The Daily Reckoning
Weekend Edition
February 19-20, 2005
Baltimore, Maryland
By Addison Wiggin and Tom Dyson
MARKET REVIEW: WHAT THE CHAIRMAN SAID
Mr. Greenspan has been talking.
On Wednesday, testifying before the Senate Banking
Committee, he said he couldn't understand why bond rates
were so low. The economy has strengthened, he pointed out,
inflation is stirring up and I've made it clear rates are
going to keep rising. His exact words were: "The broadly
unanticipated behavior of world bond markets remains a
conundrum."
His comments made the bond market dive. But the sell off
didn't end there. The latest reading of the PPI was
announced on Friday morning, and bond prices gapped lower
again. The reading showed the fastest rate of acceleration
in wholesale prices for 6 years.
What is so remarkable - it that this time - it's core
inflation that is rising so fast. The core rate is simply
the usual PPI reading minus energy and food. The wonks in
Washington say the full-blown PPI is too volatile, so they
watch the core rate instead. They got a shock on
Friday...the core PPI reading for January was 0.8%, or 10%
annualized.
The 10-year Treasury bond started the week with a yield of
4.09%. It ended the week at 4.26%. The week before last,
10-year yields dipped below 4% for the first time 4 months.
We come back to Greenspan. On Friday he testified before
the House Financial Services Committee. He turned his
attention to the housing market. "I think we're running
into certain problems in certain localized areas," he said.
"
We do have characteristics of bubbles in certain areas."
He once said he couldn't spot a bubble until after it had
burst, so this one must be a real corker. Maybe he's
noticed how expensive those trailers are on the coast in
California?
In yesterday's edition of The Daily Reckoning, Byron King
reported how trailer parks in coastal California had
transformed themselves from trash into treasure, and how
some mobile homes there were selling for seven figures.
"The value of mobile homes within walking distance of the
surf has shot up tremendously in the last few years,
reflecting a dramatic change in status for these
dwellings," said Byron's reference, the Los Angeles Times.
"
Mobile homes with breathtaking views of the Pacific hover
in the $1-million range in places such as Malibu's Paradise
Cove and nearby
Point Dume Club."
Even if you buy one of these things, explained Byron, you
still have to rent the land from the trailer park!
Characteristics of a bubble indeed.
After his comments on housing bubbles, Greenspan turned on
the GSEs. He advised them to trim their balance
sheets...saying Fannie and Freddie shouldn't hold mortgage
portfolios totaling more than $100 billion to $200 billion
apiece. "Enabling these institutions to increase in size -
and they will, once the crisis passes - we are placing the
total financial system of the future at a substantial
risk," he said.
For comparison, according to Greenspan, Fannie's current
portfolio is about $905 billion, while Freddie's is $654
billion. Fannie's portfolio has more than quadrupled in the
past decade, while Freddie's has grown nine-fold.
Despite Greenspan's effluvium and the sell off in bonds,
the markets held up pretty well. The Dow lost 11 points
over the week, to close at 10,785. The Nasdaq lost 18, or
0.87%, to end the week at 2,059.
Gold, silver and oil went up, while the dollar went down.
[Ed. Note: For the market numbers in full, check out the
new quotes box below.]
Regards,
Tom Dyson,
The Daily Reckoning
P.S. As you just read, Greenspan has finally spotted it - a
bubble in real estate. When the Chairman joins the party,
it's probably time to leave. Do you live in a region where
house prices have been rising? Have you thought about
selling but the hassle of moving houses is just too great?
Now there's a solution...and it has been detailed in this
brand new report exclusively for readers of The Daily
Reckoning:
The Real Estate Misery Next Door
http://www.agora-inc.com/reports/DRI/FannieF218
P.P.S. Your sometime weekend editor, Addison Wiggin, has
contributed this week - for the first time in months!
Scroll down to the section below we call 'Flotsam and
Jetsam' for his piece...
--- Market Data ---
Friday
Thursday
This week
Year-to-Date
DOW
10,785
10,835
-11
0.0%
S&P
1,202
1,210
-4
-0.9%
NASDAQ
2,059
2,087
-18
-5.4%
10-year Treasury
4.27%
4.16%
0.18
0.05
30-year Treasury
4.65%
4.52%
0.17
-0.18
Russell 2000
630
639
-5
-3.3%
Gold
$427.42
$425.55
$6.62
-2.3%
Silver
$7.42
$7.22
$0.24
8.9%
CRB
290.66
288.57
4.48
2.4%
WTI NYMEX CRUDE
$48.35
$48.33
$1.19
11.3%
Yen (YEN/USD)
JPY 105.64
JPY 105.45
0.06
-3.0%
Dollar (USD/EUR)
$1.3068
$1.3026
-200
3.6%
Dollar (USD/GBP)
$1.8945
$1.8845
-265
1.2%
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This book by tax attorney Fred Daily offers practical
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------------------------
THIS WEEK in THE DAILY RECKONING
Tabloid Truths 02/18/05
By Bill Bonner
"The British press thrives on scandals of their citizen's
private lives, but is that really any worse than the force-
feeding of opinions and other people's politics that goes
on in American papers?"
http://www.dailyreckoning.com/Issues/2005/DR021805.html
The Nation That Debt Built 02/17/05
By Dan Denning
"America has become a country of risk-takers - and it's not
solely homeowners and investors taking these
chances..."trusted" government officials have made promises
they can't - and never intended to - keep..."
http://www.dailyreckoning.com/Issues/2005/DR021705.html
Out Of Aces 02/16/05
By Chris Mayer
by Bill Bonner "A tale has been told over and over again
throughout financial history: Overly confident businessmen
and women that gulped at success and became drunk with
power...only to be stuck with the aftertaste of defeat."
http://www.dailyreckoning.com/Issues/2005/DR021605.html
Saving Spree 02/15/05
By Gary Schilling
by Bill Bonner "Everyone involved in the financial world
has been speculating on what is in store for the New
Year...will the dollar rally vs. the euro? And when will
the housing bubble burst?"
http://www.dailyreckoning.com/Issues/2005/DR021505.html
No Rest For The Retiree 02/14/05
By The Mogambo Guru
by: Bill Bonner "Remember the good old days, when people
looked forward to retirement, thinking that their IRA or
401(k) would take care of them long into their golden
years? Now inflation forces retirees to take on another
job..."
http://www.dailyreckoning.com/Issues/2005/DRUS021405.html
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------------------------
HEADLINE, NEWS And INSIGHT:
Grief for Risky Investments
By Gary Shilling
"A serious recession in China would reveal the mountains
of excess capacity that is now being built with the aid of
direct foreign investment. A hard landing in China will
also reveal the strength of her internal demand."
http://www.dailyreckoning.com/Featured/GriefforRiskyInvestments.html
Paved Paradise
By Bill Bonner
"...Whether this would actually reduce energy consumption
or not, we don't know, but the changeover would require
massive new capital investment and retooling - which,
itself, would mean the consumption of much more energy."
http://www.dailyreckoning.com/Featured/PavedParadise.html
------------------------
FLOTSAM AND JETSAM:
By Addison Wiggin
We have a personal anecdote to recount today -- one that,
with any luck, will help you make some good money in the
stock market...starting with as little as $200.
The story begins before there was The Daily Reckoning...
Back when we were young, spry, full of vim and vigor and
convinced that the world was still our oyster... I worked
on a project with Dan Denning, now editor of Strategic
Investment.
The project was simple. We wanted to prove that starting
with as little as $200 you could pick good small-cap stocks
before buy recommendations were issued by institutional
firms... and compound your returns.
Being young and idealistic, we applied what economist
Joseph Schumpeter called "creative destruction" to the
small-cap market. The theory goes like this...
A capitalist economy is always in a state of flux. New
ideas beget new companies...which displace and destroy old
companies. And the cycle continues. If we could identify
the new up-and-comers before Wall Street got wind of
them... we could ride them to the top.
We discovered a system for identifying winning small-cap
stocks that had growing sales, booming earnings, low
multiples and rising profit margins.
Of course, it was 1996 and the absurdities of the stock
market bubble weren't even the figment of anyone's
imagination. Greenspan's warning of "irrational exuberance"
was taken about as seriously by young bucks like us as if
you had just warned a teenage boy that teenage girls can be
dangerous to his pre-pubescent psyche.
When the bubble began, I left the project and soon began
documenting the absurdities of the stock market mania in
Paris with Bill Bonner. Even Dan Denning left the small-cap
world for Strategic Investments -- but not before he
brought James Boric on board.
Let me tell you something about James: he is one of the
finest young minds this industry has seen in at least 15
years. James is not only smart and quick on his feet, but
he also works like a dog. He's bright, intelligent...
eager. And most of all, he's confident.
I wonder though, is he too confident?
Just this week, our ebullient, in-house small cap sleuth
says he's found the two best stocks you could possibly own
in 2005.
James is so sure he's found this year's big winners, he's
willing to pay you DOUBLE the cost of a subscription to his
advisory service - if he's wrong.
Double the subscription price, eh?
Let me explain something. I'm James' publisher. It's my job
to root out any hair-brained scheme he might come up
with... before he gets a chance to send it to you. After
all, I'm the one who has to foot the bill if he's wrong.
So... I did a little digging myself. Not that I don't trust
James. But this is my business we're talking about here.
Here's what I found...
The first stock Boric found trades for $3 on the NASDAQ.
It's cheap at 12 times earnings and has a Q over Q growth
rate of 28.6%.
It's a jewelry company that sells lots of gold. And it's
getting ready to open 120 stores in China. In 2005 its
Chinese revenues alone will likely total $40 million. Not
bad considering its total world wide sales amounted to
$58.1 million last year. And by 2008 its Chinese revenue
alone should swell to $120 million - more than twice its
total revenues last year.
Okay, so far so good...
The second stock also trades for $3. It has guaranteed
sales of $400 million in 2005, $373 million in 2006, $400
million in 2007 and so on. All the way to a high of $510
million in 2010. And it will continue to produce until at
least 2013.
That means between now and 2013 you can buy stock in a
company that will throw off billions of dollars in sales.
That sounds pretty interesting...
But I remain skeptical. I love this guy, Boric. But having
just moderated his debate at the World Money Show in
Orlando with Dan Denning over whether there is any value
left in The US market... I have to tell you, James has me
worried.
He's just so passionate about his ideas. Still his track
record is hard to ignore:
Boric has led his readers to gains of 233.85% on SIRIUS
Satellite Radio (SIRI), 65.6% on Drugstore.com (DSCM),
62.35% on Orbital Sciences Corp. (ORB), 146.67% on China
Yuchai (CYD), 73.98% on Select Comfort (SCSS), 87.5% on
Alloy Inc. (ALOY)
And his readers think he's some sort of small-cap messiah.
See for yourself...
Mr. Balboni, 72, wrote in to say...
"... I bought 4,000 shares of CDE on 7/10/03 at $1.57 and
sold 3,000 today at $5.43 for 245% gains! Thank you. My
devastated IRA is coming back. Another year like this and I
will have recouped all my losses, which is great since I am
retired (age 72).
Keep up the good work. I will never go back to letting
"
financial advisors" handle my investments... ."
And Gary [who] wrote in to tell us...
"Dear James,
"... A lot of talk about patience and holding on to a stock
for the best returns. I bought (upon your recommendation)
SIRUS stock back in April 03 at 66 cents a share and held
on to it for my own reasons and in the long run I watched
it go up (over $9.00) and down and now it is at $6.50 a
share or 879% return. Thanks again. Here's hoping that it
goes higher still.
-- Gary"
At the end of the day, we don't know if James if onto
something huge, or out of his mind. But I can tell you
this... no one works harder to find quality investment
ideas than Mr. Boric. And I've never seen him this hot and
bothered about a couple of stocks.
Heck, he's so sure of these two stocks, he's offered to pay
you back double the subscription price if he's wrong.
He'd better hope he's right... cuz now, his job's on the
line. To find out what has Boric so sure these are the two
best stocks to own for all of 2005. Read his full report:
http://www.agora-inc.com/reports/PNY/WPNYF232
Warm Regards,
Addison Wiggin,
The Daily Reckoning
P.S. Anyone who knows Boric, knows he isn't usually a cocky
guy. But he's so sure that he can help you make money in
the small-cap market, he's willing to make you the boldest
deal I have ever seen. If you try his service and can prove
he failed, Boric is willing to refund you TWICE what it
costs to join. For his sake, he had better be right...
http://www.agora-inc.com/reports/PNY/WPNYF232
The Daily Reckoning is a free, daily e-mail service brought to you by the authors of the NY Times Business Bestseller Financial Reckoning Day.
To learn more or subscribe, see: www.dailyreckoning.com
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