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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

SANTA FE, NEW MEXICO 
FRIDAY, 18 MAY 2001 

 

Today:  A Great and Sublime Fool

*** Rally continues...weakly...has the thunderstorm 
passed? Clear skies from here to eternity?

*** Or just another "sucker's rally"?

*** Gold moving up...Quantifying the 'Maria 
Factor'...who pays for government's losing 
wars...on the road to Taos...and more...

*** The stock market continued its winning ways on 
Thursday with the Dow advancing 32 points and the 
NASDAQ tacking on 27 points.

*** Investors seem now to think of the bear market 
as though it was a passing thunderstorm on an 
otherwise lovely day. It made a little noise, 
scared a few folks and then moved along... . It is 
a nice story, if only it were believable.

*** "The largest bear market in U.S. history was 
punctuated by seven very significant rallies on the 
way to the final conclusion," cautions 
contraryinvestor.com. "Are we trying to imply its 
1929 all over again? Of course not. We are merely 
pointing out that short-lived rallies are part of 
what defines overall bear markets. And nine of the 
10 top percentage up-moves in the Dow occurred 
during the worst bear market in financial history.

*** The Fed has countered this bear market more 
aggressively than any central bank in history - 
with 5 rate cuts in 5 months...knocking 2.5% off 
the fed funds rate. MZM, a measure of cash in 
circulation, has jumped 26% in the last 3 months. 
Is it any wonder stock prices react - if only 
temporarily?

*** Up until now, at least, the sharp rallies have 
always been 'sucker's rallies,'" writes Fred Hickey 
of The High-Tech Strategist. "This rally is also a 
sucker's rally...because the bear market has not 
eliminated the excesses that the market built up 
during the mania."

*** Overcapacity, bad investments, excess 
inventories and debt...they must all be corrected 
sooner or later. As stocks move higher, the 
situation for investors only becomes more 
dangerous...

*** It is not just stocks that are rising on the 
Fed's new liquidity.. The metals were higher once 
again, with silver up $0.03 to $4.50. Gold was up 
$1.60 to $274. "Newmont has outperformed Cisco over 
the last two year," observes grantsinvestor.com. 
Newmont managed a 16% gain over the period. Cisco 
registered a 26% loss.

*** While most tech company CEOs grouse about 
current conditions in the industry, IBM's CEO Louis 
V. Gerstner Jr. told an investor conference last 
week that the fear and trembling in the technology 
sector is way overdone. "We should not allow this 
bubble-bursting to mask the long-term perspective," 
he said.

*** One part quantitative analysis, 10 parts 
Hollywood, sums up yesterday's Financial Times 
story, "Quantifying the Maria factor." The "Maria" 
under examination is, of course, CNBC's Maria 
Bartiromo, otherwise known as the "Money Honey."

*** Ms. Bartiromo is all that and more, it seems. 
She moves markets...big time. "When Ms. Bartiromo 
makes a favorable comments about a company during 
her regular 'Midday Call' spot, its share price 
jumps an average of 43 points within a minute -11 
points in the first 15 seconds, 20 in the next 15 
seconds and 12 points in remaining 30 seconds."

*** Clearly, this study is not a scientific 
quantitative analysis. (No "quant" would express 
results in terms of absolute points rather than 
percentage move). But the essential point is 
unmistakable. "Research" bull market style is a 
fives-step process: 1) Sit in comfy chair; 2) Turn 
on TV; 3) Tune to CNBC; 4) Listen carefully to 
Maria Baartiromo; 5) Buy any stock she mentions. 

*** "The top 1% of taxpayers pay about one-third of 
all income taxes," write Doug Bandow of the Cato 
Institute. " The top 5% pay more than half. The top 
10% pay nearly two-thirds. The top 25% pay more 
than $4 of every $5 in taxes." This is why most 
people approve of government spending...they don't 
have to pay for it.

*** Yesterday afternoon, my son and I drove up to 
Taos. The drive, up the Rio Grande valley, is 
stunning. It must have been even more stunning when 
the Conquistadores visited in the 16th century. 
There were no mobile homes and no junked cars to 
clutter the valley. Also stunning was the price of 
lunch - $15 for the two of us. I'm not used to such 
low prices. Maybe the dollar is not overvalued 
after all.

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A GREAT AND SUBLIME FOOL

"The Lack of Money Is The Root of All Evil: Mark 
Twain's Timeless Wisdom on Money & Wealth for 
Today's Investor." The title caught my eye as I was 
passing through the Denver airport. So, I picked up 
a copy. And now I will tell you how to save $22 - 
don't buy the book.

Andrew Leckey, the book's author, is a syndicated 
columnist and regular TV commentator. I don't 
recall any of his columns. Now I know why. The man 
is painfully humorless. That would not be so bad, 
but he has attempted to team himself up with one of 
the most polished wits in history. Mr. Leckey's 
limitations are exaggerated by the comparison He 
drags along as if he were restocking shelves.

Twain, for example, makes our point - that 
investors get not what they expect, but what they 
deserve - in a different way. "Providence always 
makes a point to find out what you are after," he 
writes, "so as to see that you don't get it."

Leckey, completely deaf to the idea, follows with 
this: "The marked differences in the returns of 
seemingly similar investments are a big reason why 
asset allocation remains crucial."

How does asset allocation reach Twain's point? 
Mightn't Dame Providence, in her infinite wisdom, 
also discover what you expect from a diversified 
portfolio as well as a concentrated one? 

The problem is that Leckey doesn't even seem able 
to understand Twain's ironic humor. Twain typically 
takes common platitudes and turns them inside out, 
reaching for a deeper truth in the entrails. But 
Leckey keeps his hands in his pockets.. Even the 
book's title Leckey seems to take a statement of 
plain truth. Instead of treating it as an 
invitation for more nuanced reflection, he takes up 
the challenge of helping the reader improve his 
financial position with the dull earnestness of a 
scoutmaster teaching boys to make a fire.

"There is a charm about getting rich - and yachting 
- which is unspeakable," wrote Twain. "Make money 
and the whole world will conspire to call you a 
gentleman."

Again, Leckey misses the subtle self-mockery: 
"Following the wisdom and common sense contained in 
this volume," he writes seriously, "will help you 
earn the money you need for a comfortable future, 
and "gentleman" - or "lady" - you will be called."

But watch out. It's not easy.

"October. This is one of the peculiarly dangerous 
months to speculate in stocks," Twain elaborated. 
"The others are July, January, September, April, 
November, May, March June, December, August and 
February."

Leckey: "Twain was making a timeless point," that 
investing is dangerous. Not only that but he gave 
us "an eerily accurate prophesy. For he began the 
list with October, the month of two of America's 
greatest stock market crashes." Eerie.

"Twain never took himself too seriously," Leckey 
notices. But the plodding scoutmaster seems unable 
to take himself anything but seriously. The reader, 
meanwhile, is so shocked and alarmed by Leckey's 
inability to react to Twain's wit that he begins to 
regard the author as a bit of freak - like a man 
who has had brain surgery and is now unable to 
laugh.

One can only imagine what went through Leckey's 
brain-damaged cranium when he decided to use Twain 
as his partner. Twain was famously bad at 
investing. Some investors fall for gold mines. Some 
fall for new technology. Twain came down hard on 
both. So bad was his financial management that he 
was bankrupt by the age of 60 - despite earning a 
fortune from his writing. He then had to embark on 
an exhausting speaking tour to rebuild his fortune. 

Addressing the issue, Leckey remarks that we can 
learn from Twain's "common sense." And yet, the 
great writer's sense was anything but common. Twain 
made a point of looking beyond the common vision of 
things...in order to spot the paradoxes, 
inconsistencies and hyped up, empty clich‚s in the 
world around him. 

Leckey does the opposite - he give offers his band 
of investment scouts unexamined platitudes, useless 
advice and every hollow slogan Wall Street has to 
offer. 

"Don't take financial tips from know-nothings or 
crooks," he warns.

"Whenever you fail, always get up again, and do so 
with honor," he tells us.

"Beware of scams."

"Have plenty of stable investments, but also 
embrace technology. It is, after all, the future." 
(And don't forget the gold mines - ed.) Recognizing 
that tech stocks can be dangerous, he tells how to 
protect yourself: 

"Carefully differentiate among companies within a 
hot industry or industry segment and decide how 
much they're really worth."

Leckey helpfully provides readers with a list 
mutual funds that focus on the Internet sector 
[this book seems to have been written early last 
year]. Plus, he gives readers a list of some of the 
"best performing" tech stocks. Here, the 
scoutmaster seems to have given his innocents a 
revolver and neglected to tell them it was loaded. 
The list - including CMGI, Veritas, Qlogic and JDS 
Uniphase - was an invitation to disaster. CMGI has 
fallen more than ___ %. Qlogic is down ___% 
[Addison...can you fill in numbers or scratch those 
sentences] But what the heck, technology is the 
future! 

Twain loved new technology and lost a lot of money 
in it.. 

"Every time I hear of some new wonder," he wrote, 
"I postpone my death right off." He invested a 
fortune in a typesetting innovation called the 
Paige Compositor, for example, which never worked. 

But Leckey seems able to learn neither from Twain's 
words nor his example. "Technology was a risky 
taboo," he writes, but "times have changed...with 
people of all ages choosing technology stocks for 
at least a part of their portfolios. You can't get 
that kind of growth anywhere else."

"The best way to get started in technology..." he 
elaborates, "is to build a foundation of quality 
technology companies by buying them on any price 
dips. From these core holdings - that emphasize 
popular names such as... Cisco... Nokia... and... 
Intel - you can move on to developing companies 
that carry much greater risk and potential reward."

Leckey's readers, like Twain, were destined for 
great losses...as these Big Techs collapsed over 
the last 12 months. 

Twain himself knew that he was a terrible investor 
and cautioned others not to follow his example. "To 
succeed in business,' he remarked, "don't follow my 
example." But at least he was self-aware:

"Ah well," he said, "I am a great and sublime 
fool."
Leckey remarks of Twain that "he knew exactly what 
he was doing." If so, he was a bigger fool than he 
thought. But one suspects that on this book, at 
least, Twain's co-author has him beat.

Your editor, a fool in his own right...

Bill Bonner


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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 20, 2001

Published By Tulips and Bears LLC