The Daily Reckoning
Weekend Edition
April 30 - May 1, 2005
Baltimore, Maryland
By Addison Wiggin and Tom Dyson

MARKET REVIEW: REMINISCENCES OF A STOCK OPERATOR

Sunday is May Day, day of the international worker.

And as luck would have it, not fifty paces from our office
in downtown Baltimore, there sits an anarchist bookstore
called Red Emma's. So in a small display of solidarity with
the international worker, on Friday went to check it out.

We took James Boric with us...and a note pad...and a copy
of 'Reminiscences of a Stock Operator' by Edwin Lefevre
[See Book of the Week, below...]

James Boric is the publisher of a newsletter called Penny
Stock Fortunes and a trading system called the MST trader.
Seven out of every ten of his recommendations are
profitable...and since he started using his system nearly
three years ago, he has comfortably beaten the market.

'Reminiscences of a stock operator' – on the other hand -
is probably the single most important book on trading that
exists and James cites it as an important influence on his
trading strategy. So by reading pre-selected passages to
James, in this shrine to socialism, labor and non-profit
activity, we hoped he might spill the beans on his trading
system...

We started with this passage from chapter 3:

Livermore: "If somebody had told me my method would not
work I nevertheless would have tried it out to make sure
for myself, for when I am wrong only one thing convinces me
of it, and that is, to lose money. And I am only right
when I make money. That is speculating."

Boric: "There are a million different ways of losing money
in the stock market, but the fundamental fault I see is
almost always the same: Not having a system. Whether they
are lazy or they just like to fly by the seat of their
pants, I don't know, but the market always gets them in the
end. I'd say the biggest factor in my success has been
discipline...discipline to stick to a system which I know
is profitable even when I have ten losing trades in a row."

At this point our food arrived...hummus, celery sticks and
brown bread. We ignored this anarchist feast and dove back
into the book...

Livermore Ch. 3: "It takes a man a long time to learn all
the lessons of all his mistakes. They say there are two
sides to everything. But there is only one side to the
stock market; and it is not the bull side or the bear side,
but the right side. It took me longer to get that general
principle fixed firmly in my mind than it did most of the
more technical phases of the game of stock speculation."

Boric: "Yeah...very important...don't get married to your
positions. It's a classic way of losing money and another
reason for using a system. My system has no memory and it
doesn't care if the market's going up or down. My ideas, on
the other hand, can be influenced by almost anything, the
latest news story...a conversation...even the weather..."

Livermore Ch. 7: "When I am bearish and I sell a stock,
each sale must be at a lower level than the previous sale.
When I am buying, the reverse is true. I must buy on a
rising scale. I don't buy long stock on a scale down, I
buy on a scale up."

Boric: "Ok...the MST system is built on this principle.
Momentum, strength and trend. To make my picks, I screen
the markets for stocks that are moving with purpose. I'm
not trying to hit the peaks or the bottoms, but trying to
catch the move. It's a much higher probability strategy."

Livermore Ch. 5: "If a stock doesn't act right don't touch
it; because, being unable to tell precisely what is wrong,
you cannot tell which way it is going. No diagnosis, no
prognosis. No prognosis, no profit."

Boric: "Nothing needs be said. If it's not complying with
your system, don't touch it. You've gotta be strict..."

We picked up a newspaper from the stand next to our table.
It was called "Industrial Worker." We started reading from
it...

"May Day – Our Labor Day! May Day, when nature, herself in
revolt against the trammels of the ice and cold, with sun
and earth in harmony, preaches the gospel of progress!
...True, our masters have given one day a year as a day of
Labor. We, the militants of labor, want no day contaminated
and disgraced by legal sanction.

"Your Labor Day means the perpetuation of capitalism; ours
means its overthrow. Your Labor Day symbolizes the
enslavement of the workers; ours their approaching
liberation..."

"My Labor Day means golf," said Boric, polishing off his
fair trade coffee and packing his laptop away. "Let's
go...I've got a plane to catch..."

Regards,

Tom Dyson,
The Daily Reckoning

P.S. With Boric's permission, we posted the full MST
trading methodology on the Internet last week. Follow this
link to view...

http://www1.youreletters.com/t/135261/4882419/775372/0

--- Daily Reckoning Book Of The Week ---

Reminiscences of a Stock Operator
by Edwin Lefevre

The all time classic book on stock trading is a must-have
for every trader's library...Or buy the book on CD, so you
can listen in your car on the way to work...

Reminiscences
http://www.invest-store.com/dailyreckoning/mi/?i=2116

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------------------------

THIS WEEK in THE DAILY RECKONING: "Zebras that reside on
the outside of the herd are calculated risk takers. They
know there is always a chance a lion could pounce out of
the bush, wrap his gigantic paws around their neck and
fatally sink his fangs into their jugular. But the allure
of lush green grass, fresh water and the cool breeze is
worth the risk of an attack."

For more zebras and lions, see James Boric's superb essay
from Thursday, below...

A THOUSAND CLOWNS 04/29/05
By Bill Bonner
" Often, the best way to deal with something that you find
absurd is to take a step back and laugh. Bill Bonner
advises his readers to employ this strategy when trying to
decipher what our world leaders are really trying to save
the world from..."
http://www.dailyreckoning.com/Issues/2005/DR042905.html

AHEAD OF THE HEARD 04/28/05
By James Boric
" Last week, Steve Sjuggerud warned readers that now was the
time to bet against small-caps. Today, you get the other
side of the story - straight from the mouth of our small-
cap superstar, James Boric. Read on..."
http://www.dailyreckoning.com/Issues/2005/DR042805.html

THE MONEY SHUFFLERS' VIG 04/27/05
By Marc Faber
" The notion of one's child as a doctor sends chills of fear
down parents' spines, engineers gravitate to plying their
craft on money instead of real stuff, and the $600/hour
lawyers are depressed to the point of working nearly
24/7...
http://www.dailyreckoning.com/Issues/2005/DRUS042705.html

THE STORY OF ENERGY 04/26/05
By Addison Wiggin
" What would the world do without energy? Computer access
would be virtually impossible; businesses would shut down -
life, as we know it, would come to a standstill...."
http://www.dailyreckoning.com/Issues/2005/DR042605.html

INTRACTABLE PROBLEMS 04/25/05
By the Mogambo Guru
" Much to the Mogambo's surprise, more and more people are
realizing something must be done about the U.S.'s economic
difficulties, namely the twin deficits...but he also knows
that the solutions will be quite costly..."
http://www.dailyreckoning.com/Issues/2005/DR042505.html

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------------------------

HEADLINE, NEWS And INSIGHT: Lew Rockwell offers what he
regards as Bush's top ten economic errors - which might be,
he adds, the very errors that will make the next depression
far worse than it needs to be...it's all in this week's
articles posted on the DR website:

BUSH'S TOP TEN ECONOMIC ERRORS
By Lew Rockwell
" It was the markets, not government that discovered the
anomalies at Enron. All government regulations end up doing
is forcing companies to waste resources complying with
edicts rather than serving stockholders and consumers."
http://www.dailyreckoning.com/Featured/topten.html

A GOOD INVESTMENT – OR A GOOD STORY
By Mark Tier
" If you pick up any issue of Forbes, Fortune, or any other
business or investment magazine, you'll find the same
principle of 'boosterism' at work."
http://www.dailyreckoning.com/Featured/GoodInvestment.html

TREND NEARING THE END
By Peter Schiff
" I don't think there has ever been a greater 'can't lose'
consensus…Combine this 'irrational exuberance' with
unprecedented access to cheap credit, its no wonder that
the Fed has succeeded in creating the mother of all
bubbles."
http://www.dailyreckoning.com/Featured/TrendNearingtheEnd.html

------------------------

FLOTSAM AND JETSAM: U.S. Dollar Forecast - "Still Room for
a 20% Rise In the Buck"

By Dr. Steve Sjuggerud

Greetings from Zurich, Switzerland - what has to be the
world's most expensive city...

Man, it's living up to its reputation. The Bar Au Lac hotel
is going to run me more than 640 Swiss francs a night. And
I scribbled down the prices of what I ate for lunch at the
Brasserie Lipp... "Salad with Asparagus" (28.50 francs) and
" Grilled Beef Filet" (49.50 francs).

In plain English, that means my hotel is over $500 dollars
a night... and those two lunch selections ended up running
over $60 bucks. Ouch!

Wait a minute! Now, before you give me a hard time for
spending too much, let me just tell you, this is the way it
is in Zurich. The U.S. dollar is worthless here, which
makes me wonder about the U.S. dollar forecast.

While everyone talks of a dollar crash, this trip to Zurich
is more evidence that the dollar has already crashed.
Europe is outrageously expensive. And some time soon, the
exchange rates between Europe and the U.S. will move back
in line... meaning the euro (and Swiss franc) will fall,
and the dollar will rise.

You Can't Buy Nothin'

Two classic gauges of prices around the world are a cab
ride from the airport and high-speed Internet access...
These are not "prized" activities; these are part of
everyday international business. And here, yet again,
Zurich proves it's outrageous...

Our 10-minute cab ride from the airport to the Bar Au Lac
was $50 bucks. Now again, don't think I'm living high on
the hog - this wasn't some sort of limo or black car
service. It was a dingy (for Swiss standards), small, old
white European van (if you've been in Europe, you know the
little vans I'm talking about). Fifty dollars!

And you won't believe Internet service. I pay about $40
bucks a month at home for high-speed Internet. Here in
Switzerland, it's over $40 a day! No joke! Since the city
of Zurich is wireless, the hotel doesn't have wireless
access for guests. So I have to pay SwissCom daily for
wireless access.

Of course, if you sign up for a week's access, they'll give
you a discount... 200 francs for the week. That's $167
dollars in a week for high-speed Internet!

The U.S. Dollar Forecast: Why the Buck Could Strengthen by
20% or More

I track three primary indicators for currencies...

Interest rates. All things being equal, the country with
the higher yields will see its currency rise versus the
country with the lower yield (deposits in the U.S. pay
nearly 3%, while Swiss ones pay less than 1%).

Purchasing power. When one developed country's currency is
significantly out of line with another developed country's
currency, it's like a stretched rubber band - things return
to "normal" over time. (A Big Mac in Switzerland, for
example, is 82% more expensive than a Big Mac in the
States, according to The Economist magazine).

The underlying trend. Trends in currencies tend to stay in
motion for longer than people think. In 2005, the trend in
the European currencies has been down versus the dollar,
but so far the fall has been minimal... and there's plenty
more room on the downside in the euro and the Swiss franc.

Of course, Switzerland is an extreme case. With the
exception of the dollar's massive rise in the mid-1980s,
Switzerland has always been more expensive than the U.S. -
by about 30%. The currency markets seem to like the stable,
conflict-free economy with a solid legal system and a
country with significant gold reserves.

Forecasts for the Euro: Overvalued and Struggling

However, the euro area does not include Switzerland. The
euro's big countries are Germany and France, which are
struggling much more than the U.S. right now. A few
examples:

Interest rates are lower than the States, at closer to 2%.
A Big Mac in Europe (for example) is 25% more expensive
than the U.S.
The trend in the euro in 2005 has been down, though the
fall has been mild. The ducks are in a row.

Zurich is the most extreme example... but Europe is darned
expensive, any way you figure it. The rubber band of
currency values is stretched to an extreme right now.
There's no good reason a Big Mac is 25% more expensive in
euros. A Big Mac will return back to "normal" pricing in
euros. And the way that will happen is the expensive euro
will lose some of its value.

You may not agree with my U.S. dollar forecast. That's
fine. You don't have to "buy" the dollar, as I have been
recommending this year. But you really ought to think twice
about any holdings you might have in euros.

I am here in Europe now, doing the research... and I am
poorer for doing it, as the U.S. dollar is so unbelievably
weak right now. The rubber band will bounce back. It always
does.

Good investing,

Steve

P.S. For those of you who are interested, my research led
me into a meeting with some Zurich-based investment
bankers, and, as luck would have it, we literally stumbled
onto a fantastic new investment idea. Here's the story:

"How I Found the World's Best Investment in the Underground
Vault of a Private Swiss Bank"

http://www.agora-inc.com/reports/SCF/WSCFF406

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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