*** What a week! The bear market in its third stage...The
Winter of Woe develops...
*** But no 'capitulation'...yet...
*** When will techs bounce back? Will they ever?...gold
plummets...worldwide bear market...Powell concerned about
Japan...Socialists win in Paris...and more!
*** What a week! The Dow shed 821 points - the largest drop
in percentage terms in 11 years. The Winter of Woe
*** The Dow fell 201 points on Friday and is now down
almost 9% for the year...and more than 16% from its high a
*** The Nasdaq fell 49 on Friday and 8% for the week. But
people have come to expect that from the Nasdaq. It's the
Dow's action that is disturbing.
*** The Dow's disturbing week shows that the bear market
has moved into a new, third phase. At first, investors do
not believe prices can fall. Regardless of what they've
read or been told, they come to believe that stock prices
only go in one direction - up.
*** In the next phase, the 'group feel' sentiment of
investors remains steadfastly positive. At the same time,
investors begin to have doubts. A few investors defect
from the group. Prices fall in fits and spurts...and
then bounce back.
*** In the third phase, investors come to realize that bear
markets happen. More investors defect...as stocks fall to
new lows. They become resigned to the fact that prices are
going down. But they have not yet given up on the stock
market as the route the wealth. They grope for the big
bottom...and think they have found it every time stocks
*** Two stocks declined for every one that rose on Friday.
Volume was neither heavy nor light. There was no sign of
panic, even as the Dow finished one of its worst weeks in
*** The buzzword du jour is 'capitulation'. Every big drop
in the indexes is thought to be a 'capitulation' - the moment
when investors have finally given up, sold out and surrendered.
This selling frenzy is supposed to be what gets us to the
big bottom we've been looking for.
*** "When Will Tech Stocks Bounce Back?" asks the cover of
Barron's. It is not a question of 'if'...but only 'when'.
*** While the Dow fell as expected, the dollar did not.
Instead, the dollar index rose last week. And the euro
dropped below 90 cents.
*** How could this be? The dollar's value rests upon the
willingness of foreign investors to buy U.S. dollar assets.
Why would foreigners want to put their hard-earned money
into U.S. stocks and bonds - when they seem to be declining
*** The explanation, dear reader, is that foreign assets
are collapsing in value at about the same rate. To many
people, America...and the U.S. dollar...still look
*** The Prudent Bear: "One can certainly get a feel for the
global nature of the current crisis by scanning today's
headlines from Bloomberg News: 'Canadian Dollar Drops Near
Record Amid Concern about Stocks and Economy'; 'Australian
Dollar Falls on Concern Government Set to Lose Parliament
Seat'; 'Korean Won, Taiwan Dollar Decline as Weak Yen Curbs
Demand for Exports'; 'Thai Baht Falls to Three-Month Low as
Central Bank Says It's Not Worried'; 'Venezuela
Unemployment Rate Surges to 15.8% in January From
December's 10%'; 'Philippine Unemployment Rate Rises in
January to 11.4%, a Nine-Month High' 'Argentine Bonds
Plunge on Concern Economy Plan Won't Get Political
Support'; 'Turkish Economic Program Hinges on Lenders
Providing Up to $25 Billion'; and 'Euro Suffers Worst
Weekly Drop Against the Dollar'."
*** Speaking of Prudent Bears, I notice that Saturday's
International Herald Tribune turned its attention in our
direction. Two of our contributing editors - David Tice and
Marc Faber - were featured. More tomorrow...
*** Adjacent to the article on David Tice is a Bloomberg
News piece explaining why the dollar has not yet fallen.
"U.S. monetary officials would be able to move more rapidly
to stimulate growth than their European counterparts," it
says. "The Federal Reserve board is seen as being more
active" than the ECB.
*** The FOMC meets tomorrow and is expected to cut rates by
at least 50 basis points. The latest figures show it has
nothing to fear from inflation. Producer prices, less
energy and food, fell in February by 0.3% - the biggest
drop in 7 and a half years. Even with food and energy,
prices rose only 0.1% for the month.
*** The Mortgage Bankers Association says mortgage
delinquencies are rising sharply. In the 4th quarter, GDP
increased only at a 1.1% annual rate - not enough to cover
rising energy costs. Plus, investment portfolios fell in
value - reducing the net worth of many households and making
it tougher to pay the bills.
*** The American Bankers Association tells us that credit
card delinquencies are also rising. And business debt
defaults are an even bigger worry. Prominent defaults in
February included Globalstar, Chiquita, and So. Cal.
*** But Colin Powell says he is "concerned about the
Japanese economy." Inflation is not a problem in Japan
either. And, as in America, Japan seems headed into a
recession with collapsing stock prices. Japan will most
likely do what the Fed will do: cut rates. But in Japan the
rate cut will be from a miniscule 0.15% down to zero.
*** U.S. rates may reach zero, too, before the present
downturn is over. And stock prices - including the Dow -
are likely to decline as much as the Nikkei has declined -
about 75% from the peak. Then, and only then, will we find
the Big Bottom.
*** Gold fell $13 last week. Gold mining companies got
clobbered. Gold will eventually rise - I say with
conviction - but only after the dollar has run its course.
*** "The Socialist candidate for the mayor of Paris,
Bertrand Delanoe, beat the incumbent Phillipe Seguin in
Sunday's elections," reports Daily Reckoning eyewitness,
Thom "Bomb" Hickling. "For hours outside our office window
in Paris just a couple of blocks from the Hotel de Ville
(Paris City Hall) car horns have been honking, drums
beating, crowds cheering. I'd say at least 10,000 people
were on the square in front of the grand city monument.
"TV crews from around the world were there, so was a rock
band and 50 piece steel drum band... and lots of shouting,
hugging, arms thrust in the air cheering..."
Thom took some pictures - click here to see how Paris
celebrates its 'deviation' - or its 'turn to the left.'
(see: The Socialists Take Paris!)
*** This day marks the anniversary of two interesting
events from WWII. In 1945, Japanese kamikaze planes attacked
the U.S. carrier Franklin, killing 800 sailors. Also in 1945,
Hitler, faced with defeat, issued his 'Nero Decree'. He knew
his bubble had burst...his 'Nero Decree' imagined that he could
take all of Germany down with him.
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The winds of March that made my heart a dancer
A telephone that rings but who's to answer?
Oh how the ghost of you clings
These foolish things, remind me of you
(I can't remember the title, or the author of
this song...but it was sung by Frank Sinatra)
The winds of March blew up on Saturday. It is a period
marked by 'les giboulees' - where the weather changes from
one moment to the next, like Maria's moods. Teenage girls
are reliable - like stock markets... You can count on them
to be adorable one moment and insufferable the next.
Mr. Deshais was moody too.
"Farming is finished in France," he said, exaggerating for
emphasis. The chart of beef prices resembles the Nasdaq.
The wholesale price of beef in France has dropped from 1.6
euros per kilogram a year ago to less than 1.2 euros in
Now, with a single recorded case of hoof and mouth disease
in France, exports of meat products from the European Union
have collapsed. The U.S. banned European meat last week.
More countries have followed suit since then.
But later in the day, our gardener was beaming again. It is
springtime, after all. I fixed the cold frames - replacing
the glass in the lids - for him. He was happily planting
lettuce and contemplating the collapse of western
civilization when I left him.
I should stop here and warn you, dear reader, today's
letter has little helpful financial advice or insight. I
didn't think about financial matters over the weekend. So I
have nothing to say on the subject. Having nothing to write
about...I will write about nothing.
"The weather was just like this," Elizabeth reminded me,
"when we first got here. We just drove up, in rented
car...and thought we would move right in, as though we were
staying at a Holiday Inn."
"We were so naive," she went on, describing our arrival at
the Chateau d'Ouzilly, "we had no idea of what we were
"The weather was beautiful when we arrived. The sun was
shining. The sky was blue. The grass was green. The birds
were singing and the jonquils and Japanese redbud were
already in bloom...it was gorgeous. And then, of course,
the weather changed. Then we discovered that the furnace
did not work. Of course, neither did the plumbing."
My wife might have continued: there was no heat, no useable
kitchen stove, no bathroom that you wouldn't be embarrassed
to have a heart attack in, the fireplaces smoked so badly
that you had a choice: you could have warmth...or you could
breathe, but not both. And the roof leaked so badly in the
first rainstorm, we thought it might have blown off in the
"The roof is okay," the previous owner had told us. This
was the same person who told us that the furnace "worked
fine." It was not so much that he was lying as that his
frame of reference was different from ours. The furnace did
work fine, as long as you didn't mind living in a house
with no detectable warmth. That sentiment might carry over
to the bathrooms too - they were fine, unless you wanted
real plumbing. And the roof was perfectly adequate, unless
you wanted one that didn't leak.
That is, of course, what makes living in France - or
anywhere overseas, I suppose - so interesting. Things look
familiar. But they are never quite what you think. Even the
words often mislead you - French has many words that look
for all the world like those of English, yet with very
For example, "Are there are lot of 'preservatifs' in the
food in France?" asked our new intern, Vanessa. The word
sounds like something you might find in food. But what it
means is 'condoms.'
What triggered these remembrances of things past was the
sight of the moving van at our front door. We were not
moving out. Instead, we had rented a van to move some
things from the country to our new apartment in Paris. This
apartment is much larger than the last one - so it needs
more 'things' to fill it up.
Not only do things have to be designed, built and sold -
they also have to be moved around from time to time. In our
case, they had to be carried from various rooms of the
chateau, loaded into the van, driven the 350 kilometers to
Paris and then carried up 6 long flights of stairs to our
apartment. The elevator is so tiny that most of the
furniture could not be shoehorned in. It had to be
schlepped up the stairs, in the old fashioned way, just as
it would have been 100, 200, or even 500 years ago.
Was there no help that could be had from the "Information
Economy?" I sought in vain for an IT solution - for some
way that the 'information' that is supposed to transform
our lives could make this task easier.
The only improvement information technology offered was in
the Avis rental office in Poitiers.
"Where would you like to return the van?" asked the clerk.
I gave her our address in Paris, which was followed by a
few clicks and clacks on her computer terminal. Thus, we
agreed upon an Avis office not too far away - at the Ecole
Militaire - and were on our way.
And so, amid the 'giboulees,' the van was loaded with rugs,
tables, lamps, chairs and other 'things.' And taking a
couple of the children with me in the cab - Sophia, because
she's the oldest and strongest and could help me
unload...and Edward, because he's the youngest and wanted
to ride in the 'big truck' - I set off for Paris.
It is a long, slow drive from Poitou to Paris at 110 kmh.
Edward fell asleep within minutes. Sophia plugged in her
earphones and opened her schoolbooks. I was left alone.
So, my thoughts drifted to experiences of the last 6 years
- since we moved to France...and how, little by little,
without ever really thinking about it, we became something
we never intended. You've heard of the accidental tourist.
Somehow, we became accidental immigrants.
But that is how things actually happen in life, dear
reader. Things happen that we intend to happen...and try to
make happen...and other things just happen.
"When you set something in motion," Elizabeth warned me,
"you never know exactly where it is going to end up."
Big, stone houses in France are relatively cheap. We had
planned to use our French house as a summer residence - a
place we could turn into a seminar center and visit with
the family in the summer.
But we never imagined the amount of time, money, energy and
emotional commitment that was required. Once the investment
was made, we didn't want to leave. While my back was
turned, Elizabeth put down roots. I don't dare try to pull
Ignorance is a fact of life - in France as in America. You
never know exactly what people mean. Nor can you know where
things will end up once they are set in motion - even in
the Information Age.
Your very ignorant correspondent,
P.S. Once we got back to Paris, Sophia and I unloaded the
van. Edward helped too, by holding doors open. And we found
that we could fill the elevator with small items and still
have room for Edward, who would then push the proper
buttons to set the elevator in motion, while Sophia and I
climbed the stairs with chairs or tables in our hands.
This morning, I took the van back to the nearest Avis
office, as organized by the Avis computer.
"Uh oh," said the clerk, "they must have made a mistake in
Poitiers. We don't take trucks back at this office. You
have to go to the Bois de Boulogne."
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The Daily Reckoning:
author Bill Bonner
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
Published By Tulips and Bears