* * * * * * * * * * * * 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. * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
How Do You Like Them Apples? The Daily Reckoning Paris, France Monday, November 15, 2004 --------------------- *** Disappearing into No-Man's Land... mass thinking requires less thought... *** Well, how did I get here?... the tragedy and comedy of it all... the contrarian's choice... *** It's finally getting interesting... the sick man of Europe... Americans go incognito - as Canadians... and more! --------------------- You have a clear choice, dear reader. This is an election where you get what you deserve, not what your idiot neighbor deserves. This is a war where you can you can go AWOL without get court-martialed. Stocks are rising. So is gold. Take your pick. If you think the Bush/Greenspan program of spending, debt and war will work - buy some defense stocks. Or just buy the S&P. The great mass of investors are voting for stocks... (and houses). They're like poor soldiers, in the trenches, fixing bayonets and preparing to go "over the top" into No-Man's Land. Most of them will be casualties. But the masses much prefer the comfort of staying in ranks and doing what they are supposed to do rather than taking the risk of thinking for themselves. So much the better. That is the delicious thing about markets... the more people all think the same thing, the less people actually think at all. And the more people favor the same investment... the more bargains are left in other areas. Last night, we went with Jules to see the new Franco-American film, The Long Engagement. The poor French soldiers in World War I were dying by the millions. Stuck in the trenches, up to their knees in cold mud and water, many started to think. They must have wondered, "What the heck am I doing here?" The best thing that could happen to a soldier was to be wounded in just the right way. It had to be severe enough to take him out of the war... but not bad enough to kill him. Bullet wounds to the hand became popular. "You've got a ticket home," soldiers said to their friends who were lucky enough to get shot in the hand. Everyone was jealous of the man who go to go back to private life with his honor, his wits, and his body more or less intact. But after a while, anyone with a wounded hand was suspected of doing it himself. Doctors would inspect for powder burns. If they found evidence, the poor man would be executed. Then, inventive soldiers found they could get the enemy to inflict the wound, simply by holding a lit cigarette above the trench at night. But wars are tragic examples of collective action; the punishment for desertion is death. Markets, on the other hand, are comedies; you can say goodbye to the trenches at any time. When should you cut and run? It depends. Often the masses can be right for a very long time - as a trend gets underway and then is amplified. Generally, you would have done well simply buying stocks from 1975-2000. That you would do well for another 25 years seems very unlikely. You were better off taking leave of your friends in the late '90s... and getting into gold. Near the end of a long and popular trend, gold is the contrarian's choice. It is a way of saying, "I don't think is going to work out the way the masses expect. Count me out." In the late '90s gold sank below $260 an ounce... as the Dow headed over 12,000. This was the best possible moment to desert. It was an opportunity to make what we believed then (and still do) was the Trade of the Decade - sell stocks, buy gold. So far, this trade has gone very well. Gold has risen by almost 2/3. The Dow has fallen... but not remarkably so. Over the summer not much happened at all. Now it is getting more interesting. Both the Dow and Gold are rising. Most people still believe in stocks... in Greenspan... in Bush... in the great American consumer economy... in debt... and in the dollar. A much smaller, but growing, group wonders, "What the heck are we doing here?" It is getting out of the dollar... out of stocks... out of U.S. bonds (the trend is now down)... out of debt and even out of town. Where does it go? Into gold. Eventually, gold, too, will make a public spectacle of itself. People will buy it too late, and for the wrong reason - because it is going up. The price will climb above $500 per ounce... maybe to $1,000... or beyond. Then, we'll have another good chuckle as lumps line up to buy the stuff. But for now, people who are buying gold are still doing it for the right reason and at the right time. The slaughter of the innocents in stocks is still ahead. That will be a good time not to be in stocks. Owners of gold will be glad to be out of them... whatever gold's price. We'll stick with our Trade of the Decade... at least until it becomes popular. [Ed. Note: James Boric reported on Tuesday that small-cap stocks are set to outpace their large-cap peers for a fifth straight year. Over that time frame, the Russell 2000 has averaged a 7.41% return for small-cap investors, compared to an annual loss of 1.3% for large-cap investors who dumped their money into the S&P 500. Check out these five investment strategies, as used by the late, great Tweedy Brown, that have been proven successful for the last hundred years... http://www.agora-inc.com/reports/PNY/tweedyB18 More news, from our currency counselor: -------------- Chuck Butler, reporting from the Everbank trading desk in St. Louis... "There is one thing, though, that does separate me from all the other speakers in New Orleans... I'm much more conservative about the dollar then they all seem to be. I believe this is nothing more than a weak dollar trend that once China, Japan and the rest of Asia decide to allow their currencies to get stronger vs. the dollar, the deficit problem will begin to work itself out, and after a few years, all will be better." For more currency news, check out today's issue of The Daily Pfennig http://dailyreckoning.com/body_headline.cfm?id=4263 -------------- Bill Bonner, back in Paris... *** This weekend, we took a little jaunt down to Madrid. For much of the 20th century, Spain was considered the "sick man of Europe." While France and Germany boomed in the '60s and '70s, Spain remained such a backwater, that many thought the country was more properly seen as an outpost of Latin America rather than a part of Europe. But then came the end of the Franco regime, the European Union, and a great invasion of tourists and retirees. Spain is now one of the most dynamic countries in Europe. While Germany's property lost value over the last seven years, property prices in Spain rose as fast as those in America. In certain areas - such as Madrid, Barcelona, and coastal regions - prices have gone up even faster. Driving into Madrid from the airport, the first thing you notice are two big, lopsided modern buildings - one on each side of the road - that look like they might fall on the highway. Then, you are soon in a big, bustling city that bears little resemblance to the Franco years. Across from our office is a Rolls Royce dealer. Very fancy shops line the streets. Everything looks prosperous. "Everybody I talk to here seems to hate America," said a friend. "Well not hate, exactly. But they despise the Bush Administration. It has nothing to do - at least not directly - with the terrorist bombing in Madrid. The Spanish know a lot more about terrorism than Americans. They lived through a civil war in the '30s. And then terrorism from the Basques that went on for decades. They can live with terrorism. No, they just think that Bush is a na�ve and dangerous man." *** Meanwhile, back in England, the weekend paper has a story about Americans in London. After the Bush victory, say the Americans interviewed, the English seem to have become more hostile. Many report being mocked and challenged in pubs. One woman says she tells people she is Canadian. But if Americans are ill-treated anywhere in Europe, your editor has never noticed it. *** "Americans are afraid of terrorism," say the pollsters. The fear is so jacked up by the media, politicians and generals, it is to the point where the average man could see his house firebombed, his children abducted and his wife raped before his eyes. "Terrorists threaten our 'way of life'," said President Bush. "Terrorists put the U.S. Constitution at risk," added the Chairman of the Joint Chiefs of Staff. The actual risk of being a victim of terrorism is as remote as say, the risk of drowning in your own bathtub. You wonder why people get so worked up about it. Even in Israel, a person is 4 times as likely to die in a traffic accident as in a terrorist attack. To get the rest of the story, click here: A False Sense of Insecurity http://dailyreckoning.com/body_headline.cfm?id=4264&tp=a *** Addison Wiggin reporting from Beijing, China: "You can smell the opportunity here." We were riding in the back of a shuttle bus on our way to the Imperial Palace - 'the most expensive restaurant in Asia.' The gentleman, an American, sitting next to me was taking a whiff of Beijing for the first time. He was the CFO of an upstart firm who'd managed to get their hands on what could prove to be the largest field of natural gas in the world. We'd just finished our last day of meetings in China. The management team of a new Chinese steel firm was taking 22 of us out to lunch at the Imperial Palace... hence the shuttle bus. China, today, is like a case study in crowd behavior. A few days earlier, having just finished a tour of the hutong district in Beijing - a 700 year-old residential area - our group of investors was mobbed by vendors. Cheap trinkets... cashmere sweaters... silk scarves, you name it. Once a price gets set... every body jumps in and buys. Before we knew it, we had purchased a handful of silk bags. "What are these things?" we asked after walking away from the crowd. "We have no idea." Came the reply "but they're cheap." The same mentality pervades our meetings. In more than a few cases, people were jotting down investor relations phone numbers before even asking what the companies being presented sold or produced. As soon as they heard the entry price... they were in. "You can really smell the opportunity here," the gentleman sitting next to me on the bus said again under his breath... "Are you sure that isn't just smog?" we thought, under our breath. --- Advertisement --- Inherit $3.5 Billion Worth of America's Most Attractive Real Estate... And Get Paid for Owning It For less than $30, YOU can be just like a real estate tycoon -- and own some of the most attractive properties in America. But unlike a tycoon, you'll never have to visit it... manage it... or even pay property taxes on it. Best of all, you could multiply your money by as much as five times over the years ahead -- while adding rental income to your portfolio! http://www.agora-inc.com/reports/FST/catB03 --------------------- The Daily Reckoning PRESENTS: The Mogambo is feeling pretty despondent. Not only did he not win the recent presidential election, now he has to give us some very bad news. Could it be that he isn't going to win the Nobel Prize either? Read on... HOW DO YOU LIKE THEM APPLES? by The Mogambo Guru The Presidential election is all over, The Mogambo did not win, and my legal challenge went nowhere. Alas, and you can tell by the way I use that word that I have some bad news, the result was something else entirely, and it was due to the Mogambo Unknown Alternate Option (MUAO), which is my new theory that I hope will snag that elusive Nobel Prize, because to tell you the truth, I could really use the million dollar prize money that accompanies the award. And the reason that we could all use a few extra bucks is that our incomes, which you will notice have not actually gone down in raw dollars and cents, have nevertheless NOT kept pace with the rise in prices for the last five years in a row! Our incomes all went down in terms of buying power, and so we can only afford to buy less and less stuff! And if you want a Mogambo News Flash (MNF), I will tell you that as gloomy as this sounds, our incomes will not keep pace with prices for the next umpteen years in a row, either! How do you like THEM apples? As predicted, I see a number of hands shoot into the air, as the news media reporters all have a question, and this little guy stands up in the back of the room, and says, "Yes, I have a question, Mogambo! I have a three-part question. The first part is, are you aware that nobody pays any attention to you, and the second part of my question is, why don't you just shut the hell up? And the third part of my question is, does this have anything to do with the falling of the dollar?" My answer to the first part is yes, to the second part is because I don't want to, and you are not heavily armed enough to make me, and the third part is another yes. In fact, the dollar has fallen to new lows against other currencies, as the laughably incompetent buttheads at the horrid Federal Reserve with their stupid little economic theories that are always wrong, keep creating more and more credit and money to try and keep this malignant economy from imploding on itself. All that new money immediately devalues all the rest of the money. Thus, devalued money has less buying power. Which means that things will cost more. Which means you can buy less stuff. This is stuff you want to buy, things you could have bought, and things you would have bought, if your income had gone up, in dollars and cents, to offset the decline in buying power of each dollar. Which it didn't. And when considering the fact that a lot of what we buy are imports (i.e. oil), then a falling dollar means that either imports will cost more in dollars and cents, or foreigners will make less profits. When they exchange those dollars back into their local currency, they will end up with less foreign currency in their grubby little foreign hands. And then they have to go home and fight the rush-hour traffic, and by the time they get home they have a splitting headache. They are hardly inside the front door, when they realize, all they have to do it raise prices! And that is not the end of our troubles! Oh, no! Now I have to re-write that entire sentence to read, "And when considering the fact that a lot of what we buy are imports (i.e. oil), then a falling dollar means that either imports will cost more in dollars and cents, or... well, there is no other option." And now you ask me, "What is so bad about a falling dollar?" The answer is simple: Things cost more, and you don't have more money to pay the higher prices. And what's more, foreigners would have to be real morons to buy our debt, seeing as how they are guaranteed to get back less purchasing power than they paid for the debt! And you can say what you want about foreigners, but you just can't rely on them to be stupid, no matter how much it would benefit us Americans. Plenty of them are stupid, of course, just as there are plenty of Americans that are really stupid. You just can't RELY on them to be stupid and to keep being stupid. And this brings us to the Big Important News That Makes The Mogambo Very Nervous (BINTMTMVN): China is saying, with some increasing frequency, that it plans to "create a more flexible exchange-rate mechanism.'' This means that they will soon no longer support the dollar at the current peg to the Chinese yuan. This is in response to the idiots here in America and the International Monetary Fund, and lots of other idiots in lots of other places that think that altering the current the peg between the yuan and the dollar is a good thing (GT). It is not. It is a Bad Thing (BT), as you will soon see. And you don't have to listen to this idiot Mogambo, you can instead listen to Randall Forsyth, who writes this week's Up & Down Wall Street column for Barron's. Commenting on this exact same thing, he notes, "It should be remembered that most of the major market breaks have begun in the currency market, most recently in 1987." And if you take the time to go and look at charts of the market averages, you will notice that in 1987 it was very, very ugly, and when lines go sweeping down like that, they make my heart go boompa loompa loomp. And while you are there looking at this chart, take the time to look around, and notice that we are now near the top of a big, big rise in the market averages, and there is about to be a change in the currency market. A big, ugly change. A change that will not be to our advantage from the perspective that it will make things cost more. A lot more. It makes you think. And that makes you nervous. The idea that this is NOT a bad thing, but is instead a good thing, in case you are not all that up-to-speed on idiotic economic theories, is that a dollar that is more worthless will make our exports cheaper. Foreigners will say, "You mean I can buy a copy of Hot Naked Babes for a few of these worthless green scraps of paper you call 'dollars' which I can pick up by the basketful for peanuts? What a deal!" Now this cute little theory may be nice for some dinky little country whose entire economy is less than what we Americans spend on waxed paper per year. But we are a third of global GDP, and the cute little theory does not work anymore. The whole rest of the world is not big enough to buy even a tiny fraction of what we would need to export to get things into balance. For one thing, all those foreigners live in tiny little houses and they do not have nearly enough closet space to buy that many American products! Regards, The Mogambo Guru for The Daily Reckoning Editor's Note : Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter, an avocational exercise the better to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. If you're inclined to read more, you'll find the whole Mogambo here: Lost in a World of Stupidity http://dailyreckoning.com/body_headline.cfm?id=4265 --- Advertisement --- How a Pizza Boy From Chicago Turned $400 Into $200 Million... .. using a beginner's system anyone can learn By following this one simple trading rule, you could turn $5,000 into $2.5 million in 3 years See why great traders are made - not born: http://www.agora-inc.com/reports/RTA/tradeB05 ------------------------------------------------------ MAKE YOUR OPINIONS COUNT! Visit our Discussion Board at http://www.agora-inc.com/forums/index.cfm?cfapp=3 and submit your views or read what others are saying. Our writers and contributors also welcome your questions and comments. 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