return after the
war. They bought stocks at 5, 6, 7 times earnings... and
considered it risky.

But that was the time to buy. Americans had savings,
energy, growth, investment, factories... and they still had
the habits, attitudes and prices left over from the
depression. America was a screaming BUY! Since the end of
the '40s, stocks have gone up 30 times. Real estate is much
more a local phenomenon, but you could hardly go wrong... as
long as you didn't buy in Detroit, Newark, Baltimore, Gary
or Donora. Old, heavy industry was the first to go, peaking
out before the boomers entered high school.

By the time the boomers entered college, the nation was
nearing the top of its first post-war stock market
exuberance. Stocks had reached a cyclical peak in which you
needed 28 ounces of gold to buy the Dow (currently, it
takes about 26). From there, they declined for the next 14
years, to the point where, on the 18th of January of 1980,
you could have taken a single gold kruggerand and exchanged
it for the entire list of Dow stocks.

While gold and stocks made headlines, who noticed that,
year after year, the U.S. economy continued to follow the
Baby Boomers' life cycle? Full of beans in their
youth... the boomers revolutionized their economy... from
production to consumption, from savings to debt, from the
world's biggest creditor to its debtor, from Detroit to
Bentonville, Arkansas. They rebelled against the
constraints of parents, priests, took up credit cards, and
- with great expectations - proceeded to debauch themselves
with debt.

Now in fat middle age, they resist the inevitable. Their
jowls and finances both sag - under the weight of excess -
and they become delusional: their houses cannot fall in
price; their stocks will never go down; they will never
die.

Interest rates are loose... looser than they been since the
boomers were born. But the economy is tight. People spend
more than ever. But jobs and incomes barely budge. It is
not at all the same economy they found when nurses first
wiped the dew from their eyes and slapped them on their
bottoms... It is now a screaming SELL!

Over to you, Addison, for more news...

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

Addison Wiggin from Paris...

- A woman walked into a Wal-Mart in Covington, Georgia on
Monday, rang up $1,675 worth of merchandise, then tried to
pay for it with a fake $1 million bill. She was arrested.

- In Hong Kong, that same day, a company that makes toilet
paper released news of an IT subsidiary and saw shares
skyrocket 94% in one day... (more below... )

- The Nasdaq, one day shy of the four-year anniversary of
its peak, closed below the psychologically significant
2,000. On March 10th, 2000, the Nasdaq closed at 5,048... but
yesterday, the Nasdaq slid 13 points to close at 1995 -
wiping out all of 2004 gains. After four years, the Nasdaq
is still 60% below its bubble top.

- Incredibly, out of these three stories... Nasdaq investors
actually look like the wisest characters! Yesterday, at
least they seem to be recognizing the worthless paper in
their hands for what it is.

- On second thought, maybe not."While companies sell fresh
paper [no pun intended]," TrimTabs president Charles
Biderman says of the market action in '04,"insiders bail
out [and] individuals fuel the mania."

-"A sharp divergence of views now exists in the stock
market casino," Biderman explained in his weekly report on
market trends."The house - companies and the insiders who
run them - is selling heavily, while players - individual
investors - are buying heavily. Who is correct? We will
place our bets on the house."

-"To really keep you up at night," writes Dallas Morning
News' Danielle DiMartino, covering the Biderman release,
"margin debt, or borrowing to buy stock, jumped $5.6
billion in January, five times more than the previous
month. That means, we've made a swift return to 1999, when
individuals were not only sinking their last dime into the
stock market, they were mortgaging the farm to do it."

- DiMartino points out that even big dogs like GE are
recognizing the public fleecing for what it is. On Monday,
GE brought its first stock offering to market since
1961... and raised about $3.8 billion. En totale, public
companies raised $28 billion in February. For the first two
months of 2004, Wall Street has raised more capital from
public offerings than in all of 2001 and 2002 combined.
Vive le bull!

- Sadly, a quick look at the stock markets and today feels
a lot more like early spring 2001 than 1999. The Dow lost
72 points to close at 10,456. The S&P shed six to 1,140.
Across the globe, we find the same story: Nikkei down, Hong
Kong down, Sydney down... the CAC 40 in Paris, the DAX in
Germany, The FTSE in London all down, down, down.

- Perhaps... just maybe... the jobs report on Friday is
having a bigger effect on the markets than we had suspected
it would. The world's growth engine, it would seem, just
isn't producing the kind of earnings and incomes one would
expect from this stage in a"recovery" - stimulus-led or
any other kind.

- The harsh data from Friday's report keep spewing forth...
400,000 thousand people fell off the back of the
government's unemployment statistics wagon in February. If
you bothered to stop the tractor, wheel back, and let them
climb aboard the hay bales again, the official unemployment
rate would be a staggering 10%. Factories actually laid off
3,000 more people in February. And the report included a
downward revision for December and January - the months Fed
governors and Labor Dept. officials alike were pointing to
as evidence of an 'improving jobs picture.' These months
now show 23,000 jobs lost... wiping out all but 2,000 of the
November gains.

- Regardless, madness reigns. The Washington Post reported
Sunday that the demand for new town homes priced in the
$560,000 to $1 million range is so high, people are camping
out three and four days ahead of contracts on the homes due
to be released by contractors. One nutcase, a network
engineer - or do we repeat ourselves - told the Post he was
"not prepared" when he showed up at the work site, so he
ran to his apartment a few miles away to grab his North
Face tent."I had to run home [again, to get supplies] and
pay somebody to stay in my spot..."

- Tent spreads along the historic Old Town are one of the
more public manifestations of the"hot" real estate market
in Washington, the paper says. Er... three, four days in the
mud, workmen and the great unwashed... and you can imagine
the smell. If this isn't the sign of a bubble top for the
area, we can't imagine what God has in store for us.

-"It was amazing," an architect holding the No.9 spot
said."If you didn't know what was going on, you would have
thought, 'who are these people?' They didn't look like
people who are qualified to buy million-dollar homes."

- Our gratuitous comment? They probably aren't.

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

Bill Bonner, back on the train...

*** Like a warm puppy in a boa constrictor, Baby Boomers
made their way through the guts of the American system, and
nourished it.

They changed the economy... and businesses, too. Large
companies had typically been created by innovators, risk-
takers and entrepreneurs. Then, they were taken over by
Wall Street's greedy shareholders, who exploited workers
for their own advantage. But when the boomers entered the
large intestine of late American capitalism, they turned
the system to their own ends. Henceforth, businesses would
be run for the benefit of the workers!

While stockholders get measly dividends - under 2% on
average - and pray for capital gains, the workers give
themselves corporate perks, pensions, golden parachutes,
and healthcare plans.

The subject is in the news lately, after it was revealed
that Disney CEO Michael Eisner paid himself $285 million
since 1996, even as the company stock fell 63%.

Why do capitalists put up with it? Because modern
shareholders are not really capitalists... but
lumpeninvestors, with no real power, no clue and no hope.

*** We went to a school spectacle last night expecting to
be proud of our son Edward and left feeling very proud of
his mother. Unexpectedly, Elizabeth played a star role. The
whole spectacle was a song and dance routine, recalling a
trip the class had taken to an abbey. But, in the
accompanying film presentation, Elizabeth appeared, giving
the parents' point of view; she did a fine job. We wouldn't
have known she wasn't French.

We're beginning to understand what immigrants to America
must have felt like. After nearly 10 years, we still have
trouble understanding what is going on. And every time we
open our mouths we risk making fools of ourselves.

The work of integrating the family into local life falls
mostly upon the wives and mothers. It is they who must
figure out the schools and social system. Somehow,
Elizabeth seems to have figured it out. She has the kids in
good schools... with tutors and after-school
activities... and even has the boys in"rallyes" - which
seem to be like the cotillions we were never invited to
attend in America.

*** How do working mothers do it? How do they manage to
keep up with all of the complexities of running a
family... and still hold down a regular job? We don't know.

But one of the great frauds of the Baby Boomer era was that
two incomes were better than one. Stay-at-home moms were
relics of an earlier, more gracious, era that the Baby
Boomers rebelled against. Women should go out into the
world, they said - and pretend to do important things, just
like men. Yes, I could have stayed at home baking cookies,
explained Hilary Clinton famously, but it was much more fun
making a mess of the entire world!

As Marc Faber explained last week, two-income, Baby Boomer
families are not really better off financially.
Surprisingly, they are now declaring bankruptcy faster than
everyone else. What goes wrong is obvious. Nobody saves
anything. Nobody has any cash. Nobody has food or fuel
stockpiled. Everything is 'just in time,' and not a minute
sooner. Every line of credit is maxed out. Every budget is
stretched. But at least a family with a non-working spouse
holds a little labor in reserve. If the main breadwinner
gets drunk and insults his boss, the distaff side of the
house can help fill in the gap until the big lunk gets back
on his feet.

*** As Addison writes above, the latest Asian stock story
just doesn't smell right. Colleague Porter Stansberry sends
details:

"Guys... you won't believe this one... here's the report:

"'Previously known just as a Hong Kong-based maker of
toilet paper, this company has attracted the interest of
the momentum crowd after last week announcing plans to
acquire a China-based company in the information technology
sector as a new business unit. While there were few details
associated with the announcement, the stock has enjoyed a
125% advance since issuing the press release. Today, DFCT
shares have rallied 94% on enormous volume of 30.6mn shares
(25x avg).'

"A Chinese maker of toilet paper is up nearly 100% on the
day... because it is launching an I.T. [information
technology] subsidiary.

"Toilet paper... seems an adequate description of the shares
themselves..."

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

The Daily Reckoning PRESENTS: How much debt are you towing?
If your load is anything like America's - or John Myers's
boat, below - you may want to"lighten up" before it's too
late.


MAKE IT STOP!
By John Myers

The American economy has no rivals... at least on paper. The
nation has a gross domestic product (GDP) over $10
trillion. The next-largest economy is China, with a GDP
only half as large. On a per-capita basis, America's GDP is
8 times larger than China's and 40% larger than that of the
United Kingdom.

You might think that such a powerhouse would be immune to
recessions, stock market crashes or currency crises. Yet
America faces all three of these risks - risks so real that
the Federal Reserve has pegged interest rates at their
lowest levels in half a century. The answer to why the
central bank has taken such extraordinary measures comes
down to one word: DEBT. As powerful as America is, it is
towing trillions of dollars of debt.

Most of us have at some time or another taken on more debt
than we can chew. I know I've done it. In 1991, my brother
and I bought a used cabin cruiser. It cost us less than
$20,000, but I thought our old Sea Ray was the most
beautiful boat on Lake Pend Oreille, a glacial lake in
Idaho with 111 miles of shoreline.

When you buy a boat, you need to tow it to your final
destination. I found the perfect vehicle - a Chevrolet
Suburban. I told my wife Angela that it made sense to buy
it because we could tow the boat to storage in Spokane
rather than pay someone else to do it. I even got the
optional towing package to prove my point. But the truth is
I was smitten by the black 4x4 with its big block V-8 the
moment I saw it.

I had witnessed a Suburban plow through three-foot
snowdrifts and pull a tractor from a muddy quagmire. I
wanted that kind of power for myself, even if I had to
borrow to get it. Besides, according to the owner's manual,
the beefy Chevy could safely tow 7,000 pounds. That was
roughly the dry weight of our boat.

On a warm autumn weekend Angela and I drove out to
Sandpoint, Idaho, to tow the boat back to storage. On paper
there shouldn't have been a problem. However, I forgot to
take everything into account. Besides being loaded with
personal effects, the boat was carrying a small outboard
engine and half a tank of gas. Added up, the boat and its
trailer probably weighed close to 10,000 pounds. As we
entered onto the highway, it began to feel more like the
boat was pushing us than we were pulling it.

The boat trailer was taking up every inch of the lane we
were traveling on. I was afraid what could happen if the
right tires slipped off the pavement and onto the sandy
shoulder.

Suddenly we came upon a sharp turn and my fear came true.
The trailer tires slipped onto the shoulder. The boat began
to shake us the way a Doberman would shake a gopher. The
Suburban was being tossed left and right, across both lanes
of the highway. Angela grabbed my right arm and screamed,
"Make it stop!"

"I can't," I yelled back. There wasn't a thing I could do.
As powerful as the Chevy was, it simply wasn't big enough
to handle the weight of the boat.

Luckily, there was no oncoming traffic. I prayed I would
slow down enough to regain control. I gently applied the
brakes and slowed our speed down to 40 miles per hour. The
trailer finally straightened out. It took us awhile, but we
made it home.

As strong as America's economy is right now, the question
remains - is it sturdy enough to handle the massive debt
load it is towing? If America is NOT strong enough, then
the economy could be whipsawed, facing inflation on one
side, deflation on the other. If that happens, I can
picture President George W. Bush screaming,"Make it stop!"
and Fed Chairman Alan Greenspan yelling back,"I can't!"

If forced to choose, Greenspan will pick an inflationary
spinout rather than a deflationary crash. In fact, the
economy might be heading in that direction already.

America's money supply is growing almost uncontrollably.
Since 1990, the money supply has nearly tripled. This
excess of dollars, along with the fact that America
continues to pile on even greater debt, has been reflected
in the devaluation of the dollar against other major
currencies and the rise of commodity prices.

This trend seems entrenched. If it continues, it will mean
a major reduction in bond prices and at best a stagnant
stock market.


Regards,

John Myers
for The Daily Reckoning

P.S. So what should we do? By investing in real assets, you
can protect yourself from the calamity of stagflation.
Resource investments are well equipped to handle an
inflationary payload. While most investors are happy to
ride along, unaware of the risk ahead, the real asset
investor is sitting safe, collecting profits rather than
risking his neck.

Thread gesperrt

 

gesamter Thread:

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