*** Debt continues to expand...where's the money
going? A bubble in real estate prices?
*** Fat City...and more!
*** The first quarter ended on Friday. The Dow and
Nasdaq rose. And investors seemed to face the
future with growing confidence that the worst is
*** Tuning into CNBC from my hotel room, the talk is
all "bottoms." The word was on every pair of lips
on the show; the presenters coax it out, if
*** Once the context was established - the bottom
is in - the air-wave heads could go on with their
business, talking up individual stocks. It is hard
to believe that anyone would take this vapid
blabbering seriously, but people seem to do so.
*** The Dow rose 79 points on Friday - barely
avoiding what might have been the worst quarterly
performance in 40 years. The Nasdaq rose too - but
not enough to offset the rest of the week's losses,
nor enough to escape turning in the worst quarterly
performance on record.
*** Taking the week as a whole, the Dow was up 3.5%
and the Nasdaq down 4.5%. The Dow ended the quarter
down 18% from its high of January 2000. The Nasdaq
is down 63% from its high of March 2000.
*** Where to from here? Stocks are still far too
expensive. Even on the Nasdaq, the average P/E is
above 100. On the Dow, the average P/E is over 20.
This is down from a high hit in May of '99 of 28.7.
But it's the kind of P/E you're more likely to find
at the top of a market rather than the bottom.
*** Stocks are destined to trade at lower prices.
But Mr. Bear is not in the habit of making it easy
for anybody - especially those who think they have
the market 'figured out.' Stocks could go nowhere
for a few years, or even hit a new high - as they
did following the peak in '66. It wasn't until '73
that the bear market fully expressed itself, with
stocks dropping sharply. Or, we could see a massive
rally - such as the one that followed the crash of
'29. That rally was so strong that almost everyone
thought that the good times were back to stay. But
then, the bear took over again and drove prices
down until the average stock had lost nearly 90% of
its value. If stocks were to drop to a low
equivalent to the low registered in 1932 - the Dow
would have to fall below 2500.
*** "The first quarter experienced one of the
strongest periods of debt issuance in history,"
writes Doug Noland of the Prudent Bear, "with a
staggering $223 billion of new debt coming to the
market." The bubble in Nasdaq stocks may have
popped, but the credit bubble continues to expand.
M3 rose $10 billion last week, Doug reports, up
$680 billion in the last 12 months - a rate of
increase of about 10%, or ten times the GDP
increase of the last quarter. Money market funds
added $40 billion last week; they are growing at a
53% annualized rate.
*** Where is all this money going? "Liquidity moves
to the rising market," is the economic dictum. Doug
reports that total mortgage debt has jumped from
$2.5 trillion at the beginning of the 1990s to
about $5 trillion today.
*** Standard & Poors is expecting 20-25% growth in
home equity borrowing. And Angelo Mozila, CEO of
Countrywide Credit Industries, predicts as much as
70% increase in home refinancing this year.
*** Home prices hit new records in San Francisco
and Florida recently. And New Yorker magazine
quotes a developer who says he has seen no downturn
in demand for "McMansions" - million dollar-plus
*** "Nearly 1/5th of all homes [in California] sold
above the asking price," reports the LA Times.
Sellers are walking away with around $100,000, on
average, after escrow and closing costs - almost 3
times as much as in 1997.
*** "Housing prices may never drop in Michigan,"
says a headline in the Detroit Free Press. Housing
prices "have never dropped since records started
being kept in 1975," reports the paper. "We don't
see any indication of a decline in house prices,"
said Frank Nothaft, economist with Freddie Mac.
"Certainly, not at the national level, probably not
at a regional level."
*** So, there you are, dear reader, you can't lose
in real estate - just as you could never lose in
high-quality tech stocks. The boom in real estate
*** In Rome, the cab drivers speak Italian, but
they seem to understand a little English. In Paris,
they speak French, but you can usually get where
you are going. But in Philadelphia, they speak no
known language and act as if they have never been
in the city before in their lives. I was only able
to get downtown by pointing to the tall buildings.
*** Philadelphia is supposed to be the fattest city
in America. While I cannot confirm that reputation,
I found no evidence to dispute it. Down at Pete's
on Walnut Avenue, next to a place where you can
have your future foretold from your "Palm
Vibrations," the waitresses were easily the size
of the small cars you see in Paris.
*** I am in town celebrating a wedding. The
marriage between an Irish Catholic and an Eastern
European Jew was held in a bastion of Protestantism
and yankee bullyism - The Union League. More
Bad news reigns. But carnage on the Nasdaq, S&P
500...and the DOW is just the beginning. Still,
it seems that no one is watching. Not here in
America at least. Most investors don't have a
clue about the dangers that lie ahead.
Even more dangerous... most don't care. Their
apathy could entangle you in the greatest economic
disaster in 70 years...unless you are well-prepared.
Read your copy of The Crisis Almost No One Sees
Coming - yours free today.
"Go down to your deep old heart, and lose sight of
yourself. And lose sight of the other whom you
Let us all lose sight of ourselves, and break the
For the fierce curve of our lives is moving again to
The depths out of sight, in the deep living heart."
"The two most bee-yootiful words in the English
language," said the rabbi, in his strong New Jersey
Jewish accent, "are husband and wife."
Rabbi May was co-officiating, along with Father
Dever, at a marriage ceremony in Philadelphia last
night. Your editor was among the witnesses, his
eyes moistening as the bride and groom recited
their vows. Maybe it was the pollen of the maple
Your sentimental editor began to recall the chain
of accidents and happenstance that brought him
together with his own wife. Was it the unexpected
passenger...the wrong turn he took on route 95
south - missing the exit for Atlanta...or the flat
tire that brought them together?
Or was there a kind of gravity between them from
the very first time they met - a tug so strong and
irresistible that it was destined to bring them
into a tight orbit, one around the other - no
matter what happened? He didn't know. But he knew
that he was locked into a tight orbit - and he
liked the light and warmth he got from his
But even in nature's most perfect union, there are
times when gravity fails, times when negativity,
faithlessness and celestial accidents take over.
Half of all marriages end in divorce. And why
bother to get married at all? Today people live
together, have children, argue, fall out, and sue
one another - all without the benefit of clergy.
A friend of mine discovered - after years of
marriage - that neither of his children were
"I don't know what happened to me either," said
another friend a few years ago. "We were happily
married. We had 4 good kids. I always thought that
if anything went wrong I would be the one to mess
things up. But she just seemed to go crazy. She
started drinking. She used drugs. And when she
finally pulled herself together - she blamed me for
everything...even things that happened to her
before we ever met!"
My friend, after nearly a decade of wandering
through the empty space of the human firmament,
still longs for the familiar embrace...the cycles
of sunrise and sunset that he once enjoyed at home.
Amid the tall buildings of downtown Philadelphia,
the Union League building crouches like a toad
between two storks. It is built of brick and
brownstone in the fashion of the 2nd half of the 19th
century - with an incongruous mansard roof that it
wears like a lampshade on its head. It is not an
attractive building from the outside - as lacking
in grace and charm as the cause to which it was
dedicated. The league was founded, says the
official history, "in 1862 as a patriotic society
to support the policies of President Abraham
Inside it is richly furnished and embellished in
wood, leather and cigar smoke. It is a men's club -
very much like the Maryland Club in Baltimore or
the old 'In and Out' Club in London - a refuge of
old money, tradition and manners.
At least, that is what it used to be. Last night,
at the bar, there were several men sitting around
who wore neither ties nor jackets. One was
dressed in slacks and a black sweatshirt. Next to
him sat a burly man in a white shirt. Both had dark
curly hair and spoke with accents you'd never hear
in the Maryland Club. These men were more like
Jersey Sopranos than Maryland tenors.
I report that to you with neither disapproval nor
regret. For even if the venerable old club has
fallen into the hands of mobsters, it is moving up
in the world.
Putting the southern states together with the
northern ones was not a perfect union. Less than a
century after the deal was made, the southerners
wanted out. But the Yankees - forgetting the truths
that seemed so self-evident to their ancestors -
would have none of it. Like a jealous, enraged
husband, they would rather kill the rebels than see
them go free.
The Yankees, winners on the battlefield, then
claimed their prize: history. Hardly a night had
gone by and they had their way with her - labeling
the conflict a 'civil war.' But a civil war is a
fight for control of a government. The southerners
were not fighting to gain power in Washington. They
were fighting for independence, to which they
thought they had a right. From the Southern point
of view, it was the North that was the faithless
partner - failing to respect the terms of the
union. Calling the resulting war a 'Civil War'
makes no more sense than calling the O.J. Simpson
trial a 'child custody' case.
"How do you feel about having all these war
criminals looking down at you?" I asked my old
On the wall of the Lincoln Room hangs a portrait of
Ulysses S. Grant, looking surprisingly youthful and
sober. There were many other portraits too - other
officers who tried to kill Beirne's forebears. Down
the hall is George G. Meade and William T. Sherman,
the man whose army did to Georgia roughly what the
Roman legions did to Carthage. Sherman attacked
civilian targets as well as military ones as he
burned his way across Georgia. And one out of every
4 white men in the South died before the war was
"I harbor no grudge," said Beirne gracefully, "but
all these pictures of armed Yankees make me
The Lincoln Room sports two beautiful paintings of
naval engagements of the Civil War. One shows the
U.S.S. Kearsage sinking the C.S.S. Alabama. Another
shows the first encounter between ironclad vessels
- the Monitor and the Merrimack - which ended in a
There are also three busts of Lincoln in the room -
and a display case of yankee military paraphernalia.
One bust of Lincoln may be excused as history -
three are a form of idolatry.
Before I go on with these idle reflections, I feel
I must warn you: today's letter includes little
practical investment advice or insight.
And yet, useful insights - like love and market
bottoms - tend to come to those who are not
actively looking for them.
"Naturally, most folks in the popular press and
mainstream financial media are using the word
'bottom' quite frequently these days," writes Mark
Rostenko of the Sovereign Strategist. "It's funny,
however, to notice that they've been using that
word ever since this decline started - a telling
sign if you think about it. It demonstrates quite
clearly that this market has not yet seen the major
seas-change in sentiment that accompanies TRUE
market bottoms. All the way down, everyone was
calling the bottom and now that we've had a three-
session rally, most of those same folks are
convinced we've seen the bottom. It appears that
sentiment hasn't changed all that much during the
"It's not the bottom if everyone is still looking
for the bottom."
How do you find the bottom...if you can't find it
by looking for it? How do you find love if it
escapes when you try to catch it? How can you have
a happy marriage when so much of it depends on
things out of your control?
To be continued...
Your editor, misty eyed...
P.S. In the center hall of the Union League are the
framed remnants of a battle flag with a shamrock on
it. Why would the Irish - who complained about
British rule for 3 centuries - fight for the North?
People can be whipped up to serve any cause, gentle
reader, no matter how much it challenges their
sense of irony.
* * * * * * * * * Advertisement * * * * * * * * *
IS YOUR SEAT BELT FASTENED?
The landing approach has begun. The flaps are down.
A slowdown has hit the U.S. economy. Investors are
Still...it 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'
propaganda. Are you ready? Here's what you need
to do - right now - to prepare yourself for:
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 02, 2001
Published By Tulips and Bears