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Tuesday, May 10, 2005

Media misleading

STOCKS PLUNGE TO LOWEST POINT SINCE ELECTION, GOLDMAN TARGETS OIL BETWEEN $50-$105, DOLLAR DEATH SPIRALS.

On 4/16 the NYTIMES (page 1) decided to talk about how bad stocks and the economy has gotten. Had you bought 1 unit of the S&P at the open the next trading day you would currently be up 2.4% on the index. I'd like to thank the NYTIMES for calling the bottom on 4/16, unfortunately for most readers, the article makes it sound like 4/15 was the beginning of the end and put its readers in a position to sell at the very bottom to willing buyers like myself.

Through the end of 2004 every major media outlet was pounding the table on the dollar going to sh*t. Had you bought 1 unit of the US dollar index on 12/31/2004 you would currently be up 5%. And what is the reason for this dollar bashing? The trade deficit has been the main argument (although I've heard everything from slowing jobs growth to a surplus of housekeeping maids in CT). Last I checked we had a deficit bigger then this back around 1984 (massive when adjusted for inflation). The 80's & 90s turned into one of the greatest bull markets of the 20th century. At the same time Japan has a surplus and they have been in a bear market since 1990. What do you expect when people just sit on cash and don't spend it.

In Japan there is a culture of shame, where if you fail at something you don't do it again to spare your family shame. So after people have lost money in the stock market and real estate, the Japanese decided to avoid anymore shame by staying in cash. Japan is an extreme but much of the world shares Japan's sentiment to a lesser degree. Luckily for the US we have no shame. If we fail, we get back up and try again. We know that goods and the fruits of people's efforts are worth more then the paper we trade for it. We rather own a home, car, stocks, bonds and have a stocked fridge, because these things hold more value then cash.

In the media there exists a tendency to turn to legacy. Whenever someone comes on TV and says we should do something, the reason to end all arguments is; "We should do it because that's what they do in Europe". Why should we do what Europe does? Why is what's good for Europe good for the US? What makes Europe the pinnacle of a healthy society? Europe currently has the highest unemployment levels since WWII.

Finally there is talk that if all these other things don't kill the US, oil prices will. First I'd like to say that oil prices where higher in the 70's. Even so Goldman comes out and says oil could go as high $105. 3 days later oil tops out around $60 and has recently closed below $50 which already makes the Goldman report wrong since $50 was the bottom of the range. Keep in mind two things. 1) Basic law of supply and demand is that as prices go higher there is more incentive to produce and less incentive to consume . 2) Goldman is the biggest trader of oil these days, how convenient it was for that report to come out on the last day of the quarter to prop up the value of the huge oil inventory Goldman holds.

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