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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
WEDNESDAY, 21 MARCH 2001 

 

Today:  The Existential Investor

*** It's over. Finita! "How Low Can It Go?" asks the NY 
POST...

*** Still waiting for capitulation...but getting closer..

*** What Congress thinks of information... 'Shoot all the 
analysts' and other good ideas...

*** Oh la la! It's over. Fini. Kaput. Or as we say in 
Esperanto: finita!

*** I refer, of course, to the Great Boom of 1982-2000. It 
has been over for a long time - with sector after sector, 
market after market, hitting a peak and beginning its 
descent. But yesterday marked an important event: Mr. Bear 
was out in the middle of the road, red in tooth and claw. 
He mauled the Dow. He ripped more flesh from the Nasdaq. He 
even got his claws into the dollar.

*** Never, since 1945, has household wealth declined - 
in spite of double-digit interest rates, double-digit 
inflation rates, stagflation and bongo drums...
year after year, households grew richer. Until, that is, 
last year - when they declined by 2%.

*** And, as Richard Russell points out, never in the past 
19 years has the Dow closed below the low of a preceding 
year - that is, until yesterday. 

*** The low from last year was 9654. The Dow crashed through 
that level yesterday as it lost 238 points. 

*** "The top is in," wrote Russell yesterday. "The trap has 
closed...today, I could hear the bull's death rattle."

*** The blame for yesterday's drop in the Dow was laid on 
Alan Greenspan's door. The Fed chairman gave the market a 
rate cut - as expected. But he could come up with no 
surprises. Instead, the fed funds rate was cut by 50 basis
points - the minimum expected. 

*** It was what happened next that was interesting. Rate 
cuts are supposed to be the panacea investors have been 
waiting for. But after Greenspan administered his magic 
elixir, the patient seems to have taken a turn for the 
worse. Not only was the Dow down, but so was the Nasdaq - 
off 93 points.

*** Markets all over the world are falling. The Nikkei 
index, for example, fell 160 points and ended below 12,000. 
[It was almost 39,000 11 years ago.] But investors did not 
take refuge in the dollar. Instead, the dollar went down 
too. The euro rose above 90 cents and gold mining stocks 
rose 1% - they were practically the only group of stocks 
that went up.

*** We are still waiting for capitulation...but the hour 
draweth nigh, and soon will be.

*** What happened to all the forecasts of spectacular 
growth in the stock market for years to come? Glassman and 
Hassett, authors of "Dow 36,000," write in the Wall Street 
Journal that "it's still a good bet." They look for a 
continuation of rapid growth - once we put this rough patch 
behind us.

*** Many people - perhaps a majority - still believe 
stock prices respond to the will of the Fed chairman. "The 
Fed is going to support the economy and market with lower 
interest rates," writes Al Frank, "and we are buying." Bon 
chance...bon courage.

*** And a WSJ/NBC News poll found recently that Mr. 
Greenspan has "the highest net approval rating of any 
public official... Mr. Greenspan's popularity is strongest 
among older Americans, investors, those earning higher 
incomes and those who feel the economic future is bright."
That leaves me out. 

*** Investor's Business Daily keeps track of what investors 
in leading mutual funds are doing. Its Mutual Fund Index is 
down 17% for the year - probably close to the actual 
experience of the average investor. That represents a 
capital loss of about $1.19 trillion or roughly $13,000
per household.

*** The big stocks that everyone owns - the big techs, the 
glamour companies, the high-fliers - are being steadily 
worn down by the bear market. GE fell 3% yesterday. 

*** "PSINet on its last leg" declares a headline on 
UPSIDE. "The business Internet service provider announced 
that soon its stock might not be worth the paper its 
printed on," said the following article. Even analysts 
noticed that it might be time bid adieu to PSINet. 
A.G.Edwards, for example, issued a rare 'sell' on the 
company - as the undertaker appeared at the door.

*** "Shoot all the analysts" suggests a cheerful headline 
in the Financial Times. Being an analyst "used to be a 
respectable if rather dull trade," the paper explained. 
"Accountants, actuaries and other worthy citizens could be 
found in the dustier corners of the brokerage offices 
working out the production costs of cement or the number of 
no-fault claims in Massachusetts." But the brokers were 
taken over by the investment bankers...who found it more 
profitable to use their analysts as celebrity touts rather 
than objective advisors. Soon, those with the most chutzpah 
were appearing on TV, hyping stocks so doggy that they 
should have been subject to 'poop and scoop' ordinances, 
rather than SEC regulations.

*** Investors are beginning to realize that these stocks 
will not just bounce back. Mentioning the high prices once 
enjoyed by Yahoo! and Amazon, an article in S.F. Gate 
warns: "People could hold these stocks for half a lifetime 
and never see that price again." Leading tech stocks don't 
just go up and down - sometimes they get taken out. Zenith 
went bankrupt. So did Wang Labs. RCA - the leading wireless 
communications company of the 20s - never recovered after 
the '29 crash.

*** If information were wealth, members of Congress would 
be as rich as Croesus. Congress received 80 million email 
messages last year, according to The Standard. What did 
your representatives do with it? "Members of Congress are 
ignoring email from constituents," says the article. 
Politicians got so much information on constituent 
preferences that they were overwhelmed. The more 
information you have, the less it is worth. And the cost of 
dealing with it? Congress is asking for $50,000 per office.

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THE EXISTENTIAL INVESTOR

Americans still believe in the stock market. They believe 
stocks are the road to wealth. They believe in technology 
too - and that the future will be brighter than today.

And they believe in their Fed chairman.

James Grant points out that this was not always so. 
"Central bankers were not always celebrities," he writes. 
"About the time of the bear-market lows a quarter-century 
ago, the percentage of Americans who knew 'of' the Fed 
Chairman was in the single digits."

Today, according to the same WSJ/NBC poll mentioned above, 
55% percent of the people polled not only knew of Alan 
Greenspan, but also gave him a positive rating. Only 8% 
rated him negatively. 

Somehow, the famous Alan Greenspan of 2001 is supposed to 
be able to do what the unknown Greenspan of an earlier era 
could not.

Little remembered is the fact that before Alan Greenspan 
became the master of the world's money system, he did his 
apprenticeship and journeyman service at various other 
posts. For the purposes of today's letter, let it be 
recalled that in the darkest hour of the American economy 
during the last half-century - that is, approximately 60 
days after Gerald Ford took the oath of office, at the end 
of the Watergate scandal...and at one of the lowest points 
in stocks prices since the Great Depression - none other 
than Alan Greenspan was chairman of the President's Council 
of Economic Advisors.

But then, times were different. "A quarter century ago," 
continues Grant, "investors expected little except 
inflation, rising interest rates..."

How could it be that investors now hope for so much from 
the same man from whom they previously expected so little?

And yet, that is what they seem to anticipate - that Gerald 
Ford's former chief of economic advisors, now chief of the 
Federal reserve, will be able to turn things around. 

The question, 'How will he do so?' leaps to the lips 
faster than a margin call. 

'By lowering interest rates,' comes the answer.

'Isn't this what the Japanese have been doing for the last 
10 years?' the skeptic replies.

But the purpose of today's letter is not to question the 
effectiveness of interest rate cuts or Mr. Greenspan's 
competence. Cutting interest rates is probably as good as 
anything else he could do. And as far as demi-gods go, Mr. 
Greenspan is as good as any other. 

No, dear reader, today I raise a deeper question...a 
question so profound that it usually lies undisturbed 
beneath centuries of philosophical effluent. 

Do we humans send the market hither and thither - running 
as a dog directed by its master? Driving it up hill 
after a quail one day...and down towards a rabbit the next? 
Or is it the market that that tosses the bone?

In a bubble market, investors become existentialists. They 
believe in nothing - except that they are going to get 
rich. In a bear market, they become fundamental 
determinists. In a bull market they have almost infinite
faith in their own ability to figure things out. In a bear 
market, they may carry a rabbit's foot, cross themselves
at every occasion and never pass a penny on the sidewalk
without bending down and picking it up. 

I say this with the confidence of someone who just looked 
it up. Man, according to the Existential Philosophy 
Website, is "open to a future which he determines by his 
choices and actions; he is free. Other entities - stones, 
trees, tigers - have a fixed nature or essence that 
determines what they are and what they do. In contrast, 
neither as a species nor as individuals do human beings 
have such an essence that governs their conduct. Man makes 
himself what he is by his choices."

You may not be interested in philosophy. I am not. But 
there are times when the absurdities of contemporary 
philosophy help us understand the absurdities of investing.

Investors believe the market is subject to the will of the 
people - and that, in turn, can be managed by one man in 
particular - the aforementioned Fed chief.

Yet, a quarter century ago, he was unable to do the job. 
"When President Ford moved into the White House in August," 
recalls Jim Grant, "the Dow was at 770; by early October, 
it was below 600. By the time the bear market had run its 
course, stock prices were falling mainly because they had 
been falling."

"As a refresher," Grant elaborates, "in the Oct. 7, 1974 
issue of Barron's, Value Line published an advertisement 
calling attention to a selection of profitable U.S. 
companies changing hands at less than 3 times earnings. 
'The average price of these stocks works out to be about 
$15,' the copy said, 'against average 1974 estimated 
earnings of nearly $6.60 a share - for an average p/e of 
2.3.'"

Mr. Greenspan has lived through a time when investors 
wanted nothing to do with stocks, and a time when they 
could not bear to be separated from them. His philosophy 
has changed too. He was once a serious disciple of Ayn Rand 
and a gold bug. But as his own fortunes developed, his 
philosophy adjusted - like an elastic belt on a fat man - 
to accommodate it. He became a believer in managed 
currencies...and, we may presume, a market existentialist.

What's next? A return to gold and fundamentalism? Maybe, 
dear reader, maybe...

Bill Bonner


P.S. A new British art show offers what may be the ultimate 
expression of existential nothingness. The show, in the 
Custard Factory arts center in Birmingham, features no 
paintings, no sculptures, no nothing. Just blank walls. 

"It's dreadful," said one visitor. "While this may be a 
good test of people's imagination, I personally prefer art 
you can see," said another.

On the other hand, compared to the art you are likely to 
see at such a show - this may be an improvement. Most 
modern art is, if I may steal a turn of phrase from 
Beckett, a stain on a plain wall.

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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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