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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Everybody Makes Mistakes

*** Abbey sees the Dow at 13,000...and why not?

*** The biggest loser of all time - Cisco!

*** Consumers still borrowing...and still spending - is this 
good news? Stock buyers likely to be disappointed with their 
Big Bottom...

*** 'Don't stand in front of the window!'...

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*** "US economy is close to a standstill, says the Fed" 
proclaims today's Financial Times headline. The nation's 
federal reserve banks reported "sluggish" or "mixed" 
results in the Jan-Feb period. 

*** But "Wall Street sees a turn in the market" says 
another headline. Yesterday, Abby Joseph Cohen raised the 
stock allocation in her model portfolio from 65 to 70 
percent and slashed her recommended cash holdings to zero. 
This follows similar strategic advice from Morgan Stanley 
Dean Witter and Merrill Lynch earlier in the week.

*** Abbey went a little further. "The imbalances...have 
been resolved," said she, adding that the Dow could hit 
13,000 by the end of the year. Mr. Bear must be smirking.

*** The Fed is doing its part with rate cuts and easy 
credit. "I'm going to worry about avoiding the recession," 
said Dallas Fed governor McTeer, "and we can get back to 
inflation later." 

*** Consumer credit expanded $16 billion in January, far in 
excess of the $6.5 billion estimate. December's numbers were 
revised upwards too - to a $7.1 billion increase, rather 
than just $3 billion.

*** Consumers seem to be rising to the bait. "Chain Store 
Sales Show Consumers Spending," says a headline I read a 
minute ago, but whose source I have already forgotten. 
According to the Redbook Average, sales grew 2.1% in Feb. 

*** All this spending "suggests that people are pretty 
confident about their income prospects, [and] about their 
employment prospects," said another Fed governor, William 
Poole of the St. Louis branch.

*** Both investors and consumers think they've seen the big 
bottom. The Dow rose 138 points yesterday. The Nasdaq 
managed only a 19-point increase.

*** Big Bottom or no Big Bottom...the future doesn't look so 
good for stock buyers, says Richard Russell. Historically, 
when the average P/E of the S&P 500 hits 22, Russell reminds 
us, investors can expect a return of only 5% per year for 
the next 10 years. And about a third of the average return 
on stocks over the last 73 years has been from dividends. 
Currently, the P/E of the S&P 500 is 24...with a dividend 
yield of only 1.2%. 

*** There were 1924 stocks advancing. 1163 declined. 

*** The dollar moved little. Gold is reported as either 
having risen $1.50 yesterday - or fallen $1.20 - depending 
on your source of information. 

*** More people have lost more money in Cisco than in any 
other stock in history. The market value of the stock has 
declined from $590 billion to just $200 billion.

*** "You can't leave the building" said a voice from 
reception. Lord Rees-Mogg and I were meeting at his office 
on Bloomsbury Square. We have heard the sirens wailing - but 
this is nothing unusual. But when the meeting was over we 
found that a bomb threat had caused police to seal off the 
street in front of the building. The English have been 
living with bombs and bomb threats for such a long 
time...they actually seem to enjoy them, much like children 
enjoy a blizzard. "I wouldn't stand in front of the 
window," advised Lord Rees-Mogg as I stare out. A few 
minutes later, traffic was once again moving, or rather, not 
moving very much, as usual and I was able to get on with my 

*** The London press was a big disappointment today. No 
naughty vicars. No maudlin tales of dying children. No 
missing limbs. Instead of tragedy or comedy - the media 
decided to devote itself to farce: Gordon Brown's budget, 
which seemed to offer something for almost everyone. Even 
alcoholics got a break, as the Brown budget freezes duties 
on booze.

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Nothing much happens in Bremo Bluff, Virginia. I used to 
drive through the town on my way down to even more remote 
areas of the state. It is little more than a bend in the 
road; the little town offers little in the way of diversion, 
which leaves a man plenty of time to think.

Thus, with time on his hands, Bremo Bluff resident and 
military historian Bevin Alexander has wondered about WWII 
and how it might have turned out much differently.

What a different world it was 60 years ago. 

In February of 1941, Germany had already invaded France. 
Erich von Manstein had seen and understood the weakness of 
the French defensive strategy. He figured out how to 
outflank the French and cut off virtually the entire French 
and British force encamped near the Belgian border. 

The French had, on paper, the strongest army in Europe at 
the time. But their tactics were 20 years out of date. It 
was a new era in warfare and only a handful of military men 
- mostly in the Wehrmacht, realized it. 

Had the French not been such blockheads, one could argue, 
the 2nd World War would never have developed as it did. The 
Germans would have attacked. They would have met effective 
resistance and the balance of power in Europe would have 
been maintained.

But errors, dear reader, are inevitable. It was no more 
possible for the combatants of WWII to avoid making mistakes 
than it was for investors in the Great Bubble of 1995-2000. 

Yesterday, Henry Blodget explained why his top 
recommendations were down an average of 79%: "The market 
went from saying 'we like companies that are growing quickly 
but are losing a lot of money' to saying 'We want to see 
earnings.' It's very hard to predict a 180-degree turn like 

Some things are predictable. Who could not see that 
investors would sooner or later want the companies they 
owned to make money? It is also 100% predictable that people 
will be blockheads. 

As events happened, two generations ago, the Germans 
attacked where they were not expected...and in a manner the 
French had never seen. Tank commanders such as Heinz 
Guderian and Erich Rommel cut through the French line and 
then kept going...moving so fast and showing up in places so 
far from where they were thought to be that Rommel's group 
became known as the "ghost division." Not only were the 
French and British forces unable to respond effectively - 
they had no idea of how to respond. They did not know where 
the enemy was, what he was doing, nor even why he was doing 

In a few weeks, the French army collapsed. Soldiers threw 
down their weapons and fled. The French government, in a 
panic, saw the situation as hopeless and surrendered. The 
British, along with a few remnants of the French forces, 
were driven into the sea at Dunkirk.

By February of the following year, the Battle of Britain had 
already been waged...with an inconclusive result. Churchill 
had rallied his nation - at the last moment - and, barely, 
fended off the German assault.

Rommel was in North Africa preparing his Deutsche Afrika 
Corps and a series of breathtaking victories. 

The German Army was preparing an invasion of Yugoslavia and 

Hitler was furious with General Franco in Spain, calling him 
a "Jesuit swine," after the latter resisted Hitler's 
requests to allow German armies to cross Spain in order to 
attack the British fortress at Gibraltar, which guarded the 
Atlantic entrance to the Mediterranean. He was also furious 
at various other people for various other reasons.

In 1941, the entire world map might have been regarded as a 
game board - with national forces aligned, arrayed, in 
motion or hors de combat such as the shifting fortunes of 
the players decreed.

Life is competitive. People compete alone and in groups - in 
sports, politics, fashion, sex, business and economics. In 
the 1940s, nation state competition had reached a frenzy - 
an episodic peak. Germany did this. Russia did that. Greece 
did such and such. Britain did something else. For a few 
years, almost everyone and everything in Europe was brought 
into the game. A person could be conscripted into a labor 
battalion, sent to the front lines in combat, or herded into 
a cattle car and shipped to an extermination camp. Politics 
is a game of force...played for mortal stakes.

Today, you'd have to read the business pages or the 
editorial page to find a similar contests. Microsoft vs. 
Oracle...Yahoo! vs. AOL...GM vs. Toyota. Nobody really cares 
what Greece does. The game has moved from politics to the 
market, played out no longer with political power and lethal 
results...but with economic power and an outcome that is 
measured in dollars and sense. The competition is no longer 
a worldwide trajedy...but a comedy on a global scale. 

Bevins sees the world through the eyes of a military 
historian. From his roost in Bremo Bluff, Virginia, he 
thinks he espies critical mistakes that change the course of 
history. In this case, the mistakes were those of Adolf 

You will recall that Francis Fukayama lays the miserable 
history of the 20th century on the shoulders of another 
German speaker - General von Kluck. Von Kluck's error in 
1914 - failing to stick to the Shleiffen's plan of attack - 
cost the Germans a quick and critical victory.

Bevins maintains that Hitler's first mistake was failing to 
crush the British at Dunkirk, when he had the chance. The 
second, and more important error, was attacking Russia in a 
way that made no sense tactically or strategically.

"The attack against the Soviet Union on June 22, 1941," 
Bevins writes, "is the most powerful example in the 20th 
century of how a leader and a nation - in this case Adolf 
Hitler and Germany - can ignore clear, eternal rules of 
successful warfare, and pursue a course that leads straight 
to destruction."

In just a few months, Hitler had put together an empire that 
dominated Europe. The Germans occupied half of France. The 
line of occupation in the west ran only a few miles from my 
house in Poitou. From this point in central France, Germans 
controlled all the territory of Europe to the center of 
Poland in the east, and from Norway in the north down to the 
tip of Greece and the island of Crete in the Mediterranean 
(and large sections of Africa too).

But empires that rise up quickly, like bull markets, tend to 
collapse quickly too. The Third Reich was destroyed within 
just 4 years after Hitler attacked the Soviet Union. 

Fierce and farcical competition in politics continued for 
another 45 years, until the collapse of communism in Russia. 

Now it is a new world again - an era of fierce economic 
competition...with plenty of mistakes, opportunities, and 
comic results.

Bill Bonner,

A blockhead on occasion
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