* * * * * * * * * * * * 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.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Faith in the System
The Daily Reckoning
London, England
Thursday, November 18, 2004
---------------------
*** A new low for the dollar... it's getting more expensive
everyday...
*** The ultimate anti-paper... overheated printing
presses... a bad moon's a-rising...
*** Bugs, beware... Can anything stop The Great American
consuming Machine?... questioning our "moral values"... and
more!
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Last night, we had dinner at Chez Gerrard's - a nice
restaurant, but not a fancy one. The bill, including only a
single bottle of wine, was 130 pounds, or about $200. But
so delighted was your editor with his companions, he would
have gladly paid it twice.
We dined with our daughter Maria and two of her aspiring
actress friends - one from Ireland, the other from
Australia, both beautiful and charming.
"London is so expensive. I have to be very careful what I
spend," said one. "My dad sends me money. We're Australian.
But my dad is an engineer. He invented a communications
chip that makes WiFi connections go faster. I don't
understand how it works. But when he invented it, it
increased the speed by 46,000 times or something like. So
he sold the little company he had to Cisco. We actually
went to live in Palo Alto for a while. But he kept his
money in Cisco stock. Which means it's kind of in dollars.
The stock went way down. And now the dollar's going down
too... "
The dollar hit a new low yesterday. You would need more
than 1.3 of them to buy a single euro. In London, Americans
cringe every time a waiter brings the check. A meal that
would cost between $20 and $30 in the U.S. easily costs $50
in London... and it's getting more expensive every day.
Americans don't typically worry about the dollar. They earn
their money in dollars and pay their expenses in the same
coin of the same realm. But everyday they grow poorer.
Because in the eyes of the rest of the world, they earn
less... and what they own is worth less than it was the day
before.
But what can you do?
The trick is earning money in euros, pounds or kroner...
but spend it in dollars. You could, for example, buy a high
yielding British utility paying more than 5% yield. Just
don't come to London to spend your dividends.
Likewise, the best way to protect your capital is to move
it out of dollar-based investments. But since all central
banks seem to be competing to destroy their own paper
currencies - lest they lose the competitive advantage of
having low-priced exports... and since U.S. deficits have
the curious effect of inciting foreigners to print even
more of their own currency... there is no sure way to know
which paper will go bad the quickest.
But when the dollar goes down, it must go down against
something. Most likely, it goes down against gold, the
ultimate anti-paper... nature's anti-dollar... the real
money to which investors tend to turn when the printing
presses overheat.
Gold rose to a new high for this cycle yesterday - $445 an
ounce.
"I'm betting that there is a correction in gold before it
goes much higher," warns colleague Dan Denning. Too many
people are long gold and short the dollar."
We hoping he's right. We'd like another opportunity to buy
gold below $400. Six months ago, we thought we'd already
seen the last of $400 gold. Maybe now, we really have.
But even better than gold, says our friend, and "Investment
biker," Jim Rogers, is commodities. "No country has ever
gotten itself into this kind of debt situation has ever in
history gotten out without a crisis or a semi-crisis," says
Rogers. The crisis is likely to cause investors to lose
faith in U.S. stocks, bonds and the dollar. Instead, they
will want real assets - such as commodities and gold.
Commodities are typically quoted in dollars. As the dollar
weakens, commodities go up. But there's something else
pushing up commodity prices. Buy cotton, sugar and coffee,
says Rogers, because they are selling at historically low
prices, and because demand - particularly from Asia - is
growing rapidly. According to Rogers, commodities
themselves, the companies that produce them, and the
countries that export them will be big winners in the years
ahead.
More news, from our friends at The Rude Awakening:
--------------
Eric Fry, reporting from bustling Wall Street...
"And as the knee-bone is connected to the thighbone, the
bond market is connected to the financial stock sector. If
therefore, the bond market is limping, financial stocks
could easily stumble. And if the financials stumble, the
entire stock market might well break a leg."
To learn about how you can escape being injured in the
stock market, check out today's issue of
The Rude Awakening
http://www.dailyreckoning.com/body_headline.cfm?id=4275
--------------
Bill Bonner, back in London:
*** Gold comes in from the cold... we just received this
note from Dan Denning in London...
"There was a hot IPO on Wall Street today... in the gold
sector! The long-awaited gold ETF is finally here. Each
share represents 1/10th of an ounce of gold, and punters
can trade them just like the stock of a hot new technology
company!
"Bugs Beware: It could be a classic contrarian sell signal
in the short term... just when the crowd can get in, you
see a top."
*** Our old friend Gary North sends this note:
"Says the BSE of India:
The total market cap of the BSE Index as of April 2004 was
$226 billion.
Says the NYSE:
The combined market value of eBay Inc., Google Inc., Yahoo
Inc., Yahoo Japan Corp. and Amazon.com Inc. was more than
230 billion last week.
I'd rather own India."
*** The Dow rose again yesterday, on news that Kmart and
Sears are getting together. Can anything stop the Great
American Consuming machine?
Yes, something can. Inflation? Producer prices recently had
their biggest increase in 14 years. Yesterday's CPI
announcement had prices up 0.6% in October - a far bigger
increase than economists had hoped for.
What else? Falling dollar? Consumer saving? Stock crash?
What will happen, we do not know. But something will
happen. What, when, how - The Daily Reckoning is on the
story. [Ed. Note: James Boric is also on the story, but
unlike Bill, James is looking to profit from the short-term
swings. And this system works! 16 out of his last 18 trades
were winners!
Click here to learn James' secret:
The Keys to Wealth
http://www.agora-inc.com/reports/MST/liverb07
*** "Dad... it bothers me the way the other kids in school
talk about America. I'm an American, after all. And they
say that the country is really going crazy now that Bush
has been elected for another term... that we're going to
attack other countries... and that most Americans thought
it was okay to shoot those Iraqi prisoners... and that
they're going to arrest doctors who perform abortions and
try them for murder. They say that the Christian
fundamentalists are acting like Puritans at the Salem Witch
trials and things like that. I don't really keep up with
the news. And I don't like Bush either, but I can't believe
they're right about America... It's not true, is it?"
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---------------------
The Daily Reckoning PRESENTS: If you think that all
investors were met with financial ruin in the Great Crash
of '29, think again. Irwin Greenstein tells the story of a
man who developed a financial strategy that was so
airtight; he escaped the crash without even a bruise. Read
on...
Faith in the System
by Irwin Greenstein
Born and raised on a New England dirt farm, this young man
went on to become the greatest stock trader ever - and one
of the most despised men of his time.
He lived through two of America's most horrible stock
crashes - making millions in a single day, as others jumped
from windows to escape financial ruin. At times, he
controlled the entire American economy from his posh New
York office. He was blamed for the great crash of 1929. He
survived death threats and kidnapping plots - on several
occasions.
His name was Jesse Livermore. And in 1940, he killed
himself with a .32 caliber pistol in a New York City
hotel.
In 1891, at the age of 14, Livermore arrived in Boston on
the back of a horse-drawn wagon. He had nothing to his name
except a five-dollar bill that his mother had slipped him -
against the will of his father, who argued that the boy
should stay put and work the plow.
But his father never understood his son's knack for numbers
.. a God-given gift that would be the source of his
fortune. As luck would have it, the wagon stopped in front
of the Paine Webber office. Livermore marched in and asked
for a job. It just so happened that one of the chalkboard
boys (who posted the results of the ticker on giant
blackboards) didn't show up for work that day. Livermore
got a job immediately.
Suddenly immersed in the wild action of trading stocks,
Livermore gradually began to realize that the market had a
life of its own. And he was bent on trying to figure it
out.
Night after night, after a grueling day at work, he went
back to his dingy boarding-house room. He would furiously
enter notes and trends in a diary... trying to decipher the
market's patterns. During those lonely years, two
realizations formed his entire trading philosophy ... and
would make him one of world's richest men.
The first realization was that he had to become a student
of the market. He had to commit himself to an ongoing
education ... not only of the market dynamics, but also of
the personality flaws that caused people to make fatal
trading errors. The other realization was that he needed a
system - a set of self-imposed rules that would govern his
life as a trader.
His belief in a system arose from his detailed observations
that the stock market had an inherent logic ... and that
it was only through logic that a trader could beat it - and
make a real killing.
Two years into his self-education, Livermore felt confident
enough to test his trading theories. The problem was he
didn't have a stake - a wad of cash that he could use to
start trading. Like other poor men at the time who sought
their riches in the stock market, Livermore headed straight
for the notorious bucket shops of Boston.
Operated by gangsters, bucket shops attracted stock
gamblers like moths to a flame. That was because guys who
were broke and desperate could open accounts and trade for
a slim margin - usually ten cents on the dollar. So with
fifty cents you could invest five dollars. And if you lost,
the bucket shop kept the proceeds. With house odds of
95-to-1, most men met financial ruin. Except for
Livermore.
Armed with his system, Livermore knew he could beat the
house. And that's exactly what he did. Time after time,
Livermore bet on stocks and won. In fact he won so often he
was banned by the bucket shops in Boston. Shut out, he
decided to put his skills to the ultimate test. He went to
Wall Street.
In New York, he quickly made a fortune... but lost it when
he strayed from his system. He was forced to return to the
buck shops to rebuild his stake. Since he was banned in
Boston, he went to St. Louis and then New Haven. Finally,
he was ready to return to Wall Street to make another
killing.
In the summer of 1929, Livermore's extensive analysis of
the market pointed to a disastrous downturn. He just didn't
know exactly when it would happen. He started shorting the
market, his positions growing increasingly larger as Wall
Street collapsed around him. The results were amazing...
While millions of people waited in soup-kitchen lines, he
made a staggering $100 million during the Great Crash of
`29.
The millions of investors who had lost everything
complained about Livermore. People started questioning how
he made so much money, while they ended up destitute. Even
The New York Times blamed him directly for the tragic
crash. Death threats came directly to his phone line - and
he took them head on, talking his way out of them.
After his $100 million windfall, Livermore lost his passion
for trading - and with it his fortune. No one could
understand why - not even himself. It wasn't until his
legacy had been chronicled that experts understood he had
been suffering from clinical depression. But at the time
there was only way out for him... a .32 caliber slug to the
brain.
It was the same, magnificent brain that had developed one
of the most successful trading systems ever.
Like most great concepts, Livermore's incredible system was
simplicity itself. It involved market timing (knowing when
to get in and out), quickly cutting losses, anticipating
trends and optimizing the market's momentum (up or down).
Livermore was the first trader to actually demonstrate that
both a commitment to market understanding, and a bona fide
trading system were the keys to making millions in the
stock market. And although Livermore is dead, his ideas
live on to form the cornerstone of modern stock trading
principles.
Regards,
Irwin Greenstein
for The Daily Reckoning
P.S. Like most great concepts, Livermore's incredible
system was simplicity itself. It involved market timing
(knowing when to get in and out), quickly cutting losses,
anticipating trends and optimizing the market's momentum
(up or down).
As it turns out, the MST Trader System, developed
exclusively by leading small-cap stock expert, James Boric,
utilize these core-trading criteria. The MST Trader System
helps make winning trades consistently and safely - just
like Livermore's system did in the early 1900s. There's
only one catch...
Boric's system may actually be better!
To learn about the system that was built to work, day in
and day out, no matter which way the markets are heading,
click here:
A Sure-fire System
http://www.agora-inc.com/reports/MST/liverb07
Editor's Note: Irwin comes to Penny Sleuth after spending
15 years in Silicon Valley as an award-winning journalist
and media-relations expert. As a journalist, Irwin's job
opened doors that were almost impossible for others to pass
through. He gained privileged access to the brilliant
executives who revolutionized the way we work, learn and
shop. But Irwin knew that the way to build true wealth was
to work for the companies that he reported on - while they
were tiny. That's when he became a media-relations guru for
highflying Silicon Valley startups... collaborating with
the visionary CEOs who made millions for themselves and
their investors.
Irwin has worked with countless small-cap companies in
Silicon Valley. He knows what makes them tick. He knows
what a good company needs to succeed. And he also knows
what pitfalls to avoid as a small-cap investor.
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---------------------
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