Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 9 APRIL 2001
*** Another Big Rally - fizzled?
*** Stock funds suffer biggest loss in 14 years...
*** Greenspan's stock still falling...'this sucker
is for real'...Palm Sunday, without palms...
|*** Did anything happen on Friday? I guess not.|
There's not much financial news.
*** The big rally fizzled. The Dow fell 125. The
Nasdaq fell 63. The financial media went silent.
*** The Dow ended the week about where it began. The
Nasdaq ended down 6.5%. The Wilshire 5000 - the
broadest measure of the market's performance -
*** Consumer debt rose more than expected last
month. So did unemployment and hourly earnings.
*** Lipper reports that stock funds had their worst
quarter in 14 years in the first three months of
this year. The average equity fund fell 13%. Large
cap growth stock funds fell 37.6% in the 12 months
since March 2000. And the average tech fund dropped
62.2% in that period.
*** The gold miners rose 2% on Friday.
*** First quarter earnings reports will begin this
week. If they are as bad as they might be - the news
will probably drag stocks down further.
*** One way or another, stocks will eventually work
their way down to a more solid footing. But it would
be unusual for this to happen without a big, long,
sustained rally to mislead investors and draw more
money into stocks before the final bottom. That
rally is probably still ahead.
*** "Certainly the market is undergoing a very
serious reversal," writes our man on the scene in
Calgary's oil fields, John Myers. "One indicator is
the television ads for brokerage firms. A couple of
years ago they were smug, with the underlying
message, 'You too can be rich.' Now they focus on
how smart they are and how safe your money is. The
message would resonate stronger if they hadn't been
so stupid with your money in the first place."
*** "The good news," John continues, "is that we've
been on the right side of this coin. Over the past
year Toronto's Oil & Gas Index - home to several
picks in the Outstanding Investments stable - is up
35%...while the NASDAQ is down 55%."
*** Most observers expect the Fed to cut rates -
perhaps as early as today. Would that trigger a
*** But "the view seems to be taking hold among
professional investors on Wall Street," writes
Christopher Byron on MSNBC, "that another cut in
short-term interest rates by the Fed will not make
much difference one way or another, and thus that
stocks probably have further to fall whether or not
the Fed cuts rates again before the next regularly
scheduled meeting of the Federal Open Market
Committee on May 15."
*** "The Fed chairman is in something of a no-win
situation," Byron continues, "He, more than any
other individual in America, remains linked in the
public's mind with the prosperity of the 1990s -
even to the point of being cited by name by both Al
Gore and George W. Bush in last autumn's
presidential debates as the one individual they'd
turn to first for counsel in a global financial
*** "Now the worm has turned. The economy is
weakening, consumer confidence is sliding, corporate
earnings are collapsing and Greenspan has become the
natural lightning rod for everyone's frustrations.
Having created an investment bubble that financed at
least a half decade of illusory prosperity through
wildly inflated financial assets, he is now being
blamed for failing to keep the bubble swelling."
*** Byron also explains why Lucent may be headed for
bankruptcy: "If you a) remove that inventory from
the balance sheet, as well as b) delete $9.5 billion
of worthless goodwill created by acquiring rival
businesses with appreciated stocks, and c) give a
prudent 50-percent haircut to the company's
uncollected receivables, Lucent today looks to have
a tangible net worth of no more than roughly $1.50
per share. Considering the fact that the company has
maybe as much as $5 billion of short-term debt
coming due later this year, it is not surprising
that rumors were everywhere [last week] that the
company is preparing to file for bankruptcy."
*** The bear market is now being taken seriously by
the financial press. Investors have begun to suffer
more than mere disappointment: "This sucker is for
real," notes Mark Rostenko. "And guess what else?
It's REAL money that's going down the pipes, not
just 'paper losses' or 'inconvenient tax
*** "Today," said the old priest on Sunday, his
voice quaking, "we celebrate Christ's triumphal
return to Jerusalem." It was Palm Sunday, an
occasion for the choir, of which your editor is
part, to strut its stuff. The church was
overflowing, each parishioner carrying a sprig of
boxwood to symbolize the palms with which Jesus was
greeted. Later in the service, Pere Marchand made a
tour of the church - accompanied by the two altar
boys, Nathaniel and my son, Henry. Dipping his
bouquet of boxwood, he sprinkled water over the
heads of the assembled.
*** Opening line at the World Economic Forum last
week: "What do you call someone who was the
president of a dot-com company last year?"
Along those lines, here's a look at a special 1040
tax form designed for laid off dot-com employees:
(...it's a joke.)
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"We celebrate the beginning of Holy Week, with all
its mysteries. But do not forget the essentials of
Christ's mission and his teachings. We don't have to
search high and low for them. He told us: Love
God...and Love thy neighbor. That is what really
"What really matters?" I asked our gardener on
Mr. Deshais spends most of his time alone - working
in the garden by himself. He has no computer screen
in front of him - nor any CNBC or CNN to shape his
thoughts. He has only himself - and the forces of
nature: the clouds overhead, the soil, the plants.
Mr. Deshais has time to think and not much more than
his own thoughts to occupy his brain.
So, I decided to try out my new philosophy on him.
The Daily Reckoning sneaked into philosophical
discussion over the last two weeks, dear reader -
like a teenager who takes up smoking. We sputtered
and coughed out existentialism, relativism and
descriptivism. But just talking about them made us
And so, without meaning to do so, we discovered a
new side to ourselves - a new image...we became
I am still out in the countryside - while the
children enjoy a two-week vacation from school. No
one south of the Loire nor west of the Hudson has
any use for philosophy, but I can hardly wait to get
back to Paris. Perhaps I will rub a little burnt
umber on my fingers and cough occasionally...or even
hold a hand-wrapped cigarette in my fingers...and
jab at the surrounding air with it from time to time
to make my point. Paris loves philosophers - the
more obscure and ridiculous, the better.
I will make Le Paradis cafe my regular hangout, like
Sartre at Le Dome. How perfect! People will know
that I can be found there at almost any time of the
day or night - a glass of wine in one hand...an
unlit cigarette in the other. Besides, it's close to
the office so I can sneak away from time to time and
do some work.
Oh, the philosophy itself...oh yes...that. Well,
there's the weak spot of this plan. My philosophy -
which I share with you before releasing it to the
public - has evolved from our insights about the
stock market and how it works. Yes, this is probably
the first major philosophy to sprout from financial
advice - and probably the last!
Over the last year and a half, we have noticed:
1. Limitations of rational thought. We think we
consider everything rationally and make decisions
based on reason and available information - as the
existentialists claim. But in fact, it is the heart,
not the head, that is in command. The heart distorts
logic and information to its own purposes. In short,
we believe what we want to believe. "The head is
merely the heart's dupe," said La Rouchefoucauld.
2. An inability to look into the future. When you
put a gun to your head and pull the trigger, the
results are predictable. But in complex systems -
such as an economy, a stock market, or an individual
life - the future is unknowable.
I quote the celebrated economist, John Maynard
Keynes, on this point (the Daily Reckoning is still
a financial service, after all):
"The outstanding fact is the extreme precariousness
of the basis of knowledge on which our estimates of
prospective yield have to be made. Our knowledge of
factors which will govern the yield of an investment
some years hence is usually very slight and often
negligible. If we speak frankly, we have to admit
that our basis of knowledge for estimating the yield
ten years hence of a railway, a copper mine, a
textile factory...amount to little and sometimes to
- from The General Theory of Employment, Interest,
3. Even the present and the past are largely
unknowable. The world is awash with 'information' -
so much that it is impossible to master it all.
Instead, people pick and choose bits and pieces of
information that suit their purposes. The new
"information Age" does nothing to change this. It
merely increases the costs of getting rid of
4. The perversity of markets. Not only can you not
know what the future holds, but attempting to figure
it out actually distorts it! People searching for a
Big Bottom in the stock market, for example, are
unlikely to find it. Why? Because the Big Bottom
only comes when people are so fed up with stocks
that they stop looking for it.
5. The paradoxical and surprising nature of life
itself: as I have said many times, investors don't
get what they expect, but what they deserve. This is
true in the rest of life as well. Patience, modesty,
hard work, greed, fear, hubris and other virtues &
vices pay off. People get what they've got coming -
usually. Even love comes not to those who seek it,
or horde it, but to those who give it away freely.
Life is full of surprises.
Many philosophies are founded on a 'theory of
knowledge.' I take as my starting point a 'theory of
ignorance': it is everywhere and in everything.
You know neither how your stocks nor how your
marriage will work out. Most of what you hear is
nonsense. Most of what you read is moronic. And most
of the people you meet are fools. And most
important: the people who meet you think the same of
you as you do of them. And you're both right! We're
all fools - and all completely ignorant of the
things that matter most.
"The key thing," said Mr. Deshais, "is to get into
sync with the phases of the moon. That's the
essential. If you ignore the moon when you plant
your garden, you will not get a very good harvest.
And if you graft your fruit trees on a new moon -
you will get very good growth, but very little
The key to the new philosophy of Essentialism:
whatever you are doing, find the key principles, the
rules, the essentials - and stick with them. More on
Essentialism on slow news days.
Your essential essentialist,
P.S. Alas, my new philosophy is too sensible. It
will never catch on.
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The Daily Reckoning:|
author Bill Bonner
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.