12/14/03
Bear Hunting Is Back! - DR Weekend Edition The Daily Reckoning Weekend Edition
14 December, 2003
Paris, France
By Addison Wiggin and Eric Fry
THE MARKETS THIS WEEK: Bear Hunting Is Back!
By Eric Fry Last week, the state of New Jersey issued bear hunting licenses for
the first time in 33 years. Apparently, the bear population had become so large that it was
beginning to annoy people. "Bears have broken into 58 homes in New
Jersey this year," Fox News reports. "Fifty bears have been hit by
vehicles... Black bears have killed eight people over the past three
years in North America, but none in New Jersey." Nevertheless, the state of New Jersey issued licenses to 5,200 lucky
bear hunters, hoping to trim the 3,200-strong bear population by
about 500. We don't really understand the appeal of shooting a large,
unarmed, slow-moving mammal. It doesn't seem like a fair fight. But
neither do we understand the appeal of paying 100 times earnings for
a share of Amazon.com. Both seem like a bad idea. Hunter Harry
McDole, 63, of Sussex Borough bagged the first bear of the New Jersey
hunting season, a 160-pound female. "I've waited 33 years to shoot
one in New Jersey.
This is the best one because I got it in Jersey," McDole said. The happy hunter also said he planned to have "a rug or something"
made from the pelt and to eat the meat. "Bears were hunted annually in New Jersey from 1958 to 1970," says
Fox News. "Hunting was suspended when their numbers dwindled to about
100." Over on Wall Street, bear hunting never goes out of season, no matter
how small the bear population becomes. Indeed, on Wall Street, the
object is not merely to eradicate the bears, but to inflict as much
pain as possible while doing so. Even when the bear population thins
to near-extinction, as it did in 2000, the bears are always
targets... And now they're on the run again. The stock market's
powerful, 12-gauge rally over the last year and a half has
dramatically reduced the bear population. Most of the popular investor sentiment surveys show an extremely
small population of bears. And as we have noted previously, bearish
investors tends to become very scarce, immediately before stock
market sell-offs. But the stock market keeps chuggin' along. The Dow rose 1.8% this
week, closing above 10,000 for the first time since May 24, 2002. The
S&P 500 added 1.2%. The Nasdaq Composite Index climbed 0.6%. But the
buoyant stock market was no help whatsoever to the U.S. dollar, which
slipped to a new record low of $1.2276 per euro. On Wednesday morning, the Bank of Japan's aggressive dollar-buying
boosted the greenback nearly 1%. But by Wednesday afternoon, the U.S.
currency had forfeited all of its manipulated gains. On Thursday morning, the dollar again rallied nearly 1%, before
coughing up its gains in the afternoon. On Friday the greenback could
muster no rally whatsoever; in merely tumbled to a new record low
against the euro. "The surest bet around seems to be that the dollar
will fall more," my colleagues in the Paris office predicted this
week. Even TIME magazine is talking about 'hedging' against the
dollar's fall. Meanwhile, the smart money - Soros, Buffett,
Templeton, Rogers - is betting against the dollar, hoping to make
epic profits as the dollar declines." Happily, the dollar's struggles are gold's strength. The yellow metal
rallied gained $2.60 for the week to $408.90 an ounce. "In the gold
market, 'buy-the-dips' has replaced 'sell the blips,'" we observed
earlier this week. "Every time the metal falls a few dollars, eager
buyers start showing up. The gold market has not known such steady,
bullish buying for a long, long time. Ever since the gold price
topped out above $800 an ounce 23 years ago, the gold market has
doled out far more agony than ecstasy. But the new millennium has been very kind to gold investors... and
to investors in almost all other commodities. The steady drop of the
U.S. dollar and the steady rise of our national indebtedness has
rekindled a keen interest in the ancient monetary metal." As investors flock to the gold market , they will inevitably flee the
bond market. The steady drop of the U.S. dollar and the steady rise
of our national indebtedness has rekindled a keen interest in the
ancient monetary metal. "Central banks have made the riskiest bets in modern history," Morgan
Stanley economist Stephen Roach asserts. "policy rates of 'zero' in
Japan, 1% in America, and 2% in Europe. At the same time, fiscal
authorities have upped the ante as never before, with government
budget deficits of 7% in Japan, 4% in America, and 3% in Europe. And
the authorities have colluded in currency management in a period of
unprecedented external imbalances. Equally disconcerting is the possibility of an accelerating decline
in the dollar. If that occurs, it seems reasonable that foreign
investors would finally demand compensation for taking currency risk
on dollar-denominated assets -- pushing long-term US real interest
rates higher. All this points to the bond market as the next arena in which
mounting global tensions are vented. The confluence of several forces
-- central bank exit strategies, undisciplined fiscal policies, and
dollar risks -- underscores the potential for a sharp backup in
long-term interest rates. Ironically, in this climate, it doesn't take inflation to be bearish
on bonds... Hope you're having a good weekend,
Eric Fry,
The Daily Reckoning P.S. Sell bonds, sell the dollar... and don't forget to buy little
gold [Ed note: You still have time to give Financial Reckoning Day as a
CHRISTMAS GIFT at a 30% Discount to bookstore price!] ------------------------
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-- and what you need to do now. Find out the surprising truth: click here! ------------------------ THIS WEEK in THE DAILY RECKONING THE RAPE OF NANKING 12/12/03
by Bill Bonner "... [The Rape of Nanking] provides evidence against those who
believe in the perfectibility of man. Beginning in December 1937...
only 65 years ago... the world was reminded of what evil was all
about. Previous records in political depravity were broken when the
devil worked overtime for a six-week period. When it was over, an
estimated 377,000 people had been slaughtered... "
http://www.dailyreckoning.com/body_index3.cfm?id=7520 JAPANESE PHANTOM GROWTH 12/11/03
by Kurt Richebacher "How to reconcile [the Bank of Japan's] dismal description of the
economic situation with the officially reported stellar real GDP
growth rate of 3.9% for the second quarter? Putting it bluntly: It is
exactly the same statistical hoax as the 3.3% simultaneously reported
for the U.S. economy. Japan's statisticians have learned from their
American colleagues how to conjure up the perception of an economic
recovery that does not exist... "
http://www.dailyreckoning.com/body_index3.cfm?id=7507 THE FIVE YEARS 'TIL TRAGEDY RULE 12/10/03
by Steve Sjuggerud "... After a major stock market peak, there are five years until
tragedy... five years until a dollar crisis - and soaring commodity
prices. Five years after the stock market peak in 1857, the
government got down to the business of creating inflation... crashing
the dollar and causing gold and commodity prices like oil to soar.
This was the first of many times this would occur. The same story is
now unfolding once again... "
http://www.dailyreckoning.com/body_index3.cfm?id=7498 GREAT EXPECTATIONS 12/09/03
by Bill Bonner "... Modern economists no longer believe in 'ought'. They don't
appreciate her moral tone and try to ignore her. The whole method of
modern economics [has] shifted from exploring what a man ought to
do... to statistical analysis. Economists attach sensors to various
parts of the great machine as if they were running diagnostics on an
auto engine... and of course, it was absurd. Today, we take another
look at 'ought' - and hope to discover more of life's secrets... "
http://www.dailyreckoning.com/body_index3.cfm?id=7487 WEEP FOR AMERICA 12/08/03
by The Mogambo Guru "... I think that a 30% devaluation in the purchasing power of the
dollar is entirely achievable, if that is the term that one uses to
describe such a catastrophe, and I have a hard time conceiving that
all foreigners would [continue to] elect to invest in dollars,
especially considering the economic ramifications of what is
happening today. And all this is inflationary, which is The Thing
That Is To Be Feared, according to that loudmouth Mogambo, which is
me... "
http://www.dailyreckoning.com/body_index3.cfm?id=7473 ---------------------- HEADLINE, NEWS And INSIGHT: Lookout... Keynesians in the White
House!... Emergence of the Chinese Century... What to do when the
dollar destabilizes the world currency markets... Bush Imitates Reagan's Economic Policy
by Gary North "... [Through excessive money creation and government spending], the
American economy is slowly recovering. But the dark cloud on the
horizon is the tightening supply of raw materials and the falling
dollar. Except for Japan, the world's price level is inching above
2%. This means that anyone who holds T-bills or a commercial CD is
losing money. Are people nuts? Why are they willing to do this?
Because they don't think the stock market will hold up... they know
the truth: rising inflation will produce higher interest rates, which
will end the recovery or place limits on it... "
http://www.dailyreckoning.com/body_headline.cfm?id=3612 A New West in the East
by Lord William Rees-Mogg "... We have been living in a restricted global world, inside the
confines of the advanced industrial economies. If one could calculate
the interaction of the American, European, and Japanese economies,
one could pretty well identify the trends of the future. Now one has
to take the Chinese factor into all one's forecasts. It is the new
variable in every equation; it is already the one that changes most
rapidly, and it will soon become the biggest... "
http://www.dailyreckoning.com/body_headline.cfm?id=3606 Profiting From Foreign Currency Fluctuations
by Thomas Fischer "... One way to profit from currency fluctuations is to borrow funds
in a currency that is falling and invest the proceeds in an
appreciating currency. This strategy is often referred to as a
'multi-currency sandwich.' Current conditions in the currency markets
make such trades attractive... "
http://www.dailyreckoning.com/body_headline.cfm?id=3597
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