In this issue:

Wheat Crop Could Be Worst in Quarter-Century

'Hedonic Index' Shows U.S. Industrial Growth Was 'Myth'

Telecom Meltdown Continues


From the Vol.1, no.19 issue of Electronic Intelligence Weekly

U.S. ECONOMIC/FINANCIAL NEWS

Wheat Crop Could Be Worst in Quarter-Century

The U.S. wheat crop for 2002 is expected to be the worst in 25 years, and the Canadian crop will likewise be markedly down, due to the extreme drought in North America, according to a new EIR study. The area harvested in the United States this year for winter wheat is estimated to be only 29.8 million acres (12.06 million hectares)—the same amount as in 1917! Farmers have abandoned large amounts of sown land, because of drought and related pests and disease. Estimates now put the total U.S. wheat harvest (all types) this year at around 1.79 billion bushels (48.9 million metric tons), about the same as in 1974, and way down from the 64-million-ton levels of recent yearly harvests. Western Canada could potentially harvest 19.7 million metric tons of wheat, down from the five-year average of 23.3 million tons, which itself has been declining.

In terms of world trade in basic foodstuffs, the United States and Canada are major sources of wheat supplies—now severely contracted. Australia's wheat output next season is also expected to drop. Argentina is in turmoil. Only Europe—principally France—expects a good harvest. Overall, world wheat stocks are way down.

Meanwhile, speculation in wheat futures is exploding. On the Kansas City Board of Trade, on July 10, the most actively traded wheat futures contract hit $3.475 a bushel, up 3.75 cents during the day; the same contract at the end of June, was at the $3.15 level. This is dramatic, because July should be, in a typical year, the period of the lowest futures prices for wheat, because it is harvest time (winter wheat is planted in the fall, and harvested in early summer).

'Hedonic Index' Shows U.S. Industrial Growth Was 'Myth'

Two-thirds of U.S. "industrial growth," between 1995 and 2000, is attributed to the growth in "high-tech goods," adjusted by the so-called "hedonic index," the London Observer's economics reporter Faisal Islam wrote July 7, under the headline, "Myth of American Boom Is Banished by the Fall," which says that "An overdue reassessment of the boom years of the late 1990s has been forced on economists."

One thing most in need of reassessment, he writes, is the alleged growth of U.S. production, and the use of the "hedonic index" in producing that "growth." The hedonic index is a special form of the Quality Adjustment Method (QAM), or sometimes called Quality Adjustment Index (QAI). The hedonic index was used by the U.S. Department of Commerce, in part, to boost U.S. GDP growth during the first quarter of 2002 to an artificial 6.1%.

The Observer's Islam summarizes a recent paper by Northwestern University economist Robert Gordon, exposing the fraud. "High-tech goods, semiconductors, computers, and LAN [local area network] networking equipment represent less than 8% of U.S. manufacturing output, but, adjusted for advances in quality [that is, use of the hedonic index], their annual production rose at an annual rate of around 50%—accounting for two-thirds of the rise in U.S. industrial production between 1995 and 2000."

This could certainly make it more difficult—perhaps impossible—for, say, Al Gore or Joe Lieberman to run for President in 2004 touting the "prosperity" of the 1990s and their "New Economy."

Telecom Meltdown Continues

Worldcom will not pay a 60-cent-per-share dividend on its MCI stock July 15, as expected, saving the nation's second-largest long-distance phone company $72 million, as it faces $80 million in interest payments due next week.

A decision on whether to file for bankruptcy protection, or other financial reorganization, will be made within three weeks, after completing talks to get $3 billion in financing, said CEO John Sidgmore.

Sprint will eliminate about 1,200 jobs in its global markets group over the next several weeks, and will decommission certain high-speed data platforms in some cities, as the third-largest U.S. long-distance phone company makes an effort to cut costs.

Wall Street's 'Divestiture Anxiety': A Depression of Another Kind

Which "depression" is worse? The economic mudslide, or the psychotic state of Wall Street traders seeking professional help to overcome their "divestiture anxiety"? These days, psychiatrists are counselling traders whose "self-esteem" goes up and down with the Nasdaq, or who experience anxiety every time they have to sell a holding. And then, there is the former hedge-fund manager who describes the "serotonin effect" of Prozac and other mood-altering drugs.

A front-page article in the New York Times July 7 revealed that behind the blowout of the "New Economy" bubble, is a sad tale of investors who seem to have lost their grip. Headlined, "Portfolios Depressed, Traders Seek Therapy," the article, by writer Alessandra Stanley, notes that, while psychologists are not new to company boardrooms or trading floors, "the use of psychotherapy by market professionals to find their inner trader ... is something else."

One trend in psychotherapy is "wealth therapy." Psychologists like Suze Ormond (The Courage To Be Rich), "helps clients cope emotionally and practically with windfall wealth."

Another phenomenon described by "behavioral economists" is "the endowment effect"—"the tendency of investors to endow stock they own with more value than it has. (A variation on the old Neopolitan saying, 'Even a cockroach is beautiful to its mother.')"

And then, there is the role of drugs: James J. Cramer, author of Confessions of a Street Addict, admits: "One reason the investor class, including me, missed the downside was serotonin," he reveals. Prozac and other mood-altering drugs of choice suppress "end of the world" thoughts, Cramer explained. "Which means you are not as anxious as you should be about an obvious downside."

One money therapist, Richard Trachtman, "helps clients uncover their deep-rooted taboos about money." Another, John Jacobs, who "has also developed expertise in wealth issues," frets that some patients, "whose self-esteem rises and falls with the Nasdaq or Dow ... have no ability to appreciate that they are still very rich," even after a 40% drop in their holdings.

But, before you are tempted to feel sorry for them, consider the case of one patient, "who was worth $800 million and ended up worth only $20 million." His therapist worried that "that did make a huge difference in his life." Although, the doctor mused, "It wasn't all bad. He found out who his real friends are."

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