MR. MARKET WHISPERS
"The real treat," says an article on Stock
Trader's Almanac Investor, referring to a recent conference, "was
guest speaker Lawrence Kudlow's moving speech about the
Kudlow belongs to the Laffer/Gilder "growth"
wing of the Republican Party...a group that believes in the wonders of
Free Enterprise and technology the way toddlers believe in Santa; that is,
without asking a lot of questions.
In their view, bad things only happen to Democrats...or
those who interfere with the marvelous godlike workings of Mr. Market.
They believe, for example, that stocks fell from their March 2000 highs
because the Fed erred by nudging up interest rates too high and keeping
them there too long. There was nothing wrong with stock prices at the top,
they believe...Nor was there anything wrong with the New Economy, which -
even now - Gilder
Thus, they were not at all surprised to see stock
prices rise from the Sept. 21 low. Mr. Market was speaking to them, they
thought. "Oh ye of little faith," whispered the Great One,
"do not despair. Good times are coming."
Perhaps Mr. Market speaks to Republican economists and
new-tech hallucinaries. Even so, might he not mislead them...and chuckle
as they make fools of themselves?
Today's letter is written merely to remind readers that
the great god of the market works his wonders in strange, and often
pernicious, ways.
Jim Cramer, also had something to say in the
above-mentioned issue of Stock Trader's Almanac Investor.
"...finally there is tangible evidence of an
economy where lower rates finally matter," writes the founder of
TheStreet.com, congratulating the Bush team for turning around the economy
with government spending. And then, Cramer begins his sermon on the
omniscience of Mr.
"...Do you think the market doesn't see and know
things that individuals can't grasp? Do you think the market is just
stupid and rallying for no reason? Nah, the market is smart. It sees these
things even as the analysts on Wall Street pooh-pooh them."
Not even the smallest sparrow falls from the most
abject and forlorn pine tree in Afghanistan, dear reader, but that Mr.
Market takes notice.
But wait. Is this the same Mr. Market who, a year ago,
thought Enron shares were worth $90? Is it the same Mr. Market who put a
$71 price on Jim Cramer's TheStreet.com shares, now available for $1.05 a
share?
What sparrows was Mr. Market counting when the Nikkei
Dow rose to nearly 40,000...? What is he thinking today, with the Nikkei
near 10,000?
Father Market may know best, dear reader, but that
doesn't seem to stop him from doing a lot of very stupid...or
wicked...things.
Mr. Market cooed soothingly and often following the
crash of '29. As we have pointed out before, there were 5 rallies of 20%
or greater between '29 and '33. But none of them was followed by the
"good times" that Misters Kudlow and Cramer now expect.
Sixty years later, Mr. Market's dulcet tones were heard
in Japan...again, five times between the crash of the Nikkei in '90 and
today. Still, "good times" have yet to
Marc Faber reminds us that when Mr. Market speaks, even
people who know what they are talking about are often led astray. In the
aftermath of the crash of '29 many people thought they heard Mr. Market's
mellifluous voice:
"Stocks began to recover strongly, following the
November 13, 1929 low, amidst wildly bullish comments and confidents
statements by Wall Street personalities...
"From a low of 199 on November 13 (down from the
September 4 peak of 381), the Dow Jones Industrial rallied to a high of
294 in April 1930 (up 48%...)"
Then, as now, the central bank provided easier credit:
Subsequently, it was cut to 2.5% in June 1930, to 2% in
December 1930, and to 1.5% in mid-1931."
America enjoyed the blessings of the free enterprise
system back then, as it does now. In fact, it was a freer enterprise
system in the 1930s than it is in the 2000s. But that didn't mean that it
could not break down. And that rate cuts could not fix it. Rate cuts, and
the bullish momentum that had built up since the early '20s, merely
encouraged investors to self-
"Charles Mitchell, who headed the National City
bank, announced soon after the crash that the trouble was 'purely
technical' and 'the fundamentals remained unimpaired,' while the President
of the Continental Illinois Bank said, 'There is nothing in the business
President Hoover assured Americans that 'the
fundamental business of the country - that is, production and distribution
of commodities - is on a sound and
Treasury Secretary Andrew Mellon was bullish too: 'I
have every confidence that there will be a revival of activity in the
spring...'"
The great economist Irving Fisher, Faber continues, "stated that the 'factors leading to the crash of the American stock market were not factors of depression but of prosperity, unexampled prosperity,' and thought that stocks were 'ridiculously low.' (Subsequently, they fell another 80%)."
Even Bernard Baruch, who anticipated the crash and made
a fortune from it, later said: "I never imagined, in these last
months of 1929, that the collapse of stock prices was the prelude to the
great depression. Anyone who knew the potentialities of the American
economic system, as I had come to know them, could not help but believe
that the market break would just inevitably be followed by an even greater
prosperity."
The great investor, Jesse Livermore, had outsmarted Mr.
Market in the summer of '29, when he sold short. He could do it once. But
not twice. "To my mind this situation should go no further," he
said, jumping back into stocks after the sharp October '29 downturn. But
Mr. Market had deceived him. Stocks fell again and Livermore lost all his
fortune between '30 and '32.
Wiser, but sadder...Livermore later committed suicide.
Your correspondent, back in Baltimore...where it is
beginning to look a lot like Christmas...everywhere I go.
Getting
the story straight
by Addison Wiggin
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."
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