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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Blowing Bubbles

*** 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 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 
93 cents.

*** "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 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 
nation's economy.

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 
would be!

"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.

Bill Bonner,

Your correspondent, living under the 5th Republic, in the 
shadow of the Hotel de Ville...

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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