Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 23 APRIL 2001
*** Another "concrete floor" under stock prices?
*** Traders, investors bullish...stranger things
*** Are interest rates too low already? Collateral
damage in the drug wars...and more!
|*** What a funny old world. Back in early January,|
scarcely had we digested our Christmas goose when
Alan Greenspan decided to do something about the
developing slump in the U.S. economy. His first
surprise rate cut of 50 bps came when the Nasdaq was
*** Soon, stocks were rocketing upwards, with the
Nasdaq briefly rising above 2,600. Investors were
elated and spoke of a "concrete floor" beneath the
Nasdaq. But the tech stocks were soon falling again.
They smashed into the cement and kept going until
the index hit some substratum layer at 1,638.
*** So last Wednesday, Alan Greenspan got out the
mixer and once again tried to shore up stock prices
with a little-fed funds ready-mix.
*** Here is how the Toronto Globe & Mail describes
it: "Alan Greenspan to Investors: Party On, Dudes!"
*** Investors limbered up quickly and began to rock
and roll. Though things quieted down on Friday, with
the Dow off 113 points and the Nasdaq down 19, it
was still a fun week for investors.
*** The Dow ended the week up 4.47% - at 10,579...
recovering about half its losses since registering a
high of 11,722 on January 14, 2000.
*** The Nasdaq closed at 2,163 - still below its
starting point for the year, but a gain of 10% for
the week. TheStreet.com Internet index rose 11% last
*** Where to from here? Good question. The put/call
ratio fell to .44 last week - its lowest level for
the year. Traders are confident prices are going
higher - so they're buying calls, and see no need to
protect themselves with puts.
*** Nor did they seem discouraged by Friday's
pullback. "It's just a little give-back after a
great rally," remarked one trader. "We've
established a higher base," said another.
*** Investors could continue to rock and roll on the
new concrete floor prepared by the masons at the
Federal Reserve. They might even manage to dance the
Dow up to a new high. Stranger things have happened.
The Dow hit a high of 995 in 1966, fell and then
came back. Two years later it was at 985. But by
December of '74 prices had fallen to 577.
*** The Dow may go back to its highs - or beyond -
but it is at 22 times earnings and 6.4 times book
value already. The S&P is at 24 times earnings.
Whatever may happen - this is no bottom.
*** Sun Microsystems reported earnings of 8 cents a
share, 43% lower than the same period last year. The
stock fell, but it is still priced at 37 times
earnings. For a company with falling earnings? Go
*** "Telecommunications companies convinced
themselves that insatiable appetites for phone and
Internet services would produce limitless equipment
orders," reports a Bloomberg article. "Now, the sky
is falling. So who'll be left holding the bag for
the industry's over-optimism? Who usually suffers
from taking on too much exposure when times are good
and then suffers the consequences when the waste
matter hits the extractor device? Who else but those
paragons of prudence, the banks!"
*** Merrill Lynch estimates that the telecom
industry is only using about 2.5% of its capacity.
The logic of the Fed's lower interest rates is that
they encourage borrowing and more capital spending.
But even at a rate of zero, what sense would it make
to add more phone connections?
*** "On the evidence of the late boom," writes Jim
Grant in the NY Times, "the Fed for many years set
the rate too low. Thus, a comprehensive measure of
investment - including residential construction -
has been soaring. Last year, it amounted to more
than 18 percent of gross domestic product, the
highest percentage since the late 1970s."
*** "Does the Fed Know Something We Don't?" asks the
Financial Times. While the Fed tries to push down
short-term rates, long-term rates are going up. The
FT thinks the bond market is telling us that a
recovery is coming soon. Maybe. But rising long term
rates might also be warning us that the dollar is
going down. A small detail, but maybe an important
one: the price of gold rose last week too, up $4.50.
*** "The downfall of the dollar has been predicted
many times in the past few years," notes the
Financial Times, "and it has not happened yet. When
it falls it will both reinforce the slowdown in
Europe and Asia and add to the inflationary
pressures in the US - possibly restricting the Fed's
ability to cut rates further. If that happens it
will no longer be enough for the rest of the world
to look to Alan Greenspan to bail them out."
*** "Argentina plans to peg its peso to both the
euro and the U.S. dollar," writes Uncle Harry
Schultz. "This event is great PR for the euro, and
may be a watershed action, opening the door to
others who peg...Hong Kong, for example." Harry is
forecasting euro parity with the dollar... despite
European tendencies to politicize. (see: Argentina
To Resuce The Euro?)
*** "Everyone in Silicon Valley wants to be a
billionaire by age 25," San Francisco SEC chief
Helane Morrison told the International Herald
Tribune. Her office is investigating a record number
of securities fraud cases, including one against two
accountants at Cisco who are accused of moving over
97,000 CSCO shares - perceived to be worth $6.2
million - into their personal trading accounts.
Another case involves a couple of ambitious CEOs of
another firm who are accused of "figuring out how
many more sales were necessary to meet the company's
quarterly projections, then simply making them up."
*** Japan's Democratic Party says the nation's banks
have five times as much bad debt as has previously
been admitted - $1.2 trillion worth, an amount equal
to a quarter of the GDP.
*** The front page of the International Herald
Tribune brings more news of collateral damage from
the War on Drugs. A young mother and her child were
shot and killed by Peruvian fighter jet whose pilot
mistakenly thought they were involved in the drug
*** A friend sends this note: "I managed to
catch the Frontline documentary...Really, the
futility of the whole effort [the war on drugs] is
jaw-dropping once you see the result. On Frontline,
even some of the judges and DEA agents were speaking
out against it. Over 70% of the people in jail today
for non-violent crimes are offenders in drug
possession or trafficking related crimes. Truly
incredible even when you just consider the cost of
prison space, daily meals, guards, medical care,
"Drug criminals get standard-minimum federal
sentences. Rapists, murderers, and muggers get more
subjective, state-determined sentences. That means
that a guy who was dumb enough to grow a few hundred
pot plants in his basement might get 20 years in
prison. If he's married and his wife doesn't testify
against him, she'll get 12 years or so for
'conspiracy' (the only hearsay testimony allowed in
court). If they have kids, the kids get split up and
sent to different foster homes.
"Meanwhile, the guy who sticks a knife into
someone's gut for $15 of beer money can be in and
out in 5 years."
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"Could you give me a hand?" Pierre asked me on
I was in digging out the floor of my little gate
house with a pick and shovel. It was hard work, so I
was happy to be interrupted.
Pierre doesn't like to ask for help. And he didn't
look good. His face was covered with red splotches.
He looked like a man who had too much to drink - or
I warn you, dear reader, that today's letter has
nothing to do with investing or money. I will merely
tell you what happened over the weekend and let you
take from it whatever you can.
Saturday was a beautiful day in the Poitou region of
France. It has been an unusually cold spring - the
subject of just about every casual conversation.
"Is it ever going to warm up?" Mr. Deshais had
asked, rubbing his hands together early in the
morning. People in this area would be grateful for a
little global warming. It would take the chill off
things in late spring and early autumn and save
thousands of pointless conversations.
There was a light frost on the grass Saturday
morning. But by the afternoon, the sun was shining as
clear and blue as I have ever seen it. Plus, the
tulips, the blue bells, red buds, and fruit trees were
in full bloom. Pierre planted several of his fields
in rapeseed this year - which are such a bright
yellow you almost need a pair of welder's goggles to
look at them.
Saturday evening, the two little boys - Henry and
Edward - and I got on our bikes to take a ride.
Birds sang, water flowed, the first bugs of spring
got in my mouth. Later in the year, the fields will
turn brown, but they are bright green now - or
bright yellow. We passed a herd of cattle. Each cow
had a calf - each one already tagged with a bright
red card stapled to its ear. It was a perfect spring
day and we were happy to be out and about. But after
a mile or so, we were so cold we had to turn around.
It was still morning, though, when Pierre asked me
to lend a hand. We collected a couple of sticks and
walked down the road to one of the barns where
Pierre keeps his young bulls. It takes at least two
men to move a bull - one to get in front and the
other behind. The trick though, is to bring a cow
along at the same time. The cows are more
docile...and bulls tend to mind their manners when
there's a lady around.
Last week, one of the bulls had strangled itself
between the feeding bars. We saw him as we drove by
on our way to church last Sunday.
"Eeeeiiiou!" Maria had said, as she spotted the
animal on the ground, his legs sticking straight out
as though he were a huge stuffed animal. Maria does
not like dead animals, unless they are properly
Pierre opened the weathered oak door. Directly in
front of the door was another of the 3 bulls that
had shared the pen. His head was propped up between
the bars and his body was on the ground, like a
Roman emperor eating dinner.
Pierre has been carefully breeding cattle for a
quarter of a century. He has some of the largest
Limousine bulls in the region, I have been told.
They are huge, beautiful animals. This bull in front
of us was no exception. His muscles bulged as though
he had been working out. You could see clearly the
rump, the brisket, the chuck roasts, and the round
steaks. Pumped up, he looked as though he was ready
for a "pose down" with another beefy champion...or a
rendezvous with an abattoir.
But it was too late. He was already dead.
His head was cocked at an angle, with bubbles of
white foam coming from his mouth. He looked so
healthy otherwise, I had to touch him to find out
for sure. The body was cold.
Even when you know what you're doing, dear reader,
sometimes things go wrong.
One of our turkeys died on Saturday too. But at
least we knew what happened: a fox got it.
"Foxes usually only hunt at night," Francois
explained. "But in the springtime, they have their
young to feed. They will take anything they can get,
anytime they can get it. You better walk around the
woods and see if you can find the nest. Kill the
baby foxes. Otherwise, you'll never be able to get
"Eeeeiiou!" said Maria again. The idea of killing
small, furry mammals did not agree with her. But
Francois is not sentimental about animals. Few
I found what was left of the turkey in the grass
beyond the fowl yard. It had been almost entirely
eaten. There must have been more than one fox. The
turkey was a big bird.
But no one knew exactly how the bull had died. The
question occupied Pierre, his helper, Patrice, and
Mr. Deshais for the rest of the weekend. Suspicions
centered on the feeding installation, a new
contraption, put up just a few months ago, with
spring-controlled vertical bars to hold the animals'
heads in place and prevent them from stealing each
"That is standard equipment," Pierre said. "It has
been used for decades by millions of animals. It is
not possible that there is something wrong with it."
Still, somehow, two of the three bulls in the pen
have died in the last two weeks - each of them
strangled between the bars. And the loss was not
trivial. "They were good breeding bulls," said
Pierre, "easily worth 10,000 francs each."
"It looks like they slipped on the floor, panicked,
and suffocated," Pierre continued.
"But why couldn't they get up?" I asked.
"I don't know," he replied.
"I don't know either," said Mr. Deshais, hearing
about the incident later in the day. "But I bet it
wouldn't have happened if Francois were still here."
Francois had been born on the farm and - except for
2 years spent in North Africa during the Algerian
War - spent his entire life working here, until his
retirement last year. He knew how to take care of
the cattle better than anyone. His replacement,
Patrice, is fairly new to the trade.
I saw Francois on Sunday and told him what had
"Yes, from time to time you lose an animal. But I
can tell you what went wrong with the bulls. The
feeding apparatus works fine with normal cattle. But
Pierre's bulls are too big."
Your reporter, on the scene,
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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.