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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 19 MARCH 2001 


Today:  Grand Illusion-ll

*** 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? 
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 
year ago. 

*** 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 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 
in value?

*** 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 
relatively safe.

*** 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 
getting into."

"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 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 
different meanings. 

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 
them out.

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,

Bill Bonner

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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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

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