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The Daily Reckoning
Weekend Edition
February 9-10, 2002
Paris, France
by Addison Wiggin
MARKET REVIEW: Just One More Ride
Stocks 'rallied' in the late hours Friday helping the
Dow put a stop to its five-day losing streak. The Dow
closed the day 118 points higher at 9774. The Nasdaq, up
36 points at 1818, also gave stock market bulls a
thrill... if short-lived.
"Look at Friday's market action," writes our friend John
Mauldin, "Boom - out of nowhere the market rallied big
in the last few minutes. There are still lots of true
believers out there who dream that a world of 20%
compound growth is possible.
"A lot of dreams were built in the last bubble. A lot of
investors want 'just one more ride' and this time, they
promise themselves, they will get out at the top. There
is an entire industry of investment cheerleaders built
around separating investors from their reason, their
instincts and their money."
Don't bank on the rally holding up, says Mauldin. In
fact, he believes you can expect a decade - that's right
10 more years - of this sideways muddling in stocks.
(More in Flotsam & Jetsam below)...
Meanwhile, the big story of late isn't stocks at all...
it's the HUI. As we noted Wednesday, "the gold bugs
index has stretched its gains to 46% in just over 2
months. The 'barbarous relic' roared to within a whisker
of the magic $300/oz mark [Wednesday], closing the day
at a 2-year high. The index, which deliberately excludes
the big bullion hedging concerns, is now up 148% in 13
months."
Is this the Greenspan 'tidal wave' of cash finally
working it's way into the resource market?
"The Fed dumped $20 billion of paper currency into
circulation last year," says John Myers of Outstanding
Investments, "cranking the total up to $540 billion...
or twice the amount circulating at the start of the
1990s."
"With this much money flowing, all I can say is start
moving some money aggressively into natural resources -
not just oil, but gas and water. Mix in junior mining
shares and blue chips, along with bonds, mutual funds,
T-bills and cash for a cushion. And, yes... those stock-
pushing brokers will think I'm looney for this... but
buy some gold."
See: The Great Money Flood of 2002
http://agora-inc.com/reports/OST/gold
Of course, there's more... this week in The Daily
Reckoning below...
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THIS WEEK in THE DAILY RECKONING
by Bill Bonner
02/08/02 MOTLEY FOOLS
"...Most of human striving and pining has no more
purpose than to help him feel superior to other men - to
look better, to play better, to have more money or a
better life. Nothing is so trivial or preposterous that
it cannot give a man an edge. One is proud of his new
automobile, another of his roses...one believes his
steadfast labor raises him above other men of his
rank...another thinks his stock market returns give him
a mark of distinction..."
http://www.dailyreckoning.com/body_index3.cfm?id=2194
02/07/02 SUMMA ARITHMETICA
"...In the tectonic shifts of the New Era, a whole range
of phony assets and real debt was pushed up. Not far
from Worldcom's Mont Blanc, for example, lies Enron's
Jungfrau and Cisco's Matterhorn..."
http://www.dailyreckoning.com/body_index3.cfm?id=2186
02/06/02 ENRON AND THE BUBBLE
"...Financial manias bring with them a huge
misallocation of capital...we see businesses that never
should have expanded into certain areas, and many that
should never have been born. The investors, and
unfortunately the employees, will all pay the price..."
http://www.dailyreckoning.com/body_index3.cfm?id=2180
02/05/02 GOLD DOES ITS JOB
"...In the Roman era it was reported that an ounce of
gold would buy a man a decent toga with a belt. Today,
an ounce of gold - at $289 - will still probably buy a
decent toga, if you can find one..."
http://www.dailyreckoning.com/body_index3.cfm?id=2171
02/04/02 HEART OF GOLD
"...In a bull market, people are as empty of questions
as a group of teenagers in sex education class. They
think they know it all already. And if they don't, they
are embarrassed to admit it..."
http://www.dailyreckoning.com/body_index3.cfm?id=2166
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HEADLINE, NEWS And INSIGHT: CA Greeen on Investment
Psychology & Emerging Markets... Oy Vay! Derivatives,
Again!... And Mauldin Agonizes Over The 'Muddle-Through'
Economy...
Profiting From Investment Psychology
by C. A. Green
Before you can turbocharge your investment returns with
any single, modest investment, you need to be
prepared...psychologically.
http://www.dailyreckoning.com/body_headline.cfm?id=1667
The Economic Issue: Derivatives
by Gary North
The failure of Enron offers some important warnings to
investors that should not be ignored...
http://www.dailyreckoning.com/body_headline.cfm?id=1659
FLOTSAM AND JETSAM: The Decade of The Slow & Steady
- from John Mauldin,
www.2000Wave.com
"...We entered a long term bear market cycle in 2000
which will typically last for a decade. There is a great
deal of denial at the beginning of these cycles.
If that were not the case, we would all simply buy S&P
500 puts and make money hand over fist as the market
crashed. But it is not that simple.
Look at Friday's market action. Boom - out of nowhere
the market rallied big in the last few minutes. There
are still lots of true believers out there who dream
that a world of 20% compound growth is possible.
A lot of dreams were built in the last bubble. A lot of
investors want "just one more ride" and this time, they
promise themselves, they will get out at the top. There
is an entire industry of investment cheerleaders built
around separating investors from their reason, their
instincts and their money.
This is the decade of slow and steady. It is the decade
of seeking absolute returns. It is the decade for
market timers and nimble traders and value managers. But
like generals who fight the last war, many investors
seem to want a return of the old regime of momentum and
growth investing.
We won't see it return for this market cycle. As study
after study shows, markets always - 100% of the time -
return to trend. It can happen slowly or it can happen
fast, but it WILL happen.
What this means is that gross over-valuations put an
upper limit on the rise of the market. There is
currently an artificial floor of investor expectations
which prevents a drop of 40% or so back to trend.
The market will go back to trend. Either prices will
drop or earnings will rise. I have made the case
repeatedly that earnings will rise very slowly. The new
Enron era of accounting just makes that case even
stronger, as accounting tricks will become a thing of
the past.
Will stocks drop to meet earnings, or will investors
keep the market floating at current levels, patiently
waiting for the Godot of earnings to appear?
I can make a good argument for either case. My firm has
a unique database of money flow indicators going back
almost 30 years. I can tell you that in our data for the
last two years the markets are behaving in entirely new
patterns. Two years ago I would have thought that could
not happen.
We are in entirely new investor psychology territory,
and to predict what will happen around the next curve in
the road when no one has been there is difficult at
best.
Aggressive investors with a few nickels to gamble and
are bearish can buy a few S&P 500 or NASDAQ 100 puts.
But don't bet the farm. This is the decade of slow and
steady..."
Have a grand weekend,
Addison Weekend,
The Daily Reckoning
P.S. John Mauldin is the creative force behind the
Millennium Wave investment theory, and author of the
weekly e-mail The Millennium Wave Investor (highly
recommended!). For more Mauldin's analysis visit the
Millenium Wave website (www.2000Wave.com) and sign up
for his weekly e-mail - it's free - or send John an e-
mail at [EMAIL PROTECTED]
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