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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Can the Center Hold?

*** Mixed financial news... "stagflation rears its ugly 

*** Just like old times - bombing, inflation, recession...

*** Coke breaks a trend... young Chinese... the most repulsive 
stocks you can buy...and more...

*** The Dow plunged 140 points yesterday but then came back 
to where it began. Internets fell a little. There were 1138 
advancing stocks on the NYSE; 1895 fell. 

*** The Nasdaq dropped back 24 points. 

*** As usual, a couple Big Techs announced that things 
weren't going as well as planned. Investors knocked both of 
them down, 7% for Brocade and 6% for EMC.

*** Cisco and Sun Microsystems recovered a tad. CSCO rose 
above $26. Sun managed to climb above $20.

*** Jobless claims came in lower than expected. The index 
of leading economic indicators turned up in January, plus 

*** It seemed more like an old day than a new one. The 
media was chattering about the bombing of Iraq... 
inflation...recession - just like old times.

*** "Is stagflation rearing its ugly head," wonders a 
headline on MSNBC. "If you step back," writes Christopher 
Byron, "and look at the entire 30 years of consumer price 
inflation, the pattern becomes even more pronounced. 
Whether you're talking about the core rate or the overall 
rate, prices are now rising at a sustained pace not seen in 
the U.S. in more than a decade."

*** Not since the 2nd term of Ronald Reagan, in fact. And 
that episode of inflation lasted only a brief time. For a 
longer stretch of rising consumer prices you'd have to go 
back to the Carter administration.

*** The Cleveland Fed's "Economic Trends" notes that higher 
inflation rates will make things very tough for the Fed 
during this 'adjustment' period.

*** According to Bill King: "A TechnoMetricaMarket 
Intelligence survey shows Americans are more bearish than 
bullish on the US economic outlook, but don't think it will 
affect them personally. They also think their financial 
condition will be better six months from now."

*** Investors' Intelligence reports that investment 
advisors are 61.2% bullish - near an 8-year high.

*** But the insiders are buying less of their own company's 
stock. Insider buying dropped to a 5-year low in January.

*** Nearly 51,000 dot-com and Internet workers have lost 
their jobs since December 1999, reports the Industry 
Standard, by way of this morning's Early To Rise.

*** "Sales of $1 million homes soars to record" reports the 
LA Times. Real estate is still hot in California. In 
Pasadena you can get about 3,000 square feet on a quarter 
acre lot for $1 million, says the paper. In upscale Bay 
Area communities, such as Atheron or Hillsborough a million 
dollar buys only about 1,000 square feet. "It would be a 
fixer... if you could find it," said one real estate agent.

*** "Most investors make their worst decisions right after 
they've been hit by a big loss," Lynn Carpenter points out. 
"And that's why we have seen Nasdaq bounce back three 
times, as it has fallen below 2300. It's not just foolish 
bottom fishers. It's very normal human beings looking at a 
disaster and doing the most normal thing in the world... 
saying 'NO! This can't be happening! Six months ago I 
thought Nasdaq should be about 2250. It took a while to get 
there. But now it would not surprise me at all to see 
Nasdaq at 1800 before summer is over." 

*** "This doesn't look at all encouraging. Coke may be just 
one stock, but in many ways it defined the entire-post 1982 
disinflationary theme," points out Kevin Klombies, of the 
charting service Intermarket Relationships Analysis. "The 
market loved Coke to such an extent that it gave the stock 
a constant, compounding growth rate right through the 1987 
crash and the 1990 Gulf War/recession. But today, there's 
bad news. Coca Cola has just broken down through a trend-
line which extends all the way back to 1982..."

*** By contrast, China, the country which, as of yesterday, 
has officially taken the lead as the country with the 
greatest trade surplus with the US, has recently privatized 
300,000 state-owned businesses. And "of China's 
approximately 1.3 billion people, two-thirds are under 30," 
writes The Fleet Street Letter's Chris Matthai. "That gives 
China one of the youngest populations of any country in the 
world. More importantly, these young Chinese have all been 
brought up in an era of capitalism and entrepreneurship. 
They can look forward to promotion based on merit, not 
party loyalty, and pay commensurate with responsibility, 
not seniority." (see: Is China Ready For The Big Time?)

*** Gold rose 40 cents yesterday. The market for the metal 
is as inert and lifeless as the metal itself. But something 
is going on in the mining sector. The HUI, the index of 
pure gold mining stocks, rose 3% yesterday. And the lease 
rate of gold has more than doubled from 0.7% to 1.75%. 
Could supplies be getting tight?

*** I don't know. But a few weeks ago I was wondering: If 
you were looking for a group of stocks which has been 
neglected, despised and under capitalized, where might you 
look? Two things came to mind: Africa, where all stocks are 
held in contempt. And gold-mining companies - which are 
beneath contempt. Mightn't there be some African-based 
mining companies that offer extreme values?

*** I posed the question to Brent Cook, an expert on the 
mining industry, and got the following reply:

"South Africa has the richest mineral endowment in the 
world. Which way it goes is not clear. There are very 
upscale malls that are robbed by AK-47 carrying blacks 
during lunch. Very high class neighborhoods that have seen 
squatter camps numbering 10's of thousands move into the 
nearby fields. The AIDS death rate is so high that bodies 
from the camp receive a shallow burial next to the lavish 
homes. Ruins the weekend BBQ. Harmony Gold [is] probably 
the best SA gold company leveraged to gold."

One of the most repulsive companies is Banro, [operating] 
in what many would consider a repulsive country - The 

"The only thing nice about the Congo," says Brent, is that 
its president, Laurent Kabila, was recently shot in the 
head 'in the presence of his generals.' 

"Upon hearing of his death," Brent reports, "Bernard van 
Rooyen, managing director of Banro Resources (YBN.V), surmised 
that a serious stumbling block to mine development had been 
removed. The stock has moved from C$.12 to over C$.50 on 
this agreeable news...[but] the country needs to turn 
around before any real mining investment can take place-it 
will be a long time. 

"Tenke Mining is probably in the best position to gain from 
change in perception in the Congo. They are carried for 
~15% by BHP and Phelps Dodge on the largest undeveloped 
copper deposit in the world, if BHP or PD ever can commit 
to the over $1billion investment needed to build this mine
(Tenke-Fungurumi) in the Congo. 

"Tenke, with a C$15mil market cap, is also carried on a 
copper-gold exploration property by Rio Tinto at 5,000m in 
the Andes. 

"Then there's the gold property Barrick got in Tanzania 
that also hosts about 700 (dead and buried) miners (tough 

"First Quantum is producing copper in Zambia and doing a 
good job of it. They are also working with Gencor to re-
build some of the larger copper complexes in Zambia plus 
hold claims in Congo. Zimbabwe Plats has ~300mil oz of 
platinum group metal at "their mine in Zimbabwe and a 
AU$110mil market cap. BHP just pulled out, they couldn't 
make the mine work at a profit. There are many other small 
mining and exploration companies that at one time had 
Internet size market caps and now sell for next to 

Further details are available from Mr. Cook: 

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Turning and turning in the widening gyre 
The falcon cannot hear the falconer; 
Things fall apart; the centre cannot hold; 

The Second Coming, W. B. Yeats

I have been leading up to something important, dear reader. 
I'm sure you have sensed it too....that dull quiet before a 
storm hits...that leaden anticipation waiting for Alan 
Greenspan to speak or bars to open. Some revelation is at 

Some things change and some things remain the same. 

I am indebted to the French newspaper, Liberation, for 
reminding me of this verity. Today's edition reports that 
they are still cutting off people's heads in Borneo - just 
as they always have. 

And Daniel Cohn-Bendit, aka "Danny the Red," a leading 
leftist provocateur of the '60s has been transformed into a 
pudgy member of the Jospin government. But he is still as 
big a clown now as he was then.

And Turkey has gotten itself into a real financial mess. 
Short-term interest rates shot up to 6,200% and reserves of 
$3 billion were used as the government tried to defend the 
lira. Stocks dropped 30% in the first 3 days of the 
week...and then the lira was allowed to float freely. It 
is expected to lose 25% of its value in the next few days.

What stays the same in the financial markets is the cycles 
of greed and fear, boom and bust, expansion and and hate...which accompany all human 

What changes is the landscape upon which these emotions are 
played out.

We have spent the last few days exploring the boom of the 
late 20th century...comparing it to previous booms. Today, 
we leave the familiar coastlines of the known world and 
sail into the unknown, the future...

Not that we can see it any better than anyone else. We look 
it from the rail of our little vessel, like Christopher 
Columbus looking at Hispaniola. We know there is land 
there...but what sort of land? How is it different from the 
land we have just left?

Well, for one thing, it is bigger. I will not bother to 
supply figures; the point is self-evident. The world 
economy is bigger. The U.S. stock market is far 
bigger...and many more features of the economy - even 
financing used cars - have been securitized.

The derivatives market - which barely existed prior to the 
advent of the latest boom - now is estimated to be worth 
$80 trillion...or more than 7 times the output of every 
tinker, cobbler, pastry-maker and everyone else in the 
entire U.S. economy. And private debt levels in 
America...and public debt levels in Japan...have reached 
multiples of the previous peaks. 

Plus, the world has grown much more economically 
interdependent. The division of labor has expanded to the 
point where a single person with a briefcase might walk 
around with products from 20 different countries, and stop 
for lunch and eat the produce of 10 more.

And at the center of this widening gyre of securities, 
derivatives, debt, and globalized trade is the U.S. dollar. 
Can it hold?

I will give you my conclusion without forcing you to read 
to the end: It may not give way completely, but under the 
strain of capitalism's latest is sure to 

No one - outside of government or an asylum - sets prices. 
They are not set, they are the interaction of 
natural forces and collective human action. As markets have 
grown larger, so have the collections of humans that drive 

Collective action requires collective thinking. But as 
groups get bigger, they think less and less. 
Derivativation, securitization, globalization - who 
wouldn't rather get his teeth cleaned than have to think 
about such things?

As the market grows, the ideas that motivate people become 
fuzzier, less precise...and less grounded in real 
experience. The experience and intuition of the farmer has 
been replaced by the abstract ideas of the information age 
employee. A peasant in the middle ages had a very direct 
and tangible idea of what wealth was, for example - it was 
sheep, cows, and stored grain. He knew what it was worth in 
terms of how many people it would feed for how long.

But a software designer in the Bay Area probably measures 
out his wealth in terms of stock. Who knows what his stocks 
are really worth? And the measuring stick itself - the 
dollar - is also an abstraction, perhaps the biggest and 
most important abstraction of our time.

How much is the dollar worth? That too is a matter for the 
market...for the collective sentiments of millions of 
people...the unthinking masses. 

"If group-think were not bad enough," my friend, Mark Ford 
puts it, we now have a new phenomenon animating the 
markets, "group-feel."

Group-feel sounds as though it could be fun. But it also 
sounds unstable. 

So, as this crisis in capitalism gets underway, there are 
differences. Not only is the scale far larger than it was 
in the has been replaced by the dollar at the 
center of the financial system.

Most economists believe the paper currency gives 
policymakers and central bankers the flexibility to deal 
with a crisis. But the only thing they can do is to make it 
less valuable. 

Since WWII, the Fed has gradually reduced the value of the 
dollar. The declining value of the money encouraged 
consumers to spend, rather that save. Thus, did America 
become the consumer of last resort - absorbing 20% of the 
entire world's imports and running a trade deficit of 
nearly 5% of GDP.

The division of labor took on a curious and sunny character 
as the 60s and 70s gave way to the 80s and 90s. Foreign 
countries - especially in Asia - added production capacity. 
America added debt. Foreigners produced. Americans 

Of course, the world has not been immune to financial 
crises in the 2nd half of the last century. This led the 
U.S. government and Federal Reserve to assume another de 
facto role - the lender of last resort. That is why Larry 
Summers, Robert Rubin, and Alan Greenspan found such favor 
as the "Committee to Save the World."

All of this might last forever were it not for the fact 
that forever is longer than a few business cycles. After a 
few such turns, debt levels have become difficult to carry 
in the U.S...and supplies of dollars overseas have become 
more than adequate. 

Besides, the value of those dollars rests on nothing more 
than collective sentiment - which could (and I know I have 
been saying this for a long time) change at any moment. In 
a trice, the dollar may be no longer the world's most 
sought-after currency. 

Your correspondent, promising to move on to other subjects,

Bill Bonner

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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