THE EURO - AT LAST

verfasst von Standing Bear, 07.01.2002, 20:03

THE EURO - AT LAST

THE DAILY RECKONING

PARIS, FRANCE

MONDAY, 7 JANUARY 2002

* * * * * * * * * * * * * * * * * * * * * * * * * * *

***"A house is not an ATM"...but who's checking?...

*** Cisco at 70 times earnings!... (trotzdem sind zweistellige Kursgewinne für dieses Jahr in Sicht, J.)

*** Why consumer confidence is irrelevant...the"eggnog"
effect...job losses...and more!

* * * * * * * * * * * * * * * * * * * * * * * * * * *

"A house is not an ATM," a headline in the Detroit
Free Press tells us. When people need cash, the article
explains, they turn to their houses...even if they don't
actually own one.

"I know you can buy a house and borrow 125% of its
price," says one hopeful debtor."Can you tell me how to
do that? I need the extra 25% to help pay my loans."

All across America,"serial refinancing," has
become not merely a way of paying for breakfast, but of
lunch and dinner too. As home prices rise, people rush
to"unlock" the equity. Pity the poor man who doesn't
have a house. He has to actually earn his money!

And now comes word that the friendly people at
Fannie Mae are making it even easier to get themselves
too deeply in debt."Fannie Mae quietly permitting some
houses to go without appraisal," says a headline in the
San Jose Mercury News.

As the quantity of reckless lending increases, of
course, the quality decreases. In the 3rd quarter of last
year, the percentage of FHA loans more than 30 days
behind jumped to 11.36% - the highest level since they
began keeping track. (Fannie Mae etc. putten...)

But let's turn to Wall Street, where all the news
is good news, all the time. Eric:

(By the way, Eric will be hosting CNNMoney this week...
which means, you can catch him diligently plying his
trade from 9:30am - 11:30am every morning by tuning into
CNNfn on your TV set.)

*****

Eric Fry fresh from the Big Apple...

- It's only January, and already Alan Greenspan is
busily crafting a spectacular new entrant for the Macy's
Thanksgiving Day Parade. His stupendous"Stock Market
Bubble" is sure to wow the crowds lining the parade
route as it floats along Broadway. But honestly, Alan,
you might want to pace yourself...that bubble of yours
is pretty darn big already...

- He's done it folks! Greenspan has successfully re-
inflated a busted stock market bubble. Sure, the current
bubble isn't quite"as good as new," but it's not too
shabby. Consider the signs: the giddy CNBC talking heads
are breathlessly gushing phrases like"powerful
momentum," while the bears are fretting as much as ever
about"a bubble of colossal proportions."

- The stock market itself provides some of the very
strongest evidence that something more than a run-of-
the-mill bull market is in the works. On average, Cisco,
Intel and Sun Microsystems sell for more than 70 times
hoped for 2002 earnings! That's a combined $438 billion
worth of some very expensive stock.

-"There is a lot of anticipation in this [tech stock]
rally," says Kevin Landis, the accomplished technology
investor who heads up Firsthand Funds."If the economic
turnaround turns out to the vapor, then the rally will
make a U-turn." He reminds us that tech stocks enjoyed
red-hot rallies in both January and April of last year.
"[But] they were both head fakes," he laments.

- Last week, the NASDAQ Composite gained 3.6% to 2,059,
while the Dow advanced 1.2% to 10,260. The stock market
is rallying, the bulls earnestly explain, because it
"senses" an imminent economic revival. For this feat
too, Greenspan receives plaudits and accolades.

- Creating stock market rallies might be Greenspan's
bread and butter, but from time to time, he can also
turn around this big ol' economy of ours.

- Just like a small rudder directs a massive ship,
Greenspan's little interest rate steers our economy
wherever he wishes it to go...or something like that.
Right now, it's"full steam ahead" to the land of
perpetual prosperity.

- We know that the course Greenspan sets is true because
consumers are"confident" once again, and as Wall
Street's dimestore economists tell us over and over, a
confident consumer is all that is required to guarantee
safe passage to economic growth.

-"Keeping up consumer confidence is regarded as the
most important task of policymakers," Kurt Richebacher
observes."The state of the consumer's finances and the
source of his spending are hardly considered."

- Richebacher does consider them, of course, and that's
why he insists"A V-shaped recovery of the U.S. economy
is absolutely impossible as far as the eye can see."

- Furthermore, the idea that surveys of broad public
sentiment could be helpful in assessing the economic
outlook is laughable, scoffs Richebacher. Consumers are
simply in no shape to lead a sustainable economic
advance, no matter what they say.

see: The Inevitable Crash Landing of The U.S. Economy
http://www.agora-inc.com/reports/RCLF/SpecialReport/

- The recently reported jump in the consumer confidence
index stemmed largely from a big jump in the"future
expectations" component. (hatten wir schon mal) The"present conditions" index
remained virtually unchanged. Bridgewater associates
terms this divergence the"Eggnog Effect." That's
because the December reading for future expectations is
about three times higher on average than in any other
month of the year."In general people tend to be a
little more cheerful in December," says Bridgewater.

- Interestingly, their data show that January and
February future expectations readings are typically
among the worst of any other month. Would it be any
great surprise if the pattern were to hold true this
year?

- Certainly, the consumer does not lack for reasons to
feel less confident, once the Eggnog Effect wears off.
No matter what the future expectations may anticipate,
unemployment in the here and now keeps rising.

- The Department of Labor reported"only" 124,000 jobs
lost in December. But the number is weaker than it
appears. First of all, the creation of 63,000 government
jobs during the month made the overall number look
somewhat prettier than it would otherwise have been.

- The private sector lost 187,000 jobs in December.
What's more, the recently revised numbers for November
showed 40,000 more jobs lost than were originally
reported.

- Not to worry. A few interest rate cuts and a great big
stock market rally and we'll have this economy thing all
fixed-up in no time.


*****

Back in Paris (after the Christmas vacation...)

*** Hey, what's this?"Oil prices rocket," says the BBC.
Silver has just hit an 11-month high. Lead is at a new
high too. What kind of deflation is this? More below...

*** Public companies went bankrupt last year at a record
pace...255 firms filed for court protection.

*** Can you really make money by selling cars at deep
discount? Apparently not. Ford is expected to show its
first annual loss since '92. GM will report a profit for
'01, but mostly from financing cars...and even that is
in jeopardy. Cheap loans and incentives drew in many
marginal buyers last year. Now, the loans are going bad.


* * * * * * * * * * * * * * * * * * * * * * * * *

THE EURO - AT LAST
by Bill Bonner


We have euros in our wallets now. Nearly half a century
in the making, you can buy anything you want with them.
Even a little bit of monetary security.

"Let's see, you gave me 4 coats...and you want to pay in
euros," said the woman tending the cloakroom at the
Champs Elysees theatre last night."Oh my, that must be
7 euros. No, 7.5 euros. No, 6.5...Oh I don't know...
It's 50 francs!"

If nothing else, the euro is improving Europe's math
skills. (wenigstens etwas....) Every transaction involves long division or
multiplication.

"That's not very much," said Edward, 8, when I switched
his allowance to euros."I'd rather have francs. I got
more of them."

Edward's math skills are weak. So is his understanding
of monetary economics. He thinks more currency is
better. But then, so does Alan Greenspan.

Here at the Daily Reckoning office in Paris, we
preferred francs. Our French isn't good enough to
pronounce"euro" correctly. Each time we try, waiters
run for the English-language menus and clerks insist on
talking to us in an English that is as bad as our
French.

But apart from the language problem, we're beginning to
like the new currency. Especially the 500 euro bills.

With less than half an inch of paper, you could carry
enough currency to buy a new Mercedes or spend a summer
in Europe. Drug dealers, we predict, will not be loyal
to the $100 bill. They will find the new 500 euro note
useful for conducting business. (noch ein Vorteil, der Geschäft zurück bringt.) Others - perhaps the
silent majority - will find it useful for preserving
their assets.

Reflecting on the future of paper money, the average
shopkeeper in Dusseldorf, as well as the hedge fund
manager in Manhattan, will find in the euro a way to
protect himself from America's debt problem.

American consumers doubled their debt in the 1990s. So
did American businesses. Bankruptcies for both groups
are hitting new records.

The money for America's spending spree came from
overseas. America's trade with the rest of the world has
become lopsided - about a billion dollars out of balance
every day. That is the measure of the difference between
what Americans buy from overseas and what they sell.
This huge gap wouldn't have been possible had not the
foreigners decided to send the money back to America...
buying stocks and bonds in huge quantity. Over the
years, this is how more than $2.5 trillion worth of U.S.
obligations has ended up in foreign hands.

We have no less faith in the Fed and Congress than we
have in drug dealers. Neither will steadfastly defend
the dollar. Already the Fed seems to be doing all it can
to reduce the dollar's value - increasing the supply of
dollars at many times the growth rate of GDP. And why
not? People seem to want more of them.

Besides, the U.S is the world's largest debtor. It also
controls the value of the currency in which those debts
are measured. America will, we predict, meet an
irresistible temptation: to pay down its loans with
cheaper money than it borrowed. (Was sonst?)

All paper currencies, sooner or later, end up in the
trash bin. But while the euro dallies, the dollar seems
to be headed to destruction with a greater sense of
urgency:

* While America runs a huge trade deficit, Europe's
trade position is positive.

* While America's economy is in recession, Euroland is
still growing, though slowly.

* While Americans have billions in credit card debt;
Europeans don't even have credit cards. (Manch Vorurteil hält sich aber sehr lange. Der Unterschied ist einfach, daß meine Karte monatlich abgerechnet wird uns sich die Schulden nicht wie bei Amerikanern anhäufen)

* While America's central bankers are quick to cut
rates, Europe's central bankers are reluctant to do
anything.

* While Americans take out more and more"home equity,"
sometimes without even an appraisal, Europe's lenders
are typically very cautious and conservative.

The inflation rate in Europe is only half the U.S. rate.
Productivity growth, meanwhile, is higher in Europe.
Stock prices are only about half as high (in P/E terms)
in Europe as in America. Plus, earnings tend to be
understated in Europe and overstated in America. (breit hier diskutiert als EBITDA, pro-forma etc...)

Even Alan Greenspan admires the euro:

"There can be little doubt that the euro is a sound
currency," said the Fed custodian of the dollar,
speaking of his competition."The mandate of the
European Central Bank to maintain a stable purchasing
power for the currency is doubtless firmer than that of
the Federal reserve or any other major central bank."

The ECB has no reason to want to drive down the value of
the euro. Its temptation is towards stability. If the
currency rises too high...or sinks too low...member
nations might forsake it.

Of the dollar, on the other hand, it was often said:"it
has no competition." It will be interesting to see what
happens to it now that it has some.

Your correspondent in Euroland...

Bill Bonner



<center>

<HR>

</center>

Thread gesperrt

 

gesamter Thread:

• THE EURO - AT LAST - Standing Bear, 07.01.2002, 20:03
  • Re: THE EURO - AT LAST / Immer wieder nett (auch deine Kommentare), thx (owT) - JüKü, 07.01.2002, 20:53