(a) libertarian society, since everyone would know that false
stories are legal, there would be far more skepticism on the
part of the reading or listening public, who would insist on
far more proof and would believe fewer derogatory stories than
they do now - Murray Rothbard,
The Ethics of Liberty
don't think that Wall Street has heard our call for the stock
market yet; allow us to make it loud and clear:
7000! That's 4000 points.
it will not immediately rebound, this time. In fact, it is entirely
possible that 10 years will pass before these levels are revisited,
unless perhaps, Dow Jones & co. adds a gold stock component to
it is the recovery and potential breakout in U.S. stock
prices that is right in the middle of the global financial debate
this week. It looks like a good move, but then what bull trap
folks, despite the fire sale for dollars, it is still a bear market
in the broad stock market averages, and last week's reversal in
the Dow Industrials was the sole one out there. Our readers know
the reason for that because they are aware of the true leadership.
Part of the reason for the general disorientation, however, is
that the mainstream analysis continues to be cavalier about how
central the inflation debate is, to either, the bullish or bearish
case. This should be an insult to you, but on the bright side,
it is bullish for liberty (see Rothbard quote).
if it seems perfectly legal for Mr. Greenspan to get up
on stage and perpetuate one false story after another today,
liberty cannot be far away.
we've noticed that his line has a subtle global unity to it this
time. That is to say, its echoes have been heard overseas and
its might has been felt in Forex markets. Dollar bulls have won
yet another battle by pushing the trade weighted dollar index
to new highs, effectively correcting your inflation expectations
by adjusting the dollar price of physical things lower.
How does that work? Through an adjustment in the dollar price
of other currencies, even lower, the process transfers an excess
of purchasing power from one paper currency to another, the dollar
in this case, thereby allowing the US to export its inflation,
and then some, to the rest of the world.
that officially, the international currency arrangement is to
aim for stability, but to sanction instability if the objective
is for global growth. Nevertheless, dollar strength continues
to stress the arrangement. I don't think that any one of the global
central banks lowered their interest rates this week. Still, this
kind of dollar strength needs international support in order to
sustain. If there is a new unity, what drives it, and is it sound?
More importantly, is it as sound as the nonsense that forms the
bullish case for stocks, particularly the blue chip Dow.
After trying to come up with a cogent bullish argument - presumably
one that would justify a run at Dow 13000 or higher - we found
none that could stand the contradiction of recent facts, and are
forced to conclude that the bulls will be left wanting, again.
So, in order to give them a fair shot anyhow, we have posted a
(satiric) plea to Mr. Greenspan, on behalf of all shareholders
of the American dream:
about this new economy. I have sincerely been trying to persuade
myself to get bullish on stocks, but you persist in punishing
my enthusiasm. How the hell can I buy today's leaders - Alcoa,
Exxon, or 3M, for instance - at today's prices, if you're telling
everybody that there is no inflation?
there is inflation, how can I buy IBM, Intel, or Dell, particularly
if your data informs us that workers there are slacking off
now, that it costs more to pay them, and that excess inventories
now overhang demand? Furthermore, how can I buy Boeing or Honeywell
if you insist that the government is trying to keep a budget
about being laid off, but the Union guys are putting pressure
on us to get tougher on pay. They seem to disagree with you
on the changing costs of living. I know I need to save, and
that the right place to put my savings is in the safe blue chips,
like the Dow Industrials, or Utilities. Utilities never go bankrupt,
right? But my disposable income keeps shrinking. Still, if I
can keep my job and we get the higher pay, maybe I'll be able
to take a shot anyhow. Maybe I'll even get some more stock options!
of luck, I write to you in the hope that you'll send more money.
Wal-Mart tends to be out of inventory often, and they won't
increase prices because you tell them that they don't have any
pricing power. But then I need clothes, so I have to go elsewhere,
where it costs more.
all of your effort (for which I am thankful) to persuade the
gas station attendant to lower pump prices, he refuses to negotiate.
I tried to tell him that his inventories are piling up… even
showed him charts and stuff, and that I can hold out, but he
just laughed at me and claimed that his inventories will continue
to go up because his company will make more money that way.
And so will he, when he sells his stock options.
sell my bond fund because it keeps losing value and I don't
want to lose any more money now, so I'll wait for it to break
even, which you can help simply by lowering interest rates…
like you have for the first half of the year! My stockbroker
says that's good for bonds.
hope so, because otherwise, I don't think that I'll be able
to afford the Dow, at 29 times earnings.
tell you what though. I won't tell anyone if the next time you
want to hand out cash, you let me in line first. Then I'll buy
the *^@#* out of the market for you! Because frankly, where
I am in line at the moment, everything is always up by the time
I get your handouts. It really sucks!
(yes we made that all up)
Bullish Case for Stocks
The bullish case today rests on expectations for interest rates
to fall in tandem with "expected" Fed policy direction, for inflation
rates to peak - in the first month that the effect of the first
rate cut is supposed to grab hold - and for a recovery in
capital spending to resume, after corporate coffers have been
re-energized with fresh FOMC credits.
(market) salesmen today (everyone) say that equities can trade
at a premium to fixed income investments due to the argument that
stocks are the best long-term investment around, and therefore
deserve a low risk premium to other assets. So, the thinking goes,
if the Fed can just keep rates low, expensive stock prices will
be the norm.
dollar, of course, will take care of itself, relative to other
currencies and things, because it will always be in demand, regardless
of how freely available it is. The law of scarcity does not apply
if dollar denominated returns are supported by high rates of labor
productivity, which will always be higher in the United States
because (they have the highest paid statisticians in the world
working for them?) it has the world's youngest population on the
planet? Or is it because the United States has the freest and
most efficient market system in the world, with regard to the
allocation of the nation's scarce resources and things? No, it
must be attitude! They've got such good (optimistic) attitudes
any rate, perhaps because of that, it is also the case that bulls
believe declining fortunes overseas will result in rising fortunes
for them here in NY, like in 1998. The bottom line is, and we
all know it, that if stock prices can go up, and the dollar can
go up, then inflation can be contained, or absorbed, and productivity
will be easier to talk up again. This is maybe true, theoretically.
After all, the whole idea of inflation is to direct it to where
it produces the most sustainable gain - that would be asset prices
traditionally. Profits would come back because the whole business
of capital investment is driven by stock speculation, or the equivalent.
A soaring dollar rate can certainly help support the marginal,
or subjective-use, value of additional money supply, thereby putting
pressure on some prices while letting others rise.
reality, however, this does not cure the inflation, or its destabilizing
effects. It is only a mechanism that further distorts the market
process, possibly creating further malinvestment, or misdirected
this week's Issue of the GIC (Jun 8 - 14):
We dissect the bullish case for the Dow and the bearish case
for Gold, concluding that both are ready to reverse, and that
it'll be many years before the Dow sees 11000 again.
discuss the strategy of dollar policy behind reporting oil inventories
and in exporting dollar inflation to the world.
the ECB, and other global central banks, raise interest rates
Research's John Kaiser believes that the real gold marke is
10 years away, or at least did in January. What is wrong with
Where is the inflation breakout?
wait until everyone else acts! Subscribe now and find out what
we think will happen this week/month:
a good weekend,
Edmond J. Bugos
The GoldenBar Global Investment Climate is not a registered
advisory service and does not give investment advice. Our comments
are an expression of opinion only and should not be construed
in any manner whatsoever as recommendations to buy or sell a stock,
option, future, bond, commodity or any other financial instrument
at any time. While we believe our statements to be true, they
always depend on the reliability of our own credible sources.
Of course, we recommend that you consult with a qualified investment
advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and
barring that, we encourage you toconfirm the facts on your own
before making important investment commitments.