ILLUSION OF WEALTH

Stock jubilation...Dollar devastation... Tech bubble 2...What's an investor to do?...$348 gold...Buy, sell or hold?...A tribute to Mom!

May 08, 2003

MARKET NEWS DIGEST

-Gold firm, eyes on Fed meet - Reuters

-Dollar at new lows despite strong service data - FT

-Fed's patience is wearing thin - CBSMarketWatch

-Tech funds vanishing - John Waggoner, USA TODAY

QUOTES OF THE WEEK

~ MOTHER ~

M - is for the million things she gave me
O - means only that she's growing old
T - is for the tears were shed to save me
H - is for her heart of purest gold
E - is for her eyes with love-light shining
R - means right and right she'll always be.

-UNKNOWN

"There are those who thought the financial scandals and the furious public reaction would be enough to cow Wall Street's honchos into major reforms. A start has been made on these, thanks mainly to the threat of government intervention. But anyone expecting to see genuine remorse for what occurred will probably still be waiting when the next bubble hits."

-BRIAN MILNER, Globe & Mail, 4-28-03, Little repentance on W.S.

"Deep down, we know high prices caused by expansion of money and credit cannot continue. But hardly anyone, it seems, is willing to pay the price and eliminate debt from the family and corporate budget. Until then, our economies continue as the economies of addiction."

-IAN HODGE, Business consultant, author (see below)

"Barring the crash-landing alternative, I continue to believe that a weaker dollar is exactly what a dysfunctional global economy needs. In my view, an unbalanced world is in increasingly desperate need of a rebalancing -- less domestic demand growth in America and more elsewhere around the world. A weaker dollar may well be the only means to achieve such a result. From the American standpoint, currency depreciation should be seen as part and parcel of a classic current-account adjustment process. If that’s the case, dollar weakness should trigger a number of other macro developments in the US economy -- namely higher real interest rates, slower domestic demand growth, and a rebuilding of private sector saving."

-STEPHEN ROACH, Morgan Stanley, 5-5-03 (see below)

"The USD is most vulnerable when investors are neither in greed nor in fear. It appears that the US economy is entering precisely this phase. This is why I suspect that the USD may start another phase of correction. Historically, the USD has a convex relationship with the rate of growth of the US economy. The USD tends to be strong when the US economy grows strongly or when it contracts sharply. The hegemonic status of the USD and US Treasuries make US equities a preferred asset in good times and the US Treasuries a preferred safe haven in difficult times. It is in the ‘intermediate’ range, or what I call a ‘benign’ scenario, where the cyclical aspect of the US economy is least supportive for the USD. The fate of the USD will be determined by the tug-of-war between the vigour of the recovery in the US economy and the ‘twin deficits’."

-STEPHEN L. JEN, Morgan Stanley, 5-5-03

"On October 21, 1997, six days before the Wall Street roller coaster nearly derailed, approximately 200 people quietly gathered in Baltimore, Maryland for the auctioning of one of the most exquisite coin collections in recorded history, yielding a 30,000% return! Friends and family gathered in awe, watching coin connoisseurs spend up to $465,000 for one gold coin. They shook their heads in disbelief, saying, "He was so right!"

-CRAIG R. SMITH, The John J. Pittman Story

MARKET NEWS DIGEST

Gold firm, eyes on Fed meet - Reuters May 5, 2003

HONG KONG, May 5 (Reuters) - Gold held firm just above its Asian open on Monday as the U.S. dollar strengthened slightly against both the euro and the Japanese yen and investors awaited the outcome of a key U.S. Federal Reserve meeting on Tuesday.

"I think that we will see more people taking long positions (in gold), because stock markets are still looking weak," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"But at the same time, the (U.S.) economy is not weak enough for the Fed to cut interest rates, so I think that we're going to trade in the range of US$335-345 for the time being," Leung said, adding "the bulls will be looking for US$350."

http://www.reuters.com

Dollar at new lows despite strong service data - FT
By Jennifer Hughes in London, May 5 2003

The dollar fell to fresh four-year lows against the euro on Monday as investors focused on the Federal Reserve’s meeting on Tuesday and shrugged aside unexpectedly firm service sector data.

The euro reached $1.1302 against the dollar by early afternoon in New York. Thin liquidity due to a UK bank holiday may have exacerbated the move, said traders.

A better-than-expected reading from the Institute for Supply Management’s service sector survey was brushed aside by bearish investors, who chose instead to focus on a weak survey of the US job market by Challenger, Gray& Christmas, the consultancy group, and its implications for the Fed’s deliberations.

“The market is not trading off macroeconomics it is still watching yields,” said Marc Chandler, currencies strategist at HSBC in New York. HSBC has predicted that the Fed will hold rates steady today but will switch to an easing bias.

“It’s hard to see the dollar finding support until the Fed’s done easing and tightening is back in focus and that’s unlikely this year,” added Mr Chandler.

http://www.ft.com

Fed's patience is wearing thin - CBSMarketWatch
By Rex Nutting, CBS.MarketWatch.com, May 2, 2003

WASHINGTON (CBS.MW) -- Tuesday is Economic Stimulus Day in Washington. Not only will the Federal Open Market Committee meet to consider lowering interest rates for the 13th time in this cycle, the House Ways and Means Committee will vote on a $550 billion tax cut bill that's designed to stimulate the economy.

It will really be more of a dress rehearsal than the real thing, however.

No one (or almost no one) expects the FOMC to cut rates at Tuesday's meeting, although it's a sure thing for June if the economic data don't start getting better.

And the tax cut bill will be whittled down and merged with other proposals before it's finally adopted and begins to affect the economy sometime later this summer or fall.

Any stimulus is at least a few months away.

Not everybody is convinced the economy needs it.

In testimony to the House Financial Services Committee on Wednesday, Fed Chairman Alan Greenspan maintained his cautiously optimistic outlook on the economy.

"I continue to believe the economy is positioned to expand at a noticeably better pace than it has during the past year, though the timing and the extent of that improvement remains uncertain," he said.

Private forecasters expect an economic rebound by the end of the year, Greenspan said, "and certainly a number of elements should be working in that direction."

Still, even Greenspan isn't sold on the recovery.

http://www.cbs.marketwatch.com

Tech funds vanishing - John Waggoner, USA TODAY
May 5, 2003

The bear market has sent one in five technology mutual funds into oblivion in the past 12 months, a casualty rate four times higher than other stock funds. But the high death rate means tech funds could fare better in the future.

An astonishing 21% of all tech funds have either merged or liquidated in the past 12 months, vs. 6% of diversified stock funds and 11% of specialized funds, Standard & Poor's says.

The past three years, 16.4% of tech funds have merged or liquidated, once adjusted for new funds. Among survivors, another 23.3% changed investment style so much that they are no longer considered tech funds.

How could such widespread carnage be a good sign for tech funds? Fund companies often fall prey to the same failings they accuse individual investors of: selling at the market's bottom.

http://www.usatoday.com COMMENTARY

THE CROOKED CASINO KNOWN AS WALL STREET - Richard Spohr, SATC
May 2, 2003

Earlier this week, the long-awaited $1.4 billion settlement paid by Wall Street fraudmeisters was finally announced.

Not surprisingly, none of the 10 big Wall Street investment banks/brokerages pleaded guilty to anything.

Clearly, they were saying: "We're not guilty of anything. We have done no wrong. We are innocent as new-born lambs."

Yeah, right. Trouble is, these new-born lambs are in the business of shearing the sheep.

The fact is, these Wall Street crooks have absolutely no remorse or regrets for their deceitful, dishonest practices that have wiped out more than $8 trillion in investments of those who may have actually believed the recommendations from the conflicted, lying analysts.

Blodgett and Grubman may be gonzo, but there are thousands of other crooks in suits who are continuing to fleece the public.

These crooks - aided and abetted by the dishonest CEOs and number-massaging accouting firms - continue to present us with earnings numbers that are NOT TO BE BELIEVED.

The fact that corporations' fraudulant earnings reports can beat vastly lowered expectations shouldn't be surprising.

But my guess is that if they didn't fudge the numbers, they would fail to even beat the incredibly lowered earnings estimates.

FULL STORY

ADDICTION AND THE ILLUSION OF WEALTH - Ian Hodge, Bus. Reform
May 1, 2003

With interest rates at or near 50-year lows, and with unemployment increasing by 308,000, one is tempted to sit on the sidelines and see what happens. But there are some unanswered questions.

First, the unemployment rate needs to be considered in the light of demand for workers. We know unemployment is increasing at existing wage levels. But if wages continue to fall, what will happen to demand for workers?

Second, if wage rates fall, will this result in lower prices for goods and services. The answer to this question is easy: look at the number of specials being offered. Cars at 0% finance; whitegoods at discounted prices; clothing at special deals. Not all the time, but frequently enough to know that stores are pulling revenue by dropping prices.

For some reason, people find it difficult to follow the argument that purchasing power of money is more important than higher prices. If all prices fell, including wages, we would not necessarily be worse off. If wages fell slower than other prices, then we would actually be better off. The lower prices could mean that the dollar value of sales is lower, but people are actually better off due to increased purchasing power of the dollar.

Because too many people cannot follow this logic, they depend on the increasing prices to create the illusion of wealth. And increased prices require more money to pay the higher prices. This will be created either through the government mint or through credit agencies. Lowering the interest rates is an attempt to increase purchasing power through credit.

The dependency on higher prices as an indication of wealth is not one that can be sustained in the long haul. Try as we might, debt cannot go on forever. If it could there would be no economic collapses, no corporate and shareholder losses — and no bankruptcy.

Deep down, we know high prices caused by expansion of money and credit cannot continue. But hardly anyone, it seems, is willing to pay the price and eliminate debt from the family and corporate budget.

Until then, our economies continue as the economies of addiction: despite all that we know and the harm it does us, we will continue with the practice until we die or some dramatic circumstance halts us in our foolishness. Debt and death are related, which is why a debt economy is, in the long run, a dead one, just as a drug addict, in the long run, is a dead addict.

Unless, of course, the addict stops his addictive habits. And that is the challenge before us, to eliminate our economic and financial addictions to wrong practices.

http://www.businessreform.com

VIEWS ON QUALITY OF LIFE MOST INFLUENCED BY MONEY & FAITH
April 24, 2003 - George Barna, BR

(Ventura, CA) - Iraq, SARS, terrorism, a faltering economy, national image problems, moral decline – Americans have plenty on their minds these days. However, a large majority of Americans is generally comfortable with their quality of life at the moment, according to a new survey released by the Barna Research Group of Ventura, California.

Two out of three adults (66%) strongly affirmed that they are “very happy” with their current life, while another one out of four (22%) agreed somewhat with that notion – a total of nearly nine out of ten adults (88%) claiming they are happy with their life as it is.

A similar proportion of adults either agreed strongly (68%) or agreed somewhat (24%) that they “feel personally connected to other people.” Again, that represents nine out of ten adults (92%) who feel integrated into the lives of others.

Most people feel as if they have life under control. With so much attention devoted to the complexity of life in the new millennium, and the massive volumes of information that are available, some social scientists have argued that people are increasingly paralyzed by the stress of managing such a high -complexity/high-demand culture. Most Americans, apparently, disagree. Six out of ten (61%) agreed strongly that they “manage information and knowledge effectively”; another one -third (31%) agree somewhat that they manage the flow wisely.

Evidence of that capacity for control is seen in the fact that although two-thirds of all adults believe that religion is losing its influence in our society (66%), an even higher proportion of adults (70%) argues that they are effectively bucking that trend and their “religious faith is constantly growing deeper.”

Further insight into the comfort Americans feel is shown by the fact that they are cognizant of but not feeling overwhelmed by stress or complexity. For instance, only one out of every four adults (25%) agreed strongly that their life “keeps getting more stressful with each passing year” and just half as many (13%) agreed strongly that “life has become too complex to really understand.”

The one area tested in which Americans do admit to feeling challenged relates to their health. Only one-third of adults (36%) agreed strongly that they are presently in “excellent physical condition.”

Personal Background Affects Views

Religious faith showed a significant correlation with life perspectives. Evangelicals, for instance were substantially more likely than any other faith segment to strongly assert that they were very happy with life (84%), they feel connected to other people (85%), their religious faith is constantly growing deeper (89%), and they were the least likely to feel their life is getting more stressful each year (14%). The faith group most dissimilar to evangelicals was the atheists and agnostics. Those in this “non-faith” category were the segment least likely to feel very happy (57%), feel connected (57%), say their faith is growing deeper (19%), and most likely to feel their life is increasingly stressful (29%) and that life is too complex (16%). The responses of the other religious groups studied – such as non-evangelical born-again Christians, notional Christians and adults affiliated with non-Christian faith groups – fall in-between those of the evangelicals and atheists/agnostics.

http://www.barna.org

DOLLAR WHISPERS - Stephen Roach, Morgan Stanley
MAy 5, 2003

Don’t look now, but the US dollar is falling. That’s especially the case against the euro, but there has even been some slippage against the yen. And in recent days the greenback has also begun to edge down against the currencies of a broad basket of America’s trading partners. Could this be the beginning of America’s long- awaited current-account adjustment?

Curiously, the dollar has fallen just as US equity markets have begun to price in a postwar recovery. This seems to have taken many by surprise. Most like to think of currencies as a proxy for an economy’s relative growth potential. America has been strong, goes the logic, and the dollar should mirror that strength. Conversely, Japan and Europe have been weak, so the yen and euro should follow suit. Actually, that hasn’t been a bad framework over the past eight years. After hitting record lows in the spring of 1995, the broad trade-weighted dollar surged some 47% through early 2002 before giving up about 8% of that gain over the past 14 months. Not by coincidence, in my view, this sharp run-up in the dollar was accompanied by an extraordinarily lopsided US-led global growth dynamic. The United States accounted for fully 64% of the cumulative increase in world GDP (at market exchange rates) over the 1995 to 2001 interval -- double its share in the world economy. Currencies and relative growth performance have, indeed, marched to the beat of the same drummer for quite some time. Why shouldn’t that continue, especially if equity and credits markets are now starting to discount another bout of US-led global growth?

Barring the crash-landing alternative, I continue to believe that a weaker dollar is exactly what a dysfunctional global economy needs. In my view, an unbalanced world is in increasingly desperate need of a rebalancing -- less domestic demand growth in America and more elsewhere around the world. A weaker dollar may well be the only means to achieve such a result. From the American standpoint, currency depreciation should be seen as part and parcel of a classic current-account adjustment process. If that’s the case, dollar weakness should trigger a number of other macro developments in the US economy -- namely higher real interest rates, slower domestic demand growth, and a rebuilding of private sector saving. In effect, a weaker greenback should trigger an important and necessary shift in the mix of aggregate demand in the United States -- away from domestic demand and into external demand. A declining greenback could also be important in America’s battle against deflation -- having the effect of transforming imported deflation into imported inflation.

http://www.morganstanley.com