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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
TUESDAY, 27 FEBRUARY 2001 

 

Today:  Can the Center Hold?

*** Odds of another surprise rate cut - 80% says former Fed 
governor

*** Big rally in the Dow... is it the 'rate cut' chatter 
that gets the credit? Or is the market just breathing?

*** Big inflows into mutual funds...smart money 
leaving...students coming in...gold stocks moving up...and 
more...

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*** "Rate cut...rate cut...rate cut..." Investors chanted 
as they bought aggressively yesterday, driving the Dow up 
200 points.

*** Advancing shares beat out declining ones by a more than 
2 to 1 margin. 

*** The Nasdaq rose too - up 47 points.

*** Former Fed governor Wayne Angell appeared late in the 
day with a guess that there was an 80% chance of another 
surprise rate cut from the Fed.

*** GE gained 4%. MSFT shot up 6%. Cisco and Intel went the 
other direction.

*** The rate cut rumor helped observers make sense of what 
was happening on Wall Street...but it was not necessarily 
the cause.

*** "Markets are living things," says Richard Russell on 
occasion, "they have to breathe in and out." Russell adds 
that anytime the breadth in the Dow or S&P goes down in 12 
or more of 15 sessions, it is time for rally.

*** "The market isn't likely to keep going straight down," 
adds John Crudele in the NY POST. "Markets never do."

*** The St. Louis Fed reports that Greenspan & Co. are 
doing their bit to make sure it doesn't go straight down. 
They are inflating the currency. MZM (money of zero 
maturity, or what economists call 'cash') has been growing 
since Dec. 11th at a 21.3% annualized rate. Over the last 6 
months, the growth of cash has been running at about 4 
times the growth of the economy itself.

*** Where is the cash going? Well, as much as $140 billion 
net went into mutual funds in January. Even so, stocks 
refused to rise.

*** How can you have huge inflows of cash into a market 
without prices going up, asks Crudele. Someone else must be 
selling. Crudele guesses that large investors are selling 
their stocks to the mutual funds, which are owned by small 
investors. "The smart money wants no part of this market," 
he concludes.

*** "Students Swept up in Stock Market Mania" reports a SF 
Chronicle headline, illustrating Crudele's point. "Everyone 
just sees the money like floating around and wants to get a 
piece of the pie," says one metaphor-mixing member of the 
class of 2002. 

*** Gretchen Morgenson reports that a Watson Wyatt study of 
the use of stock options found that companies making heavy 
use of options were likely to perform less well than those 
who made less use of options. Options "motivated executives 
to pursue riskier business strategies, like adding debt and 
making high-priced stock buybacks," writes Morgenson in the 
NY Times. Among the tech stocks in the study, an average of 
23% of the shares outstanding had been used in stock option 
grants. (see: Stock Options: Hypothetical Costs Are 
Becoming Real)

*** The big winners yesterday were, would you believe it, 
the gold miners - which rose about 8%. The price of gold 
itself rose $4.70 on April contracts, to $266.50. People 
are beginning to make money in Newmont, Homestake and a few 
other companies.

*** "The gold mining stocks should rally sharply before the 
equity markets bottom," says Kevin Klombies. A chartist, 
Klombies notes: "Franco Nevada broke up through the top of 
the trading 'flag' on Friday to $18, another serious 
resistance point... with a successful break at this level, 
the stock should go to $25."

*** Dan Ferris reports that lease rates for gold have 
jumped from 0.7% to more than 2.4%. "The market is full of 
rumors," he says. Are some major players in the gold market 
'overhedged' and calling in their gold loans? More on gold, 
the dollar, racism ...and life in the 3rd millennium... 
below.

*** A reader, who works for Mitsubishi, comments on his 
bosses and why they've been unable to get out of their 
funk: "Typically they (the Japanese) are unimaginative, 
paranoid, and inflexible. Once they have a plan, the plan 
is more important than the results until the results hit 
them like a Tsunami. The bad economy in their country 
serves to make them even more paranoid. As such, it could 
be an interesting analysis to see what will happen to Japan 
and the resulting global economy if they are unable to 
shift gears. It certainly does look ugly."

*** I also got an interesting note from Rick Ackerman 
explaining how America's trade deficit contributes to the 
illusion of a healthy economy: "The importer enjoys a 
greater gross margin on the imported product than the 
exporter may realize in export. Thus the $2 comb set 
leaving the Chinese factory is a $3 part of a shipment 
arriving at San Diego. By the time your daughter buys it 
for $10, your economy registers in GDP, +$10 in final 
sales, -$3 in imports for a +$7 in GDP. The GDP improvement 
to import ratio is greater than two, in this case 2.3. The 
numbers for other products vary greatly, but the pattern is 
similar. The $1.2-1.3 trillion of imports this year are 
probably directly responsible for some $2 to 2.5 trillion 
of GDP. Perhaps more." The more we buy...the richer we get.

*** "You won't believe you can get property this nice... 
this cheap... so close to the US," says Jennifer Stevens, 
who recently spent some time searching for real estate 
bargains in the Bahamas. "...talcum-powder-fine and 
deserted, the beaches on Long, Cat, and San Salvador are 
some of the most spectacular in the islands - and still 
affordable. You can own a quarter acre of beachfront for 
less than US$46,000 or a hillside lot with an ocean view 
for as little as US$15,000. And until June 2002, special 
building incentives allow you to import all your 
construction goods duty-free - which can save you 35% on 
building costs." (see: Tranquil Powder-Fine Beaches... and 
Surprising Property Values)

*** By the way, The Sovereign Society's 16th Annual Premier 
Offshore Advantage Seminar, will be held May 16-20, 2001 at 
the Sheraton Grand Resort, Paradise Island, Bahamas. I'm 
told the conference will feature international bankers, 
attorneys and tax experts who can provide you with personal 
consultation if you're interested in banking offshore. (For 
more information e-mail: sovereignsociety@compuserve.com. 
See also: http://www.sovereignsociety.com/bahamas.html)

*** And if you're interested in the property in the 
Bahamas, Kathie Peddicord, editor of International Living, 
will be speaking at the Sovereign Society seminar, then 
leading an expedition afterwards to Long, Cat, and San 
Salvador Islands.

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American History X

"Remember, there are only two important rules in 
Christianity. Love God...and Love thy Neighbor. Sometimes 
it seems hard to love your neighbor. It is hard to follow 
God's rules." 

- Pere Marchand,
From Sunday's service


Indonesia is like an ad for Bennetton. There are 10,000 
islands... 1,000 different languages and dialects... many 
different races, colors and religions.

If one wanted to celebrate diversity, Indonesia would be a 
good place hang the streamers and throw the confetti. But 
instead of appreciating their neighbors, the Dayaks 
decapitate them.

Thus, even in the 3rd millennium after the birth of 
Christ...there are still savages upon whom the veneer of 
civilization has never been applied. These noble savages 
are still as rough-hewn as fence posts. 

Why do people do evil things? 

"What stays the same in the financial markets," I quote 
myself from Friday's letter, "is the cycles of greed and 
fear, boom and bust, expansion and contraction...love and 
hate...which accompany all human activity."

Sometimes, in markets as in the rest of human life, things 
get out of hand. Principles - such as the Golden Rule...or, 
dare I say, the gold standard - are ignored. Instead, 
people rely on "group feel" to guide them. 

We are supposed to love our neighbors - but who could love 
the Dayaks? (Perhaps there is some other benighted tribe on 
Borneo who still love them despite their murderous faults. 
They invite them for dinner...and have them, with 
vegetables.)

I began to write about this yesterday - after having seen 
the film, American History X, on Saturday night. But the 
subject is so touchy - it needs to be approached as if it 
were a live hand grenade or a rich, nearly-dead aunt. Watch 
out...it is easy to make a mistake.

The subject of the film was racism. Hate. Murder. Familiar 
themes of American history.

To the question, "why do people do evil things?" it might 
be answered, "because there is nothing to stop them."

To which, it might be rejoined: "Why doesn't the government 
stop them, isn't that what it is supposed to do?"

Unfortunately, in the century just passed, government was 
the main perpetrator of evil. In fact, when it comes to the 
prize for killing people, the illiterate savages of Borneo 
are not even in the running. Instead, the literate savages 
of Europe and Asia are way ahead. It was they who built the 
concentration camps...and the gulag...and who masterminded 
the purges, the famines, the leaps forward and the de-
urbanization campaigns. 

But if government cannot be counted upon to prevent evil, 
what can? Alas, there are still questions for which the Age 
of Information has no ready answers.

When slaves were first imported to America, they were 
regarded as indentured servants. For a while at least, 
Christian principles stood in the way of race slavery. Once 
a slave became a Christian, he could no longer be held in 
bondage. Many blacks in the 17th century gained their 
freedom in this way - and some went on to become landowners 
and slaveholders themselves. In fact, it was one of these 
black slaveholders who challenged the law in the Virginia 
Commonwealth that required christianized slaves - and their 
children - to be released. He won. The principles had been 
pushed aside. Virginia fell into the abyss...

Later, in Pennsylvania, even the Quakers began owning 
slaves. This appalled the Quaker leadership, however, who 
pointed out that you could not hold people in perpetual 
servitude and still do unto them as you would have them do 
unto you. Slavery was abolished in Pennsylvania partly on 
this matter of principle...and partly because Pennsylvania 
and all Northern states generally are less well suited to 
the type of farming - such as growing tobacco and cotton - 
where slave labor is most useful. Maryland Quakers, for 
example, found slave labor so useful for their tobacco 
plantations that they decided to become Episcopalians. 
Then, as now, Episcopalianism was ready to adapt itself to 
the convenience of the time.

American History X was a minor success in America and a 
bigger one in France. In Europe, it broke a kind of taboo, 
explained my friend Michel, because it allowed someone to 
argue the neo-nazi cause...and showed the kind of images 
that nurture racist feelings: such as a scene where a gang 
of black kids beats up a white boy in a school bathroom. 

"The ending was ambiguous," Michel continued. A person who 
didn't like blacks might have come out of the theatre 
liking them even less than when he went in. Of course, he'd 
probably not care for the neo-nazis either, and certainly 
wouldn't want to shower with them.

Your reporter...back on his beat 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

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