*** Major indices drop...Amazon in the single digits...
Cisco nearing $20...
*** Investors' sentiment shifts - yes, it could be a bear
*** Savings hit lowest level ever...Buffett attacked...
Dayaks defended...is Greenspan a 'putz'?...naked women on
the metro...and more!
*** A worrisome day yesterday on Wall Street, as the slump
on moves into a new stage. All three major indices hit
their lowest levels in 6 months. Then, late-session buying
redeemed them...more or less.
*** The Nasdaq fell to within 71 points of 2000...and then
bounced to close up 31 points. Amazon fell below $10. Cisco
dropped below $23. Gateway lost 8% to close around $15.
Palm - which was at $165 a share a year ago - could be
bought for only $16.
*** The Big Techs keep taking casualties - Lucent's 12-
month high was $70; you can buy it today for under $12.
Nortel, recently $89, is now available for $17.
*** But it is not just the techs that are taking losses.
Morgan Stanley Dean Witter shares were for sale yesterday
for $60 - almost half-off the price a year ago.
*** GE lost 1% yesterday.
*** "Has the great bull market of the 1990s finally given
way to a bear market?" asks a front-page article in today's
International Herald Tribune. "So glum is Wall Street," the
paper reports, "that many market strategists now warn that
lower interest rates - the Federal Reserve Board is
expected to cut them again soon - may only temporarily
bolster stock prices, because of skepticism that rate cuts
can revive corporate profits quickly."
*** So much for the fabled second half recovery... "Between
now and June," John Myers reports, "companies in the tech
sector will enjoy their first 'profit recession' in 10
years - meaning that their profits will shrink for two
straight quarters. According to First Call, overall profits
in the sector could drop more than 18%. That's far more
severe than the 2.7% S&P 500 companies expect to shed. And
the next quarter looks just as bad."
*** We have been through our Autumn of Anxiety...and are
now suffering a Winter of Woe. Investors are realizing that
bear markets exist...and that stocks can go down as well as
up. What remains to be discovered is how far they can go
down...and for how long.
*** "What would happen if stocks fell back to their average
share of GDP at just over 50%?" Dan Denning asked earlier
this month. "The total 'market cap' of the stock market had
skyrocketed in the last 10 years to $16.5 trillion...
Current GDP is just over $10 trillion. So for stocks to
fall from that height to their historical average of GDP,
they'd have to fall by over $10 trillion. To put that in
perspective, that would mean a 66% decline in stock
indexes. You'd have Dow 3,640 and Nasdaq 961." (see: Reality Bites Bears and Bulls)
*** The 'group feel' of the marketplace is resignation...
but not yet fear and loathing. These sentiments are still
*** This is not like '98. The Dow has now lost 10% from its
January peak. The Nasdaq is down 13% for the year - down
almost 30% from its January peak. Investors are not making
money...they're losing it.
*** But consumers are continuing to spend. In January,
personal incomes rose 0.6%. But spending rose even faster -
0.7%, it's fastest pace in 4 months. Savings are at their
lowest level ever.
*** "We're living in an investor's Twilight Zone," writes
Doug Casey. "It makes no sense to talk about buying common
stocks, even good ones that are reasonably priced (although
they're a pretty rare commodity) because if we're in the
kind of bear market I think we are, they'll only get
*** Will Greenspan save this market? "I believe we'll see a
total reversal of the current god-like status for
Greenspan," Richard Russell wrote yesterday. A Daily
Reckoning reader put it differently (on the website):
Greenspan "is shaping up as the biggest economic putz in
*** "If Greenspan continues to cut rates," writes Marc
Faber in Forbes, "stocks may bounce back, but only briefly.
In the U.S. deflation may be reflected not in the domestic
price level but in a massive collapse of the dollar."
*** The dollar fell yesterday...with the euro rising over
*** "The U.S. runs a rather large current account deficit,"
writes Kevin Klombies. "In order for the dollar to stay
even - or rise - an equivalent amount of capital has to
flow into the U.S. to compensate for trade imbalances. For
the dollar to have risen as strongly as it has since late
1999 a tremendous amount of money must have flowed into US
markets. Most of that money fed the boom in the Nasdaq. For
that reason, there is a direct correlation between the
Nasdaq and the dollar index. Movements in the Nasdaq appear
to lead the dollar by one quarter. In other words, the
dollar is not only in a downtrend...but should continue a
downtrend, AFTER the Nasdaq bottoms, for another quarter."
When that bottom will arrive for the Nasdaq, we do not
*** John Williamson, economist at the Institute for Int'l
Economics, believes the euro will rise to above $1.30.
"That day will come," he says.
*** Initial jobless claims rose more than expected.
*** The Wall Street Journal raised prices by 33%.
*** Gold fell $1.60, but gold shares - including Newmont
and Homestake - rose.
*** Mr. D.P. Marchessini was so annoyed at Warren Buffett
that he took out a quarter-page ad in the IHT. "It is
difficult to imagine anything more outrageous or more
hypocritical," writes Mr. Marchessini, "than a group of
men, whose own wealth is obscene, trying to dictate how
much money other people should be allowed to have." What
cheesed Mr. Marchessini off was the public opposition to
repeal of the inheritance tax by Buffett, David
Rockefeller, Bill Gates' father and others.
*** Dayak update: The French newspaper, Liberation, has a
photo of decapitated bodies lying on the ground. But the
Dayaks' anti-immigration policies seem to have strong
support among DR readers. "At least they're Christians,"
said one. "Who can blame them?" said another, adding, "How
dare you call them 'savages!' But "the kindest thing you
can say about the Dayaks," replied another reader, "is that
they are savages."
*** The Dayaks are, after all, cutting off heads like
uncivilized barbarians. What's wrong with them, anyway? Why
don't they just shoot people in a civilized way? If they
did so, they'd barely make news. The confirmed death toll
to date is only 469 - scarcely more than a year of murders
in Baltimore. (See: "Love Them Dayaks" on the discussion
*** Paris is having a late winter. The last few days have
been cold, with occasional snowflakes falling. But oh la la
- things are hot on the metro! A billboard ad for a new gym
shows a stark naked woman, in superb condition. What a
town! You'd have to pay good money to see pictures like
that in the U.S.
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"There must certainly be a vast Fund of Stupidity in Human
Nature, else Men would not be caught as they are, a
thousand times over, by the same Snare; and while they yet
remember their past Misfortunes, go on to court and
encourage the Causes to which they were owing, and which
will again produce them."
Cato's Letters, January 1721
Yesterday, when we took our leave, Mr. Greenspan was still
in the privacy of his bath...amid his bubbles.
He has become the most powerful person on the federal
payroll, and perhaps the only one whom people trust. Were
he to make a mistake, the entire world economy could be
plunged into recession and even depression. Incomes from
Borneo to the Baltic could decline...living standards could
fall...dreams for retirements, vacations, new homes...and
even life itself, will be called into question.
Many of the world's people still live at the margin...with
barely enough calories to sustain life. A fall in world's
growth rate is not just a statistic to them, but a matter
of life and death.
"The U.S. economy is what is driving wealth in the rest of
the world," said Fred Palmer, President of the Western
Fuels Association, "We're the biggest economy on earth.
We're $9 trillion out of $27 trillion, the United States
economy is. For us to say that we are going to cut back, or
for them to tell us to cut back, means we will consume
less. If we consume less, they export less. If they export
less to us-we're the biggest market-their wealth goes down,
their well-being goes down, their joblessness comes up. And
the impact on the Third World, where two billion people already
don't have any electricity, would be devastating."
Each morning, I alight from the metro at the Hotel de Ville.
There, photos on the wall of the subway station show
the progress of the area over the centuries. Without even
reading the inscriptions, the history of France is
revealed: struggles, wars, destruction, rebuilding. One
drawing shows a gallows in the square with bodies hanging
from it. Another shows barricades set up, behind which
revolutionaries fire at advancing soldiers. A plaque on the
wall commemorates the people who died when Paris rose up
against the German occupation troops in WWII.
All of this upheaval and suffering in the past, we are
meant to see, leaves us with the peace and perfection of
Paris as it is today. The Nation State, France, has emerged
triumphant, with Paris at its center - stable, peaceful,
beautiful, and as it should be.
Similarly, the prevailing view of the world financial
system is that it represents the accumulated wisdom from
centuries of mistakes. Panics, depressions, crashes...they
have all been endured so that the present system could be
One of the first major experiments with today's financial
system occurred in France - in the early 18th century. Janet
Gleeson's book, Millionaire, tells the story of John Law
who, on the run after killing a man in a duel, came to
Paris. "Like most states," says Forbes' review of Ms.
Gleeson's book, "France was perpetually short of cash.
Instead of having gold and silver be the coins of the
realm, Law reasoned, why not print money? Law naively
thought political authorities would soberly control the
printing presses." They did not. Law's inflation wiped out
much of the monarchy's debt, but it practically ruined the
But now we have wiser managers - of whom Mr. Greenspan is
thought to be the wisest - and a flexible system of managed
money that provides these officials with the tools they
need to destroy their currencies at an dignified pace.
How lucky we are, dear reader, to be living in this Age of
Perfection! The mistakes of the past have finally been
corrected, once and for all. De Gaulle was called in during
the Algerian war to replace the 4th republic with the 5th in
1958. And Sir Isaac Newton's gold standard was finally
dismantled when Nixon 'closed the gold window' in 1972.
Now, instead of Richelieu, Napoleon or Pflimlin...we have
Jospin and Chirac in France......
...and more importantly, we have Alan Greenspan in
But could it be, gentle reader...I will put the question to
you merely as a possibility...that Mr. Greenspan's system
represents no real improvement - but that it is just
another twist of cyclical imbecility? The question must
even occur to Mr. Greenspan himself, in reflective moments.
Does it cause him to worry about poor Dayaks or starving
Somali tribesmen? Does it bother him that their well-being
might depend on the continued willingness of Americans to
spend money they haven't earned...and of foreigners to
accept worthless pieces of paper in return for valuable
goods and services?
"Wobbly consumers threaten growth," said a headline from
Reuters recently. The article quotes the number 2 man at
the Fed, Roger Ferguson. If consumers were to suddenly
decide to act responsibly, he said, it "would put the
economy at risk of unacceptably low growth."
"If the consumer is truly stretched," adds David Tice, "he
might actually start to save." And what a calamity that
"Today," writes Janet Gleeson in Millionaire, "if John
Law or his critics could witness commerce conducted in any
mall with credit cards, banknotes, and checks - not a gold
or silver coin in sight - they would see, incontrovertibly,
his vision achieved, but recognize also the same inherent
weakness. The survival of any credit-based financial system
still hinges on public confidence in a way that one based
on gold does not. Spectacular financial breakdowns have
peppered history ever since the advent of paper credit."
When Americans can no longer spend, the U.S. economy will
go into a recession of unknown depth and severity. And just
as the 1st Republic yielded to the 2nd, which yielded to the
3rd, which in turn yield to the 4th, which finally stepped out
of the way in 1958 to make room for the 5th, the world
financial system of the late 20th century, will also
eventually give way too.
Gold may not play a greater role in the next system than it
does in the current one...but it is bound to be popular
during the transition.
Your correspondent, living under the 5th Republic, in the
shadow of the Hotel de Ville...
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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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