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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

TUESDAY, 8 MAY 2001 


Today:  Victory in Europe Day

*** A dull day on Wall's getting lonely on 
recession watch...

*** Investors, strategists, and gurus - all becoming more 

*** This is not what they do at bottoms, of course...
a bad risk/reward ratio...Revenge of the Nerd Stocks...and 
Maria lands a job...

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*** It was a snoozer today on Wall Street - apparently, not 
enough fresh bad news to celebrate.

*** The Dow Jones Industrial Average fell 16 points and the 
NASDAQ eased almost 18 points. Even bulls need to rest now 
and then. But make no mistake, dear reader, caution once 
again has fallen out of fashion on Wall Street - at least 

*** As Morgan Stanley Dean Witter Chief Economist, Stephen 
S. Roach writes, "It's getting lonely again on the 
recession watch. The US economy rose instead of fell in the 
first quarter of 2001. And the bold and aggressive actions 
of the Federal Reserve have gone a long way in convincing 
the financial markets that any landing will be soft, rather 
than hard...I remain convinced that the case for US 
recession is as compelling as any that I have seen in 20 

*** The American Association of Individual Investors 
reports that bullishness has risen; 64% of its members 
expect higher stock prices in the near-term...only 23% are 
bearish. Richard Bernstein of Merrill Lynch says that Wall 
Street strategists are recommending their clients have 
69.5% of their assets in stocks - a new record.

*** And my old friend, Mark Hulbert, reports that 
investment newsletter writers have turned bullish too. At 
the beginning of April, he says, their exposure to the 
Nasdaq was minus 85% (it was negative because they had so 
many short positions). Now it is positive 21%. On average, 
the newsletter advisors are 51% in equities, after being 
"incredibly quick as a group to return to the bullish 

*** This is not what they do at major bottoms, Hulbert 
points out. "Instead of quickly becoming bullish [at the 
low point of Dec. '74], "they reacted with disbelief... the 
typical newsletter editor believed the rally to be a bear-
market trap. As a result, these editors therefore helped 
form the wall of worry that was the foundation for an 
incredible bull market."

*** "The editors' recent actions," he continues, "are more 
reminiscent of what they did, on average, after bear-market 
rallies throughout 1973 and 1974. In the wake of each such 
rally, many editors were quick to declare that the bear 
market was over. They were seduced into increasing their 
equity exposure just in time for the bear market to resume. 
After successive losses, these editors finally threw in the 
towel, declaring in effect that a rally would never again 
sway them into believing that a bull market had begun. That 
turned out to be the final low."

*** If April marked the bottom, it will be the first time a 
bottom has ever been immediately recognized by the 
investment newsletter crowd. "Do you want to make that 
bet?" asks Hulbert.

*** Another friend who doesn't like the odds is Fleet 
Street contributor, John Mauldin: "I just don't like the 
risk to reward ratio. Ask yourself the following question. 
Which will affect your lifestyle more: not gaining 10% in 
your portfolio or losing 30%?"

*** The S&P is selling at 26 times earnings, 6 times book 
value, with a 1.25% dividend yield. It could fall in half 
and still not be cheap. There is a lot of downside - and 
not much upside.

*** "It's been a marvelous party. The gay laughter. The joy 
of being wealthy. The balmy breezes wafting the sound of 
tinkling crystal, toasting the arrival of all the material 
things one could want," muses Doug Casey. "Everyone - well, 
a few people, anyway - knew the party would end, and that 
the Black Horsemen would ride in and totally destroy the 
place. Since it's such a huge party - by far the biggest in 
history - encompassing fully half the inhabitants of the 
US, it's going to take a while for the crowd to panic. Most 
people think that the rent-a-cops, Alan Greenspan and Baby 
Bush will shoo the Horseman away; I think not. The March 
decline was just a probe; the second and third waves are 
yet to arrive. Drop your champagne glass, and run." (see: 
Where Will It End? A Brief Glimpse Into The Future)

*** Ready to get back into tech? Witt SoundView chief 
investment strategist, Arnold Berman writes, "After a long 
spell in which technology fundamentals were downright 
horrible, they now have become merely miserable. The news 
is no longer all bad, just mostly bad."

*** This helps explain why there has been soft landing for 
Cisco. While not yet "pulling a Mir," Cisco is nothing like 
the gleaming, hi-tech wealth capsule that soared into the 
heavens one year ago. Similarly, the chip stocks have been 
conspicuously close to the ground of late. Despite the 
NASDAQ's rally, Micron Technology languishes in the low 40s 
- a few points below where it finished the month of 

*** The beleaguered Japanese yen is bouncing off of its 
recent lows along with the Nikkei, or perhaps, because of 
the Nikkei. As investors chase the Japanese stock market 
rally, they must buy yen in the process, thereby boosting 
its value against the dollar. 

*** All eyes, including those of the financial markets, 
will be on Japan's new Prime Minister, Junichiro Koizumi. 
The Nikkei Weekly stresses that time is of the essence: "He 
must demonstrate tangible progress on his reform pledges in 
less than three months, before his party is tested in the 
upper house election in July."

*** No small task. An editorial in the Nikkei Weekly 
observes, "Koizumi comes to power at a decisive moment for 
the nation's economy, long plagued by ills that have defied 
all conventional cures. The economy is under strong 
deflationary pressures stemming from weak demand, falling 
asset prices and massive debts. A slowdown in the U.S 
economy is only magnifying those woes. charged 
with the historic mission of developing and implementing a 
viable long-term strategy for creating a new economy. What 
is more, he must do so without triggering a new wave of 
financial crises."

*** Why doesn't Japan simply "crank up the printing 
presses?" One of the great questions of economics, even in 
this Information Age, remains unanswered. Almost every 
sentient being in America is confident that Greenspan can 
get the economy moving - simply by reducing rates and 
increasing the money supply. Under real pressure, they 
believe, he would simply "print more money" to get things 
moving. But there were printing presses in the 1930s too. 
With a quarter of the workforce unemployed, surely if ever 
there was a time to "crank up the presses" that was it. And 
why doesn't Japan turn on its new high-speed presses? More 
on this subject tomorrow....dear reader...or the next day.

*** Lynn Carpenter calls it the "Revenge of the Nerd 
Stocks." Her Fleet Street holding, H&R Block, is up 55% 
since she recommended it. It was a "sleeper" she says. 
Sweet dreams.

*** Nothing sleepy about the oil patch though. Today's 
mergers and acquisition headlines featured a couple new 
deals between oil companies. The blockbuster was Valero's 
$4 billion bid for Ultramar. The merged companies will 
become the second-largest oil refiner in the US, second 
only to Exxon/Mobil.

*** The Blue Team's Dan Denning offers "evidence of slowing 
U.S. consumption and imports... with total exports [from 
select Asian countries] down a worrisome 11.7%, 
significantly worse than the 6.8% rate posted in January."

*** "What's this telling us?" Denning asks, "U.S. imports 
are going down. So far, foreigners have been willing to 
subsidize U.S. over-consumption by holding on to US 
dollars. If they decide to stop - which these trade debt 
numbers seem to indicate - it could be the event that 
triggers the decline of the dollar and delivers an 
unexpected shock to the stock market." (for more on the 
Daily Reckoning Blue Service, please click here.)

*** "No, you may not wear a see-through blouse," I laid 
down the law. Maria, 15, has gotten her first gig as a 
mannequin. This Thursday night, she begins her career is 
show biz as a runway model for a Paris fashion house. 

*** Paris is as quiet and lonely today as a tort lawyer's 
funeral. The streets are empty... I could get a seat on the 
metro with no problem. It wasn't this way on VE Day 56 
years ago. More below...

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"War is hell."

William T. Sherman, 
before burning Atlanta, 
September, 1864

Our attitudes toward war are a puzzle of contradictions. 
People are often happy when a war begins...but usually 
happier when it ends. We hate war, but we revere war heroes 
and war leaders. Of course, the difference between a war 
hero and a war criminal is determined less by the actual 
events, than by the outcome. 

Senator Kerry, for example, still enjoys the sympathy, if 
not the admiration, of much of the American public and 
media. Kerry is lucky to have been fighting for the 
Pentagon and not the Wehrmacht. Otherwise, he would almost 
certainly have been tried for murder, and hung. 

I have written in the past about war heroes - men who have 
done their duty and deserve our respect. Today, I celebrate 
those who had sense enough not to follow orders.

We know that wars are destructive and wasteful, but splash 
the right jingoes on newspaper headlines and people take it 
up as eagerly as a 3-year-old picks up a loaded pistol. 

On this day, 56 years ago, Paris celebrated the end of the 
most costly, brutal, maniacal episode of warfare in history 

People danced in the streets...bands played...the bells of 
St. Merry's, next to my office, and those of every church 
in Paris, rang for hours. From balconies, banners and 
kiosks the news was shouted out: LA GUERRE EST FINI! 

People cried too. Some cried with particular cause: perhaps 
they grieved for one of the men who were shot by the Nazis, 
the men who are remembered by the many plaques about town 
"Ici est tombe..." they say, "Mort pour La France." [Here 
is where so and so fell...dead for France.]

Or maybe they were thinking of one of the many victims of 
reprisals...or those murdered by the resistance, the 
fascists, or by one of the criminal gangs that flourished 
during the chaos. No plaques remember these people - they 
are forgotten.

But most Parisians who wept on that day did so out of joy - 
joy that the war was finally over.

Compared to cities in Normandy, Germany, or Russia - or 
even London - Paris suffered little during the war. France 
had the biggest army in Europe before the war, but her 
troops were largely cut off and annihilated in the opening 
days of the war. French military leaders had failed to 
understand how the tank - supported by airpower - had 
changed the way wars could be conducted. 

In shock and disbelief, the French had no plan and no 
provisions with which to keep fighting. Instead, they gave 
up the fight and made peace with the Germans. The English 
charged France with failing to do her giving up 
the fight too soon. But what was the point? 

Parisians lived under German rule for 4 years. But the 
Germans never terrorized or destroyed the country as they 
had in Poland and Russia. Most German troops must have 
considered themselves fortunate beyond words to be able to 
enjoy the cafes and brothels of Paris, rather than to be 
fighting for their lives on the Eastern Front.

After the Allies successfully landed in Normandy, and broke 
beyond the hedgerows to the open roads, Hitler determined 
to reduce Paris to rubble before they got there. To that 
end, he summoned Major General Dietrich von Choltitz to his 
headquarters and put him in charge of the city's garrison. 
Why Choltitz? Because he had already ordered the bombing of 
Rotterdam and directed the siege of Sebastopol in the 
Crimea. In this latter battle, only 347 of his 4,800 men 
were fit for duty by the end. Still, he managed to capture 
the city and destroy it.

Choltitz had a reputation for being able to follow through 
on unpleasant orders. He covered the German retreat out of 
Russia, for example, leaving little standing. His 
reputation for destruction grew so great that he was blamed 
for having reduced Warsaw to ruins. But he was not even in 
Poland at the time.

It is easy to dismiss Hitler as a madman and his Nazi 
followers as unthinking zealots and opportunists. But it is 
hard to understand the German Army's aristocratic officers, 
of whom von Choltitz was one. They generally despised 
Hitler, as he did them. They surely saw too that the little 
corporal had put Germany on course to a military 
disaster...and that he was not only mad, but incompetent. 

But people will allow themselves to get swept up into 
almost any insanity if it is popular enough. Hitler was 
an elected head-of-state. He was the commander-in-chief of 
the armed forces. They must have wanted to believe that he 
was not the crackpot he appeared to be. Thus, while the 
Wehrmacht killed thousands of soldiers in dozens of 
countries all over Europe, its generals could not bring 
themselves to kill one single man in Rastenburg: the 

As the two-front war continued, it became more and more 
obvious that Hitler was not the leader Germany needed. 
Choltitz, receiving his assignment from Hitler directly, 
had hoped to find that the Fuhrer had matters in hand. 
Instead, what he found was what he described as one of the 
most bizarre and unsettling experiences of his life.

"Since the 20th of July," Hitler began his tirade, "dozens 
of generals - yes, dozens - have bounced at the end of a 
rope because they wanted to prevent me, Adolf Hitler, from 
continuing my work." 

"He was in a state of feverish excitement," said Choltitz 
remembering the encounter. "Saliva was literally running 
from his mouth. He was trembling all over and the desk on 
which he was learning shook with him. He was bathed in 
perspiration and became more agitated."

"Now," said the Fuhrer, "you're going to Paris." The city, 
he told general Choltitz, "must be utterly destroyed. On 
the departure of the Wehrmacht, nothing must be left 
standing, no church, no artistic monument." Even the water 
was to be cut off so that "the ruined city may be a prey to 

"I was convinced there and then," said Choltitz, "that the 
man opposite me was mad!" 

Would Choltitz carry out an order given to him by a 
lunatic? Another old soldier of the Prussian aristocratic 
school, Field Marshal von Kluge, said to him: "I'm afraid, 
my dear Choltitz, Paris may become a rather disagreeable 
assignment for you. It has the air of a burial place about 

"At least it will be a first class burial," replied 
Choltitz. Von Kluge committed suicide 6 days later.

A few weeks later, Choltitz was in Paris...and American and 
French troops were at the gates of the city. Choltitz had 
let a sarcastic sense of humor creep into his conversation. 
He reported back to the German high command that he was 
going to blow up the Cathedral of Notre Dame... 
Invalides...the Palais Bourbon. He was going to level the 
Arc de Triomphe and destroy the Opera to clear a field of 
fire (as if there was any intention or point to fighting!) 
To his staff one evening he remarked, "Ever since our 
enemies have refused to listen to and obey our Fuhrer, the 
whole war has gone badly."

Choltitz then let it be known that he could not surrender 
to the Resistance (of whom there were about 20,000 already 
in the city...already skirmishing with German troops). He 
would only surrender to proper officers. Hearing this, the 
French troops under Leclerc rushed into the city. Going 
right to the Hotel Meurice on the rue de Rivoli, a young 
French officer burst into Choltitz's room. "Do you speak 
French," asked the Frenchman excitedly. 

"Probably better than you do," was Choltitz's reply. 

Your editor, enjoying VE Day.

Bill Bonner

For investment ideas consistent with those you read in 
the Daily Reckoning please enroll in the Daily Reckoning 
Blue Service:
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: May 08, 2001

Published By Tulips and Bears LLC