Re: The Daily Reckoning - The Value Of Garbage (Dan Ferris)

verfasst von Firmian, 14.03.2004, 23:58

-->The Value Of Garbage

The Daily Reckoning

On the train again... in a different direction

Thursday, 11 March 2004

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

*** Dow down sharply... the bear market rally that began in
October 2002 may be over...

*** Deficits up to record levels... maybe a 'currency
crisis' this way comes...

*** GDP fraud... real growth in Europe... mercenaries and
honest government... banana republics... and more!

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

It is still snowing... odd, this late in the year. A bad
omen... winter hanging on when spring should be here.

When we left Bonn last night, it was snowing. As we make
our way to London, the snow is still swirling about here
and there. To the right of the tracks, somewhere in Pas de
Calais, a small cemetery appears, looking ghostly in the
early-morning light.

The tombstones are dusted white... and a row of trees along
one side is pruned in the odd French manner. The trunks
rises thick and solid, but only about as high as a farmer's
shears can reach... and then the limbs spread out all at
once into a dozen wispy branches... all bent towards the
graves like a row of spectral chorus girls waving to the
dead.

In the train, the business travelers hunch over their work,
making notes, reading the paper, or tapping away on their
laptop computers. Not one bothers to look out the window.
The train could pass a squadron of space ships from Jupiter
sitting in a cow pasture... no one would be the wiser.

Not noticing things is one of the great talents of modern
times. We have our TV and Internet connections... our
endless talk radio and newspapers. From these sources we
know that America is on track for a full 'recovery.'
Europe, as usual, lags behind. Old Europe is said to have a
slower growth rate... lower standards of living... lower
earnings per capital.

Americans innovate, we are told, Europeans and Asians
emulate. Europe... say the pundits... is on its way to
becoming a vast museum. But if you merely look out the
window from the Thalys going down the Rhine valley or from
the Eurostar on its way to London, you realize that these
notions are one part misinformation, one part
misapprehension, and one part pure humbug.

You do not see consumer-led development in Europe the way
you do in America. You do not see acres of new condos and
strip malls. But you do see what appears to be solid
construction... new office buildings, new apartment
buildings, and even new industrial plants. Everywhere,
people go about their work in nice clothes and nice cars.
Restaurants are bright and expensive. The women are
attractive, the food is good and the newspapers are
unreadable. What else matters?

While GDP growth numbers are lower in Europe, the old world
numbers seem to measure real growth... not the phony
progress of debt-fed consumption. In terms of output per
hour and output per capita, European nations are doing as
well or better than America. And what the Europeans are
putting out brings them a positive balance of trade with
the rest of the world. Unlike America, they are producing
more than they consume, in other words.

"U.S. deficit in trade hits a record," says today's
Associated Press report."The trade imbalance widened to
$43.1 billion in the first month of 2004," continues the
article."For all of 2003, the trade deficit posted an
annual all-time high of $489.9 billion."

The U.S. deficit on the trade account has been growing at
about 28% per year for more than 10 years. As a percentage
of GDP, the deficit has recently been rising five times
faster than the economy as a whole. This puts America in
the category of"banana republics," writes Peter Bernstein.

No major currency has ever had current account deficits of
5% of GDP, he points out:"The hole Americans and our
trading partners have dug for this country is now so deep
that the road back to sustainable conditions appears to be
not only long, but paved with risks."

Bernstein says the U.S. may be setting itself up for a full
blown"currency crisis." We cannot know for sure, he points
out, but investors should probably approach it as
philosopher Blaise Pascal nudged into Christianity. Hell
may not exist, said he, but the consequences of being wrong
about it - roasting in the infernal fires for all eternity
- are so bad, you're better off being a believer, even if
it turns out you're wrong.

A dollar crisis would be Hell on earth for most Americans.
The U.S. has reserves of only $137 billion, of which $90
billion is in gold. The Japanese spent more than that last
year alone - trying to hold up the dollar. In a few weeks,
U.S. reserves could be wiped out and the dollar could
collapse like... well, the Argentine austral.

We have nothing against banana republics, but America
doesn't have the weather for it.

When the crisis hits, our guess is that Americans will both
shiver and sweat. Barely able to afford oil from
Araby... and sweating their mortgage payments... they'll wish
they'd taken Pascal's wager, and set a few euros and gold
aside... just in case.

Here's more news, from Eric...

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

Eric Fry on the scene in New York...

- Happy Birthday, Bubble! Four years ago yesterday, the
Nasdaq Composite Index kissed its all-time high of 5,132.52
- a mere 158% above its current level... Four years ago
yesterday, stocks were absurdly expensive, yet most folks
could think of absolutely no reason NOT to buy them.
"Haven't stocks been rising for years?" they asked
themselves."Don't stocks always go up over the long run?"
they reasoned.

- Indeed, in March of 2000 the stock market had been rising
- more or less - for the previous 18 years. And, yes,
stocks do tend to go up over the long run. But over the
short run, the stock market - like the wind -"blows where
it pleases."

-"You hear [the wind's] sound," Jesus observed 2000 years
ago,"but you don't know where it comes from or where it is
going. So is everyone who is born of the spirit." Life in
the domain of"filthy mammon" is not so different. We may
observe the effects of the stock market's movements, but
still have no idea where it will blow next.

- For three years, Hurricane Nasdaq buffeted the complacent
capital, destroying much of the capital that stood
helplessly in its path. The Nasdaq's gale force winds
toppled many icons of the era, like Cisco Systems and
Lucent Technologies, which both fell more than 90%. The
Nasdaq itself dropped nearly 80%.

- Mercifully, the winds of destruction died down about one
year ago. And the balmy breezes of capital appreciation
have been blowing ever since. Investors have become relaxed
and complacent once again, which is just about the time
that gale force winds usually start kicking up on Wall
Street... Did you feel a gust yesterday, dear reader?

- The Dow Jones Industrial Average opened Wednesday's
session with small gains, but quickly reversed direction
and cascaded 160 points to 10,297. The Nasdaq Composite
Index also forfeited its early gains. After bouncing back
above the psychologically rewarding 2,000-level early on,
the tech-heavy index tumbled to a 31-point loss at 1,964.
The stock market's steep losses dropped the Dow and the
Nasdaq into the red for 2004. The S&P 500 still clings to a
1% gain for the year...

- Mother was right; you can't judge a book - or a trade
report - by its cover. America's trade deficit ballooned to
$43.1 billion in January. Judging from the report's cover,
a $43 billion trade deficit would seem to be a bad thing,
especially since the Federal Reserve and Treasury have been
destroying the dollar for the express purpose of NARROWING
the trade deficit.

- Therefore, on the surface of things, the ballooning trade
deficit would seem to be a scathing indictment of the Bush
Administration's de facto"weak dollar" policy. After all,
didn't President Bush, Alan Greenspan and Treasury
Secretary Snow all assure us that the road to an improving
trade deficit could be paved with devalued dollars? And
have they not been trying to pave such a road by dumping so
many newly minted dollars on the foreign exchange markets
that the U.S. currency has lost a third of its value over
the last two years?

- And still, the U.S. trade gap widened nearly 1% in
January to $43.1 billion - a new all-time record. Taking a
peak inside the report, we find that exports and imports
both fell in January, but exports fell more. Specifically,
January exports dropped 1.2% - the biggest decline since
last August. Curiously, the August edition U.S. dollar was
about 15% stronger than the January edition... and still the
trade gap worsened.

- Yesterday's news of the embarrassingly large trade
deficit would seem, on the surface of things, to have
presented an ideal occasion for investors to unload dollars
and to buy gold. (After all, if a weak dollar has not yet
wrought its intended magic, won't the Administration try to
engineer even more weakness?) Instead, investors scurried
to do the exact opposite.

- Presumably, the most motivated of yesterday's dollar-
buyers were those foreign central banks that have a multi-
billion dollar axe to grind. The Japanese Central Bank, for
example, in an effort to weaken the yen, has sold ¥10.5
trillion, or $95.3 billion, during the first two months of
the year. That's more than half of the annual record amount
spent last year to weaken the yen. Perhaps the Japanese
Central Bank was busily scooping up unwanted dollars again
yesterday.

- On the surface of things, a 30% devaluation of the dollar
over 24 months would seem sufficient to BEGIN correcting
our nettlesome trade imbalances. But the evidence-to-date
argues to the contrary. Nevertheless, up on Capitol Hill,
overt policy failure is never reason enough to discontinue
a failing policy. In fact, the dollar devaluation campaign
is twice a failure.

- Isn't the weak dollar supposed to boost job growth here
at home, while narrowing our trade deficit overseas? But
neither one is happening. In February, the average length
of joblessness rose to 20.3 weeks, the longest since
January 1984.

- As Sen. John Kerry quipped after last week's dismal jobs
report,"At this rate the Bush administration won't create
its first job for more than 10 years." We suspect a Kerry
Administration would not have any better luck creating
jobs, unless it encouraged the kinds of economic behavior
that lead to long-term prosperity.

- Here's a thought: Maybe devaluing the dollar isn't such a
great idea after all. And here's a related thought: If we
wish to boost exports and add jobs, maybe we should make
more of the things that the rest of the world wants to
buy...

- Just a thought.

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

Bill Bonner back, now, in London...

*** Oh là là... the top seems to be in. The great bear
market rally of 2003-2004 seems have run its course. The
Dow fell sharply yesterday and now is in losing territory
for the year... along with the Nasdaq.

*** GDP numbers seem to mislead everyone. The numbers
themselves are silent. They do not say whether they measure
production or consumption... that is, the rate at which one
gets rich or the pace at which he races to the poorhouse.
But the world loves humbug... and no people love it more
than Americans. They think they are getting rich... and rush
to spend their new fortunes before they've even been
created.

*** Here comes news of suspected coup attempt in Equatorial
Guinea - a country so Godforsaken that that even God
himself has probably forgotten where He put it. But we turn
to our handy Atlas and find that it is in a particularly
dark corner of the Dark Continent. Until recently, that
is... when the country began pumping oil in large
quantities.

Apparently, a group of mercenaries from South Africa were
on their way to take over the country when their plane was
delayed by the gendarmes of Zimbabwe. African dictators
look out for each other, so the one now in charge of
Zimbabwe put the cuffs on the South Africans and signaled
his indignation that anyone would have the bad taste to try
to knock off one of his buddies, who had staged his own
coup back in 1979 and has been torturing people ever since.

There's something so refreshing about seizing power by
force. It is the old-fashioned politics - simple and pure,
with neither the conceits of ideology nor the props of the
ballot box, just honest, naked government with its
corruptions out in the open for all to see.

*** Are you codependent, dear reader? Do you have repressed
memories? Does the Rorschach inkblot test show you hate
your mother? Are you the victim of sexual
addiction... caused, perhaps, by some critical incident? Or
maybe you are plagued by multiple personalities?

Well, get over it. You're nothing but a cringing, weak-
minded, self-absorbed psycho-hypochondriac, trying to
explain away your slimy shortcomings in clinical terms. At
least, that's what we make of an article in the New York
Times. Most of these syndromes are just faddish poppycock,
say a group of academic psychologists.

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

The Daily Reckoning PRESENTS: Wall Street fraught with
fraud, criminals and miscreants?"So what!" says Extreme
Values' Dan Ferris. Sometimes there's money to be made in
the wreckage...


THE VALUE OF GARBAGE
By Dan Ferris

It certainly pays to invest in quality businesses.

The S&P 500 index includes some of the greatest business
enterprises ever created: Microsoft, ExxonMobil, Wal-Mart.
All the big names are there.

Those 500 big names earned investors an average of 28.7% in
2003, an excellent one-year return. Many 401(k) plans
invest in the S&P 500 index. So a vast number of investors
did well investing in those companies that most people
agree are the safest places for your money...

.. but you could have made twice as much money last year
simply by focusing on those companies that failed
miserably. Some of them actually turned out to be staffed
by criminals!

That's not a typo error. I just said that the worst
failures, the companies run by the most devious managers,
made investors twice as much money in 2003 as the most
successful businesses, run by the most capable managers. If
you break out the top 10, 20, or 30 stocks in the S&P 500,
the results are similar. The worst businesses made more
money for investors than the most successful businesses.

The stocks I'm talking about are the components of an index
called the Feds Index. The equity investment department at
Guardian Life Insurance Company created the Feds Index.
It's a list of several companies that are under
investigation by the federal government and/or the
Securities Exchange Commission for possible wrongdoing.

The Feds Index contains stocks like Tyco, formerly headed
by the now infamous Dennis Kozlowski. Also in the Fed Index
are El Paso, HealthSouth, Qwest, Symbol Technologies and
Computer Associates.

HealthSouth, for example, was down 98% while under
investigation for accounting fraud. But it staged a
miraculous 5,365% comeback. It's still rising, even though
the size of its fraud has been raised from $2.7 billion to
as high as $4.6 billion.

The Feds Index doesn't have a monopoly on these stocks.
There were plenty of companies that did lousy last year and
made plenty of money for investors. Williams Cos. fell as
low as 78 cents a share in the post-Enron energy meltdown.
It had to sell billions of dollars worth of valuable
natural gas assets to survive. Within a year, it had
climbed as high as $9.

AmeriCredit Corporation, the company that buys sub-prime
car loans, fell as low as $1.55. Management got its act
together and it's now at around $19.

The reason why lousy companies bring you great returns is
simple. Since nobody wants to own them, their share prices
get far cheaper than those of the popular, successful
companies most investors want to buy.

Right now is an especially good time to focus on the
losers. A year-long rally has pushed many stocks up so that
they're either overvalued or simply no longer cheap. There
isn't much worth buying today, except the failures and
criminals.

To find the next Gateway, HealthSouth or Williams Cos., set
your favorite stock screener to find"meltdowns." Look for
companies trading at huge discounts to book value. There
are a several insurance companies out there that fit this
bill. Insurance premiums have been up the past two years,
after falling for two decades. I found one that has taken
its share of licks in Hurricane Andrew and again on 9/11.
It's still below my maximum buy price today.

Besides big discounts to book value, you can usually set a
stock screener to show you all the stocks that have fallen
by a given amount during the last 52 weeks. Look for those
that have fallen at least 50%. Remember, you want the
worst, not the best.

One caveat: You'll want to be careful once you start
looking for companies that have failed in some way. You'll
find some real garbage, including companies that have
declared bankruptcy. They have a letter 'Q' on the end of
their trading symbol. Oglebay Norton, for example, now
trades under the symbol OGLEQ. Gadzooks is now GADZQ.
Ignore the bankruptcies and move on.

Focus your efforts on finding the beaten down companies
that have enough money and/or net assets to survive. If you
do that, I think you'll do much better over the next year
or so than the vast majority of investors.


Regards,

Dan Ferris
for The Daily Reckoning

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gesamter Thread:

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          • Das ist sehr schade - also Dank Dir herzlich für das bisherige. Gruss (o.Text) - Tofir, 15.03.2004, 00:15
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