| FOLLOWING THE TREND...TO THE END THE DAILY RECKONING BALTIMORE, MARYLAND WEDNESDAY, THE IDES OF DECEMBER 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning:
*** Is this the dip to buy?
*** Record current account deficit *** New Zealand timber...polygamy...terrorism...and
more! * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *** Well, hey, at least Wall Street did something a
little different. It was getting boring... *** Yesterday the Nasdaq took a big drop. The Internets,
too. "The Nasdaq sold off furiously at the close,"
reported the "Financial Times." *** The bear must have decided to take a swipe at the
leading sector just before quitting time. Yahoo fell
$18. AOL was down $5. AMZN lost almost $7. *** The Dow itself was down just 32 points. The
chatterers on the financial news channels were able to
talk about "profit taking." It all seemed rather
comfortable. Not a great day, but not terrible. *** But the view beyond the Dow should be rated R. The
NYSE suffered the most new lows so far this year. Ten
times as many stocks hit new lows as hit new highs --
536 stocks hit new 52-week lows, 15% of the market. *** There were also twice as many stocks declining as
advancing. *** European stock markets hit new highs...in Frankfurt,
Paris, Amsterdam and Milan. Tokyo, though, went in the
opposite direction...down a little. *** The State Department warned Americans overseas that
they may be targeted for terrorist attacks over the
holidays. Hmmm...I hope nothing happens in Paris. I had
planned to spend New Year's Eve out in the country...far
from the crowds. But the kids all want to go into Paris.
Look for us on the Champs Elysees at midnight. *** Correspondent Rick Ackerman reports that come the
New Year, Jewish men will be able to take more than one
wife. The 1,000-year "tanakah" against polygamy issued
by Gershom Ben Judah is said to expire on Dec. 31.
More power to them. *** Ackerman runs a traders' service called "Black Box
Forecasts." His advice for today: "Take the money and
run." He expects "sloppy and frustrating" markets
through the end of the year. *** Yesterday's big news was almost overlooked. The U.S.
current account deficit hit another record in the third
quarter. $89 billion more went out of the country than
came in. I've suggested that this may be the Achilles
tendon of the U.S. economy. Cut it...and the U.S.
financial system drops to its knees. *** How might that happen? A sharp fall in the value of
the dollar would do it. The dollar actually rose
slightly yesterday...almost achieving parity with the
euro. I can't help but think this marks a cyclical high
for the buck. *** "The last time the globe was awash in dollars like
this," writes Dan Ferris, " was 1985-1987, and you know
what happened then... well, besides the market crash, I
mean. Gold went from $285 in February 1985 to $500 in
December 1987, a rise of 76%. During that time, the
dollar lost over 50% against both the Dmark and the Yen.
The 30-year bond yield closed yesterday at 6.3%. I'm
still holding Anglogold, Newmont and Homestake, and I
suggest you do the same. As I said during the `Real
Asset Investor' Teleconference on Gold last Saturday,
the time to buy gold is when the dollar is weak and
growing weaker. That time is now." www.realasset.com *** Paul Montgomery tracks the relationship of bond
yields to the S&P yield. Triple A bonds are now yielding
more than seven times the S&P. "Except for Japan in '89
and Weimar, Germany," he says, "this is the highest
stock/bond ratio we are aware of in a civilized
country."
*** Here's another contrarian timber idea, this time
from Jeremy Grantham, reported by Jim Grant: New Zealand
Evergreen is a very small company that grows trees. You
can guess where. Timber operations provide an average
yield of about 6%, and the company is selling at only
40% of book value. Book value is in the form of trees
and land, of which the company owns 64,000 acres. This
may not be a way to get rich, but it may be a buffer
against getting poor. Trees grow even in a bear market. * * * * * * * * * * * * * * * * * * * * * * * * * * * FOLLOWING THE TREND...TO THE END "If at first you don't succeed, try again. Then give up.
No point in making a damn fool of yourself." That was W.C. Field's advice, which we will now apply to
the tech and Net sector. For many weeks now, we have
been "fighting the tape," at least in a manner of
speaking. I have not urged anyone to actually short AMZN
and try to knock it down. But I have taken a number of
easy jabs...and attempted to land a punch or two. This
hasn't stopped them, of course. I may have scored a
point or two on ringside rhetoric, but it must be clear
to everyone who the champs really are. The techs and
Nets are winning on points. Lots of points. Jim Davidson made this point to me at lunch yesterday.
We ate in the Maryland Club, the old, elegant men's club
in Baltimore. It is a gentleman's club, but they let us
in anyway. The club was dressed up for the holidays. Garlands of
holly, a Christmas tree in the lobby and a fire in the
large fireplace made it especially appealing. The animal
heads, reminders of an earlier time, when men could go
to Africa and kill any animal they wanted, all sported
ribbons and bows. Of course, on historic Mt. Vernon Place, the huge
monument to George Washington is festooned with lights.
And our own office is stunning, too. My assistant, Jean,
got a group together to put up a tree and decorate,
placing poinsettia plants up the steps. If you're in Baltimore over the holidays, stop in our
office at 14 W. Mt. Vernon and see for yourself. Anyway, Jim got tired of fighting the tape and decided
to try a different approach. "I thought it was telling," he said, "how the other day
the `WSJ' ran a piece that said people buying Yahoo were
'idiots.' On the very next day, the price of Yahoo's
stock went up 66%. They may be idiots, but they're a lot
richer idiots." Jim Davidson has joined Jim Dines. He says he recognizes
that "you can profit from a mania without becoming a
maniac." But unlike Dines, who focuses on the behavior
of crowds and mass psychology, Jim Davidson believes the
key to this mania is the money supply. As long as the
money supply is going up, he believes, it is reasonably
safe to play this game. "Manias do not end as long as
the money supply is expanding," he said. I do not know if that is correct or not. But you cannot
ignore the fact that people who have bought the techs
and Nets have made a lot more money than the people who
have bought Philip Morris, timber and gold. The Nasdaq
100 has doubled in the last 12 months. Jim reports that he recently went out to Middleburg,
Va., a very expensive area about an hour from
Washington. He discovered that it is not just the ink-
stained workers of the Bureau of Printing and Engraving
and the back office staff on Wall Street who are working
overtime. People are snapping up the priciest places...not even
looking at the price tags. Multimillion dollar houses
are being bulldozed to the ground so grander digs can be
built. And this isn't Silicon Valley or Seattle. "There is an unprecedented explosion of money...the
biggest explosion of wealth in history," said Jim. "If
you don't make money now, when are you going to make it?
Sure, it won't last forever. But even life itself ends." Yes, everything comes to an end someday. Carpe diem. Who
can argue with that? And who can argue with making money
-- which Jim's Internet picks clearly are? And maybe they will ring a bell to tell investors when
the Internet high-flyers start to run out of fuel. I
keep an eye on money supply figures too...(but I find it
hard to tell what has been going on until well after the
fact...) Ultimately, the most important thing for an investor is
merely to understand what he is doing. I take a
contrarian, value-oriented approach. I don't try to spar
with the tape, but I don't follow it either. Investors have to figure out what kind of investors they
are, in other words. Whatever they decide they have to
stick to the discipline their approach requires. If I am
a value investor...I cannot buy the Internets. Where is
the value? I will have to wait for them to crash...and
then I may be able to buy them. Dines and Davidson are both making a lot of money now by
following the tape. Their discipline requires them to
figure out when to take profits off the table. They must
follow the trend, to the end, and no further. We will
have to wait and see what happens. But Richard Russell is adamant about sticking with the
discipline your approach requires: "In my opinion," he says in his Dec. 1 newsletter, "the
single most difficult endeavor in the stock market is to
stay with your discipline...Frankly, I don't know of
anyone who has operated successfully in the stock market
over any length of time who does not follow a
discipline. Ironically, what the stock market loves to
do (both bull and bear) is to separate you from your
discipline. When that happens, the odds are that you
will lose money." Until tomorrow,
Bill Bonner
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