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* * * * * * * * * * * * REMINDER * * * * * * * * * * * * *
On the days that I don't publish, like today, you 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
reinforce each other.
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Getting The Story Straight
THE DAILY RECKONING
LONDON, ENGLAND
WEDNESDAY, 14 NOVEMBER 2001
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*** Dow advances to seize post-bubble high...Cisco at 95
times estimated 2002 earnings. What a great opportunity
in the stock market - an opportunity to GET OUT!
*** No news is good news...
*** Sales in full retreat...a cash McCall...airplane
glue...London property prices...and more!
* * * * * * * * * * * * * * * * * * * * * * * * *
"KABUL FALLS!"
The tabloid headline caught my eye as I got off
the train from Paris yesterday. Today's papers give more
details. The Taliban is on the run. We don't know about
the war against terrorism, but the war against the
government of Afghanistan seems to be going well. Kabul
is still in the hands of murderous fanatics, but at
least for the present, they are taking our money and
doing our bidding.
Unlike WWI, Vietnam, the Soviets in Afghanistan,
or the War on Drugs...this could be a war with a
successful conclusion, if not exactly a happy ending.
Then again, while markets surprise investors, over
and over, in the same old way....wars have a way of
surprising people in ways no one be can anticipate. Here
at the Daily Reckoning we have no more idea what course
the war may take than anyone else....but we will rest
easier when it is over.
Eric, how did Wall Street take the news?
*****
Eric Fry in Manhattan...
- My, how our little rally has grown up! He's gotten so
big! The US stock market has enjoyed a very substantial
"growth spurt" since September 21st. Nothing can stop it
- not deranged, cave-dwelling terrorists; not
potentially fatal first-class mail; and not punk
corporate earnings. Despite it all, the Nasdaq has
soared an astonishing 33% from its late September lows.
- Yesterday, the Dow rallied 197 points to 9,751 - a
decisive 146 points above its September 10th close of
9,605. The Nasdaq surged nearly 3% to 1,892 and now
stands more than 11% above its pre-Attack level.
- Like an upwardly mobile Yuppie, the market seems to
gather more "friends" the higher it climbs. But Fred
Hickey, editor out of The High Tech Strategist, is not
one of them. He predicts the rally's days are numbered.
- Underlying his prediction is a little something he
calls the "no-news" cycle. "I suspect that the current
rally is not quite over," Hickey writes. "The market
needs to suck in more victims for the next leg down.
While investor confidence is rebuilding, it isn't back
to the levels seen at past market tops. The current 'no
news' period is the perfect backdrop to drive optimism
higher.
- "Each quarter (13 weeks) can be broken up into three
distinct phases in which the news flow from companies
dramatically differs," Hickey explains. "The three
phases are the 'earnings reporting' period (for most
companies, the first week of October through late
October), the 'no news' period (late October to mid-
November) and the earnings of 'pre-announcement period'
(mid-November through the end of the quarter)."
- We are currently in the "no news" period. This void of
official company reports is usually a good time for Wall
Street to stoke all sorts of bullish rumors and hopes.
- True to form, the bulls are running wild on Wall
Street. Nearly every guest on CNBC yesterday dished up
heaping portions of bull-speak. "Ya gotta love the way
this market's acting," one forgettable analyst remarked.
Yeah, we love it alright. We just wish we loved what we
are seeing out in the real economy.
- To be sure, stocks can soar just as high as buyers
wish to carry them. But that doesn't mean that corporate
sales and earnings automatically follow along. Gap
shares climbed almost 5% yesterday. But Gap's sales and
earnings are heading south faster than the Taliban army.
What do investors see?
- The beleaguered retailer reported that its October
sales at stores open at least a year plunged 17% for the
second month in a row. Overall revenues fell 9%. Share
prices cannot ignore harsh realities forever, as much as
we might like them too. Either the realities improve, or
the share prices fall.
- Hickey expects the current rally to top out on or
about Thursday when Dell Computer reports its latest
earnings. Here's his theory in a nutshell: Hopeful
investors have been buying stocks like Dell for weeks
because they believe that the tech sector has touched
bottom. But as the "no news" period gives way to the
"pre-announcement period," investors will encounter more
than enough bad news to trigger a wave of selling.
- "There's really no polite way to say this without
offending people who've bid up Gateway 30% in November
alone," writes Igor Greenwald of Smartmoney.com. "So
here goes: Tech valuations are silly and getting
sillier."
- Silliest of all is the tendency of some investors to
chase after whatever stock or fund has already been
doing well, rather than trying to identify the
investment that WILL BE doing well.
- It is a time-honored truism on Wall Street that last
year's heroes are often next year's goats. Consider the
doleful tale of hot-shot mutual fund manager James D.
McCall. About two years ago, Merrill Lynch wooed Mr.
McCall away from Pilgrim Baxter. Merrill actually fought
Pilgrm Baxter in court for the right to get this guy.
(Talk about a Pyrrhic victory!)
- Merrill wasted no time raising $1 billion dollars for
their new wunderkind to manage, and McCall wasted no
time losing 80% of the money in his "Focus Twenty Fund."
So will McCall now focus on the 20% that remains?
Nah...he quit. And he took a fat severance package with
him.
- Too bad his investors can't quit and take a plump
severance package. Beware the bull market genius, my
friend.
*****
Back to London...
*** "Consumers Too Afraid to Spend," worries a NY POST
headline. The article, by John Crudele, warns that
consumer confidence polls reflect what people think they
should think....not what they really think. Consumer
confidence - even by these measures - is dropping
rapidly. According to a research outfit, G-7, if you
strip away the rosy flesh of patriotic duty - that is,
to voice optimism about the economy - you find a paler,
more fearful cautious consumer.
*** "Deflation Not Likely To Happen," says a headline on
"S.F. Gate" website.
*** "Economists say U.S. should be able to avoid
Japanese-style deflation," the article tells us,
"because U.S. leaders reacted to their slowing economy
much more quickly than Japanese leaders did."
*** Is that all there is to it? Is the whole secret to
managing an economy merely to cut rate quickly? Tune in
tomorrow as we pose the question again and attempt an
answer.
*** Diners were in high spirits at the Gay Hussar, a
Hungarian restaurant in North Soho last night. Britain
is an active partner in the war in Afghanistan. At a
table near ours, a group of real estate agents were
confident.
"Prices in London have been going up since 1993," they
said. "But they'll go up more. "
"It's the financial industry driving prices," they
explained. "London is one of three top financial centers
in the world....along with N.Y. and Tokyo. But Japan is
going downhill. And New York? Well, ask yourself....if
you were a hot-shot international investment banker...
where would you rather have your headquarters? Near what
used to be the World Trade Center....or in the City
[London's financial district]?"
"Waiter," said the middle-aged estate agent, gesturing
towards our table and obviously enjoying himself, "bring
these people all a round of omnium"
"Omnium" I asked. "What's omnium?"
"Don't tell them," said a young woman, with reddish
blond hair, thin lips, and a beautiful, Vanessa Redgrave
face.
"Don't smell it, just drink it straight down," she
advised us.
Ignoring her advice, I sniffed. It smelled like airplane
glue. Fortunately, I like airplane glue. So, I shot it
down.
"Whew, that was awful...."
"Yes, you have to chase it with wine to get the taste
out of your mouth," she explained.
"Thanks a lot..."
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The Daily Reckoning Presents: a public service effort to
sort out "who's on first" in the battle to win the
hearts and minds of the people...
GETTING THE STORY STRAIGHT
by Addison Wiggin
"How do I respond when I see that in some Islamic
countries there is vitriolic hatred for America? I'll
tell you how I respond: I'm amazed. I just can't believe
it, because I know how good we are."
George W. Bush,
last week in a quote now rapidly finding its way around
the Internet...
No question, the assault on the World Trade Center was
an abomination - a human "evil" - as President Bush is
fond of repeating. But after the dust has settled, the
issues that made little sense before September 11th, have
resurfaced - and continue to confound. And so support
for the war, reports The Economist, is waning.
In Britain polls show those in favor falling from three
quarters to two thirds. What's more, four out of ten
British Muslims think the Al Queda's attacks were
justified. Some have trekked out to the Kush to join
hands - or run away - with the Taliban.
In France support has dropped to less than half... in
Germany and Italy a majority want the war to end.
That support is waning among former allies - and is
gaining with at least one former enemy, Russia, is to
say the least, ironic.
Irony, the meddling staff at the Daily Reckoning has oft
noted, is a near dead art form. In fact, soon after the
attacks, Roger Rosenblatt declared to the world via an
article in Time magazine that "The Age of Irony" had
come to an end. Irony doesn't fit neatly into a sound
bite... or satiate the desire for revenge against an
enemy unseen.
The Age of Irony, we think, is more likely "in denial".
The US public - facing a deepening recession and an
uncertain war - simply doesn't have the patience for it.
Yet, there's so much irony in the news these days, we
can't possibly resist the temptation to sort it out.
Eric Margolis, writing on Foreign Correspondent.com,
takes a crack at it, reminding us in "The Bad Guys Where
Turbans: A Quick Guide To Afghan Politics" that...
The Taliban are the "BAD Afghans. These dour 11th
century rustics wear turbans, dont shave, and
cover up their womenfolk. They have defied the US
by refusing to hand over guest Osama bin Laden, a
national hero of the war against the Soviets.
Nations that defy Uncle Sam et carpet bombed.
"These wicked Talibs run a state based on Islamic
law, an outrage in our modern age except, of
course, in the case of Israel, whose people say
they were given their nation by GOD, and thats
GOOD, except for troublemaking local inhabitants,
called Palestinians, who are terrorists and BAD.
George Bush says he draws instruction from the
bible, and this is GOOD, but when Talibans Mullah
Omar follows the Koran, thats EVIL.
Oh... and "the Northern Alliance are GOOD Afghans,
even though they run the opium trade and are led
by war criminals. They make nice parades and vow
to crush the Taliban - provided the US does most
of the fighting. Their arms come from Russia,
their money from the CIA. You can easily spot them
because they wear baggy Iranian uniforms and caps,
not turbans. [One thing] They cover up their
women, just like those insensitive Taliban
brutes."
Margolis also reminds us that Pakistan is GOOD...
although on September 10th, they were BAD. Israel is also
GOOD, and trying like the dickens to get "US 'crusaders'
to go B-52 Iraq, Lebanon, Libya, Yemen, Syria and Iran."
The US is GOOD, too..."minding its own business, totally
innocent victim of evil Islamic-Nazi forces, according
to the well-read Bush, a former business partner of the
Bin Laden family." Excepting, too, US "involvement" in
Syria in 1949; Egypt in 1952; Iran in 1953 and 1980;
Iraq in 1958, 1980, 1991, 1996; Lebanon in 1958, 1983;
Libya in 1983, 1986; Kuwait & Saudi Arabia in 1991; The
Sudan & Afghanistan in 1998...
Whew... tough work, this irony.
But perhaps the biggest twist of all... the ultimate
benefactor in the story may turn out to be... uh, Russia
- the original "enemy in Afghanistan" who stirred up the
whole nest of hornets in the first place, with the
Soviet Invasion in 1979.
Still, before we get to that part of the story we need
to understand what exactly the US has been doing "over
there" all this time.
"After 1945," suggests Adam Young, attempting to explain
U.S. interests in the region for the Mises Institute,
"the U.S. schemed to eject the bankrupt British and
French colonial empires in the Middle East-to elbow out
Soviet influence, but, more likely, to secure political
control over its oil..."
The interdependent network of political, monetary, and
military relationships - known by some as America's Oil
Raj - mirrors Britain's collection of territories and
petty kingdoms on the Indian subcontinent. And suggests
Young, "consists of the old imposed artificial colonial
client states created by Britain and France."
Margolis points out, "in nearly every decade since the
mid-fifties, a president of the United States has faced
a challenge of a Muslim peril, an Arab or Muslim
bogeyman that is everywhere and nowhere-Nasser, Khomeni,
Khadafy, Saddam... and, now, bin Laden.
"Every time, the results have been the same: U.S.
demonizes this single man, only to watch him grow into a
popular hero of the Arab masses-the Arabic or Islamic
David that dares to stand up and confront the U.S. oil
dominion over the Arab world and the economic and
political distortion that the US leaves in its wake."
And lest we forget, in order to keep a hold on the Oil
Raj - the U.S. now maintains trade sanctions on Iran,
Iraq, Syria, Yemen, Libya, Algeria, the Sudan,
Afghanistan, and, until recently, India and Pakistan -
some of the poorest places in the world.
Meanwhile, with US mucking about in countries bordering
almost the entire length of former Soviet Union's south
border, "Russia is eating into OPEC's dominance on the
world oil stage," says the DR Blue Team's Dan Denning.
"In the second quarter of this year," says Denning. "The
countries of the former Soviet Union beat out Saudi
Arabia for total oil production. As aging Russian
infrastructure has been built up, Russian production has
gone up 400,000 barrels per day, or 6%. And the country
expects production to increase again this year."
What's more, Russia sits on the world's largest reserve
of natural gas. Putin will be visiting Bush next week at
his Crawford, Texas ranch, after which you might expect
to see a flush of new Western investment in Russia.
"It could almost be the old times," writes the
Economist. "America's president meets his Russian
counterpart for a summit to discuss missile defenses,
tallies nuclear warheads and the need to avoid unnerving
instability between the world's two biggest nuclear
powers." But this time the story has twisted to the
surreal...
"Russia," the Economist continues, could "soon find
itself increasingly attractive as a non-OPEC supplier,
and 20 years from now, as the European Union expands,
could end up controlling the taps of well over half of
Europe's gas."
Hmmmn...
Addison Wiggin,
for The Daily Reckoning
P.S. The largest natural gas company in the world - can
be had for under $10 a share. It's conveniently located
in (where else?) Russia. It's also a component in the DR
Blue Team investment strategy. For more information,
please click here:
Mean New World
http://www.agora-inc.com/reports/STRT/LiveForToday
Addison Wiggin is the managing editor of The Daily
Reckoning. Mr. Wiggin is also the author of The Weekend
Edition - a weekly wrap-up of contrarian investment
analysis distributed by e-mail Saturdays.
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