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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 23 MARCH 2001 


Today:  Indignation

Is this it? The final capitulation? Now can we get
on with it? Not likely...

*** Big techs gain ground...Dow bounces...value
funds are back in style...

*** The Dow would have to go below 5,000 to bring
dividends back to traditional come the
dollar hasn't crashed?

*** The Japanese market dropped 2% on Wednesday
night. European markets got hammered down 4% on
Thursday morning. And then, just when it looked like
panic might overtake Wall Street - it wasn't so bad.
Was yesterday the big day...the final capitulation?
The turnaround day? The bottom?

*** A lot of investors are hoping it was. Typical of
the sentiment is today's message from Money Daily:

"OK! OK! We've learned our lesson in fundamentals,
too," writes Leslie Haggin Geary. "Old-fashioned
valuations count for something and the New Economy
was a lot of smoke and mirrors." But Ms. Geary's
next line suggests that she, like the majority of
investors, has not yet abandoned her bullish
existentialism in favor of the bearish fundamentals.
"Now can we get on with it?" she asks.

*** Reuters reports on a man who is so eager to 'get
on with it,' he "snatched the corpse of legendary
Italian banker Enrico Cuccia and would only return
it when the market boomed again." This man
apparently lost a fortune on the Milan stock

*** The Dow fell as much as 381 points - and then
bounced, ending the day down only 97 points. The Dow
has fallen in 7 of the last 10 trading sessions.

*** The Nasdaq actually managed to go up. It rose 67
points - as investors seemed to favor the big techs
over old economy stocks.

*** "Today was supposed to be the big one," said analysis. "A day of supreme
capitulation, of a market gone berserk, with all the
telling signs that a bottom had finally been

*** One of the telling signs was volume. 1.7 billion
shares changed hands yesterday - the 3rd heaviest
volume day in NYSE history.

*** So maybe today will be a better day. Maybe Ms.
Geary will be able to 'get on with it.' And maybe
the Cuccia family will be able to retrieve the
desiccated flesh and bone of old Enrico.

*** I hope so. But I would not bet too much money on
the proposition. Reuters also reports that a record
$11.4 billion was withdrawn from stock funds in
February. Experts expect the total to reach $17
billion in March. The only kind of funds that gained
cash were the value funds - as more investors 'got

*** Stock investors have already lost 4 times as
much as they lost in the '87 crash. There are far
more investors today...with far more money to lose.

*** And yet - in October 1987, investors pulled 5%
of their money out of mutual funds. In February,
2001, only 0.3% of the $4 trillion in equity funds
was withdrawn. Implication: this bear market has a
lot further to go.

*** Stocks yielded 5.9% in dividends from 1802 to
1900. In the following century, they yielded 4.9%
(or roughly half the total return from stocks during
this period.) But in the last half of the last
decade of the 20th century - that is, from '95
through '99 - dividends only yielded 2.1%

*** The Dow would have to fall below 5,000 in order
to get dividends back anywhere near these
traditional levels. But there is no law that says
they must be above 4%. Nor is there any law that
says they can't go higher. In 1974, for example,
dividend yields climbed to 5.45%. Where would the
Dow have to go in order to correct the entire bull
market of 1975 to 2000? How does Dow 3500 sound?

*** ABC News reports $4 trillion has been "erased"
from the stock market in just the past year -
roughly equivalent to the combined GDP of Germany,
Britain and Canada. "But all is not woe," John Myers
of Outstanding Investments points out. "Over the
past year the Toronto Stock Exchange's Oil & Gas
Index has risen 42%."

*** GE was down $1.30 yesterday. Many of the big
techs, by contrast, gained ground. Investors may
believe that - now that the bottom is in place -
they may be able to recover their losses in the big
techs. Sell the rally.

*** While stocks have lost nearly $5 trillion in
value, the dollar has held up surprisingly well. It
rose again yesterday, pushing the euro below 90
cents during the day. Why?

*** The only explanation anyone can come up with is
that there is a 'flight to quality,' which leads
foreign asset holders to take up the dollar. How
long will the dollar be confused with quality? I
don't know, but not forever.

*** Gold lost 80 cents yesterday. HUI, an index of
gold mining stocks, lost 1%.

*** "There's no denying that we're on the unhappy
side of the business cycle," says Lynn Carpenter of
the Fleet Street Letter. "And there's not one
country in the world that's big enough and strong
enough to buy the United States out of a recession.
There is only one economy nearly as large as ours...
the 15 countries that make up the euro-zone. My
apologies Euro-bashers, but you're about to be
proven wrong."

*** "Europe's strength is in its 'internal'
economy," Lynn continues. "Much of the euro
countries' trade is mainly among themselves and with
nearby Europeans. Denmark sends just 5% of its
exports to the US...Finland 8%, Germany 9%, France
7%. The United Kingdom, our largest trading partner
in Europe, sends just 13% of its exports to us."
Look for strong competition from the Euro-zone.
(see: The US Dollar - Under The Guillotine)

*** I forgot to tell you that I locked Elizabeth out
of our new apartment last week. Has she taken up
with her riding master, you might ask? Has she
abandoned her husband and children?

No, it was just a mistake. I was supposed to leave
keys for her under the mat. But I left the wrong set
of keys. Poor Elizabeth was wandering the streets of
Paris, alone, after midnight - without a sou in her
purse - ringing the doorbells of friends and
neighbors, looking for someone who could take her

But I finally realized my mistake...and, calling
around, found her at her friend Catherine's
apartment. I then stood waiting for her on the
street - like Henry IV at Canossa - and was happy to
be forgiven on the spot. Reunited, we went out for a

*** "I've discovered a wonderful new philosophy,"
writes a Daily Reckoning reader, treating my recent
letters with the gravity they deserve. "It's called
Tex-Mexistentialism. It all started with the
philosopher Juan-Paul Salsa, who wrote, "To Bean, or
Nacho to Bean, that is the Queso."

* * * * * * * * *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. 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'

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

* * * * * * * * * * * * * * * * * * * * * * * * * * *


In the eyes of the janitors who clean up on Wall
Street, as well as those of wives and mothers-in-law
at home, the geniuses of the bull market become
fools and idiots when prices fall. But investors do
not see themselves that way. Instead, they consider
themselves victims.

In a bear market, the nature of the world changes.
Things no longer come about as a result of
investors' deliberate choices - but as a consequence
of forces beyond their control, often sinister and
malignant forces.

"Get ready for the Wall Street 'Blame Game' says a
recent article by Marshall Auerback. "Reflate and
recriminate" says a headline from James Grant.

The bull market in stocks may be over, but the bull
market in scapegoating is just beginning.

A news story today tells us that the Japanese are
pointing the finger at foreign banks as the source
of the current weakness in the Nikkei Dow. Japanese
banks have some $32 billion in bad loans, which have
thus far avoided liquidation. But to the Japanese
press it is the foreign banks that cause the
problems. It is the foreign banks who deal most
aggressively in derivatives - which are mysterious
enough to be tagged as the source of any financial

Foreign banks and foreign speculators were also
blamed for Malaysia's financial crisis of 1998. Marc
Faber wrote recently that he recalled the stony
silence that greeted a speech he made in Kuala
Lumpur at the which he detailed the
excesses of the Malaysian markets. Following his
speech, a Malay economist spoke to the crowd,
blaming the whole problem on foreigners - and was
given a rousing applause.

Few will recall, that the Japanese press claimed
that the crash of 1989 was the fault of an
international "Jewish conspiracy."

But today, the American media - with its heavily
Jewish ownership - is returning the recrimination.
"American market commentators [are] laying
responsibility for the current financial malaise
primarily at Japan's doorstep," writes Auerback. "A
spate of recent headlines continues to imply that
the traumas now being inflicted daily on the US
capital markets can be largely ascribed to
supposedly incompetent and feckless Japanese
politicians and bureaucrats who, for over a decade,
have allowed their own financial problems to fester
to the extent that they now threaten the well-being
of America's virile, productive new economy (recall
that a decade ago, these same figures were
considered formidable long-term policymakers worthy
of emulation in the West). "White House Sees Threat
to U.S. in Japan's Woes", cries the New York Times,
and, "Japan is Shackled by Deflation, Blocking Its
Hope for Recovery".

"The tone of the latter piece," Auerback continues,
"implies a 1930s-style meltdown in Japan..." But
Japan is not exactly a basket-case. Its economy grew
by 0.8% in the last quarter of last year. And
corporate profits are better than those in the U.S.
Throughout the 1990s - supposedly Japan's 'Lost
Decade,' - GDP still grew at an average rate of 1.8%
per year. This was lower than the U.S., but still
higher than France and Switzerland.

But just as there is plenty of blame to go around,
there are plenty of rogues upon whom it might be
shared out.

"In 1933-34, Ferdinand Pecora led an inquisition by
the Senate Banking and Currency Committee into the
discredited financial practices of the 1920s,"
writes Jim Grant. '"Wall Street Under Oath," his
record of those proceedings, may have shocked the
sensibilities of a Depression-era public when it was
published in 1939. However it will likely disappoint
the connoisseur of scandal in 2001. Sin, like
technology, has made immense strides in the past 70
years, and Pecora's catalog of financial malfeasance
is nothing that hasn't been refined, enlarged, upon
and improved by contemporary practitioners."

Surely, as the financial suffering deepens, modern
inquisitors will find much to disapprove of too,
post facto of course. A by-no-means exhaustive list
of things not to like might include: the treatment
of stock options as a way of disguising the cost of
labor, the way IPOs were priced and played out to
the market, the cozy relationships between analysts
and the investment bankers who employed them, the
manipulation of earnings, the manipulation of the
market itself at key moments, and the salaries paid
to CEOs who ran down company balance sheets.

The press is already on the analyst story. "Buy! Was
Cry, as Stock Bubble Burst," said a New York Times
article featuring Henry Blodget.

And "the Wall Street Journal has taken particular
glee in exposing its old friend," says Grant. It's
headline for an article attacking Queen of the
Internet, Mary Meeker: "For E-Business Booster
Meeker, Fame is E-Phemeral."

"But the Journal, like the mass of investors, finds
it hard to sustain its new indignation without a
clear understanding of what it is actually supposed
to be indignant about." Especially since it spent so
much ink and energy during the boom years
celebrating the very same celebrities it now takes
to task.

But as misery and embarrassment deepens, indignation
is likely to rise. So far, the press has only
scratched at a few easy targets. No real blood has
been drawn. Wall Street salaries, the handling of
IPOs and options, conflicts of interest, and Mr.
Greenspan's stewardship - all have been questioned.
But the rack has not yet been wheeled out...the
stakes have not yet been erected, and no fires have
yet been lit.

That is all still ahead of us. Personal
responsibility is fine enough when things are going
well, but when they go badly Fate and Fault become
more popular. Free Will, on the other hand, enters a
bear market of its own.

Your essential fundamentalist, or fundamental
essential...or tex-mexistentialist - on his way to

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