THE REAPER MARKET COMMENTS Prepared by R.E. McMaster, Jr.
General Market Comments
(January 10, 2001) With all the carnage that has occurred in the stock market ($4 trillion lost), we are immensely pleased that The Reaper's Long-Term Investor's Portfolio has done spectacularly. Our foreign currency and Eurobond positions are up sharply (25% of the LTIP). The next 25% of the LTIP, which is held in U.S. Dollars, has earned interest. Our mining stocks are effectively moving sideways, but throwing off a healthy cash return. The Rydex URSA Fund (RYURX) continues to appreciate. And our individual commodity, resource, speculative and income stocks have collectively done beautifully. All the while, Internet stocks, which we do not own, are down 75% to 80% on average, in less than a year.
The debt crisis, which is affecting the consumer, corporate and the utility sectors of our economy, has negatively impacted the Dow Jones Utilities, which, in three days, wiped out all of the gains achieved since early August 2000. And while we are on the subject of energy, consumer confidence is burning out from natural gas prices having quadrupled from $2.50 to $10.00 in the last year, doubling in just seven weeks in fourth quarter 2000.
It is surprising, and deflationary and recessionary, that gold has moved sideways/lower for the past 2-1/2 months, while the U.S. Dollar has double topped and moved lower. Gold normally moves up when the U.S. Dollar moves down. Moreover, with the strength in the Australian Dollar over the past two months, a gold producing currency, gold, under normal conditions, would have strengthened. February gold needs to close above $278 to establish a significant intermediate bottom and uptrend.
Leaning against consensus thinking, I think Alan Greenspan is at core a wimp, a weak personality, like a little old cowering college professor who hides behind his Ph.D. Alan Greenspan was pro-gold when it was popular to be pro-gold, but shifted just like a leaf blown in the wind when he had a chance to take over the headship of the Federal Reserve. Going from a gold-bug to a Keynesian is basically Alan Greenspan having a monetary sex change operation. Alan Greenspan wants to accommodate whoever is in power, first Bill Clinton, now George W. Bush. Don't be surprised if his efforts at the Fed fail. Then we will have mass disillusionment.
We are about to fall into the Dawn of Darkness as the Age of Aquarius descends upon us January 20. It is dark in terms of what our Founding Fathers wanted this nation to be. And with George W. Bush being sworn in on that day, one can't help but wonder if he won't, as we expect, be the fall guy for all the economic, financial, social and political mishaps which impact this country over the next four years. But, at the same time, George W. Bush is old guard Eastern Establishment Internationalist. So, we had an old Soviet-style election. Welfare recipients now will be big international business corporations, courtesy of the Republicans. This is in contrast to the welfare recipients under Clinton, which were the social and political liberals who feed shamelessly at the federal trough. You and I subsidize both with our taxes.
The U.S. economy is not doing well, and as 33% to 36% of global GDP, as goes the U.S., so goes the world. We remain vulnerable also to the probability of a Middle East conflict this spring, as the U.S. presently imports 66% of its crude oil from foreign sources. Let's just hope that George W. Bush will open up the federal lands for oil and natural gas exploration that Bill Clinton closed down.
Even though Japan imports all of its petroleum, and has been depressed for a decade, in some cases the U.S. is in a worse situation than Japan. The U.S. does not have the savings rate of the Japanese people, nor the peaceful, harmonious social, ethnic, and nonviolent racial environment. And while Japan has financial strains, it doesn't have the comprehensive credit crisis facing this country, either. There are now over $80 trillion derivatives globally, a significant percentage of which is held by three of the largest New York banks. The junk bond and emerging country bond meltdown is creating an additional money crisis, to go with the natural gas and oil price shock of Y2K, the high tech slowdown, which created 80% of the jobs over the past three years, and the slowdown now in consumer confidence, leading to cutbacks in borrowing and spending, at a time when consumer spending has comprised up to 80% of economic activity.
Who cares if the glass is half empty and being further emptied. As long as we are in touch with reality, as long as we are in touch with the trend, we can take action that will increase the likelihood of us experiencing a positive outcome. And our LTIP has done just that!
Both the CRB Index and the Goldman Sachs Cash Commodity Index are neutral.
January 10, 2001 R.E. McMaster, Jr., Editor The Reaper P.O. Box 84901, Phoenix, Arizona 800-528-0559
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