Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 13 APRIL 2001
*** Rally is on! Big move up in techs...
*** Are the Japanese hopeless? Is this the time to
*** "The long run can be very long..." In the mind
of Mr. Bear..."blue team" coming soon...and more...
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*** The Dow rose 113 points yesterday. The markets
are closed today for Good Friday, so that gives it a
3% gain for the week.
*** But the real action is in the techs - Morgan
Stanley's High Tech index shot up 15% this week. And
the Nasdaq 100 - home to so many of the big techs -
rose a stunning 18%.
*** I've been trying to put myself in Mr. Bear's
mind. After being ignored and discounted for many
years, Mr. Bear is finally finding his name in the
paper. People are beginning to take him seriously.
*** Even the NY TIMES noticed that the idea of
buying stocks for the long term only works some of
the time - not all the time: "In truth, stock prices
over the last century were sometimes flat for 10 or
15 years and occasionally even longer...If you had
your investments in the S&P 500 in 1969, it took 23
years to earn a positive real return from the
movement of stocks. The long run can be very long
*** If you'd bought stocks at the top in '29 you
would have had to wait until '54 to get even.
*** And the financial press also seems to be
catching on to the idea that rate cuts are no
guarantee of recovery. The Financial Times: "The
Bank of Japan's decision to loosen monetary policy
has had little impact on Japan's real economy - even
though it has boosted stock market sentiment.
*** "It is often assumed," continues the FT, "that a
looser monetary policy boosts the pace of growth
because it encourages banks to make more loans to
companies and consumers." But, "companies and
consumers do not want to borrow more money at
*** What are we going to do with those Japanese?
They just do not seem able, so far, to destroy their
currency. Consumer prices fell in March - 0.9%, with
the core consumer price index off 1.11% year over
year. Residential property is down 49% from its
peak. Stocks are down 65%. Even giving away money is
not enough to induce the Japanese to spend. Or
*** "Extremely bullish news from Japan," writes Steve
Sjuggerud. "Legislators in Japan agreed to cut the
capital gains from 26% to 10% for long-term gains
and from 26% to 20% on short-term gains.
Furthermore, taxpayers can carry losses five years
forward further still, the first 2 million yen in
any year is ENTIRELY TAX EXEMPT. On the 20th of this
month, we will know if these proposals will be
adopted by the Tax Commission. I'm buying some EWJ
on AMEX (basically a Japan index fund) now, and more
after the 20th if [the measure is] adopted."
*** Gold stocks rose yesterday - by about 7%. Gold
itself went up $1.30. The dollar meanwhile, was off
- allowing the euro to rise back above 89 cents.
*** Which brings me back to Mr. Bear. He likes the
new-found respect he's getting, but if people take
him too seriously, they will pack up their picnics
and leave the park. Mr. Bear is no fool. The smart
thing to do would be to pretend to go away...to back
off and watch from a distance until the campers
settle down, relax, and get careless.
*** That is what appears to be happening. An analyst
quoted on TheStreet.com said that investors are
beginning to believe "the worst is over." Richard
Russell reports: "I note that a number of analysts
on CNBC are now saying the bear market ended on
March 22nd with the Dow at 9389.48." If that was the
bottom, he writes, it was "above any TOP in
*** The stock market topped out in '29 and '73 at a
P/E of about 21. Today, the S&P 500 trades at about
22 times earnings. Between 1947 and 1990, the
average P/E was just 14.
*** Mr. Bear might also try an attack from an
unexpected direction. For example: a raid on the
dollar. (Mr. Bear doesn't like to be told what to
do, so I only put this forward as a suggestion.)
*** Looking at the essentials (which is what we
always do here at the Daily Reckoning), the dollar
should be going down against the euro. Compared to
Europe, America has a far looser monetary policy, a
huge trade deficit, higher inflation rates, lower
real interest rates, far more debt and much less in
savings. What's more, Europe's economy is growing
*** Few investors are following the dollar. And
those who are think it will be strong forever. "The
dollar is the bond market's secret weapon," writes
William Pesek, "and the dollar isn't likely to
collapse anytime soon."
*** But this secret weapon can be turned against
stocks and bonds too. This week, bonds went down. It
was the "worst week in 3 mo. for the U.S. credit
market," writes Dough Noland. 2-yr. Treasury yields
fell 18 basis points. What are the bonds telling us?
That the dollar is headed for trouble? Could be.
*** Meanwhile, U.S. consumers seem to be going
deeper and deeper into debt. From Doug Noland:
"Countrywide [Credit] seized the opportunity
presented by the current refinance boom, achieving
three new milestones," said Stanford L. Kurland,
chief operating officer. "March was a landmark month
for Countrywide, as we set new company records in
fundings, average daily applications and pipeline.
Fundings were $9.6 billion in March, the highest
monthly total in the company's 32-year history. The
previous mark was $9.4 billion set in December 1998.
Average daily applications reached $734 million,
surpassing the record set last month by 10 percent.
This enormous surge of applications pushed our
pipeline of loans in process to $18.3 billion which
is also a new record and a 104 percent increase over
the same date last year. March fundings were up
almost 90% year over year."
*** Let's see...suppose stocks recover until the
summer...and suppose Mr. Bear begins to quietly take
down the dollar (which raises the cost of imported
goods)...Meanwhile, jobs get scarcer...the cost of
utilities goes up...and consumers find themselves
with more debt and bigger bills to pay. Hmmm...
... "At what point is the consumer stretched so thin
that he breaks?" asks Dan Denning in an email
yesterday. "If you get higher gas prices this summer
like everyone is expecting...it might be just enough
to push already borrowed-to-the-hilt consumers over
*** Go "Blue"... Dan, by the way, is a leading
member of the Daily Reckoning "Blue Team"...which I
mentioned yesterday... and about which, I will tell
you more. Watch this space.
*** The University of Michigan released its consumer
confidence numbers for the month of March. They are
the lowest they've been in over 7 years.
*** Daily Reckoning contributor John Mauldin's
proprietary Sentiment Percentage "Uptrends" Index,
has dropped from over 29 to 22 in just a few months.
"That is a quick - and disturbing - drop," says
John. "This Index is screaming bear market! Further,
the 'Big Boys' - institutional players - now account
for less than 14% of the market activity, down from
over 20% average. That, too, is a huge drop. One day
last week, they were less than 11%!" (see: Investor
Sentiment Says "Sell!")
*** We went to see a play last night at the Palais
Royale, Feydeau's 'Monsieur Chasse.' A vaudevillian
farce with a typically French plot - husbands and
wives cheat on one another to the amusement of
paying audiences. The play made adultery look like
*** Jules, 13, got back from Canada this morning.
The exchange program was designed to place French
kids with Canadian families so they could each
improve their language skills. So the Canadians were
expecting a French kid - and Jules was looking
forward to staying in an English-speaking family.
Neither got what they expected. Jules' host family
spoke Chinese at home.
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(A Daily Reckoning Classique, Vandals Of The
Internet was first published April 4, 2000)
VANDALS OF THE INTERNET
"Art" is what Jack Lang called it. He was referring
to graffiti - of the sort you now see all over Paris
and other major cities.
As minister of culture, Lang actually used
taxpayers' money to promote graffiti. The idea was
planted. Grants were given. Money was spread around.
Sure enough, a crop of graffiti "artists" was
Lang held expositions where the graffiti artists
were given a chance to show off their work. A subway
car was hauled up out of the ground for the artists
to work on...and then put on display.
Since then, the "artists" have attacked almost every
building in Paris. Even the most ancient buildings
have been defaced. Even the most beautiful facades
have been vandalized.
And now Jack Lang has moved to the ministry of
education, and the taxpayers' money is used to get
rid of graffiti. Squads of public workers, armed
with various solvents and grinders, battle the new
art form. Graffiti, though, is easier to apply than
"Graffiti" may have a digital cousin.
I have been trying to understand the essence of the
Information Age. What's it all really about? What is
information really worth? How can it make us rich?
And how come, given that the Information Age has
been upon us for many years, companies have been
unable to convert this abundance of information into
Is it possible that information has no value? And
that it is only given value by the circumstances in
which it is used?
In the middle of WWII, a dead man was dressed in a
British officer's uniform and given a set of plans
for the invasion of Europe. The plans were, of
course, intended to mislead Hitler about Allied
intentions. The body was then dumped into the sea,
so it would wash ashore where the Germans could find
Hitler also believed that he had a network of spies
in England who would be able to fill him in on the
coming landings. But these spies had almost all been
discovered and "turned," so they were feeding false
information to the German high command.
Thus the information that Hitler was receiving was
worse than no information at all. It not only lacked
quality...it lacked integrity. Of course, there are
many examples from military history in which the
integrity of information was decisive. Solzhenitsyn
tells us how the Russian army in WWI was commanded
by German-speaking officers from Prussia. They would
transmit their orders and battle plans in German.
Curiously, they were often intercepted and read by
the enemy - whereas their own troops found them
incomprehensible. In our own War Between the States,
Lee's plans at Gettysburg had been betrayed to the
Yankees when a Southern officer used them to wrap a
cigar - and left them by mistake to be discovered by
Most recently, the nature and value of information
has been called into question by the Internet.
Information is free on the Internet - as is, I
hesitate to remind you, this letter. But free
information sometimes turns out to be worth a lot
less than you pay for it.
In the last few weeks, quite a few people have been
charged with manipulating stocks via Internet. The
typical scheme, such as the one perpetrated by a
student at Georgetown Law school, involves buying
the shares of some marginal company and then going
on the Internet to ramp up the price. This is easier
to do than misleading the Wehrmacht. You only have
to announce some new breakthrough...some new
contract...a rumored buyout...new
technology...whatever. The whole idea is to create
the kind of buzz that gets people talking about it -
like the salesmen I overhead on the train to London.
The very same "investors" who are thought to be too
sophisticated to allow a bear market, seem to jump at
the chance to buy a stock they know nothing about,
on the basis of a recommendation from someone they
do not know...founded on information whose accuracy
cannot be affirmed and whose source cannot be
A lawyer defending one of the alleged manipulators
has responded, though, that you can't mislead people
on the Internet. He says that Internet postings are
nothing more than "graffiti," with no more
informational content than graffiti has artistic
The lawyer's argument is that his client just used
the Internet as a graffiti artist uses the wall of a
public building...or perhaps a dog uses a tree. He
pollutes it, perhaps vandalizes it...but no serious
person would mistake it for useful information.
But junk life imitates junk art. Pumping and dumping
stocks on the Internet works. [Rather, used to
work...in April 2000] In just a few hours, the
graffiti artists of the Internet have been able to
sell their shares at a profit.
In the military, the units charged with gathering
information and separating fact from fiction are
called "Intelligence" units. Mr. Cassady, with whom
I stayed in Normandy, has spent time in U.S. Army
Intelligence. He had even been stationed at Fort
Separating fact from fiction is tough work. And it
gets tougher - the more facts and fictions you have
to work with. The Internet is ultimately just a
means of communication - delivering an almost
infinite number of facts and fictions. The tough
part is still sorting them out.
Which, of course, is what I try to do every day....
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.