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-- Posted Friday, 16 September 2005 | Digg This Article
Paris, France Friday, September 16, 2005 --------------------- *** The majority of major airlines have gone belly-up...the margin call from hell... *** Every step you take could lead further into a big mistake...homeowners' backs are against the wall... *** The null category gets no respect...the anti-asset that offers no discounts, and makes no excuses...and more! --- Advertisement --- WOULD YOU TURN DOWN ANYTHING WORTH $137,000 - if you could buy it for 98% off? THIS "Perfect Investment" IS YOURS FOR 98% OFF... but for a limited time only. On its own, this asset is worth $137,000. But for the next two weeks, you can buy it for 98% LESS than its real value. It could be the most perfect investment you’ll ever have a chance to get into. It is the only asset I know of that allows you to make money, save money and help your entire family grow wealthy -- forever. The best part is… It will never be affected by stock prices, bond prices or currency fluctuations, and the benefits are 100% guaranteed. It’s an absurd deal, really. That’s why it’s only open to 1% of our most loyal readers. And only until October 1, 2005! Don’t hesitate - grab your asset now! http://www1.youreletters.com/t/174248/4459110/779342/0/
--------------------- Ooh la la! Now, Northwest Airlines has gone belly-up, too. Out of America's seven leading airlines, four are bankrupt. What did airline executives talk about? Didn't they notice the obvious threat of rising oil prices? Were they stupid, or were they just unable to do anything about it? We don't know. We would like to feel superior... to think that we wouldn't have made the same mistake. Yet, but for the grace of God, we might all go Chapter 11. Sometimes each step you take seems like the right one; but before you know it, you are trapped in a swamp and then, it's too late. You are in a position in which any step you take will be difficult and painful. This is true in business, in war, investments, and even love affairs. "How did I ever get myself in such a jam?" you ask yourself. Then, you can retrace your steps; they almost always lead all the way back to a few innocent little baby steps you took long ago. You began a harmless flirtation with the woman at the flower shop; the next thing you know you are shacked up with her in a hotel on the Left Bank! Or, you began buying a few stocks...they rose. So, you bought more...they rose more. So, then you bought more on margin! Everything goes along just fine until you receive... The margin call from hell! "The market went down again last night," says the broker who encouraged you to buy the stocks. "Your position is underwater. You'll have to send another $50,000 or we'll have to liquidate it." Now, your back is to the wall. Even if you have the money, you have to ask yourself an important question: Do you feel lucky? Well, do ya? You could put more money in, but it's a losing position. "Cut your losses, the pros tell you, "let your profits run." In the last 12 months, comes the latest report, house prices in Southern California rose 17%. People feel lucky. In many communities, the average house is priced at $1 million or more. This means a gain of $170,000 in the year, or more than $14,000 per month for doing nothing. (More on doing nothing below) Good work if you can get it. It's no wonder people are keen to buy more houses on margin. They are doing the right thing... letting their profits run. They put up a very small part of the actual selling price. They bank on further increases. Every step they take seems perfectly logical, sensible and even smart. But every step takes them further into a situation that will eventually be very awkward and unpleasant. At some point, they are likely to receive a 'margin call,' but of a different sort. Prices will not rise; houses will not readily sell, even for lower prices. One expert, Robert Campbell, who writes something called the Real Estate Timing Letter, says his index for the California area has fallen 10 of the last 11 months. When prices fall, homeowners will still be making mortgage payments, while neglecting maintenance in the hope of unloading the property. Month after month the strain of carrying negative-yield property will increase. Eventually, like Delta and Northwest, they will have to give up. What will they do? They will do what New Orleans residents did when their houses were underwater: Get in the car and leave. More from our friends at The Rude Awakening: -------------- Eric Fry, reporting from Wall Street... "Soaring commodity prices are taking a big bite out of the profit margins of the very same companies that produce the stuff." What's an Ouroboros? http://dailyreckoning.com/RudeAwake/Articles/RA091605.html-------------- Bill Bonner, back in Paris: *** What happened that was interesting this week? Stocks were dull...ditto bonds...ditto real estate. But look at gold! It rose to a 17-year high yesterday (more on gold and other things, below). Yesterday, the price of December contracts rose $5.60 to $459.30. [Ed. Note: Speaking of gold, the upward trend is in its early stages and that the real move has only just begun. On that note, check out the Inaugural Gold Cruise, setting sail in January 2006. If you're in the northern hemisphere, it will be an excellent break from the biting cold of winter - not to mention a chance to get a leg up on some of the best investment opportunities in years. You can find out more here: The Inaugural Gold Cruise http://www1.youreletters.com/t/174248/4459110/779343/0/*** The Wall Street Journal begins to notice that America's competitive position is weaker than it thought. The Chinese save 40% of GDP, says the WSJ article. The figure is only 1% for the United States. The Chinese graduate nearly four times as many engineers. They have 20 million students at the university level and build 200 new research centers each year. As many as 20,000 new manufacturing facilities are put up every year in China. (When was the last time a single one was built in America?) But don't worry. America still has the world's most dynamic and flexible economy, right? *** The average cost of a family health insurance policy has risen to more than $10,000, reports USA Today. Some experts think it is as high as $12,000. We wonder how people afford it. Which reminds us of a routine by an English comedy group, in which one pretends to be an insurance executive... another pretends to know nothing about insurance. "Here," says the executive. "I'll explain to you how insurance works." "OK..." "Well, you pay us money each month." "Yes...and then what?" "That's it. That's all." "Oh...." --- Advertisement --- THE INVESTMENT CLUB YOU CAN'T GET INTO The Wall Street Journal recently reported that "there are now more than 430,000 households in the U.S. with a net worth of $10 million or more." You're about to have the opportunity to join them. Investment intelligence powerful enough to put $500,000 in your pocket over the next 12 months Learn more: http://www1.youreletters.com/t/174248/4459110/779344/0/ --------------------- The Daily Reckoning PRESENTS: The impulse to 'do something' to help the victims of Hurricane Katrina is so great among the masses in the United States, few dare to stand against it. However, Bill Bonner explains why sometimes inactivity preferable way to deal with this type of situation... THE IMPORTANCE OF DOING NOTHING By Bill Bonner The nation's newspapers and TV blabbermouths have been in full-throated yelp against inactivity. In the wake of the New Orleans inundation, they surf for sound bites. In those crucial hours, local officials "did nothing," they say. Federal officials, too, including the highest official, were nowhere to be seen, doing nothing. Nothing. Nada. Zilch. The null category gets no respect. The hollowness of it is repulsive. The emptiness of it is unbearable. Even nature is said to abhor a vacuum. The poor man who has nothing to say is a pariah. He is like the investment advisor with nothing to recommend, save cash. He will get no work as a hedge fund manager; he will not drive a fancy car, nor live in a beach palace at the Hamptons. And zero? For centuries the number couldn't even be found. Mathematicians didn't know what to make of a number that was not a number at all; but an absence of numbers, a graphic display of nothing... a round, empty hole. And pity the poor renters. While everyone else has been getting rich, the renters have been left behind, stranded... like people who showed up too late at an airline counter in Duluth just before a snow-storm, doomed to spend a weekend there. Imagine the conversations between husband and wife: "You did nothing! This was the biggest housing price boom in American history, and we missed it. Now, we'll never be able to afford to buy a decent house." Few things are as damnable as inaction. In politics, it is cause for recrimination. In marriage, even the Catholics allow for annulment in case of non-consummation. In finance, it is cause for regrets. In war, it is cause for firing squads. In conversation, an absence of words is embarrassing. When a man stares you in the face and says nothing, you assume he is thinking something dreadful. Unless he smiles; then you think he has lost his mind. The other problem with inaction is that there is never any excuse for it. Stalin's generals, charged with inaction during the early days of the German assault on Moscow, might have explained that they were busy with their mistresses, or attending a child's birthday party. Either excuse would be perfectly satisfactory to a civilized man, for both were better than killing people in order to defend the Soviet Union. But Stalin was scarcely civilized. And while the Soviet Union was abominable, Hitler seems to have offered something even worse. But how could they know that? And how could the poor husband know that house prices would rise? Of course, he could not; but his wife nevertheless holds him responsible, as if he not only saw the train coming, but intentionally failed to get on board. No, dear reader, inactivity is almost always unpardonable. But here, nevertheless, we say a kind word for it, maybe two. First, we point out that doing nothing is usually the best course of action, especially in public affairs and investments. Second, we deny the possibility of 'doing nothing' in any case. Since the entire world nurses a prejudice against inaction, the burden of proof is clearly on us. So, let us bend to our work like a field hand, knowing that our labors will be many, our rewards few. In public affairs, as in private ones, there is a powerful compulsion to 'do something.' The problem on the Eastern Front was not really caused by inaction, but by Hitler's desire to 'do something.' After the invasion and capitulation of France; and after the Battle of Britain, he found himself with time on his hands. Western Europe was buttoned up, from Poland to Spain; he was master of all and everyone. Only Britain held out. But he had not the means to invade Britain, so his eyes wandered across the map - as Napoleon's had done many years before - and saw Russia. He would have been much better off staying home. Then, Stalin's generals could have continued to bounce their mistresses on their knees, and hand out candy at birthday parties. Inaction would have begotten more inaction, in other words. And the world might have been a better place. And now we read in the news that the administration and Congress have finally sprung to action on the bayous. They are going to spend more than $50 billion! That the money will be almost certainly squandered seems to trouble no one. That every penny of the money could otherwise be better spent by the people who earned it, bothers neither conservative nor liberal. The impulse to 'do something' is so powerful, no one wants to stand against it. But our beat here at The Daily Reckoning is money. Are you ever better off doing nothing with your money? The answer falls in our lap like a ripe cocktail hostess: Of course. Warren Buffett holds billions in cash. He is probably the best investor who has ever lived. If he cannot find anything better to do with his money than to leave it in cash - effectively doing nothing with it - how can the average lumpeninvestor expect to do better? Is this the time to buy stocks? Probably not. Stocks are still relatively expensive. The idea is to buy low and sell high later. When stocks are high already, there is no alternative; you must do nothing. Is it time to buy bonds? Again, probably not. Bonds are expensive, too; yields are low. Will they become even more expensive? Will yields go even lower? Maybe. But we cannot predict the future. All we can do is look at the present and the past. We know, from past experience, that bonds have become more expensive almost every year for the last quarter of a century. At today's prices, you are not likely to make money in bonds, especially corporate and junk bonds. It is better to do nothing. But there is always real estate, isn't there? Since 2001, investors have made such rapid advances in the property market they would have made Guderian or Rommel envious. In the late summer of 1941, Guderian, the leading proponent of panzer-led blitzkrieg warfare, was racing towards Moscow. The man could not bear inaction; he took to the offensive even against his Fuhrer's orders. On the other side, the Russians were full of action themselves. Guderian faced Zhukov, who was beginning to understand how to beat the panzers. You know what happened next: Action produced reaction. Finally, the whole campaign ended in a bloody mess. But it is still sunshine for America's house buyers. Should you join them while the getting is still good? Or should you do nothing? 'Do nothing,' is our advice. Most houses are too expensive. You will get more for you money as a renter. Most likely, you will be able to buy later...at better prices. "You are either long or short," said our old friend Mark Hulbert, 20 years ago. "There is no such thing as a hold." What Hulbert was describing was the impossibility of inaction in the investment world. You may like to do nothing, but you can't. If you do not buy stocks, you buy something else. 'Nothing cannot exist; it has no meaning. If you have money, you must have it in some form. You must be 'long' something. You may be 'long' cash, as Buffett is, but that is just as much a something as being 'long' property or stocks. The real question is not whether you will do something or nothing, but: What will you do? When all major asset classes are expensive, the sensible thing to do is nothing. But since you can't do nothing, our advice is to do as little as possible. The trouble with cash is that it is much more something than nothing. Dollars are a gamble. They are IOUs issued by the world's biggest debtor. Despite nearly a hundred years of decline, the dollar is still expensive in our view. That is, they still buy something, but that they will buy less in the future is practically assured. Buffett hedges this gamble by buying foreign currencies. But it is still a gamble. A more perfect 'nothing' is gold. It is a sort of anti-asset. It pays no interest. It issues no press releases. It offers no guidance on quarterly earnings; it has no earnings. It does no mergers, no acquisitions and it never restructures. It hires no celebrity CEOs. It offers no discounts. It makes no excuses. But it is the thing that goes up when other assets, including dollars, go down. Gold is as close to 'nothing' as you can get. Buy it. Regards, Bill Bonner The Daily Reckoning P.S. Another proponent of inactivity is Chinese philosopher Lin Yutang. He is known as the philosopher of leisure and "letting go." His most famous quote usually angers Americans: "The busy man is never wise, and the wise man is never busy." You can get a copy of his book, The Importance of Living, at The Daily Reckoning bookstore: The Importance of Living http://www1.youreletters.com/t/174248/4459110/779349/0/Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons). To order your copy of Financial Reckoning Day at a discount, see The Daily Reckoning's bookstore: Financial Reckoning Day http://www1.youreletters.com/t/174248/4459110/776478/0/
-- Posted Friday, 16 September 2005 | Digg This Article
Previous Articles by Bill Bonner & Eric Fry, The Daily Reckoning
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