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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
THURSDAY, 15 MARCH 2001 

 

Today:  The Ides of March

*** Mr. Bear couldn't resist a little fun...

*** Bear market should last another 2 years...and take the 
Dow below 5,000 and the Nasdaq below 1,000

*** Investors have lost $680 billion so far this 
week...'Buying like crazy' - and other insanities...

* * * * * * * * * * Advertisement * * * * * * * * * * * *

"Kevin Klombies' analysis has been spot on. It's a good 
time for people to check his service out if they haven't 
done so already." 

Dan Denning, 
Editor, Strategic Investment

Yo-yoing markets. An ever-weakening dollar. A dire 
manufacturing sector... and rock bottom consumer 
confidence. Add falling bonds and rising commodities to the 
mix and you've got a once-in-a-generation "market top". 

But what these easy-to-see chart trends reveal... no one 
expects. Clear Profits from The Surprise Market of 2001. 
Click below for a free look at: 

6 IMRA Forecasts That Can Make You Money 
Over The Next 12-18 Months
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*** Mr. Bear just couldn't restrain himself. After backing 
off for a day, he couldn't resist going back into the 
market and having some fun.

*** The Dow got mauled, ending the day below the 10,000 
market - down 318 points. And the Nasdaq was scratched for 
a 42-point loss. 

*** The 'two most dangerous stocks' - IBM and GE - both 
suffered losses. IBM fell $3.54. GE dropped $1.30 (3%).

*** There were only 766 stocks making progress on the NYSE, 
against 2316 that declined. 

*** Still, it could have been worse. The popular view is 
that while the tech sector was overvalued - everyone says 
they knew it all along...even the analysts! - the 'Old 
Economy' companies were still healthy and benefiting from 
new technology. In the last three days, that benign view 
has been blown away. The Dow is going down too.

*** "The Nasdaq will be down 75%" when the bear market is 
over, according to John McGinley of Technical Trends. "And 
the Dow will be down 50%." How will you know when the 
indexes finally hit bottom? "Call up five friends," 
suggests McGinley, "and ask them if they're still checking 
stocks. If they say 'no' - it's over."

**** The Leuthold Group figures that the average length for 
a bear market is just a little shy of 3 years. Most people 
would mark the beginning of the bear market at last March - 
when the Nasdaq topped out. If so, and this is an average 
bear market, you can expect to wait another two years 
before the big bottom makes its appearance. 

*** Looking on the bright side: "We are definitely in a 
bottoming process," says Byron Wein, Morgan Stanley's 
investment strategist.

*** And investors, though worried and frustrated, are not 
yet panicking. "I'm in it for the long haul," said Jeffrey 
Hutchins, interviewed by the Detroit Free Press. Mr. 
Hutchins goes on to say that he hopes his fund managers are 
"buying like crazy."

*** If you are going to buy over-priced stocks in a bear 
market - 'buying like crazy' is probably the only way to do 
it. "I'm holding Cisco, Intel, Palm. Everybody has a Palm," 
said another clueless investor.

*** Yet, the Dow is down 7.5% this year. This week alone, 
investors have lost $680 billion - or about $7,500 for 
every family in the nation.

*** The 'reverse wealth effect' is bound to start pinching 
consumers soon. USA TODAY reports that household's net 
worth declined 2% last year - for the first time since 
1945.

*** "The bursting of the stock market bubble has eroded 
household balance sheets and undermined the willingness and 
ability of Americans to spend as aggressively as they had 
been spending," said economist Mark Zandi. Associated Press 
reports that "Retails Sales fell unexpectedly in February."

*** The Fed's rate cuts will probably turn the situation 
around, explains Paul Krugman, but "there is the small but 
scary possibility of a Japanese-style trap, in which even 
cutting rates all the way to zero turns out not to be 
enough." How great are the chances of a Japanese-style 
trap? More below...

*** The dollar rose yesterday. And gold fell $4.60. So far, 
gold and the dollar have resisted nearly all my analysis, 
recommendations, and tedious harping. Alas, dear reader, 
there is no point in my telling Mr. Market what he SHOULD 
do. He will do what he wants. 

*** In 1999, Americans consumed about 96.1 quadrillion 
British thermal units of energy. The Energy Dept. projects 
U.S. energy consumption will grow about 32% by 2020. Dan 
Ferris has been following what he calls 'The Internet's 
Dirty Secret' since early July 2000. The company he 
recommended, CONSOL Energy is up 103% in the last year. 

"At 19.3% and 20.4%," says Ferris, "coal producer CONSOL 
Energy's 5-year and 12-month returns on capital are the 
highest in the energy business." 

*** Elizabeth tells me that it is now illegal for her to 
ride her horse outside of our own farm. Horses do not 
usually get hoof and mouth disease. But they have both 
hooves and mouths and may carry the malady.

*** Jules, Maria and I went to see the movie, Stalingrad, 
last night. This is the second film I have seen about the 
great battle. The first one was made by a German. This one 
was made by an American company but with a French director 
using mostly British actors. 

*** In the German version, the poor German soldiers are 
starved and shot down by the Soviet Army. In this version, 
it's the poor Russian soldiers who are beaten, shot in the 
back, herded onto locked cattle cars, and mowed down by 
machine guns - also by the Soviet Army. And if they 
survived - they still had to face the Germans! More 
below...

*** Meanwhile, "Dublin is hopping," notes Addison, who 
recently passed through there on his way back to Paris. 
"For the first time in about 1000 years of history Ireland, 
rather than exporting labor, is experiencing net 
immigration. More people of non-Irish decent are moving 
into the country seeking work, than Irish are leaving to 
seek work elsewhere. And more than 50% of the population of 
Dublin is aged 30... or younger. Never before have the 
young had a reason to stay."

* * * * * * * * * * Advertisement * * * * * * * * * * * *

The landing approach has begun. The flaps are down. A 
moderate slowdown has hit the U.S. economy. Investors are 
still optimistic. But consumer spending is way off. 

Still...it seems that everyone believes that Alan Greenspan 
has engineered a soft landing for the formerly high-flying 
tech bubble. But according to one of the world's leading 
economists, it's worse than blind faith. It's high-octane 
'new paradigm' propaganda. 

Here's what you need to do - right now - to prepare 
yourself for: 

http://www.agora-inc.com/reports/RCLF/ChaseTheBear
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *


IDES OF MARCH

Fates, we will know your pleasures:
That we shall die, we know; 'tis but the time
And drawing days out, that men stand upon.

Shakespeare's Julius Caesar


I arose from my bed this morning, thinking about it. I took 
a bath brushed my teeth thinking about it. It was on my 
mind as I sat at the kitchen table - eating a bowl of bran 
flakes with a sliced banana. It dominated my thoughts as I 
put on my clothes...and walked along the street to the 
subway station...and mounted the train for central Paris. 
Even as I read the newspaper on the subway...and then made 
my way to the office - passing cars, stores full of 
appliances and furniture...billboard ads...and people on 
their way to work - and still, as I sat down at my desk and 
turned on my computer - I cogitated, like a computer doing 
a calculation in the background, on the idea.

All of the time I was surrounded by things - nourished by 
them, warmed and protected by them, transported by them, 
annoyed by them...admiring their shapes and forms...and 
using them as tools for various tasks. All of these things 
are wealth. Materially, they are all that separates me from 
the rangiest savage in the most godforsaken backwater on 
Earth. He must think too...he must have his emotions...his 
tastes and his beliefs. But I have more things. 

It is in things that we measure wealth. Dollars, yen and 
euros only have value to the extent that they can be traded 
for things. And it is these things that allow us to make 
more wealth. Put me at the controls of a backhoe, fill the 
tank with fuel, and I will dig a bigger hole, faster, than 
even ten primitives with wooden hoes! 

These things do not just appear. They are designed, built, 
distributed, and sold by teams of people - all of whom have 
their own ideas, expertise, capital, management style, 
resources and limitations. 

Information is everywhere throughout the system - guiding, 
misguiding, confusing, informing. Like the latest 
management fads, sometimes it is useful, and sometimes it 
is as useless as an analyst. But until the thing appears - 
the tangible item that we can use, consume, enjoy or 
despise - the information, management, skill and capital 
behind it is only a potential value, not a real one.

But America's 'Cult of Information' has performed its 
purpose. It has inspired and sustained an immense bubble. 
Stock prices have reached levels not seen since the late 
'20s. Companies with no profits and no proven business 
plans have been given billion-dollar market caps. 

To the question, 'how could such values be justified?', 
comes the answer: 'They have information capital that 
doesn't appear on the balance sheet.' 

The 'information' illusion has persuaded people all over 
the planet to accept U.S. dollars - as though they were 
valuable. It has seduced foreigners not only to provide 
goods and services in exchange for dollars - but to invest 
those dollars in the U.S. economy, because it is the U.S. 
economy that leads the world into the "Information Age." 

Grand bubbles need grand illusions to sustain them...and, 
often, grand mistakes to deflate them.

Caesar's military campaigns were waged well and 
successfully - especially against the Gauls in France. 
Ordered back to Rome, where he was to be stripped of his 
command, Caesar instead took a bold gamble. He 'crossed the 
Rubicon' with his army - which was forbidden - and 
eventually won a civil war.

But just as nothing sets up a man for huge losses better 
than easy profits -- nothing prepares a man for disaster 
better than success. Caesar then made a monumental blunder 
- one which Napoleon imitated 18 centuries later. He had 
himself declared 'dictator for life.' This act cheesed off 
the Senate to such an extent that a group of them - led by 
Caius Cassius and Marcus Brutus, who delivered the 
'unkindest cut of all' - put a dagger into Ceasar's 
remarkable bubble of ambition on today's date in 44 B.C.

The last time the U.S. faced a major bear market was in the 
late 60s. Then, the sustaining illusion was that American 
business management and the size of the domestic market 
made U.S. businesses unstoppable. American go-go marketing, 
branding, quality manufacturing and financing were the envy 
of the entire world. The dollar was also the currency of 
choice for anyone who could get his hands on it.

But the '60s were followed by the '70s, in which the 
illusion was destroyed completely - thanks to inflation, a 
bear market, Richard Nixon, Jimmy Carter... and others.

In the 1980s a new illusion arose - that the Japanese 
economic system was unstoppable. A popular book of time 
reflected American's admiration for the Japanese: "Theory 
Z: How the U.S. Can Meet the Japanese Challenge."

It was less than twenty years ago, but the Japanese boom 
seems to have fallen into a black hole of memory. In the 
1980s, Japan's GDP growth followed almost exactly the 
pattern of the U.S. in the 90s, beginning the decade with a 
growth rate of about 2% and ending it growing at 6.3%

The Nikkei index, meanwhile, performed even more 
spectacularly: it was only 6,500 at the beginning of decade 
and nearly 39,000 at its close. 

For reference - or amusement - the Nikkei is now below 
12,000 and the economy's growth rate is about zero.

Nor did the Japanese sit idly eating their raw fish as the 
Japan, Inc. went belly up. They "did everything imaginable" 
says Christopher Byron in a recent article. Interest rates 
were reduced to zero and public spending (a.k.a. fiscal 
stimulus) went wild.

Is there anything else they could do?

"If I were the head of the Bank of Japan, I'd charter every 
helicopter I could get my hands on," said a "top global 
market analyst" quoted by Byron, "fill them with money and 
dump the cash over downtown Tokyo starting tonight. That 
economy has simply got to be reflated somehow. We are at a 
critical juncture."

We are at a critical juncture, dear reader. But destroying 
the yen would probably not solve the problems the world 
economy faces. 

Money is only valuable because it's supply is limited. 
Dropping it from helicopters may encourage the Japanese to 
spend it quickly, but who will want it? American economists 
have been advising Japan to destroy the yen for the last 
ten years. But this would not solve Japan's economic 
problem...it would merely add a new dimension to it - a 
monetary problem.

Could it be, dear reader, that Japan's economic problem - 
and America's - is not something than can be solved? A 
collapse may not be avoidable. Instead, perhaps it must be 
endured. Like death, it is merely a question of when and 
how - not if. 


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

Published By Tulips and Bears LLC