Zbigniew Piekarski On why Germany is showing us what the future holds
Nothing is more suicidal than a rational investment policy in an irrational world.
- John Maynard Keynes
The Germans have a reputation for precision, organization and a lack of humour, yet the Dax is one of the most capricious and volatile of indexes. It shows that the German nation is one of the most charitable in the world - rejoicing in the success of others, whilst maintaining dignified stoicism to their own increasing impoverishment.
On Friday, October 3, the September economic report from the USA propelled the Dax upward by 4.8 percent. Most of the other European Bourses rose by around 2 percent, while the DJIA and SP500 peaked at 1.5 percent. Many investors were slaughtered on this day, particularly those who were convinced that government bonds were safe, or those who had listened to the Jabberwockies and invested in gold and silver. All sustained record losses.
Still the Jabberwockies on CNBC were ecstatic. The lagging unemployment indicator immediately became the leading employment indicator.
The creation of 57,000 jobs, the first positive statistic in eight months, seemed significant. That these statistics are notoriously unreliable and subject to revision was conveniently forgotten, as was the fact that it took the creation of 200,000 jobs in a month to have a positive influence on the market in 1997.
This significant difference in numbers supports R.R. Prechter's saying - "Bear markets slide down a slope of hope, whilst bull markets climb a wall of worry." The current high expectations and optimism were amply satisfied by 57,000 jobs and this spiked markets higher. But, the hesitancy and fear that the bull market was ending in 1997 required 200,000 jobs for the markets to react. Employment must grow by 200,000 each month just to keep pace with population growth.
As we all know, Leviathans fabricate unemployment figures on a regular basis and the Contract of Unemployment is one of the most abused by both the state and the individual.
At the peak of an economic cycle, politicians raise the promised benefits and extract higher contributions but, when economic conditions deteriorate, the individual's right to subsistence - for which he has already paid - is re-defined and the benefits reduced. The system of broken promises and corruption works both ways, as individuals start to claim "ill health" in order to retain the flexibility of institutionalised parasitism. Generalized anxiety, disorder or repetitive strain injuries are the new fashion and those who are licensed to kill, supplement their income by diagnosis and certification.
What most unemployment statistics measure is the number of active job seekers. The long term unemployed and those who have given up hope of ever finding work tend to be discounted and a figure is invented of those deemed to be self-employed. Those who have lost well-paid jobs and are making ends meet through menial labour, are totally irrelevant to the equation. The ranks of the "Forgotten Men" - those of middle age who used to be middle managers and who used to form the middle classes - are growing and they are now losing faith in the system. And the debt, on both the personal and government level is increasing.
During the 1960-1970s it took $1.5 of debt to add $1 of additional Gross Domestic Product. Today it takes $6 of debt to create $1 of wealth and remember, the growth is for today but tomorrow it's a thing of the past - but the debt remains.
Before you become enthusiastic and start to chase the mirage, let me provide you with a few more current records: We have seen a record number of buying climaxes - when a share reaches a new high, but ends lower in that week; a record high in insiders selling into rallies (1220 - 1 shares in the Nasdaq); a near record low in the amount being held in cash within mutual funds and pension funds; the highest levels of bullishness in the history of investor intelligence surveys; and new records in programmed trading - affecting 41 percent of the New York Stock Exchange Volume (15 percent in 1995).
Then there is the question of trading using borrowed money. On March 2000, the Securities and Exchange Commission issued a warning about the levels of margin debt. Just a few weeks ago, on September 15, Mary Shapiro, the NASD vice chairman issued the latest warning. In 1999 it took over a year for margin debt to increase from under $10bn to more than $20bn. This time it happened in just two short months. Hysteria rules.
Germany has shown what the future holds. The public holiday in Germany on Friday, was in celebration of the 13th anniversary of the hidden costs of re unification. The German armed forces spend $40m a year on new vehicles, but $1bn on maintaining them. Germany refused to participate in the Iraqi war because it could not afford to do so.
A good example of what governments will do in the future was set by its Federal Labour Office. The Labour Office is the government's single biggest agency and it has been engaged in a massive and sustained effort to falsify statistics - in order to inflate by as much as 300 percent its real success rate in helping the unemployed find jobs.
The path of destiny of the little bourses throughout Europe has been set by the fatefully named Neuer Markt, which closed after it declined by 96 percent and was shown to be riddled with fraud. And there is more social friction to come, as the Rosenholz file will reveal the names of collaborators who spied for the Stasi.
The reason why the Dax is so emotional has been revealed in a study by Professor Fritz Sörgel of the Nuremberg Institute for Biomedical and Pharmaceutical Research. He found that 90 percent of euro notes circulating in Germany had traces of cocaine and it is indicative that larger bills, those over 100, 200 and 500 euros, showed significantly smaller traces. The politicians, as always, led the field as three years ago the Professor and his team discovered traces of cocaine in the toilets of the Reichstag Parliamentary building in Berlin.
On the WSE: We are approaching crunch time. Is it a correction or a slide into the abyss?
With the Pope's ailing health, Poland's direct connection with heaven is fading so I foresee the search for new lows on the horizon.
