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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Barbaric Relic

*** Mr. Bear is back - Dow and Nasdaq get mauled...

*** The dollar down again...the euro is headed back to 
parity with the buck - and beyond...

*** "How Could So Many Have Been So Wrong?" It was no 
accident... Mary Meeker,, and more!

*** Is Mr. Bear back on the job so soon? Most investors 
were expecting a nice lift in January - the "January 
Effect" as it is known. But if the first day of trading is 
any indication, the coming month will not be a pleasant 

*** The Dow fell 140 points. The Nasdaq fell more than 7% - 
or 178 points. And the Nasdaq 100 - home of the biggest 
techs - dropped 212.

*** The Internets were down big too - with the Internet 
index off nearly 9%. 

*** Cisco lost 13%...and now trades at $34. AOL is below 
$34. Oracle is below $30. Amazon is below $14. And CMGI is 
below $5.!

*** There were 1339 stocks making progress on the NYSE 
yesterday; 1718 declined. 185 hit new highs. 28 hit new 

*** GE - a stock with a lot of ruin in it - lost 4%.

*** But gold stocks went up. The XAU index rose about 1%. 
Why? See below.

*** As gold stocks rose, the dollar fell. The dollar index 
dropped 1%. And the euro - the mighty euro - rose to 95 
cents. Commentators are beginning to talk about the euro 
returning to par with the dollar. What a surprise it would 
be if the euro rose much higher! Surprises are just what he 
market tends to give us.

*** Bonds rose in what was described as `almost panic 
buying' early yesterday. Yields on 10-year bonds fell below 
5% to 4.92%. Bond buyers seem to be expecting not merely a 
rate cut from Greenspan, but recession too.

*** The latest figures from the National Association of 
Purchasing Managers point in the same direction - they came 
in lower than expected. But the 'prices paid' figure rose 
8%. Hmmm...a business slowdown with increasing prices. We 
used to have a word for that - `stagflation'. If so, it is 
the best of all possible worlds for gold. More below.

*** "US Syndicated Loan Value Tops $1 Trillion in 2000" 
proclaims a headline from Hoover's Online. The biggest 
borrower? AT&T, with $35 billion in loans. 

*** But lenders beware. Standard & Poors released a report 
yesterday showing that credit quality continues to 
decline...and predicting even wider spreads between high-
grade loan rates and junk. The S&P report noted that there 
were 7 defaults in the telecom sector last year...and that 
investors should expect more in the year ahead.

*** There will be no soft landing, according to George 
Soros. Instead it will be "bouncy and hard." Another global 
financial crisis is inevitable, he added.

*** Floyd Norris, in the NY Times, says that a record $100 
billion of IPOs were sold in 2000. But the last quarter was 
a disaster - with only $10.8 billion in sales - the slowest 
period since 1992. Two-thirds of the IPOs are now trading 
below their offer prices.

*** The most interesting item in the financial press is an 
article by Gretchen Morgenson also in the NY Times. 
Morgenson is providing the grist for tort lawyers' mills, 
pointing out how Wall Street analysts misled investors. 
"How Did So Many Get It So Wrong?" her headline asks. 

*** Well, it was not exactly an accident. Analyst Jack 
Grubman made $20 million in '99 touting telecoms for 
Salomon Smith Barney. Grubman urged caution on the telecoms 
- but only after they had fallen 77%. All of the stocks he 
recommended - surprise, surprise - were underwritten by his 
own firm.

*** Meanwhile, the Queen of the Internet, Mary Meeker, took 
home $15 million in '99 thanks to her recommendation of at prices over $100...and a host of other 
Internet stocks... Amazon, as noted above, is now a $14 
stock. Her 10 other Internet picks - which she now rates as 
"outperform" - have similarly collapsed. A Dean Witter 
spokesman defended Ms. Meeker, saying that her picks were 
for the "long term." If they don't come back in this life, 
maybe they will in the hereafter.

*** Anthony Noto, analyst as Goldman Sachs finally 
downgraded his picks from `buy' to `market perform' after 
they fell 98.2%. Seven of the 9 stocks he follows were 
underwritten by Solly. 

*** And let us not forget Walter P. Piecyk, Jr., analyst 
with Paine Webber. Mr. Piecyk made history with his target 
price of $1,000 for Qualcomm. Following his recommendation, 
the stock rose to a record of $717.24, hit on this day one 
year ago. Since then, the stock has split 4 for 1 and now 
trades at $82.

*** "There is virtually no such thing as a sell 
recommendation from Wall Street analysts," concludes Ms. 
Morgenson. The analysts work for their companies - it might 
be added - not for retail investors.

*** Is it any wonder people are growing more reluctant to 
send money to Wall Street. Companies raised $3 trillion in 
equity and debt last year - down 9.6%. Bloomberg reports 
that sales of new securities fell in 2000 for the first 
time in 6 years. 

*** I am still in holiday mode. I write this letter in the 
morning and try to leave the afternoon free to work on the 
stone walls or take little excursions. Then, after the sun 
goes down, I sit in front of the fire and reply to my e-
mail and read.

*** Benoit, the gardener's son, has been helping me on the 
stone wall. He's a university student - in economics - who 
asks my opinions on the stock market as we work. A couple 
of weeks ago, I suggested that he might want to keep an eye 
on W.R. Grace - simply because the stock had become 
ridiculously cheap. Since then, it has zoomed up nicely. 
So, Benoit thinks I might know something. He will find out 
later that I don't know any more than anyone else - but I 
am enjoying his na‹ve respect in the meantime.

*** Yesterday, we ran out of cement, so rather than work on 
the wall, we drove down into Limousine to look at a 
derelict chateau. Benoit explained that it was owned by a 
countess who had had only one child. When the infant died 
in the chateau she decided she wanted nothing more to do 
with the property - except to see it in ruins. 

*** She should be pleased. It is in ruins. The rooves have 
caved in...stones have fallen. It looks at though it might 
have been struck by a bomb in WWII and never restored. But 
amid the ruins is the most stunning and impressive 
fireplace I have ever seen. It is so big that an entire 
football team could stand inside. And it is carved in white 
stone - with a statue of a mounted horseman set into the 
stone face above the mantel and elaborate figures 
decorating the entire ensemble. 

"Why not give her a call," I suggested to Benoit. "Ask her 
if she would sell the ruins. We will do quickly what nature 
is doing so slowly - remove the fireplace and destroy what 
is left!"

"Okay," was Benoit's reply. "What is there to lose?"

* * * * * * * * * * * Advertisement * * * * * * * * * * * 

When The Greatest Credit Bubble in History Bursts...What 
Comes Next? 

No banks or brokerage houses went bust in the 1929 crash. 
In fact, many investors and businessmen prospered. The real 
damage was done later on - when popular sentiment turned 
against stocks altogether. Just as is happening in our 
markets today... 

Will you profit in the months ahead? You will if you 
prepare yourself now - EVERYTHING that is happening in the 
markets today has already happened before. Click here to 
learn more about: 

The Hidden Logic Of Credit Bubbles
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


"Your gold history lesson reminds me of what I consider to 
be one of the great open questions in economics," writes 
Porter Stansberry. "How does Nixon's action - removing the 
dollar from the gold standard - effect the fundamental 
monetary conditions you mention in your story?"

Porter's position, shared by many investors, is that gold 
has been stripped of its monetary role...and left to 
respond to market forces like any other commodity. Under 
normal conditions, like other commodities, time and 
technology should reduce the cost of acquiring gold, 
increase its abundance and lower its relative price. In 
times of deflation, the price of gold, along with copper 
and pampers, should fall sharply. In times of inflation, 
gold should rise in price.

In the 1930s, the only period of significant deflation 
since the establishment of the Federal Reserve System early 
in the century, the price of gold rose. Gold was still 
money then, according to Porter's view. 

But in 1968, the `gold pool' was closed down. A person 
could no longer trade his paper dollars for gold on the 
London market. Then, 3 years later, Nixon `closed the gold 
window' at the Treasury - so foreign governments could no 
longer trade their dollar surpluses for gold either. Since 
these two actions, gold has not played an official monetary 

But to Porter's assertion of fact, that `gold is no longer 
money' I reply, flippantly:

"Who says?"

To his anticipated response: "The most powerful government 
on the face of the Earth, the world's only remaining super-
power and the custodian of the most successful monetary 
brand in history..." I retort:

"So what?"

For all his many talents and virtues, it is unlikely that 
Richard Milhouse Nixon could have achieved what no emperor, 
dictator, or elected official has been able to do since the 
beginning of time: eliminate gold as a monetary competitor. 
Many have tried. But gold, though malleable, is unyielding 
in its monetary rectitude. An ounce of gold is an ounce of 
gold. It is neither more nor less than it appears to be.

Paper money is a great aid to politicians. It makes it 
possible for them, said President Hoover, to confiscate 
"the savings of the people by manipulation of inflation and 

"We have gold," he added, "because we cannot trust 

Have governments become more trustworthy since Herbert 
Hoover left office and Bill Clinton entered therein? I will 
leave that to you to decide, dear reader.

Paper currencies are, like so much else that issues from 
politics, subject to persuasion, ambiguity and financial 
gerrymandering. As a result, paper currencies are very 
useful for creating booms and bubbles - they can be readily 
multiplied and distributed. 

"If your view of gold being a safe haven in times of 
deflation is correct," Porter continues, "then it would 
stand to reason that gold prices should fall during 
inflationary periods, right? That's how gold prices have 
always worked throughout history. See Davidson's work from 
the August 1997 issue of Strategic Investment. He traced 
400 years of gold prices...up to 1970...and found 
conclusively that gold went up in purchasing power during 
deflation and down during inflation."

Agreeing that gold has acted as a hedge against deflation 
from the time of the Flood to the Nixon Administration, 
Porter brings us up to date: "But the facts since 1971 seem 
to indicate exactly the opposite. Gold went from $45 to 
$850 in the 1970s in the midst of an inflationary crisis."

"My view," says Porter, "is that Nixon's action, and the 
structure of the US economy - an economy based on credit, 
not gold - turn the historic relationships upside down. 
Essentially the monetary conditions that we used to call 
inflation are now deflation."

Let us stop here or we are doomed to wallow in confusion 
for the rest of this letter. The terms `inflation' or 
`deflation' refer to the rise and fall in the supply of 
money. The increase or decrease leads to an corresponding 
movement in the prices of goods and services. As the money 
supply inflates, prices rise. When the supply of money 
decreases, prices fall. 

If the supply of gold is inflated - whether you call it 
money or not - it will have the same consequence...each 
ounce of gold will buy less of other things. This is what 
happened when, for example, Spanish explorers began 
colonizing the new world and sending ships back to Spain 
laden with gold. 

Inflation lowers the value of whatever is inflated: whether 
it is paper currency or gold. Deflation, on the other hand, 
diminishes supply and increases value. But is it possible 
that a decrease in the supply of dollars could produce a 
counter effect - an increase in the supply of gold? When 
the supply of dollars declines - a deflation of the money 
supply - will gold act like money and rise against other 
goods and services? Or will it act like any other 
commodity...and fall?

Is gold still money, in other words? Or is it just another 
commodity? And to those questions, I reply, confidently: 
Yes. Gold is both.

More to come...

Bill Bonner
About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
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commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

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Last modified: April 01, 2001

Published By Tulips and Bears LLC