*** It's over. Finita! "How Low Can It Go?" asks the NY
*** 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
*** 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
*** 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
*** 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
*** 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.
- "Lynn, I wanted to thank you for [your] efforts...in the
last couple of weeks the information [you supplied] has
produced a realized total of $23,210."
With Lynn Carpenter's F-O-X system, you'll be alerted to
early price volatility in stocks like American Express.
Lynn's readers bought bargain call options when the stock
was at $54.38...and sold them the next day for 91% gains.
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
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
"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
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...
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.
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