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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Burden of Capital

*** The important questions for today: Will Ciena buyers 
get burnt... will Amazon stockholders get sold down the 
river....will gold bugs be gildered?

*** Students have more credit cards, bigger balances...

*** Where's Mr. Bear?...California is a mess...gratuitous 
sex...and more...

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*** The Dow rose 95 points yesterday. The Nasdaq went up 
61. It was a pretty good day for investors, marked by a 
comeback in the familiar big name shares. GE, GM, MSFT, 
AMAT, CSCO were all up. 

*** Ciena went on stage and said it expected to double 
revenues this year. The stock rose 20%. But investors who 
buy Ciena at these prices are almost sure to get 

*** Advancing stocks beat out declining ones - 1635 to 
1435. And there were more than 10 times as many stocks 
hitting new highs as new lows.

*** Most investors are taking moderate losses so far this 
year. Investor's Business Daily's index of leading mutual 
funds is off 2.5%. 

*** And the Dow has gone nowhere in the last two years. 
But so far, few investors are defecting from the mass 
illusion of easy wealth in the stock market. 

*** Where's Mr. Bear? Since the end of the year, he seems 
to be taking it easy. But I doubt we have seen the last of 
this wily creature. As Art Sandberg put it in Barron's, 
"the market always finds a way to disappoint and make us 
all look stupid."

*** Why hasn't the fall taken place, yet? "I see only one 
logical answer," says Gary North "...unbroken investor 
optimism. Investors are treating any slide in the stock 
market in much the same way that consumers treat reductions 
in their income. They regard it as temporary." (see: 
Legends Of The Fall)

*** The price of gold plunged $4.30. You may recall that I 
found gold rather fetching in yesterday's letter. It is 
even more fetching today. Newmont, though, went up.

*** When gold goes down, the dollar goes up. The euro 
slipped down to 90.39 cents.

*** Mark Rowen, an analyst at Prudential Securities, cut 
his target price for to only $9. This caused the 
stock to tumble nearly a dollar on Wednesday - to $13,50. 
But yesterday it came back - to $14.50. Of 26 analysts, 
only 3 have sell ratings on the 'River of No Return' stock.

*** 78% of college students now have credit cards - up from 
67% two years ago. The average balance is also up - to 
$2,748...almost $1,000 more than two years ago.

*** Students, it turns out, are among credit card 
companies' best customers. They borrow freely...and take a 
long time to pay off their balances - at usurious interest 
rates. "It's a disincentive for credit card companies to 
have smart customers," said Ed Moore of Edelson Financial 

*** "A back of the envelope calculation reveals," writes 
Daily Reckoning contributor David Tice, "that turning our 
current -0.8% savings rate back to zero would slice a cool 
$56 billion a year off consumer spending. That's the 
equivalent of half of the Wal-Marts not ringing up a dime 
for a year. Taking the savings rate back to the 3.3% level 
of 1998 would slash $230 billion. That's a complete 
shutdown of Wal-Mart - times two!" 

*** Rick Ackerman recently passed on to me some charts, 
authored by Joe Ehardt, that show how dramatically the 
personal savings rate in the US has fallen. I've had them 
posted to the Daily Reckoning web site. Have a look... 
(see: The Plummeting Savings Rate)

*** $28 billion was spent online last year, $10 billion 
more than '99 and about $20 billion more than '98. 

*** California is a mess, says the Economist. The lights 
are going out. Water is in short supply. Hollywood is going 
on strike. And Nicole and Tom are splitting up. [There is 
no point to this note...I just thought you should know what 
is going on.] 

*** "We haven't had any gratuitous sex in the Daily 
Reckoning in a long time," my colleague, Addison Wiggin, 

*** Well, how about this: Celera has been in the news a lot 
lately. It announced that the genome project was more 
manageable than first believed and its stock shot up 15% on 
Monday. Then, on Tuesday, investors asked the obvious 
question - so what? - and clipped it for a 9% loss. 

*** "Most analysts," says a Red Herring report, "expect 
Celera to hit $90 this year, more than double Wednesday's 
price of $43.60." Either the analysts or Red Herring are 
idiots. If they really believed that they would be putting 
every penny they could borrow into Celera shares and the 
price would have already hit $90. The stock may go to 
$90...or to $9. But whatever expectations the market has 
for the stock are already built into today's price. 

*** Michael Milken says he thinks biotech is under-funded. 
But Celera has $1.1 billion in cash...about 40% of its 
entire $2.8 billion market cap. So the question for 
investors is: what are the odds that Celera will be able to 
use that cash to transform itself from a research outfit 
with minimal revenues and huge losses into a real, profit 
making business worth $2.8 billion? If the odds are 50/50, 
investors should be willing to pay about $20 for the stock 
- an amount which then needs to be discounted for the time 
it will take Celera to reach its objective. If the odds are 
more like 1 in 10, which is what I would guess, you should 
wait until the stock sinks below $4 before you think about 
buying it.

*** But what's this got to do with sex? Well, when I write 
the Daily Reckoning I take it upon myself to explain all of 
life to least all of it that I can figure out 
between 8 am and noon each day. So, I won't hold back from 
the mysteries of human reproduction. It turns out that most 
of the gene sequence is rubbish. They are "mere remnants of 
genes that were left behind by prehistoric viruses eons ago 
and have been passed down in increasingly degenerate 
condition from human generation to generation," says the 
International Herald Tribune report. Genes have been a 
refuge of squatter parasites and opportunistic micro-
organisms forever. Sex, according to one hypothesis, allows 
animals to reproduce without copying the same gene 
sequence...leaving the parasites with a constantly moving 

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Having money is such a burden, say rich people. Because you 
have to figure out how to preserve it...and what to do with 
it after you die. 

"I was lucky," I quote myself from yesterday's letter.

Thanks to the collective wisdom of the credit industry of 
the '60s and '70s - I passed through young adulthood with 
neither credits nor debits.

Neither a borrower nor a lender was I. I had neither money, 
nor debt. I could not be accused of wasting the family 
fortune - for there was nothing to waste. I was free from 
the burden of wealth. 

But my children may not be so lucky. Their father tries to 
make life easy for them...and may end up making it much 

And if he does not ruin himself by following his own 
investment advice...or impetuously running off, penniless, 
for the purpose of mixing his genes with those of a French 
cocktail waitress...he may even leave a farthing or a sou 
after he is gone. The bequest will be announced in his Last 
Daily Reckoning, to be read solemnly in the presence of an 
estate lawyer and an IRS agent.

I may even suggest that my executor hire a few women to 
come and weep openly and dramatically, as if they missed 

It was Doug Casey who first described rich investors such 
as Warren Buffett and George Soros as "idiots savants." The 
term applied, said he, because these men were geniuses at 
making investment profits but almost complete imbeciles 

Yesterday's International Herald Tribune brought further 
evidence that these titans of investment are midgets at 
other matters.

"Some 120 wealthy Americans, including Warren Buffett, 
George Soros and the father of Bill Gates," says the IHT 
news article, "are urging Congress not to repeal taxes on 
estates and gifts." 

The father of Bill Gates was so agitated by the prospect of 
letting his fellow Americans decide for themselves who gets 
their money that he organized a petition effort against it. 
Signers include Soros, a few Rockefellers, and Ben Cohen, 
founder of Ben and Jerry's ice cream company. 

Mr. Buffett said he did not actually sign the petition 
because he thought it did not go far enough. He said he 
believes it would be a "terrible mistake" to stop taking 
away accumulated savings after death. It would be, he said, 
like "choosing the 2020 Olympic team by picking the eldest 
sons of the gold medal winners in the 2000 Olympics."

I will try to help you make sense of that remarkable 
statement, dear reader, by pointing out that making money 
is a game to Buffett. He has far more money than he can 
ever spend. Or that his children can ever spend. 

Economists point out that the more you have of something, 
the less each additional unit is worth to you. A hungry man 
really appreciates his first hamburger. A 10th hamburger is 
welcomed only by a person with an eating disorder. This is 
called the principle of declining marginal utility. 

Every additional dollar made by Warren Buffett has a 
marginal utility near zero. It is just the sport that 
interests him, not the money. As Bunker Hunt once put it, 
"money is just a way of keeping score in life."

Well, according to the most recent Forbes ranking, Warren 
Buffett is the 4th highest scoring person in the nation.

In Buffett's view, making money is just a game. The 
government is like a referee, who makes sure that all the 
contestants start the race at the same time and from the 
same position. 

Government employees, of course, are not impartial referees 
at all. They're in the race too. Their goal is make sure 
that they emerge the big winners.

One way or another all savings end up in someone's hands. 
Either they go to the children of the people who did the 
earning and saving...or they go to someone else's children. 

Buffett imagines a pure meritocracy...where all players 
begin with the same grubstake and where all wealth is 
distributed to the people who earn it. "You have mobility," 
he says, "so people with talents can be put to the best 
use. Without the estate tax you in effect will have an 
aristocracy of wealth, which means you pass down the 
ability to command the resources of the nation based on 
heredity rather than merit."

Existing capital can either be destroyed...or passed along 
to the next generation. It cannot be earned - because it 
was already earned, by the previous generation. The only 
question is whether the people who built the fortunes 
should have the right to decide who gets them...or whether 
someone else decides. 

Buffett's world exists only in his imagination. People 
start out in life with different talents, different 
handicaps, different burdens...and very different 
attitudes. Their challenge, though, is always the same - to 
make the best of things.

My poor children. I can already see the corrosive influence 
of unearned wealth. Rather than set his hand immediately to 
a career, my oldest son intends to backpack around Europe 
this summer...following his graduation from college. I paid 
his tuition and supported him during his college years, so 
unlike so many young Americans, he has no college loans 
weighing upon him.

Sophia, too, is searching her soul and the Internet to try 
to find something to do with her life. The poor thing. 
Should she work with the destitute in India? Or spend a 
year on a dude ranch, earning a pittance but getting an 
entirely different experience? 

I had no such cares or concerns when I were her age...I 
merely had to find the best paying job I could, which 
turned out to be painting radio towers. It paid more than 
$5 an hour as I recall - because it was almost unbelievably 
tedious, dumb and dangerous. All day long I would climb 
around on steel girders, hundreds of feet off the ground, 
dipping my mitted hand into a bucket of paint which was 
hooked to my belt. Then, I smeared the paint on the rusty 
metal with one hand while I held on to the swaying tower 
with the other.

Many college boys were attracted to the work by the pay, 
but few actually stuck with it. One, a large blond football 
player, climbed up the WBAL TV tower in Baltimore with me 
one morning - his first day on the job. After a while, he 
looked down, and froze with fright. He held onto a girder 
with both arms and refused to move. We thought about 
leaving him up a cat up a tree, we figured 
he'd eventually come to his senses and come down. 

On the other hand, if he didn't come down, we'd have to 
deal with him, probably in even worse condition, the next 
morning. Finally, a supervisor and I managed to pry his 
hands loose and escort him down.

The work was miserable, but the money was good for a summer 
job in 1968. 

Yet, without the hot breath of financial necessity on the 
back of my neck, combined with youthful recklessness, I 
probably would have preferred to do something different. 

I would have backpacked around Europe, for example.

And maybe that would have been for the better.

Just wondering...

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 LLC