THE POWER TO SAVE - Real Money Perspectives - Jun. 20, 2003
Wall Street advance, summer rally? warnings?... $357 gold -
"Rate cut to benefit gold" -CBS... Derivative bombs...
"Power to GET?"... Dollars to dimes -SAVAGE ... and more!
-----------------------------------------------------------
MARKET NEWS DIGEST
-More market analysts telling investors to sell - USA TODAY
-Economists: 'Stars Aligned' for Recovery - AP
-Gold's resolve may be ominous - CBS.MarketWatch.com
-Danger rife in accounting's black box - Reuters
-Derivatives: Financial Leverage Wrapped in Enigma - NY TIMES
-----------------------------------------------------------
COMMENTARY
-THE POWER TO SAVE - Craig R. Smith, CEO SATC
-INFLATION + DEFLATION = STAGFLATION - Bill Bonner, DR
-PREVENTING SPEED DEFLATION - The Mogambo Guru, DR
-REALITY INTRUDES ON EUPHORIA - Martin Wiess, PhD
-GET READY FOR WARNINGS - Justin Lahart, CNN/Money
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QUOTES OF THE WEEK
-----------------------------------------------------------
"There's a fight going on between the equity and bond markets,
the stock market is confident that the economy is going to turn
around. The bond market is shaking its head and saying, 'You
guys are up on vapors.' "
-ANDREW CLARK, Senior research analyst, Lipper Inc. (LA Times)
-----------------------------------------------------------
"What we really need today is [not more of 'the power to get'
but rather] more of the power to earn... more of the power
to save ... and more of the power to give -- all of which
are characteristics to people of vision...and of gold."
-CRAIG R. SMITH, CEO SATC (see below)
-----------------------------------------------------------
"Summer is at hand but don't count on the proverbial 'summer
rally' in the stock market. Sure, there's usually a rally
sometime during the summer, but that doesn't mean that summer
is a hot time for stocks. On average, it's not. That's why
there is an old stock market saying, 'Sell in May and go away.'
-JOHN DORFMAN, Bloomberg 6-19-03
quote.bloomberg.com
-----------------------------------------------------------
"Gold is the 'best kept secret' in investing, John Hathaway
declared, suggesting gold's five-year outperformance vs. the
S&P 500 is just the beginning of a long-term secular upswing
that could last as long as 20 years, judging by past cycles.
The bottom line is that Hathaway thinks gold can go to $1000
per ounce before its current bull move ends."
-AARON L. TASK, The Street.com, Fed Creating Golden Opportunity
-----------------------------------------------------------
"Gold's price is on the verge of staging a powerful summer
rally in all currencies, boosting bullion producers and
their more risky counterparts, exploration companies."
-THOM CALANDRA, CBSMarketWatch, 6/19/03
-----------------------------------------------------------
"THE Wall Street Journal is very confused. Here's what one
Journal story recently had to say about inflation: "Even Pat
Jackman, economist at the Bureau of Labor Statistics, which
calculates the official inflation rate, says the widely
reported numbers understate the rising cost of life from
one year to the next. The fact is, he says, 'more money
is coming out of your pocket.' " I've been crusading against
the way the government reports its inflation numbers for a
long time. This isn't just about some statisticians messing
around with digits to distort the truth. This is about
Washington cheating people out of money - Social Security
recipients, retirees whose annual increases are tied to the
inflation rate, people who invest in bonds. Lots of people.
And lots of money."
-JOHN CRUDELE, INFLATION? DEFLATION? EVEN THE JOURNAL'S CONFUSED
nypost.com -NY Post, 6/17/03
-----------------------------------------------------------
"We have been waiting and waiting for the economy to rebound,
and then something happens and things fall apart. But this
time we have a lot more stars coming into alignment."
-DIANE SWONK, chief economist, Bank One (see below)
-----------------------------------------------------------
"London, June 17 (Bloomberg) -- The dollar, which has lost
a fifth of its value against the euro in the past 12 months,
is more likely to fall in the coming year than either the
euro or the yen, a monthly survey of fund managers by
Merrill Lynch & Co. showed. A net 21 percent of those
questioned expect the U.S. currency to drop over the next
12 months, up from 13 percent in May, the Merrill survey
showed. Europe's common currency is seen gaining by a net
31 percent, down from 38 percent the previous month. A
net 10 percent see the yen dropping, down from 28 percent."
-BLOOMBERG NEWS, 6-17-03
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"One of these two financial markets - either the Nasdaq or
the bond market - would appear to "have it wrong." If the
US economy is on the rebound, interest rates should be
rising, not falling. On the other hand, if the economy is
still mired in a recessionary, deflationary bog, then the
stock market should be slumping, not soaring. Something
isn't right with this picture."
-ERIC FRY, Daily Reckoning, 6/11/03
-----------------------------------------------------------
"Capacity utilization is low at 74% and deteriorating. Initial
unemployment claims are high and rising as companies continue
to cut costs. The bubble of capital investment and personal
consumption has yet to be fully digested. Who needs a new
car or new computer these days? How many companies need a
new factory or office space? Excess capacity and intense
global competition should keep corporate profit margins
under pressure for quite some time."
-ROBERT MARCIN, TheStreet.com
[NOTE: Perhaps that's why JIM CRAMER, founder of TheStreet.com
and host of both radio and TV shows is "begging" his audience
to "take some of your money off the table and put it in cash
of cash equivalents." We might suggest gold as a good option.]
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"Every great fraud begins with wishful thinking and ends in
disgrace. Democracy, paper money, bull markets - all start
out well enough. People are restrained, at first, by
habits, memories and constitutions. But after a while,
these are as forgotten as parents, and the fun can begin.
Surely the Fed enjoyed issuing trillions of dollars...money
it created 'out of thin air'; it made Alan Greenspan the
most popular central banker since John Law. And almost
every Western democracy got a kick out of making promises
it couldn't keep."
-BILL BONNER, Daily Reckoning, 6/11/03
-----------------------------------------------------------
"There's nothing unprecedented about interest rates
beginning with the numbers 1, 2 or 3. They were the rule
rather than the exception in the days of the gold standard.
But, as far as I know, no rates such as those quoted today
ever appeared in a monetary system unballasted by gold
or silver."
-JAMES GRANT, Forbes 6/9/2003 (see below)
-----------------------------------------------------------
"With the end of the second quarter, it is time again for
companies that have sinned in the eyes of Wall Street to
kneel at their pews and confess their sins. They have not
earned enough, or hit their sales targets, and they truly
and humbly repent for that -- even though it was really the
fault of the economy, or SARS, or the weather."
-JUSTIN LAHART, CNN/Money (see below)
-----------------------------------------------------------
"Diversify, diversity, diversify. Nothing works better to
reduce risk than diversification. If you have a broadly
diversified portfolio suited to your situation that includes
domestic and international stocks, stocks with large, medium
and small caps, and possibly a range of bonds, you'll buffer
some of the market's day-to-day volatility. Mutual funds,
because they own a number of stocks and/or bonds, are an
easy way to diversify."
-LEWIS SCHIFF, Armchair Millionaire (CNNfn)
[Ed. Note: Notice that 'diversification' strategies rarely,
if ever include tangible assets, like gold ... pity ... read
SHEEP-WRECKED for a better definition of "diversify":
swissamerica.com]
-----------------------------------------------------------
"Fed Chairman Alan Greenspan recently told Congress, "The
soundness of a nation's currency is essential to the
soundness of its economy." In the days and weeks following,
the U.S. dollar's value dropped! Now I ask you, What does
a dollar buy you today? Well, about half of what it did in
the 60s, and about 1/10 of what it did in the 1920s. Gold,
on the other hand, has been as stable as the Rock of Gibralter,
and has withstood the test of monetary inflation...deflation
...whatever! For that reason alone, you should scramble to
your phone and call Swiss America at 1-800-289-2646. Don't
sit by and watch your dollars turn into dimes, call Swiss
America for the best tangible strategy on earth. Ask for
thier "2003 Gold Rush Kit" FREE to my listeners today!
Call 1-800-289-2646, because the destiny of a currency
will determine the destiny of a nation!"
-MICHAEL SAVAGE, The Savage Nation, 6-16-03
-----------------------------------------------------------
"We race down the road to monetary Hell with nowhere to turn
around. But what torments we will suffer on our journey we
do not know. Nor do we know when. We are perhaps at the
beginning of the end...or maybe at the end of the
beginning. But that there will be an end, as there was a
beginning, we have no doubt."
"Not that we particularly care. Because even though the
dollar is doomed, you, dear reader, are not. You can still
do what the Chinese government is doing - build up your own
stock of real money, GOLD - and watch the whole sorry
spectacle with a song in your heart and a trace of a smile
on your lips."
-BILL BONNER, The Talking Dead, 6-20-03
dailyreckoning.com
-----------------------------------------------------------
"THE NEW BARBARIANS tells the horrible story of the radical
Jihad movement within Islam, which incites children to
hatred, violence and killing. Movieguide® recommends that
you get a copy of THE NEW BARBARIANS and that you share
it with the adults in your church."
-DR. TED BAEHR, movieguide.org
-----------------------------------------------------------
"Eternal life is so much more than the reward we get after
this life is over and we go to heaven. Those who contend
that God is obligated to let everyone go to heaven are
overlooking the fact that people who don’t like to fellowship
with God wouldn’t like heaven. It is not a place of glorified
materialism. The issues there are not gold and ease."
-DUDLEY HALL, sclm.org
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MARKET NEWS DIGEST
-----------------------------------------------------------
More market analysts telling investors to sell - USA TODAY
By Matt Krantz, USA TODAY, June 18, 2003
During the bear market, Wall Street analysts could only say
"buy, buy, buy." But just when the market is finally rising,
analysts are dusting off the once taboo "sell" rating and
using it on more stocks.
On Tuesday, Merrill Lynch analyst Adam Quinton slapped a sell
rating on AT&T's shares, citing cutthroat competition and
sagging earnings. The sudden downgrade from "neutral" startled
AT&T investors, who knocked the stock down $1.01 to $20.05.
But Quinton's switch has broader implications: The AT&T
downgrade is a high-profile example of analysts' increasing
willingness to use sell ratings.
Now, 10.5% of the ratings from Wall Street firms are "sells,"
says Thomson First Call. That's well above the 2.7% level at
the same time last year and 0.9% in 1999, just before the
stock market crashed.
The $1.4 billion settlement between investment banks and
regulators forces Wall Street firms to eliminate conflicts
that can lead to tainted research. That's one reason sell
ratings may be up.
But rising sell ratings can also be a contrarian indicator.
Sell ratings are at their highest since 1987, which turned
out to be the market's bottom, says Mitch Zacks at Zacks
Investment Research.
usatoday.com
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Economists: 'Stars Aligned' for Recovery - AP
By MARTIN CRUTSINGER, AP Economics Writer, June 16, 2003
WASHINGTON -- For the past three years, the U.S. economy has
taken hits from the bursting stock market bubble, a recession
and terrorist attacks. Conditions now, finally, offer the
prospect of better growth over the last six months of the year.
Of course, forecasters acknowledge, they made similar
predictions in 2002 and 2001, and were proved wrong.
They now insist that new tax cuts, a weakened dollar, falling
interest rates and other positive forces seem to give their
latest optimistic forecast a better chance of becoming a
reality.
"We have been waiting and waiting for the economy to rebound,
and then something happens and things fall apart. But this
time we have a lot more stars coming into alignment," said
Diane Swonk, chief economist at Bank One in Chicago.
For one, manufacturing companies that have shed more than 2
million jobs over the past three years are starting to see
omens of better days. That is due in part to the weaker dollar,
which makes their products more competitive on foreign markets.
chicagotribune.com
-----------------------------------------------------------
Gold's resolve may be ominous - CBS.MarketWatch.com
By Peter Brimelow, June 16, 2003
NEW YORK (CBS.MW) -- Happy (equity) days are here again?
But gold is still suspiciously solid.
The stock market's fairly steady upward march since -- well,
March -- is tipping many market timers into bullishness, at
least according to their long-stated markers.
The Hulbert Stock Newsletter Sentiment Index shows that the
average equity exposure of the services monitored by the
Hulbert Financial Digest is 48.8 per cent -- positive, but
not as alarmingly euphoric as in early May, when it was
54.7 percent, up 74 points since March.
And in fact, the Dow did mark time before beginning a new
upward move this month.
Gold, by contrast, has been staggering since May.
But, as of Friday night, the Hulbert Gold Newsletter
Sentiment Index [HGNSI] shows an average exposure of 34.62
percent, stoically in the middle of its historic range.
The gold timers were equally indifferent, on average, to
bullion's dramatic drop early last week, or to its partial
recover late last week.
That's quite impressive.
How would it be possible for gold to go up in the context
of a sustained stock market rally?
One barbed explanation is offered by Investech's James Stack:
"Hellbent on avoiding a Japanese scenario (after Japan's
bubble burst in 1989), Alan Greenspan & Co. are driving
real interest rates, after inflation, deep into negative
territory. They're making it so unattractive to hold onto
cash that it's fueling a buying frenzy in any hard asset
-- including real estate, gold and stocks of US corporations.
This is not the kind of bull market which we find most
comfortable."
Stack has long been famous for his bearishness. Recently he
has become bullish. But he believes that strength nevertheless
may persist in gold, so "we may be increasing our allocation
in gold stocks (Newmont Mining) or a precious metals fund."
In other words, the stock market may go up... for a while.
But happy days may not necessarily last -- except perhaps
for gold.
cbs.marketwatch.com
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Danger rife in accounting's black box - Reuters
June 10, 2003, By Deepa Babington
NEW YORK, June 10 (Reuters) - Freddie Mac's accounting blowup
that brought down its entire top management team highlights
how the complexity of derivatives accounting can leave
investors clueless while opening the door for earnings
manipulation, analysts and accounting experts say.
In recent years, one of the biggest warnings on derivatives
has come from renowned investor Warren Buffett, who called
them "financial weapons of mass destruction" and pointed to
their "mind-boggling complexity."
Buffett sold almost all his $2.8 billion stake in Freddie
Mac in 2000, saying he didn't like the risks the company
was running.
reuters.com
-----------------------------------------------------------
Derivatives: Financial Leverage Wrapped in Enigma - NY TIMES
By DANIEL ALTMAN, NY Times
Procter & Gamble in 1994. Long-Term Capital Management in
1998. Enron in 2001. And now, perhaps, Freddie Mac.
The ruptures suffered by each of these companies have one
thing in common: some confusion on the part of directors,
managers, auditors, creditors or shareholders about how the
business dealt with the complex financial instruments known
as derivatives.
Derivatives are contracts based on the changeable value of
underlying securities, or other variables that can range
from interest rates and currencies to energy prices and
the weather. They can be used to reduce risk or to increase
it, and they have become a standard feature on big companies'
balance sheets. Yet understanding how they work, how to
account for them, and how they can affect the bottom line
of a business is not always straightforward.
FULL STORY:
nytimes.com
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COMMENTARY
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THE POWER TO SAVE - Craig R. Smith, CEO SATC
June 16, 2003
This past weekend, I did a little shopping with my wife
at Target. While at the checkout, I noticed a new slogan
that Target and Visa have cooked up together ...
"The Power To Get."
Is it true? Does credit/debt give you the power to get?
I suppose it's true, but does America need more of this
"power to get"?
Alan Greenspan and President Bush seem to think that,
without "the power to get" via lower interest rates
and tax credits, that this economic recovery is sunk.
Lawrence Capital Management notes in the last 19 quarters
total mortgage debt increased by $3 trillion (+58%). To
put this in perspective, prior to 1997, it took 13 years
to add $3 trillion in mortgage debt. Or, said another way,
before 1997, around $50 billion a quarter was being
borrowed against homes. Today the run rate is near $200
billion per quarter, or four times more. Household
borrowings now total $8.2 trillion in America and they
continue to grow at near double-digit rates.
And it's not just mortgage debt that's problematic...
According to the Federal Reserve Bank of St. Louis,
U.S. household consumer debt is up more than 12% from
last year. Debt service, as a percentage of disposable
income, is above 14%. Only twice in the last 25 years
has debt service taken as large a chunk of America's
income - and that's despite the lowest interest rates
in fifty years.
All of this new debt isn't creating new demand, just
look at capacity utilization. If businesses were spending
again, capacity utilization would be up. It's not. Across
the board in our economy, capacity utilization has fallen
from around 85-90% in 1985 to below 75% today, according
to the Board of Governors of the Federal Reserve System.
In the long term, debt restructuring does absolutely
nothing to improve America's economic fundamentals.
Lower interest rates aren't spurring new investment
or new demand. More debt only postpones the day of
reckoning.
"There's nothing unprecedented about interest rates
beginning with the numbers 1, 2 or 3. They were the rule
rather than the exception in the days of the gold standard.
But, as far as I know, no rates such as those quoted today
ever appeared in a monetary system unballasted by gold
or silver." - James Grant, Forbes 6/9/2003
Just say no to debt - unless it's short term only. Instead,
what we really need today is more of the power to earn...
more of the power to save ... and more of the power to give
-- all of which are characteristics to people of vision...
and of gold ownership.
FULL STORY: CONSUMING DEBT
true-wealth.com
Read more from the Craig R. Smith Archives about ...
**NEW** SUMMER RALLY IN GOLD, NOT STOCKS! - 6/19/03
swissamerica.com
ROAD MAP TO PEACE = FINANCIAL WAR! - 6/13/03
swissamerica.com
SHEEP-WRECKED - 6/10/03
swissamerica.com
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INFLATION + DEFLATION = STAGFLATION - Bill Bonner, DR
June 17, 2003
Debt levels in the U.S. are at all-time highs. Why is this
deflationary? Because the more you owe, the more interest
you have to pay...which reduces your spending power. And
because you eventually need to pay down your
debt...(especially if you're trying to prepare for
retirement). This is why inflation always leads to
deflation.
But on the other hand, never have there been so many people
so determined to prevent it. Bernanke, Bush, Greenspan,
Snow...McTeer...Poole...and all the Fed governors...have
proclaimed that if there is deflation, 'it will be over our
dead bodies.'
Which is all right with us.
We see creeping deflation ahead...even if it is opposed by
every single Fed governor, every hack at the Treasury
department, all the ships at sea and all the saints in
heaven.
Then again, we see inflation, too. Maybe not so much now as
later...and not so much creeping as galloping. So there you
have a prediction. And one that didn't cost you a penny: we
predict both inflation and deflation. We have been
unwilling to cut an arm off with a penknife to free
ourselves from the apparent contradiction. Caught in this
Promethean crack, we await the vultures...
dailyreckoning.com
** WHAT HAS SWISS AMERICA TO SAY ABOUT STAGLATION:
STAGFLATION ALERT: JUNE 2003
swissamerica.com
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PREVENTING SPEED DEFLATION - The Mogambo Guru, DR
June 16, 3003
Good news.
I finally have an exact quote from Alan Greenspan as to
what in the heck he thinks this deflation thing is; this
horrible bugbear that is clogging up his mind so much that
he cannot even think clearly.
Here it is: "Corrosive deflation, that is a deflation that
essentially feeds on itself, creates falling asset prices,
which in turn bring down levels of economic activity
through the wealth effect, contracting profit margins and a
type of weakness which we all at least theoretically
conclude is far more of a concern than inflation."
Right. This apparently means, as Greenspan has said, he
cannot see a bubble, either as it is forming or after it
has formed, and therefore does not fear a bubble in
anything, but that as soon as that bubble-that-cannot-be-
seen starts to deflate and bring down those overvalued
asset prices to some semblance of normal value, THAT is the
exact moment that he finally decides to spring into action
and do something about the bubble-that-previously-could-
not-be-seen-but-is-now-seen. Namely, keep it inflated!
But that is only half of it. Starting to get animated in my
seat and punching the keyboard with more than the usual
amount of thinly veiled sardonic hostility, I desperately
try and convey the most sarcastic, sneering, disrespectful
and condescendingly snotty tone of voice that I can muster
from the pit of snakes that currently characterizes my
current mental condition when I rhetorically ask, "And just
who in the dangity-dang-dog, ding-dong hell IS this 'we'
that has the guts to stand up and say, in front of people
who know better, that they '...at least theoretically
conclude (that deflation) is far more of a concern than
inflation'"?
There may be a "we" that would agree on such a thing, but I
sure ain't in that group. And given the historical record
of economists and their ideas, I am not sure that saying
that some "supermajority-we" of modern economists has
agreed on something can be anything other than alarming.
So who are these "we," anyway?
I need names here! I want to know the exact names of the
people who think that falling prices are a danger, when
they have never said that rising prices were a danger! I
want to see actual names, addresses and Social Security
numbers, and color photographs would be a nice touch too,
of the morons who think that prices of things coming down,
and thus making them more affordable to more people, after
they have risen so much for so long, is something worse
than the inflation which drove prices too high to start
with!
I want to see these brain-dead jackasses lined up, shoulder
to shoulder, so that Mister and Missus America can get a
good, hard look at them, so that we can transfix them with
our steely gaze and commit their faces and names to memory
on the off-chance that one of them may run for public
office one day, like Janet Reno rising from whatever Land
of the Undead she lives in, and then we will be able to
intelligently and vengefully use our votes against them.
At the end of the day, we have the Federal Reserve saying
that inflation and bubbles are good, well, maybe not good,
but not so bad that we would actually go out and look for
one, and if we did see one we would pretend that we didn't
see it, and also that, on the other hand, deflation and
lack of bubbles is bad.
This doesn't even SOUND like anything that a normal person
would say, and yet people are in awe of this, this, this,
words fail me here!
dailyreckoning.com
-----------------------------------------------------------
REALITY INTRUDES ON EUPHORIA - Martin Wiess, PhD
June 13, 2003
After the end of the Iraq war, consumers and stock investors
turned euphoric, thinking that suddenly all our economic
problems were over. But now reality is creeping in. The June
drop in consumer confidence was the biggest in eight months.
With unemployment at an eight-year high of 6.1% and the number
of people collecting unemployment benefits at a two-decade high,
consumers across the country are afraid of losing their jobs,
if they haven't been laid off already.
That fear should keep pushing consumer confidence down for
some time to come. And with sentiment weak, people are sitting
on their wallets. That's why retail sales on average dipped
0.2% in April and May. And with household spending accounting
for more than 70% of economic output, weak retail sales mean
a weak economy. It's no wonder that gross domestic product
grew only 1.9% annualized last quarter.
On top of all that, the economy looks to be headed for a
severe bout of deflation. Today, the government reported
that producer prices fell 0.3% in May, extending April's
1.9% plunge. Falling prices crimp corporate profits and
make consumer, corporate and government debt more expensive
to pay back.
There is no reason for the stock market to be rising in
the face of all this bad news. And indeed share prices
took a tumble today. That move should prove to be only
the beginning of a long-term drop that brings the stock
market in line with economic reality.
safemoneyreport.com
-----------------------------------------------------------
GET READY FOR WARNINGS - Justin Lahart, CNN/Money
With the end of the quarter approaching, look for companies
to start confessing. June 14, 2003: By Justin Lahart
NEW YORK (CNN/Money) - With the end of the second quarter,
it is time again for companies that have sinned in the eyes
of Wall Street to kneel at their pews and confess their sins.
They have not earned enough, or hit their sales targets, and
they truly and humbly repent for that -- even though it was
really the fault of the economy, or SARS, or the weather.
Yes, once again it's warnings season, that dreary time of
penitence that tends to hit the market at the end of every
quarter. Already, a few big companies have issued warnings,
most notably Motorola and Texas Instruments. In the weeks
ahead, there will be more. All of which could give
investors who are leery of how far the market has come
over the past few months a nice excuse to sell.
"After the kind of run we've had, the market is entitled
to rest and recuperation," said Stanley Nabi, managing
director of Credit Suisse Asset Management. "When you have
a rally of this nature, you tend to give back 20-to-30
percent of it. Then you're back in the saddle."
Such a move would bring the Dow back down to somewhere
between 8,900 and 8,700 from its current 9,100.
cnnfn.com
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ABOUT THE EDITOR:
David Bradshaw is the editor of Swiss America's Market News
Digest and Real Money Perspectives. He is the founder of
Idea Factory Press... myideafactory.net
publisher of Rediscovering Gold in the 21st Century...
rediscoveringgold.com and The Big Picture...
myideafactory.net
Contact at ideaman@buycoin.com
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