The facts roll across the bottom of your screen, the newspaper summaries roll into your e-mailbox, the custom search pages fill with articles of all types. You can easily spend your entire day watching prices and volume and trend lines flash across another screen while talking heads pump up and pump down in a corner reserved for gab. Do you really think any of this will make you a smarter investor or one whit wealthier? Maybe.
My goal is quite the opposite. What I am seeking are not the momentary byte grabbers who seem to fly along with every trend but instead those of us who have been on the inside, who know how easy it is to manipulate and who have a general distrust for anything that is being presented on a platter to the lumpen consumer.
Yes, the US economy is on a roll. We have all heard the good news. Yes, all the indicators are pointing to a repeat of the boom we saw in the 90’s. So why am I so skeptical? In the 90’s there was something going on; hyped, hyperhyped, superhyped? Yeah, but still there was a fervor that captured the whole world’s imagination. Japan, the champion had hit the skids and the new guy standing tall was the US, no longer weighed down his fat girth and rust belt but newly robust in his information age, Silicon Valley superhero robes.
We had reached a new age and all the world was jealous. We got it, they didn’t. We were in our cubes from 8 in the morning to past midnight building the virtual world of the future while they were fighting for shorter workweeks and subsidized villas on the Cote D’Azur.
Information and Eyeballs were the new currencies. Still, the old one, the dollar grew stronger and stronger as smart money from all over the world flowed into our financial markets—the cleanest, best managed, best run companies in the cleanest best-managed markets in the world. It was quite a moment and the Euro, the symbol or a new Europe fell from its original 1 Euro= $1.18 to I Euro = $.80. People from all over the world quit their jobs and came to Silicon Valley for the great gold rush. An IPO a day, then two or three a day. How could you not remember?
And guys like Warren Buffett? Well, they just didn’t get it. And guys like me, crowing “bubble”. Chicken Littles we were. Why wouldn’t you want to price some start-up that was losing money by the buckets-full at three times the value of General Motors? Information was money. Remember! How could you forget?
But really, something was happening. New businesses were being born and some of them would stay around and change a lot of people’s lives. Imagine, say, collecting just about anything without EBay to set the real price and availability.
The Internet is a communications environment like nothing to go before it and most of us cannot imagine living without it always on in the background and foreground.
So what, I ask rhetorically, is it that is fueling this present boom and if things are so great this week, Thanksgiving week, why is the dollar going down like a one-eyed prostitute in Bangkok? Okay, you’re right. Unkind language. But still, why if everything is so hunky dory are interest rates staying down, the dollar crashing and the markets shrugging?
Could it have to do with the fact that we have an election year coming up and some of the least principled political leaders in our much-besmirched history?
Short the dollar, friends. I, who’d like to see my assets rise vs. the rest of the world, instead of drop like soaked bread in a goldfish bowl, just can’t see things turning around anytime soon.
I think that is based on knowledge, not just information, folks. But maybe you know different. Maybe Alan Greenspan is going to push gold down as a symbolic way to weigh down the Euro. I don’t see it but I hear some of you saying it.
Remember, among certain folks, gimmickry beats discipline every time.
Copyright 2003 Richard Mendel-Black All Rights Reserved
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Gold’s Glass Ceiling There is widespread paranoia among goldbugs that some entity close to the US government quietly intervenes in the gold market when it reaches some invisible price target only known by those who foster the conspiracy. Several years ago, the glass ceiling number was $300 per ounce. Now that we are close to $400 the same kind of resistance seems to have been built into the markets. Several times in the last two weeks the price of the yellow shiny stuff started to cross $400 only to fall back. Once again, yesterday, it looked for a while like the momentum was building for a strong move across the goal line only to see late afternoon faltering. Gold, as you know, has no monetary value outside of a few coins that are minted in South Africa and Canada but it has traditionally been an anchor on which all but a few monetary systems remained tied to. Those paper or “fiat” currencies in the past that broke all links with gold or silver have consistently ended up on history’s abundant monetary trash heap. Politicians without the restraints of something real, will turn on the printing presses to save their skins. This is nothing new. Commodity traders will tell you that gold is a weak commodity trade since even when sold it is little consumed by industry (jewelry is sold by weight and value add, so the gold stock remains even after it is “used”) and has little other demand. Production, though relatively small, they will tell you, is sufficient to meet that demand. Even when it is hoarded as a safe island for investors, it remains intact, and can enter back into the market any time the price rises high enough for investors to make a profit. Furthermore, it is a lousy investment compared to stocks and bonds, they will say. So why would any government intervene by selling gold, since after all, all of the main holders of gold (the central banks) have pledged to stop selling in the open market? Is it psychological? After all, nobody, in the US, that is, seems to even notice how far down the dollar has fallen in the last 12 months –it now takes $1.19 to buy 1 Euro—so why would the price of gold have any psychological impact on American financial markets? I can’t say that I know and I am betting that gold goes over $400 and climbs above its last high of many years ago, of $416. The question then is, will it keep on going or is it merely following the Euro, Pound, etc. up as the dollar goes down? One thing is for sure, the dollar will continue to fall and gold will probably move in the opposite direction. So, does gold have some mysterious tie to the value of the dollar that someone in power may feel needs to be manipulated? We’ll see, soon enough. rmb email@example.com Copyright 2003 Richard Mendel-Black All Rights Reserved If you would like to reproduce any of RMB’s postings you must include the source of your quote and an email address firstname.lastname@example.org
Gold’s Glass Ceiling
There is widespread paranoia among goldbugs that some entity close to the US government quietly intervenes in the gold market when it reaches some invisible price target only known by those who foster the conspiracy. Several years ago, the glass ceiling number was $300 per ounce. Now that we are close to $400 the same kind of resistance seems to have been built into the markets. Several times in the last two weeks the price of the yellow shiny stuff started to cross $400 only to fall back. Once again, yesterday, it looked for a while like the momentum was building for a strong move across the goal line only to see late afternoon faltering.
Gold, as you know, has no monetary value outside of a few coins that are minted in South Africa and Canada but it has traditionally been an anchor on which all but a few monetary systems remained tied to. Those paper or “fiat” currencies in the past that broke all links with gold or silver have consistently ended up on history’s abundant monetary trash heap.
Politicians without the restraints of something real, will turn on the printing presses to save their skins. This is nothing new.
Commodity traders will tell you that gold is a weak commodity trade since even when sold it is little consumed by industry (jewelry is sold by weight and value add, so the gold stock remains even after it is “used”) and has little other demand. Production, though relatively small, they will tell you, is sufficient to meet that demand. Even when it is hoarded as a safe island for investors, it remains intact, and can enter back into the market any time the price rises high enough for investors to make a profit. Furthermore, it is a lousy investment compared to stocks and bonds, they will say.
So why would any government intervene by selling gold, since after all, all of the main holders of gold (the central banks) have pledged to stop selling in the open market? Is it psychological? After all, nobody, in the US, that is, seems to even notice how far down the dollar has fallen in the last 12 months –it now takes $1.19 to buy 1 Euro—so why would the price of gold have any psychological impact on American financial markets? I can’t say that I know and I am betting that gold goes over $400 and climbs above its last high of many years ago, of $416. The question then is, will it keep on going or is it merely following the Euro, Pound, etc. up as the dollar goes down?
One thing is for sure, the dollar will continue to fall and gold will probably move in the opposite direction. So, does gold have some mysterious tie to the value of the dollar that someone in power may feel needs to be manipulated? We’ll see, soon enough.
Copyright 2003 Richard Mendel-Black All Rights Reserved
If you would like to reproduce any of RMB’s postings you
must include the source of your quote and an email address
Being in Europe gives you a strange perspective on markets. After all, by the time the US markets open it is already 3:30 in the PM over here. The English, French, Germans, not to mention to the Chinese and Japanese have all pretty much spoken. Markets are up or they are down. They tend to move in synchronization. I wonder how many American investors even bother to check what the rest of the world has said before they get ready to make their own market moves in the US. Should the fact that the Nikkei was up or down have any impact? How about the FTSE or DAX or CAC for that matter? Are all these foreign investors merely making bets on where they think American investors will go that day?
In Europe the big financial news yesterday was that the two largest economies in the Eurozone, Germany and France were about to cheat on the guidelines that they so painstakingly laid out for themselves and everybody else in the single currency. Needless to say, the Spanish, Dutch and Finns, who were keeping their spending down below the limits, got a little miffed at the move by the big guys. What Germany and France said, basically, was that with stagnating economies they were going to go into a 4th year of deficit spending representing more than 3% of their respective GDP’s. The net result should have been a rush out the door for Euro’s and a stop in the dollar/Euro slide. No such luck for punters like me paying a 20% premium on everything I buy these days. For the umpteenth time in a row, the Euro gained slightly against the dollar. This on the heels of news that the US economy has sprinted ahead at its highest rate in more than two decades, news that should have sent interest rates upwards in the States and sent a signal that growth inspired inflation would soon be back on its normal levels, whatever those are supposed to be. Of course, the word here in Europe as they buy and sell Treasury futures is that US interest rates are on their way further down.
The US deficit at around 6%, of course, makes these Old Europe powers look like frugal poodles and shepherd dogs
What a perfect world we live in: The two largest economies other than the US, Europe and Japan lie at the feet of the US market like lap dogs waiting for their hormone-driven cousins to continue on their consumer driven buying binge. In financial-hormone zone, Cars get bigger –in comparison, you should see the little cute things their driving here in Rome called Smart Cars—Machouses get bigger and built at an even faster pace, durable goods sales are up and the markets move back to heights last seen in early 2001.
It all looks great! Americans print dollars and spend them on items made abroad. The foreigners –mainly Asians—build more factories, hire more people and make more things for the shelves of Wal-Marts or the virtual market on Amazon or Ebay. They take the dollars no questions asked and use them to buy more American Treasuries to finance even bigger American debts. It sounds like we have reached economic Nirvana. It is Thanksgiving Day eve and we certainly have much to be thankful for. We may be a little skeptical that it is all going to last but let’s hope.
In the dance of the perfect circle the Chinese RMB (not me) and the US$ dance in perfect harmony, like Fred and Ginger frozen on the shining screen, always brightly swirling, never a misstep, the ball will last forever, or so we hope.
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Dollar Vs. the World. What Me Worry?
If anyone came up to you and asked the question: Right now, you and your doppelganger in, say, Fredonia, both have equal net worth, without you or she doing anything different, with less than 2 years your savings will total 40% less, how would you feel? Would you want to change places, maybe? Of course, if that question had been posed about 3 years ago, and Fredonia switched for, say France, the above result would have been pretty much what has happened. This means that our European friends, without working any harder (in fact, they probably had more than twice as many paid vacation and holidays) and without doing anything wiser than participating in the right currency zone, in this case that of the Euro, have achieved these amazing results. Beats smart investing, doesn’t it?
Of course, if you live in the States and haven’t thought to travel to the Old World, you probably wouldn’t have noticed. Of course, being here in Rome, I’m faced with the situation on a regular basis, every time I open my wallet or go on line to check my credit card account, I’m looking squarely at the fact that it costs me about $1.20 for every Euro I spend. No big deal, I suppose, when you’re talking espresso or even a pizza but something a lot more meaningful as you bring up your hotel bills on the in house TV screen. I’d rather be bored by the BBC than face that music.
The reason stateside you hardly notice the exchange rate changes has something to do with the fact that most of the goods you buy are manufactured in countries that tie their currencies to the dollar, like China, and in the desire of my companies not to lose market share in highly competitive markets. So Toshiba or Sony aren’t likely to raise the cost of their gadgets because they are taking in less Yen on every sale. Instead, they too have shifted manufacturing facilities into the “dollar zone” countries while their central bank, the BOJ, actively tries to push down the Yen by buying up dollars on the open market flooding it with Yen, instead.
In Wal-Mart, prices stay the same and even as the Bush government tries to push up the price of underwear by slapping tariffs on the Chinese and has pushed up steel by protecting that industry from the rest of the world, despite a ruling to the contrary by the World Trade Organization. For Bush votes in the keystone state, you’ll just have to pay higher steel prices, at least until after the election or if a trade war breaks out, as the Europeans are threatening.
Japan and China are the major props keeping the dollar from falling even farther. But again, I ask the rhetorical question, why should any American worry about the value of the dollar? Wine? Cheese? Italian shoes? I don’t think so. Pride? Interest rates that may be forced to rise?
A cheap dollar, we are told, if ever anyone brings up the subject, is a way to stimulate the economy. It makes American goods cheaper when sold in places like Europe and Australia. So, can we expect major gains in exports in the coming year? Again, I don’t think so. Will Boeing beat out Airbus on a major contract? I don’t think so. Will Telstra go Motorola over Nokia? I don’t think so. Some American tourists may stay away from the Continent; some more Europeans may visit Niagara Falls. And up there at the Falls, maybe, a few more Canadians will stick their noses across the border. Prices do matter to them. They can compare head to head.
But a weak currency is first and foremost a symptom of something larger. A loss in the greater wealth of the country as we squander it on ever-greater quantities of Asian made tchotckes, is like a long-term disease that strikes the immune system. At first, you don’t really feel it, you may even look better as you lose a little weight, not, of course, until, there is finally a crisis. The problem is that we are living on the kindness of strangers. As long as the Chinese and Japanese continue to buy treasury bonds denominated in an ever less valuable currency to prop up their own internal economies (what a deal, low interest rates on a bond denominated in a falling currency), we have nothing to worry about. We can continue to run up more and more foreign debt, encourage our own plastic-bound consumer class to give it the old college try by going deeper and deeper into personal debt, and the government can merrily print more money than it takes in through taxes. What a deal!
As the man with the uncanny resemblance to Alfred E.Newman, might be heard to murmur: “What Me Worry?”
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One of the enduring themes of the late great internet bubble was the value of information. Information, it was claimed, was to become the new money. Now, with a little distance, thinking about it comes off a little tinny to the ear. Imagine me walking into the pizza-by-the-slice emporium over at Piazza Trilussa (I am in Rome, Italy that is) and ordering a big slice of pizza bianca. Two euros, the man says as he hands me the piping hot cut he’s just pulled from the shiny oven, and I turn back to him and say, “the odds are 8 to 5 that Roanoke is going to win in the 4th at Santa Anita”, it’s a good bet. Goodbye and we’re even” I don’t think I’d make it out the store, even if I rang the bell over the entrance he’s hung there for his customers to express their appreciation.
I mean information, what is it? It’s just data, right. What the guy might appreciate would be something like “listen, take my word and buy all the shares of MJBO you can afford and then go into hock, a friend of mine works in a law firm and he’s says they’re about to be bought by his client, TUVX at double the price they’re trading at. Well probably I would still have to give him the 2 euros but at least the next time he might listen to what I have to say, if the deal does go down and he is paying attention to things other, that is, than to the Shela’s sitting at the corner table, which he definitely is.
What we’re looking here in the Dymaxion Web obviously is not information. Every day our email box stretches across the screen with hundreds of free publications from all over the world, some of the best and worst money can buy. We have more information than we can possible handle. Does it make us even a wit more flush? I don’t think so. We are, if we were crazy enough to actually dig through half of it, that many hours poorer. What we don’t have enough of is the combination of information and knowledge and insight.
We tend to be very suspicious of the paid hacks, the yeasayers and neasayers who generally act like a bunch of blackbirds on a telephone wire. Not that all these guys are a bunch of hacks by any means, there are plenty of serious people out there. But still……we wonder. Why is it that nobody seems to get worried about persistently high unemployment numbers, good jobs that get financed here and sent abroad permanently, a trade deficit that has no equal in history and government deficit spending, not to mention personal indebtedness that is also at historical highs? To mention a few of the structural problems all this easy mony is creating.
Well, my experience tells me; if this were an issue that the powers that be was stressing, we’d hear nothing but how precarious a point we have reached. They’d be calling for a change of government and the head of head of the Central Bank. Sure, the US is in the special position of having a license to print all the dough the rest of the world is willing to take without any constraints –like backing it with gold, for example-- but can we not imagine a day when somebody says enough, I think I’ll price my oil in say, Yuan.
Well my guess is that is not going to happen soon. After all, we are financing all those jobs in China and Japan and India, aren’t we? They are like the banker who can’t call in overdue loans on his biggest customer for fear of causing a cascade of failures that would fall back on her. I think, by the way, that pretty much describes the ongoing and never ending saga in Japan, though I can’t claim to know too much about Japan.
What I do know is that the pressure is on those who do this thing professionally to come up on the bright side of things. I’ve been there. Most of the time nobody has to hold a gun to your head. Self censorship has a way of taking care of a lot of truth. Pumping has its rewards. After all, the suckers will aways come back for more. Just get the momentum rolling and in they will come.
As I’ve said, we here in Dymaxionwebville are looking for something else. The glimpses of knowledge of the knowledgeable, a web of intelligence across bounds. We’d like to know, for instance, what those numbers just released by a General Motors, say, really come down to. Are they selling more cars or is it money coming from the financing operations? And, if so, is that sustainable. And even more importantly, is this kind of safe bet where you can collect your dividends without worrying about your capital.
We know there is a lot of good well analyzed information out there. We subscribe to a number of ones already and are always looking for people who seem to cast a highly skeptical eye on things. I mean, after all, if it was so easy to make money legitimately, how come, all these guys were cheating their mutual fund customers a few pennies a day, here and there. I mean, hedge funds that charge their customers 5% and up to manage their money based on their sophisticated capabilities, reaching into the pockets of the average joe schlemiels, or lumpeninvesterat as the guys at the Daily Reckoning like to call them (us).
Does that make your blood boil? Does the flaccid reaction of the SEC make you want to barf in your spaghetti? That, dear readers, is how we feel today though, barf we won’t, in the excellent spaghetti alla matriciana at the local trattoria down the road in Piazza della Quercia.
Copyright 2003 Richard Mendel-Black. All Rights Reserved
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Being comfortably installed back in Rome for a little more than a week --after an absence of more than 30 years punctuated by a few tourist stays of no more than a couple of days every few years-- I can’t help but marvel at the entrepreneurial vigor of the Romans. The “old” city was always a cacophony of open air markets, shops, stalls and human sounds of grinding, scraping, sawing emanating from artisans fixing, repairing and even cleverly faking the antique pieces decorating grand apartments, ponderous museum and flea market stall. Of course, many of these skilled craftsmen have died out but taking their places are shopkeepers, café owners and restauranteurs, especially restauranteurs. Streets that were dark and mysterious once the workshops closed down are now lighted and full of life.
Impressively, the Roman authorities have gotten a real hold on the inner city traffic problem that once made navigation limb-threatening by practically limiting car movement to people who live in the quarters or who have specific business there. This has opened the way to buzzing scooters, like mosquitoes on athletic supplements, that can zip through everyplace but the special areas that are completely closed off to traffic like Piazza Navona and Piazza Santa Maria in Trastevere. Bikes and foot traffic now move freely through the old, winding cobblestone streets.
Rome, of course, is something utterly unique. There is no place on earth like it, no place with so many layers of history still visible (or invisibly hidden in the structures of medieval buildings sometimes built right on Roman temples), no place where so many centuries of vanity and vainglory have combined to allow for the ornate construction of palaces and churches representing the riches that the headquarters of the first great global enterprise, the Church of Rome, has spread around the city. Every Roman cardinal great or small for the last 600 years, every Pope, has left some mark, be it a church or two or a family palace and some of the mightier ones, flush with cash from their exclusive indulgence franchise and ready to monumentalize their worldly fame, transformed the entire city from a medieval village to the great Baroque wonder that it is today.
So yes, the city is full of tourist rightly attracted to this open-air museum and movable feast that is modern Rome. The steady supply of Euros these tourists bring with them acts like manure to a field of entrepreneurial mushrooms, and so in a myriad of shapes and hues, businesses sprout overnight in every nook and cranny of the city.
But beyond that there is a pattern. After all, the cafés are for the most part individually owned, not a bunch of Starbucks and Cosi’s, nor are the restaurants and snack bars Olive Gardens or TGIF’s. Something strange is (not) going here (take your pick); there are small grocery stores, small hardware stores, small household supply shops, small video stores, small whatever. What a wonder to see from the perspective of the big box world of Wal-Marts, Targets, Home Depots, Best Buys, etc.
Yes, there are giants here, most with not so glorious pasts as state-owned, or state-run monopolies: autos, big oil, big banks, telephone, TV. There are government jobs, of course, and a large public sector but still you have to marvel at how many small businesses have carved out enduring niches. I even found a little shop that specialized in casting and carving decorative plaster. It hadn’t moved from its spot in the back streets of Trastevere where it probably was founded long before I first got here and judging from the various white objects leaning in against every supporting surface, it hadn’t lost any of its market share.
What I’m getting at is a fundamental difference in our societies and perhaps between much of Europe today and that of the US. As Americans we pride ourselves on our self reliance, our individualism, our value of individual effort and personal competitiveness but the question then springs up like some kind of a dagger hidden beneath my cloak: where do we get to express this individuality in a society that is so clearly dominated economically and socially –think big media—by huge entities that have so heartily gobbled every market and are thus the only promising career choice for most of us. If most jobs are traditionally created by small businesses (this has been a truism of the US economy) and the playing field for small businesses shrinks from day to day –think manufacturing and think China, think retail and think Wal-Mart—we have to wonder and worry where new jobs might come from. Large corporations must think bottom line and globally. They are, after all, at the service of the shareholders, as they like to say. And if it is possible to move a backroom computer operation to India and run it for half the price with little or no loss in efficiency then who is to tell the CEO or board that this isn’t the way to go. When Wal-Mart places one of its mega orders for some doodad or other, it thinks price. It’s cheaper to set up a factory in China, along the way transferring technology and make it there. The American consumer wants those price cuts. Supposedly he or she doesn’t give a damn where the stuff gets made and how many jobs get lost in the Faustian bargain.
One problem, maybe: Can these consumers, tempted by the lowest borrowing rates in 50 years, and inundated with encouragement from media and government, run out their plastic forever? Okay, homeowners, got to double or triple dip but extending the amount they owe on their houses, presumably paying off their credit card balances and extending their limits to once more enter into the field of American battle, not Iraq but the big box down the road.
Maybe the Fed can keep printing the money forever without affecting much more than the price of the dollar if you happen to be abroad, like me, or the price of gold, if you happen to be long on the yellow stuff, also like me.
Then again, maybe not.