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*** I arrived back in Baltimore late last night. The
streets were full of whooping, cheering crowds. When we
stopped at a light, a group of friendly drunks came over
and started pounding on the roof of the cab - looking for
hands to slap. I didn't realize I had become such a
celebrity.
*** "Where've you been?" asked the cab driver, looking at
me through the rearview mirror as if he suspected I was a
creature from space posing as a human being, "The Ravens
just won the Super Bowl."
*** This news is confirmed by the headline of today's
Baltimore Sun. Even the announcement of WWIII would be
proclaimed in a smaller type.
*** Baltimore's football team is named after the most well-
known poem of the town's most famous drunk - Edgar Allen
Poe. In fact, it was on this very day that the poem, The
Raven, was first published. It was an immediate hit in
America, and in France - where Poe's poems were translated
by Charles Baudelaire - it was an ever bigger hit.
*** But to return to the cabbie's question, where I've been
is Latin America - where I spent the weekend...more about
that below...
*** Friday produced little cause for excitement on Wall
Street. Nothing much happened...just as nothing much
happened during the week.
*** The Dow fell 69 points on Friday. The Nasdaq rose 27
points. That left both indexes unchanged for the week. In
fact, so far, both the Dow and the S&P have barely moved.
*** GE fell another 3%.
*** The Nasdaq, of course, got a big boost on Jan. 3, after
Alan Greenspan cut the Fed Funds rate by half a percent.
That was enough to convince most investors that the Big
Bottom in the Nasdaq had come and gone.
*** Investors expect more rate cuts from Greenspan & Co. -
including one of another 50 basis points this week. They
are sure that these rate cuts have already set stocks back
on an upward course...and that the Big Bottom in the
economy is only a few months in the future. In their minds,
there is no reason to worry about bad economic news or bad
earnings - because it is just a matter of time until the
rate cuts work their magic.
*** "No rate cut [this week] will be a disaster for the
market," said one analyst quoted by Reuters. Greenspan does
not like market disasters and will probably provide the
desired fix. More cuts are all it will take, in the bulls'
view. "We'll be off to the races in the 2nd half," predicted
the same analyst. Rukeyser's elves are now 9-1 bullish.
*** But there is an alternative view, held by a few cranks,
curmudgeons and topographers. It holds that mountain ranges
are usually about as high on one side as the other...and
that sooner or later...in whatever direction you go, you
reach sea level.
*** The present plateau is, in this latter view, likely to
end in a steep drop...
*** So far, the Nasdaq has recovered 22% of its bear market
decline. The S&P has bounced 38%. These numbers are on the
low side of typical bear market rallies.
*** The Advance/Decline ratio turned negative on Friday,
after a long positive spell. The A/D ratio topped out
nearly two years ago - in April '98. Since then it fell
from a plus 13 to a negative 8. It is now minus
4.26...meaning that it, too, has recovered only 18.37% of
its bear market losses.
*** Between 1991 and 2001, the Prudent Bear reminds us, the
U.S. nearly doubled its total credit market debt, from $14
trillion to $27 trillion. This excess credit, the true
source of the Nasdaq bubble and the trade deficit, will
have to be corrected somehow. And it will take a lot more
bankruptcies and falling prices to do so.
*** "From 1997 to 2000," reports Justin Ford, originator of
the Seeds of Wealth program, "U.S. households increased
their borrowing by 51%...but only increased their income by
17%. In that same time, total household assets grew by 47%,
but liabilities grew even faster...by 54%. The 'negative'
U.S. savings rate - the first since the Great Depression -
is no mystery. U.S. consumers are loading up on 'bad' debt
and spending far more than they earn. And if current trends
continue, it's only going to get worse: Consumer debt is
growing at a double-digit rate - versus a 4.8% rise for
income."
*** "There are enough eerie similarities between America
today and Japan in 1989-90 to be worrying," says The
Economist. "The biggest is excessive debt...By borrowing
against paper gains in share values, households have been
able to shop until they dropped, not bothering to save."
"At the market's peak," continues The Economist, "American
households owned shares worth 175% of their disposable
income, much higher than Japanese households' shareholdings
at the Tokyo market's 1989 peak of only 90% of their
income. Just as Japan's crash led Japanese consumers to
raise their savings and cut spending, so the risk is that
the same could occur in America."
*** Gold fell nearly $2 on Friday. "The first shot in the
battle to wrest gold from grips of central banks and a few
powerful investment houses has been fired," Harry Schultz
tells me. Harry, godfather to the financial newsletter
business, has been following the "conspiracy to suppress
the gold price" for some time. Now, he believes, members of
a small non-profit organization known as Gold Anti-Trust
Action may have found "the smoking gun." Could this be the
beginning of the end for price fixing in the gold market?
Do we care? (see: The Smoking
Gun: Restoring the Free
Market in Gold)
Knowing which coins to buy and sell - and what price to pay
- is critical to your success. For the best prices on NGC
and PCGS certified coins...and access to the one of the
nation's leading coin market newsletters, click here: (or
call 1-800-224-3160)
The trouble with paradise is that it is too appealing. And
too relaxing.
That is an observation based on my experience with nature
this weekend...and my experience with the investment
markets over the last few years.
Mother Nature encourages, and then punishes, complacency.
I set out from the new clubhouse before 6 a.m. My goal was
to explore the southern coast of Rancho Santana - a 1,600-
acre parcel located along the Pacific.
But long walks are also a good time for cogitation, and I
had set aside a substantial subject. Along with a group of
investors, I bought the ranch several years ago. Now I was
considering investing something more important - time.
Unlike money, when you invest time, the principal is never
returned.
None of us had ever seen the southernmost part of the
property. It is separated from the rest of the ranch by
high cliffs along the shore - so you cannot follow the
water's edge to explore it - and protected from easy access
by thick brush on the land side too.
But on the previous day's outing I noticed that a path had
been worn through the brush by the 200 head of cattle that
roam the hills, and I was determined to follow it in the
morning.
So, I was up before 5:30 - and set out.
The sun was not yet up, but there was already a dusting of
pink on the eastern, featheredge of the few clouds above.
Taking the high road, I was soon at the top of the hill,
where I turned to look back over the new clubhouse and the
5 miles of beach to the north. It was a beautiful
scene...made even more beautiful by the fact that I was the
only one to see it. It was all mine, for that moment.
I passed a couple of the houses that have been built in the
last couple of years - white stucco with barrel tile and
palm roofs. Also there is a temporary shack of rough wood
and tin - where the workers sling their hammocks during the
week. There were no signs of life anywhere. Just the sound
of the waves hitting the beach...and the wind.
After about 20 minutes I reached the end of the road and
took a path down to Escondido beach. It is a beach about
500 yards long in an open crescent shape, surrounded by a
steep escarpment.
I walked over to a clump of trees with whitish trunks and
stripped off my clothes. You will forgive me, I hope, dear
reader, for passing along such an intimate detail...but it
alone will make sense of the cheer that arose from the
fishing boat a few minutes later.
There was no sign of life either on the shore or on the
ocean when I entered the water. The waves swelled up onto
the beach like the gentle breathing of an NFL lineman
asleep in a bathtub.
The water was delightfully cool. You might think the sea
would be tepid at this latitude. But the Humboldt Current,
which runs down the coast, seems to keep it fresh.
The beach fell off sharply, so I was able to swim parallel
to the shore and only a few yards from it. I marveled at
how calm the water was...and how idyllic the whole scene
appeared...swimming in the Pacific au naturel, at our
private, hidden beach.
Thus preoccupied with my thoughts and studying the cliffs
onshore, suddenly the water level dropped. It was as if the
footballer had risen from the tub. A strong current swept
me away from the shore. I turned my head just in time to
see a huge mountain of seawater, capped with a curling
white foam, headed straight towards me. In less than a
second it washed over me...and sent me crashing onto the
beach.
In another moment I was flushed up and began to recover my
bearings. But the relative calm lasted for only a
second...soon the sea dropped again and swept me even more
violently away from the shore. This time, I suspected what
was next.
Trouble rarely visits alone. In another moment, a second
peak of water struck...and again, I was tossed against the
beach and hammered against the sand...and then swept back
toward the sea.
For a moment, I was afraid I might end up like the prime
minister of Australia, who went in for a swim one day and
never came back. But then, just as suddenly, the ocean was
tranquil again.
Taking advantage of this lull in the punishment, I made my
retreat from the waves, not noticing the little fishing
boat that had pulled into the little cove.
It must have been the sight of the white, stark-naked
gringo staggering up on the beach that drew loud, cackling
huzzahs from the fishermen....
Nature is full of surprises.
After I got my clothes back on...and recovered my
breath...I felt curiously invigorated. My destination
remained the south end of the property, which could not be
reached from the beach. I would either have to return up
the path from which I came and then make my way around the
back of the hill to the top of the cliffs - or climb up the
escarpment directly.
I chose the latter path...or lack of one...partly because
it would be much faster, but mostly because I wanted to see
if I could do it. It was the riskier investment of
time...but the payoff would be higher.
The sides were very steep, but the climb looked manageable.
At least, from the bottom. It must have been at least 300
feet from the bottom of the escarpment to its top. But when
you take it step by step, it is amazing how quickly you can
get into real trouble.
I grabbed clumps of grass, dug my boots into the dirt and
scrambled up the first few hundred feet. Then I arrived at
the rock face - which was another 100 or so feet straight
up. But it looked as though there were enough nooks and
crannies to climb up. And my progress for the first few
yards was encouraging - like the initial return on an IPO
that is about to crash.
Thoughts of a crash came to mind as I reached the middle of
the rock face. I had begun to feel like Tom Cruise in the
opening scenes of the pathetic movie, Mission Impossible 2.
Without intending to do so, little by little, I had gotten
myself in a dangerously untenable situation - as though I
were dollar- cost averaging myself into a preposterously
overpriced speculation.
I was only about 50 feet from the crest of the cliff. The
wall of rock was straight up and down with fewer and fewer
footholds. Any slip would be fatal at this point. Worse, I
realized that the rock itself, upon which this installment
and future issues of the Daily Reckoning depended, was
defective. I had grabbed a miniature promontory above me in
order to pull myself up to the next foothold. But as I put
weight on it, the rock broke off. I was barely able to
dodge the rock and grab another, less-appealing projection.
Isn't that just like Mother Nature - with her droll wit -
to put crumbling dry fudge at the very point where a
climber desperately needs rocks with integrity! I noticed
that my foothold, too, was loose and in danger of breaking
away. If it did, I would be finished, for I had nothing
really to hang onto...and nothing to stop my fall except
the rocks and a few scraggly trees hundreds of feet below.
"Don't panic," I told myself. And yet, panic seemed the
only appropriate emotion. Anything else would be as lame
and dishonest as a zoning board.
But this was no time for high principle. This was a time
for action. I was already high enough and could go no
higher. There was nothing left to grab. But I couldn't
figure out how to get down, either. The buyers had
disappeared from the market...and there seemed to be no
chance of a soft landing.
I appeared to be stuck in a fatal position, with my
foothold slowly crumbling and nothing to replace it. There
was nothing to get a purchase on.
Obviously, since you are receiving this message, dear
reader, this story must have a satisfactory, if not happy,
ending. I will not try to draw it out any further or leave
you in suspense.
Growing out of the crevices of the rock were two small
trees, just below me to the right. I had avoided them on
the way up. One had thorns so long and lethal you'd be
arrested if you tried to take them on an airplane. The
other was covered with ants. If I leaned over carefully,
stretched out and fell towards them, I might be able to
reach them.
In the event, I managed to grab the one with ants on
it...swing down and then bump and scratch my way to firmer
stone. Another 15 minutes of this, including beating ants
out of my shirt, and I was back on the beach. My climb had
been fully and completely corrected.
Nevermore...dear reader...Nevermore!
Until tomorrow...
Bill Bonner
About
The Daily Reckoning:
Daily Reckoning
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoning—his take on the financial markets and what’s going
on in the world—and sends it off by e-mail before most Americans’
alarm clocks have buzzed. Many readers say it's the first thing they want
to read when they get up—not only because it's informative and thought
provoking, but also it's inspiring, in its own quirky and provocative way.
Of course, there's
much more to Bill than his daily market commentary. He's also the founder
and president of Agora Publishing, one of the world's most successful
consumer newsletter publishing companies. Bill's passion for international
travel and big ideas are reflected in the company he's successfully built.
In 1979, he began publishing International Living and Hulbert's
Financial Digest . Since then, the company has grown to include
dozens of newsletters focusing on health, travel, and finance. Bill has
vigorously expanded from Agora's home base in Baltimore, Maryland since
the early ’90s—opening offices in Florida, London, Paris, Ireland, and
Germany.
Agora's publication
subsidiaries include Pickering
& Chatto, a prestigious academic press in London and Les
Belles Lettres in Paris, best known as a publisher of classical
literature in bilingual editions.
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Last modified: April 01, 2001
Published By Tulips and Bears
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