Approaching Zero

The Daily Reckoning

Weekend Edition

January 27-28, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: Economy Approaching Zero; Investor’s
Wait ‘n’ See

‘Easy Al’ Greenspan soberly announced to the Senate
Budget Committee Thursday that growth in the economy is
“probably very close to zero” and suggested a
recession is unlikely… allowing “we won’t know how this
all works out for a while.” (Reuters)

Even so, with the ensuing expectation that the Fed
will cut interest rates again this week – and Greenspan’s
implied endorsement of the Bush tax cut plan – investor’s
were not impressed…

Friday, the Dow lost 69 to finish off the week at 10,659…
up just over 72 since Monday’s opening. The Nasdaq climbed
modestly to 2781.30, a gain of 27 for the day and just over
10 for the week. The S&P 500 fell slightly to 1354, but
ended the week 12 points higher than it began.

The Dow is still in negative territory for the year… down
1.2%… while the Nasdaq and S&P are both in the black. The
Naz is up 12%; the S&P a bit less, but still positive by
2.6%…

Markets around the globe: The Nikkei dropped slightly;
Germany’s DAX slipped 0.5%; London’s FT-SE 100 climbed
0.6%, and the CAC-40 here in Paris slid 0.2%.

The Russell 2000 closed the week 10 points higher at 498,
up 2.2%… The Russell is up 3% so far this year. The Wilshire 5000 at 12,527 is up 144 for the week… and
up 2.9% for the year.

PRICES FOR THE WEEK: Natural Gas Retreating…Dollar Still
Hanging In There…

Gold: $262 down $2

Crude Oil: $29.77 down $.42

Natural Gas: $7.25 down $.20

CRB Index: 229 down 1

Dollar Index: 111 up 1

The Euro: $.92 down a penny

British Pound: $1.45 down one cent

Japanese Yen: $.85 down one centime

MARKET COMMENT: The Three Best ‘MID-CAPS’ For 2001

“While the market has been tough for Dow investor’s so far
this year… in the Fleet Street Letter, we’ve been going
for dividends – and our favorite keeps hitting new highs.
Now up 35% in 10 months, that’s more capital gains
than we expected from a stock paying 5.8%… it’s event
better than T-bills.

What’s more, six weeks ago we picked the ‘Three Best Mid-
Caps for 2001.’ The market fell, but these mid-caps are
remarkably resilient. One of our three choices, paying a
nice 2.9% dividend, has gone up 11% in six weeks. Another
is up 15.2% in six weeks. Both are solid, established mid-
size ’emerging blue chips,’ a conservative choice for
investors looking for safety–but there’s still plenty of
growth here. And the third is about to take off.”

Lynn Carpenter,

The Fleet Street Letter

FLOTSAM & JETSAM: 100 Years of Theory Practiced on the Back
of an Envelope

Lynn Carpenter on the trading system she uses in the
Contrarian Speculator:

“In short, the system I’m using gives you the freedom to
focus on what matters most for short term profits: genuine
shifts in the battle between buyers and sellers in a
particular stock.

“But, to tell you the truth… it’s not really MY secret.
It’s over 100 years old! And what a pedigree, too. Charles
Dow knew it and most likely used some form of it in his
‘Dow Theory’. Many of the greatest speculators and traders
of the 19th and early 20th century used a similar method.
Which means, it was proven effective long before
computerized trading systems were ever invented. There are
no bands. No cycles. No waves. In fact, time and volume are
largely ignored. You’re looking for one thing and one thing
only: buyers vs. sellers…supply and demand – and who’s in
charge.

“In one rather famous instance, James R. Keene used the
method in 1901 to systematically unload a sizeable portion
of Andrew Carnegie’s unwanted steel shares. The trick was
to dump huge numbers of Carnegie’s shares before his merger
with U.S. steel–but to do so without driving the market
down and spoiling his profits. Keene unloaded blocks of
shares at key times when they wouldn’t cause a price drop.
The equivalent today would be Bill Gates silently selling
off his entire stake in Microsoft without causing the stock
to collapse…no small feat, but very impressive.

“There’s also written evidence that certain insiders used a
version of the system to get out of the stock market just
before the big crash in ’29. One of the few books ever
published on the system, written in 1932 and long out of
print, shows the signals that author Edward De Villiers saw
and tells how he followed them. As we know, several major
players did escape the collapse in 1929. Might be just what
the doctor ordered for the market here in 2001…

“The advantage of this method… especially for me… is
its simplicity. In fact, it’s so easy to use that traders
used to make quick point and figure notations on the back
of scrap paper with just a pencil. In a few moments they
could give themselves a powerful insight into the direction
of any given stock. I don’t know why more people aren’t
using it today… most people are fascinated with the new
technology – and lose sight of the fundamentals. But what’s
really more important? I like to see profits.”

Hope you are enjoying your weekend,

Addison Wiggin,

The Daily Reckoning

If you’re interested in learning more about Lynn’s trading
success with the 100 year-old ‘point and click’ trading
system, please visit:

The Contrarian Speculator