The Blessings of Deflation
Bill Bonner
*** Fret...fret...fret...we fret more than Chet Atkins...
*** A flashback...déjà vu all over again in the Nasdaq...
*** Bond yields rising...insincere pessimism...losing your head...an inferno...and more!
Make The Chinese Pay
There's a safe and simple way to make several times your money on a strange anomaly in the world's currency markets...without buying currency. This anomaly makes the Chinese government billions - at the expense of the United States. And when it ends (and it will) some will make billions.
The richest investor in America is already in this trade...and I'll show you how you can be, too. In fact, I'll show you how you can get in on this deal early, before other investors are even allowed...without buying foreign currency, and with just one simple call (or click) to your broker. Read the detailed report here:
A Curious, Tantalizing Currency Market Anomaly
What can we tell you about this market that you don't already know, dear reader?
U.S. bonds are so expensive; it is as if investors thought they were a no-lose proposition. So confident are they in the dollar, they are willing to lend at yields not seen since the Eisenhower administration.
There was a time, your editor recalls it, when investors thought lending to the government was a no-win situation. U.S. Treasury bonds were called "certificates of guaranteed confiscation" - an insight that might have come 20 years too early. Back then, inflation flared up so brightly, investors thought they would be consumed by it. The CPI was already rising at double-digit rates and investors saw no relief in sight. Had they looked around, they might have seen the towering figure of Paul Volcker with a cigar in his mouth and a firehose in his hands.
Now, by contrast, after 20 years of falling inflation, they see no danger. They should look around; now, instead of the firefighter Volcker, we have the pyromaniac Greenspan on the job, with a pack of matches! In the latest 3-week period, $100 billion has been added to M3. Greenspan adds dry tinder faster than anyone ever did...to a world stacked high with it already.
U.S. stocks, meanwhile, are almost as expensive as ever. The hundred largest Nasdaq companies are once again in the Land of Wishful Thinking. Putting them all together, they sell for 40 times the P/Es recorded at bear market lows. What could justify such prices?
[Short answer: "not much"... See: "Rate Cuts and Profitability" ]
But the Arizona Republic reports that even the tech sector, where most of those Nasdaq firms reside, is expected to shift more of its work overseas. It is one thing to export jobs from declining industries, but losing jobs from the nation's leading growth industries has to provoke a fret or two.
Fretting is our business here at the Daily Reckoning. We fret that the present echo-bubble in the Nasdaq is going to end badly, like the last one. We fret that bonds are near a top - and about to be ruined by a conflagration of falling dollar and/or rising inflation. We fret that somewhere, somehow, sometime, someone is going to have to pay for all this debt Americans so happily built up. And we fret that the U.S. economy has been weakened by too much credit...too many dollars...too little savings...and too much foreign competition, at much lower labor rates, which our own free- spending ways have helped create.
Of course, many readers mistake this fretting for pessimism. But if we seem pessimistic, at least we have a saving grace: we are insincere about it. Sincere pessimism is a curse and a bore. Our pessimism is merely superficial, like too much make-up on a pretty girl. Hose us down and we are as fetching as any other market kibitzer.
Deep down, as we try to explain, we are profoundly optimistic.
Yes, the world is going to Hell in a handcart - but that is where it deserves to go. And were people not to get what they have coming, it would be a far, far darker world than the gloomy place we see.
Bill Bonner
DailyReckoning.com
15 July 2003
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