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The
New Millennium Signals Change
Although
the hoopla over the new Millennium took place on January 1, 2000,
historians pointed out that the actual first year of the next 1,000
began with 2001. For some, the third 1,000 years represents a
prophetic change marking the end-time predicted in the New Testament.
For others, we are supposed to find a new beginning marking a transition
from global fragmentation into globalization. Regardless of one’s
perspective or expectations there is a consensus that something was
going to happen. The question was, “What?”
Well
before the September 11th attacks, profound events and circumstances
suggested we were entering an unusual period. I perceived an eerie
mixture of optimism and doom as eight allegedly blissful economic years
under President Clinton drew to a close. Stock indices made new
milestones in the 2000’s first quarter despite forewarnings that the
Y2K bug would shut down our computerized civilization and usher in chaos
and confusion. Remember? Don’t fly. Don’t ride in
elevators. Take your money out of the bank. Don’t use an
ATM. While the Y2K meltdown never materialized, stock market
trepidation was well founded. Indeed, the beginning of the end
occurred after the Nasdaq made its March 2000 high.
As
the Joni Mitchell song goes, “Don’t it always seem to show that you
don’t know what you’ve got ‘til it’s gone…” In the
case of the Clinton years, many shared a first reaction that good times
were over. Bill was so good at presenting a positive and
comforting picture. He was warm and fuzzy. Perhaps too
fuzzy.
When
a phenomenon like Bill Clinton leaves the scene, there are bound to be
powerful feelings of pro and con… approval and disapproval.
In President Clinton’s case, there was even some disgust.
Astoundingly, Bill Clinton polarized the United States as we have never
seen since the Civil War. Conservatives and Liberals sliced the
nation right down the middle with a probability so remote that it defied
rational statistics. The new Presidency was a matter of a few
hundred votes in a single state. The Supreme Court ultimately made
the decision and the foundation of the most powerful world democracy was
shaken.
In
the most raw and hideous partisan showing, Republicans and Democrats
verbally slapped and pinched each other like a batch of spoiled brats.
All the while, America’s image at home and abroad began rapidly
tarnishing. More significantly, inept government was laid bare in
a stunning revelation that no one was really watching the store.
This was the wakeup call that went ignored until the tragedy of
September 11th. We have learned that there was a Millennium
Plot to detonate explosives in U.S. airports and celebration gatherings
on January 1, 2000. We discovered that the Clinton Administration
stood idly by despite repeated warnings that significant terrorist plans
existed among known radical Islamic cells within the United States.
As if the 1993 attempt on the World Trade Center was not enough, our
government had to wait for the complete collapse of the Twin Towers and
the deaths of thousands of innocent civilians before acknowledging the
threat and taking appropriate action. In truth, September 11th was
totally preventable. This is not with the benefit of 20/20
hindsight. The question, “Who knew?” is not applicable.
Everyone with half a brain in Washington knew.
The
attacks came because the United States had, in fact, become weaker
rather than stronger during the eight years of apparent prosperity.
As we fatten our wallets with paper gains, we turned a blind eye toward
the important considerations that included redirecting government
initiatives. What did we do with the mounting surplus from 1997
through 2001? Absolutely nothing. Did we work to shore up
Social Security? Did we reform Welfare and Medicare? Did we
clean up our environment? Did we build our military?
Shamefully, we did what most do when prosperity is thrust upon them.
We became complacent and lazy. Now, we are paying the price.
The
past year represents an unprecedented revolution back to a military
industrial complex and war orientation. What took almost two
decades to accomplish, one terrorist attack undid in two hours.
The world was working to melt differences and form social and economic
unions. The Cold War was ended. Doves were in fashion and it
was time to demilitarize and focus upon curing social and economic ills.
Just when a more peaceful world seemed at hand, we were plunged into
World War III. An adjustment of such magnitude requires a realignment of
thinking.
The
Recession
Is
it? It just might be. We’re getting close.
If
it looks like a recession, acts like a recession, and feels like a
recession, it’s probably a recession. This was the longest
recognition period I can recall for Uncle Sam and economic pundits to
come to grips with the reality… we are in a recession. It
started in 2000 and is building as you read this REPORT. It is not
over and will not be over for some time. The crash in stocks
coupled with over saturation in everything from computers to cell phones
has put an end to the Roaring 90s. It’s time to accept reality
and work with it.
Along
such lines, investors have been buffeted about by constant declarations
that “A bottom has been made.” If you tape interviews on CNBC
and CNN… or simply recall the statements, you know that the
“experts” have been encouraging investors to buy, buy, buy while
stock values have been going down, down, down. In the aftermath of
September 11th, analysts finally joined a chorus of “We’re in
trouble now.” Perhaps that is a signal we are getting close to a
recovery.
From
a historical perspective, there is likely to be more pain than gain in
the months ahead. A sickly retail season bodes more layoffs and
more spending cuts. Regardless of low interest rates, consumers
are not spending and companies are afraid to introduce new goods and
services. We have entered the most desperate period of stagnation.
Everyone wants to wait and see.
This
uncertainty is reflected by sporadic trends in stocks, bonds, and
commodities. Two years of rocketing energy prices did take their
toll. California did undergo an energy crisis. Enron has
collapsed. The system was (and is) flawed. We haven’t seen
the end of the contraction.
Adding
to uncertainty are wild fluctuations in commodity prices that have
imploded to multi-decade lows. A recession on top of a deflation
spells depression. But for the massive shrivel in interest rates,
there are few signs that the consumer sector will recover in 2002.
Military industry, on the other hand, may take up some slack.
However, the trickle-down from any military build-up will take several
years. What can we do in the meantime?
Since
the stock market is anticipatory, there is a good chance we can pick
some profit-packed sectors and issues. Bio- terrorism has
rekindled interest in bio- stocks. The Human Genome Project has
fueled possible cures for several major diseases including cancer,
arthritis, and even aging. Stem cells hold promise for similar
breakthroughs plus the ability to grow replacement organs and tissues,
rebuild injured spinal cords, and even clone limbs. It’s not
science fiction anymore.
This
same technology is yielding breakthroughs in agricultural engineering.
That’s right… It ain’t just farming anymore. It’s
agricultural engineering. Prospects for doubling and even tripling
yields are being tested. Toss aside the concerns over genetically
altered grains. You haven’t seen anything, yet. Over the
next decade, food is likely to become a major concern. Events of
2001 will inevitably lead to efforts by the United States and Friends to
support disadvantaged economies. Such programs center around food,
clothing, and medicines. The lead item is always food.
Already,
we are shipping tons of rice, bread, and staples to Afghanistan.
The political purpose is obvious. In the long run, any war against
terrorism must be conducted within countries of origin. It is a
game of “What have you done for me lately?” The U.S. must keep
the new Afghan government stable. This is a function of
contentment. If the population is fed, it is more likely to be
controlled.
From
a trading perspective, we should not be surprised to see increasing
government purchases for redistribution. The relief effort is
likely to be long-term and extensive. Traders who experienced the
1970s and 1980s long for a return of government programs. You
could always count on supports and redistribution to help a trend along!
Farming has been in a recession for several years. Extraordinary
yields and better conditions have redefined reference prices.
Consider that 2001 witnessed some of the lowest relative prices in
twenty years. More significantly, grain prices reached all-time
lows on an inflation-adjusted basis.
Beans
in the teens was an expression born out of the early 1970s when El Nino,
the corn leaf blight, and Russian Wheat deal took corn, soybeans, and
wheat to their highest levels… ever. That was almost
thirty years ago. The fact that farmers are able to farm with ever
decreasing values while costs of energy, machinery, chemicals, taxes,
and interest rates have moved higher is a miracle of modern production
technology. Improvements in seed, planting techniques, irrigation,
and harvesting machinery have made up for some cost differentials.
However, the situation is very tight. Thus, the recession is more
than a slowdown in retail. It spreads through rural America.
It
will be interesting to see what planting intentions reveal in 2002.
Will the general economic malaise translate into a decrease in 2002
acreage? In the past, farmers have been reluctant to leave fields
fallow. In particular, the lack of government intervention has
created a farming free-for-all where output is as important as price.
The unrestricted farming system is a new experiment. It is a
contribution to the domestic surplus. As long as we don’t put
farming out of business, the experiment will be viewed as a success.
Monetary
Realignment
When
viewing Japan’s situation and the potential for a continuing downturn,
there is a chance we will see a major monetary realignment.
Changes in currency parity during 2000 and 2001 were nothing short of
monumental. Currency fluctuations were not unprecedented.
Yet, we are seeing the Yen gradually return to 1980 levels. When
all else fails, realign your currency. This is an important
consideration. Much of 2001 was spent preparing for the next great
currency consolidation. As the Euro becomes real for European
consumers, we will determine if the French, Italians, Swiss, and Germans
are ready to give up their domestic currencies. Everyone is
hoping… praying for a smooth transition. Yet, the German
on the street has already expressed apprehension over the switch.
Any glitch could be an enormous setback for the Euro.
On
the other hand, I have pointed out that a surge in conversion from
Dollars to Euros could be seen during the first and second 2002
quarters, when Europeans acknowledge the Euro is a success. The
move to the Euro effectively concentrates FOREX into three major
standards; the Dollar, Yen, and Euro. As mentioned in previous
REPORTS, this progress moves toward regionalized currency markets
representing Euro/Asia, the Americas, and the Pacific Rim.
The
battle for 2002 will be between the U.S. Dollar and the Euro Currency.
The Yen is not going to be in the fray because a weak Yen is going to be
required to put Japan back on a progressive economic track. In the
meantime, Europe is concentrating upon intra-European trade as much (if
not more than) it cares about trade outside of immediate boarders.
If anything, Europe may be inclined to import more from the United
States after the final phase of consolidation is complete.
For
decades, the U.S. has managed to be a net importer. Still, the
Dollar maintained its dominance. The coming year will be the
first time the Dollar can really be challenged by a market that has the
potential to be as strong or stronger. This was the European
objective. For traders, currency trends are bound to be extremely
exciting and profit-packed.
As
we move into the New Year, keep in mind that futures markets off profit
opportunity regardless of market direction. Some of the most
impressive gains have been achieved during the recessions and
recoveries. Only when markets remain static do we see less chance
for gain. I wish all subscribers a happy and prosperous New Year
and look forward to serving you in the coming months.
Email:
Phil@commodex.com
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