* * * * * * * * * * * * REMINDER * * * * * * * * * * * * *
On the days that I don't publish, like today, you will
receive Bill Bonner's DAILY RECKONING. This will help you
to keep pace with the changes in the markets. Bonner and
I agree on most things in the field of economics, so the
two letters will reinforce each other.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
The Liberty Dollar
The Daily Reckoning
Paris, France
Thursday, September 16, 2004
---------------------
*** Hard Money Week continues... a monetary architect
speaks...
*** The poor chumps will be disappointed: A word from
Richard Russell...
*** The clergy... clam farming... a woman in her 80s and
more!
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---------------------
Tim gave us a study of real returns in English stocks going
back 300 years. What it shows is that the idea of getting
rich by being �in the market� is a fraud - just as we have
been saying. Most of the 20-year investment periods
produced real returns of less than 2%. Only one time - the
stretch of 1980-1999 - gave investors more than 8%... with
the next best more than 100 years earlier, and that still
not returning more than 4%.
In other words, the last 20 years of the 20th century were
a freak - an outlier... a �fat tail,� as statisticians call
it. Of all the two-decade periods since 1700, it was the
only one when an investor could have made serious money on
appreciating equity values alone. Yet this anomaly misled
an entire generation. Today, most investors under the age
of 60 believe they need no longer work hard, save their
money, or invent something new; it is enough just to �buy
and hold� and they will get rich.
Yet even in the 21st century, you still can't get something
for nothing.
So what CAN you do... in the real world... where real
returns rarely exceed 4%?
The secret is �compounding,� says old-timer Richard
Russell. It means taking advantage of the relatively modest
gains, but doing so over a very long period of time.
Russell refers to an extraordinary study by Market Logic,
of Fort Lauderdale, Fla., showing the advantage of
beginning early. Assume an investor opens an IRA, at age
19. For the next seven years, he puts, say, $2,000 each
year in the account. But he stops after seven years and
puts not another farthing in the account after the age of
26.
At that time, his friend gets the idea and begins putting
his money into his own IRA. He puts in the same amount as
his friend. But he continues for the next 39 years - until
both are 65 years old. The first has put only $14,000 into
his account. The second has put in $80,000.
Who has more money? Incredibly, no matter what rate of
return you use, it is the first man - the one who has
contributed less - who comes out ahead.
Neither man is getting something for nothing. Both are
being paid for the use of their money. But the man who
started first is paid more. His account always has more
money in it, and he is paid more for giving it up for a
longer period.
Lesson: Aim for the highest, safest yield you can find.
Begin as soon as possible.
And now, the news from Eric Fry:
---------------------
- �The VIX spells doom!� warns Bryan Bottarelli, our
colleague at the WaveStrength Market Report.
- The VIX (not to be confused with the �Zax� in the Dr.
Seuss classic about two creatures in the �prairie of Prax�)
is the CBOE's volatility index. It represents the implied
market volatility of a basket of widely traded options on
the S&P 500 Index. As we have been noting over the last few
days, low VIX readings reflect an unhealthy lack of fear
among the lumpeninvestoriat. And whenever the lumps become
too complacent about the possibility of losing money, Mr.
Market usually takes it upon himself to reacquaint them
with the concept of lost capital.
- The VIX dropped to an eight-year low of 13.17 on Monday,
before bouncing a bit over the last two days. Yesterday�s
modest stock market sell-off triggered a slight uptick in
the VIX reading to 14.64. Even so, the VIX has registered
only five up days over the last 20 trading sessions.
- �To most investors,� says Bottarelli, �this would signal
the threat of a decisive market downturn. But some market
analysts are advising readers NOT to be concerned. I'm not
sure this is the best approach to take. Granted, I would
have figured on more downside selling pressure than we've
witnessed recently. But I'm sure not about to jump on the
bullish bandwagon here... �
- The Dow dropped 87 points yesterday, to 10,231, while the
Nasdaq slipped nearly 1%, to 1,897. The dollar headed in
the opposite direction, gaining nearly 1% against the euro,
to $1.2156 versus the currency-by-committee.
- Semiconductor stocks retreated for the first day in five,
as the SOX index fell more than 3%. This beleaguered
bellwether of the technology sector had managed a sparkling
11% rally from its recent lows. But the fleeting semi stock
rally - like the �smart lad� in AE Housman�s �To An Athlete
Dying Young� - met with an untimely demise. Long-suffering
chip stock investors may do well to recall the poet�s
words, �early though the laurel grows / It withers quicker
than the rose.�
- The semiconductor sector�s laurel wreaths withered a very
long time ago, and the sector has been pushing up roses
ever since. Intermittent short-term rallies are likely. But
resurrection is unlikely. Sustainable rallies usually
require sustainable earnings growth from the constituent
members of said rally, and sustainable earnings growth has
been notably absent from most parts of the technology
sector. Overcapacity and punkish demand is the problem,
says Fred Hickey, editor of the habitually bearish
High-Tech Strategist.
- He offers a similarly dire analysis of several other
high-tech gismos - flat-panel displays, cell phones and
semiconductors, to name a few. Hickey warns, for example,
that two-thirds of all the wireless phones sold worldwide
this year will be replacement units. Since consumers tend
to upgrade their mobile phones only about once every three
to four years, he reasons, "a slowdown is coming."
- Technology investors had "better find Noah's Ark," says
Hickey, because they�re about to be hit by a deluge of
negative earnings warnings "over the next 40 days and 40
nights."
- Meanwhile, during the last 40 days and 40 nights, a trio
of hurricanes has been crimping America�s oil and gasoline
supply lines in the Gulf of Mexico. No supertanker is so
super that it may sail unscathed through 160 mph winds. Oil
production and shipping has all but shut down in the Gulf,
which supports about 25% of the nation�s crude oil
production and about half of all energy product imports.
- This big knot in the supply chain manifests itself in
yesterday�s surprising inventory numbers from the
Department of Energy. �What a shock,� gasped Kevin Kerr,
contributing editor to Outstanding Investments, as he
examined yesterday�s inventory report. �Analysts had
expected crude supplies for the week would be down about a
million barrels. Instead the numbers showed a
7�million-barrel drawdown! This is terrible news for the
refiners, who will be backed up and unable to make more
unleaded - which, by the way, also dropped by 1.6
million.�
- The 7.1 million-barrel drop reduced crude supplies to
their lowest level since late February. Inventories have
now fallen for seven straight weeks. Hurricane Ivan�s
menacing presence in the Gulf all but guarantees that
inventories will drop sharply again next week. Oil can�t
get through right now, which means that gasoline won�t be
coming out of the nation�s southern refineries. Yesterday
afternoon, the nation�s third-largest U.S. oil refiner,
Valero Energy Corp., shut down its Krotz Springs refinery
in Louisiana because of a lack of crude oil.
- But don�t worry, folks. OPEC promises - like Popeye�s
buddy Wimpy - that it would gladly supply next month all of
the crude oil we can�t get this month. �The Organization of
Petroleum Exporting Countries, source of more than a third
of the world�s oil, agreed to boost quotas by 3.8%,�
Bloomberg News announced yesterday. �The target will
increase by 1 million barrels to 27 million a day, as of
November 1... The [new] total will be the highest on record
for the 10 members outside of Iraq, which has no limit.�
- The only problem with this ruse is that OPEC is already
producing about 1.5 million barrels a day more than the old
quotas. In other words, OPEC is already running full-out to
supply oil to an insatiably thirsty world. Hiking the quota
is merely �eye candy,� says one energy analyst, �since
every OPEC member with the exception of Saudi Arabia is
already producing at capacity."
- But oil investors seemed to take OPEC�s pledge at face
value, as crude for October delivery fell 81 cents
yesterday, to $43.58 a barrel on the New York Mercantile
Exchange.
- Score one for the oil bears, but we would advise betting
against the oil bulls. Save that bet for the stock market
bulls.
---------------------
Bill Bonner, back in Paris...
*** Richard Russell remembers when investors had a very
different attitude. "They wanted yield... dividends... " he
wrote recently. "No one believed stock prices would ever go
up again."
But that was at the end of the '70s - just before gold hit
a record $850 per ounce and a BusinessWeek cover famously
announced "The Death of Equities." Russell saw a turn
coming and urged his readers to buy shares; they were so
cheap at the time many offered dividend yields of 7% or 8%.
A few months later, gold began a 20-year collapse. And
equities? Stocks headed for the stars; investors, staring
at the moon too long, went lunatic, expecting 10%-or-better
returns forever.
The poor chumps will be disappointed.
Russell offers four rules for them for when they finally
come to their senses:
Rule #1: Compounding. Take advantage of the best safe
yields you can find. Then, stick with them. Compounding is
the "royal road to riches," he says. And yes, it is boring.
But it pays off.
Rule #2: Don't lose money. Sounds obvious. But if you
gamble on stocks or flaky business deals, you will
eventually lose your money. Since the real secret of
getting rich is compounding small gains over a long period
of time, a big loss forces you back years... older people,
he warns, don't have time to recover from a loss.
Rule #3: Invest like a rich man. Rich men are not under
pressure. They don't try to �get rich quick� - they're
already rich. So they can take their time... waiting for
the best investments to come along... and allowing compound
interest to do its magic.
Rule #4: Buy values. Asset prices move in great, long
patterns - up and down - says Russell. Don't be in a hurry.
Wait until they have become so cheap that you get a lot for
your money. Then, you will be able to get high yields that
you can compound into a fortune... plus, your assets are
likely to rise in price as the wave moves forward.
*** A Daily Reckoner writes:
I thought I would also tell you that I am a clergyman. Our
dear clergyman you wrote about who told you to have more
faith and all would be well is, I think, misguided.
It would serve us all well, in this instance, if we had
faith in something that was sure and dependable. Having
faith in the U.S. economy is like having faith playing
Russian roulette and saying, "If you have faith, you will
always get the empty chamber."
Well, you guys are right on your view of the economy. I say
"the ship is sinking," and if my fellow clergyman wants to
go down with the ship, that's his prerogative. However, I
want to be with you guys in the lifeboat!
*** And another:
Just to tell that I am also a man of faith but I am not in
Pastor Nordberg's camp - I believe in telling the truth as
it is.
People generally do not like to hear the truth, because the
truth hurts! We prefer to listen to lies. Of course, there
are those who love listening to the truth; but only until
it starts to expose the condition of their hearts.
*** And still another - a loyal, clam-farming reader from
Olympia, Wash...
In keeping with the comments from the 20-year-old reader in
Monday's Daily Reckoning, as well as the comments by the
clergyman in today's letter, let me say this. It's obvious
that you are challenged by some of the meatier investment
theories that abound. Just this morning, I saw a renowned
economist speaking to Matt Lauer about the consequences of
Ivan if it hits the United States as a Category 5
hurricane. The economist pointed out that the LONG-TERM
economic consequences of a hurricane can be quite
beneficial."
*** Our 20-something correspondent seems to have stirred
several readers:
I laughed with glee while reading the letter from �a woman
reader - in her 20s.� I have thought most of the things
that young woman wrote. I am a woman reader in her 80s.
I am not as confident as she is that our current economy is
sound; nor am I as sure as you and your other writers that
we are on the very brink of disaster. I have lived long
enough, however, to keep my eyes and ears open, and your
opinions are one source of caution.
What the young woman failed to mention was the proclivity
of you and your male writers to denigrate females, by what
you apparently think are humorous references to the women
in your lives. It isn't funny, but it certainly reveals a
lot about your male egos.
Having said all of the above, I am interested to know if
Agora Publishing is a publicly traded company and if I can
buy shares in it.
EDITOR'S REBUTTAL
Now, hold on. We cannot recall writing a single comment
denigrating females. We write every day to denigrate men,
not women... except when women act in a manly way. We
recognize that women are superior in every respect that
counts - smarter, more dependable, better organized, better
to look at. Some of our best friends are women.
We don't know any man who is not a fool and a bumbler. But
women? Well, we just don't know what they are. We don't
know what they think or how they work. But every woman we
ever met has had us wrapped around her little finger...
just where we wanted to be.
As to your question, no, Agora is not publicly traded. It
is not even privately traded. And even if it were, we would
only recommend it as a short sale.
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---------------------
The Daily Reckoning PRESENTS: Hard Money Week! Our third
monetary architect in a row. Bernard is a tireless promoter
of sound currency and spends most of his waking life on the
road, crisscrossing the country. He�s even come to visit us
at the Baltimore HQ before!
THE LIBERTY DOLLAR
by Bernard von NotHaus
We all know that the dollar doesn�t buy what it used to.
But few people know that in 2001, the purchasing power of
the U.S. dollar was only 4 cents compared to the 1913
dollar - the year the Federal Reserve was created.
This fact is not election year hot air; it comes from the
U.S. Department of Labor Statistics. Few people also know
that the U.S. federal debt was �only� $6 trillion in 2001,
according to the U.S. Department of the Treasury. Fewer
people know that at the beginning of this year - in only
three short years - the national debt was over $7 trillion
dollars and the purchasing power of the dollar had dropped
to about 2 cents. And worse, in the past three months, the
U.S. government has added an alarming half a trillion
dollars to our money supply.
A half of a trillion dollars, from where? Based on what? Of
course, based on debt, as that is the sole basis of the
U.S. dollar. In a world where our government has no
monetary discipline, are they free to create money out of
nothing? No, they create it out of debt, by further
indebting the people - you and me.
So how much is the U.S. dollar worth today? Who knows? But
it�s got to be less than the proverbial �two cents.� The
real concern is what happens as the purchasing power nears
zero. And if that is too esoteric for you, then at least
the speed of the dollar�s decline should be a major
concern.
But few people seem aware. And only a handful of people
(most of them Liberty Dollar users) even question the
government when it says there is virtually no inflation!
How can that be, when the price of gasoline is double and a
Happy Meal at McDonald�s is almost $5? Simple: The
government has removed energy and food from its inflation
index.
Hello, is anyone listening? Are you concerned yet? We all
should be concerned. In 1919, immediately following the
First World War, Germany was held responsible and agreed to
pay massive reparations to the European powers. But they
had no money, so they decided to pay in paper money. In
January 1919, one ounce of silver cost 12 German marks.
Four short years later, on November 7, the day that Hitler
jumped on a table in a beer hall in Munich and shouted �The
revolution has begun,� the same ounce of silver cost a
whopping 543 billion marks!
The people who had moved their money (value) to the U.S.
dollar, Swiss franc, to the proverbial wheelbarrow that
they used to haul their money in, or anything of value,
were protected. They had positioned themselves to profit
when the money crashed.
I don�t know if we can trust the government figures, but I
know we can trust history, because neither man nor his
government has changed. I know we need to protect ourselves
because the government will not protect us. How can I be so
absolutely sure? Because they can�t. They and their
undisciplined money are the problem.
Of course, buying silver like Buffett, Gates and Soros is
good for everyone, just like it was in pre-Nazi Germany.
And again, silver�s bull market will be much, much better
than gold�s, just as it was in 1979-80 when it appreciated
10 times, while gold only doubled.
So what is the solution to the very real prospect of a
monetary meltdown? How in the world can we head off such a
climatic end to the American Experiment? While consumers
should protect themselves with silver, that will do nothing
for our great country or the rest of the world that now
holds U.S. dollars as its �reserve� currency.
Likewise, businesses need to think about protecting their
customer base in addition to their business, for without
customers, there is not much business. We, the people of
America, need to think of protecting our constitutional
government from itself as much as protecting our money.
Enter the American Liberty Dollar. When one first hears
about the new gold and silver currency, it is often a
mixture of interest and surprise. A new, private,
free-market, inflation-proof American dollar? Well now,
that is a head-turning idea.
The Liberty Dollar is much more than an idea. It has a
six-year track record and is available in specie, paper and
digital form. It offers a simple, peaceful, voluntary
solution to a monetary meltdown that only the most astute
Americans are aware of. Just like FedEx brought competition
to the government�s post office and it improved noticeably,
the Liberty Dollar is doing the same thing: bringing
competition to the Federal Reserve�s money by providing a
value-backed currency that retains its purchasing power,
and may very well appreciate during inflation, or an
outright monetary meltdown.
The Liberty Dollar brings free enterprise to the creation
of money by distributing the new currency at a discount to
its face value. That�s right, at a discount. But it�s not
some funny money: The Liberty Dollar is 100% gold and
silver backed and �redeemable by the bearer on demand� from
an independent warehouse that itself is independently
audited. And because its �unit of accounting� functions on
a one-to-one basis with the U.S. dollar in the
all-important marketplace, its early performance has been
head-turning.
Since its introduction on October 1, 1998, there are
already millions of Liberty Dollars in circulation with
over 100,000 people set to preserve their purchasing power,
and even profit as inflation picks up. And with the Federal
Reserve starting to raise its interest rates as inflation
concerns brew, the Liberty Dollar may prove to be just as
profitable for its users as Federal Express was for Fred
Smith.
Regards,
Bernard von NotHaus
for The Daily Reckoning
P.S. The Liberty Dollar has been acknowledged to be legal
by the U.S. Treasury, Secret Service and even the Federal
Reserve. Now is the best time to protect some of your money
- as well as profit - by joining this growing monetary
movement �to return America to value - one dollar at a
time.�
Editor�s Note: Bernard von NotHaus is a monetary architect.
He has served in this capacity since 1998 at NORFED, a
nonprofit free enterprise corporation that distributes the
Liberty Dollar.
Bernard recently retired from 25 years of service as the
Mintmaster at the Royal Hawaiian Mint.
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------------------------------------------------------
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