Raiding The Lock Box

MARKET REVIEW: RAIDING THE LOCK BOX

Having watched the European and Asian markets teeter last week while U.S. markets were closed, we at the DR Blue Team expected a crash on Monday’s opening…what we got was the greatest single point drop in the Dow’s history.

But it didn’t stop there. In fact, you can count yourself lucky, as you may have just borne witness to the opening volley in the greatest rout in U.S. economic history.

By week’s end the Dow was down nearly 1400 points to 8235…the worst week by percentage since 1940. The Dow has now fallen 23% for the year. The S&P and Nasdaq lost 18 and 47 respectively Friday, bringing their yearly losses to -26% and -42%.

Gold is up $19 for the year to $292. The Gold Bug Index – an index of mining shares – is up 76% for the year… nearly 100% higher than the Dow.

How quickly conceit fades. On top of the $40 billion emergency package Congress doled out last week, says an article on SanDiego.com, we can expect $20 billion more to bail out the airline industry; $20 billion for the Pentagon; and $20 billion more to beef up entitlement programs already in place.

What’s more, on the heels of the bear market and weak economy, the Federal government will find itself $60 billion shy of projected tax revenues. All together, that’s an unexpected hit of $160 billion on the Federal balance sheet.

“Only two things,” said a Congressman on CNN this morning, (or words to this effect) “can lead us to raid the Social Security ‘lock box’: war and recession.” Now we’ve got both. America’s baby boomers, historically short on savings and long on stock losses, are about to go to war against an enemy that they can scarcely define, using what’s left of government IOUs in the Social Security fund.

THIS WEEK in THE DAILY RECKONING

By Bill Bonner

09/21/01 NOBLE RETALIATION

“…Here at the Daily Reckoning…modesty may be our only redeeming charm. We know that we are neither smart enough, nor well-informed enough, nor lucky enough to predict the future. Nor do we even hope to outperform the market’s long-term performance. If we have a competitive edge it is a modest one…We know we are fools; we don’t have to wait for the market to prove it to us…”

Noble Retaliation

09/20/01 THE WAY WE WISH WE WERE

“…Daily Reckoning readers will recall that everything was going along just fine until September 11. Investors had not paid too much for stocks. Consumers had not spent more than they could afford. Businesses had not over-invested in unprofitable projects. Americans had not become too confident in their economy and their future…nor had Europeans extended them too much credit…”

The Way We Wish We Were

09/19/01 THE BIG UGLY

Guest Essay by Daniel Denning

“…Prior to last Tuesday’s attack a correction of historic proportions was already bearing down on the U.S. stock market. It’s possible that the time-frame has now been accelerated. I say this not to make a grim situation worse. I say it to point out that you have a critical dilemma facing you as an investor…”

The Big Ugly

09/18/01 LEAVING GRACEFULLY

“…Consumers have been feeling extraordinarily fat and sassy for a very long time…and now they and the investors and analysts who’ve been ignoring the downward spiral of the economy have a way to take their leave gracefully. They can cut back on spending without admitting that they ever spent too much. And they can sell shares without recognizing that they were damned fools for buying in the first place…”

Leaving Gracefully

09/17/01 FRUITS OF THE EARTH

“…For the last 10 years investors planted little…rather than tilling the soil, they consumed harvests of previous years and depended upon the kindness of strangers to fill in the gaps…all the while expecting bumper crops. Can a “patriot rally” really enable investors to reap a harvest they never sowed?…”

Fruits of the Earth

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HEADLINES, NEWS AND INSIGHT: Will The Nationalization Of Banking & Industry Become The New Pastime Of Western Governments?…Hyperion And The Rage For IPOs…Once Upon A Time In Pre-Boom America…

“It’s A Wartime Economy, Stupid!”
by Marshall Auerback

In the wake of last week’s attacks, outright nationalization of Japan’s troubled financial institutions becomes a very realistic option. In wartime, markets do not operate freely. There is a tendency toward increased regulation and centralized, government-directed activity – even among governments which, under normal circumstances, champion free markets.

The Real Truth Behind The ‘Tech Wreck’
by Lynn Carpenter

Netscape was not the only unprofitable, unproven Internet company foisted on the public. But it was the first high-profile Internet stock to come to market. Its IPO sparked the entire crazy era of high-flying and hard-falling Internet stocks-an era that was fun to watch, but painful to participate in.

The Life And Times Of The Great Bull Market
by Raymond F. Devoe, Jr.

In England early fall is known as “the silly season,” and the media features reports about mythical monsters and the deeper meanings of Britney Spears’ gyrations at her concerts. In the U.S. the period is known as “the death days” since the only stories available are about the anniversaries of the passing of various events and celebrities. Ray Devoe remembers the birth of the great bull market, born on August 27th, 1982, in an atmosphere of fear and widespread contempt for stocks.

FLOTSAM AND JETSAM: Waiting for WW III

– from Doug Casey’s International Speculator

[Edit. Note: In an all too prescient moment, Doug Casey cited “War” in his August 2001 issue, as the most likely destabilizing factor in America’s future. What follows is the introduction to that issue, written just a month prior to the attack on the World Trade Center and the Pantagon. At the time of printing, many thought Doug was off his rocker…]

“…I am often asked: What are the greatest problems facing us today? Domestically, I’d say the continual and accelerating loss of freedom, compounded by the prospect of what I suspect could be the biggest financial/economic crisis of modern times.

What might that crisis be like? That’s unpredictable, although the odds are it will be unlike any others that are still fresh in people’s memories, simply because people tend to be most prepared for the things that
have most recently scared them. The big problems usually come from an unexpected quarter, and/or at an unexpected time. Like the monetary crisis of 1998 that materialized in Thailand.

That said, the question remains of where to look. My guess (although it sounds so unprofessional to use a word like “guess”a phrase, like “our research shows” or “expert opinion indicates”) is that it will come from outside American borders, in the form of war.

War is perhaps the worst thing that can happen, not only for the destruction it will cause in itself, but because it will immensely exacerbate America’s domestic problems. As Stirner famously said, “War is the health of the State.”

But neither a declared war, nor a war in the conventional sense, is likely in the cards. US troops have been in combat in a dozen countries since our last “official” war ended in 1945; the US troops stationed in over 100 countries are an accident waiting to happen.

Besides the Balkans and Iraq, Colombia is probably highest on the dance card, but almost anyplacecould erupt unpredictably. Who, after all, could havepredicted that the US would invade Somalia in 1991, acountry few people other than stamp collectors even knewexisted. No place is safe from being attacked in TheNational Interest of the world’s self-appointedpoliceman.

Anything is possible within this context, but I discount the possibility of another Vietnam, again because of the”recent collective memory” phenomenon. Vietnam ispossibly the major reason why the Iraq attack endedso quickly; quick withdrawal obviated any danger thatground troops might get stuck in a major tar baby. Butwhen you’re sticking your nose absolutelyeverywhere it doesn’t belong, there are lots of ways toget it bloodied.

My guess is that something resembling a Crusade is developing against those who live in the Koran Belt. Itwon’t be overtly religious like the crusades of theMiddle Ages, but it will have major cultural undertones.And there’s every prospect it will be highlyunconventional in nature…”

Have A Grand Weekend,

Addison Wiggin,
September 22, 2001

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