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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  American Hero

*** Consumers still spending more than they can afford... 

*** The 'wealth effect' revisited...why stock market losses
have not nipped off consumer spending.

*** A "head fake" for investors...the second half 
approaches...profits down...and more!

Market Watch 

This section of the Daily Reckoning is written by Eric Fry, 
editor of You can watch Eric on TV this 
week - he's the guest host on CNN-FN, 9:30 - 11 E.S.T. My 
notes and letter follow, as usual.

From Eric: 

*** The consumer is OK so far. The Conference Board's 
consumer confidence index jumped to 115.5 in May, from 
109.9 in April. The University of Michigan index went the 
same way, from 88 to 92.

*** In keeping with the upbeat mood, Americans spent more 
than they earned in April. Spending on goods and services 
grew 0.4% in April, slightly higher than the month's 0.3% 
personal income growth.

*** So, Americans are still living beyond their means. But, 
despite the encouraging news , most stocks lost ground 
yesterday. In particular, the NASDAQ fell more than 75 
points. Blame Goldman Sachs analyst Laura Conigliaro!

*** Before the market opened, Ms. Conigliaro issued some 
unflattering comments about Sun Microsystems and data-
storage company EMC. Citing fierce price competition in the 
data-storage business, she reduced her earnings estimates 
for both companies.

*** Someone needs to take Ms. Conigliaro aside and explain 
how the game is played. Shares of the two tech companies 
stumbled from the opening bell and dragged the NASDAQ down 
with them. Goldman can't earn much money that way.

*** The Dow Jones Industrials bucked the trend with a 33-
point gain.

*** Most of the visiting on-air commentators I encountered 
at the CNN studios yesterday expressed optimism that the 
U.S. economy and stock market are recovering, thanks to the 
indefatigable American consumer. We consumers will keep 
spending, the optimists say, even if we must borrow to do 
it, and yes, even if we're losing our jobs.

*** Well, I'm a consumer and I'm not buying that prophecy. 
Allow me to offer a different one: the rising unemployment 
trend is, unfortunately, just beginning. And . those 
without jobs and those who fear losing their jobs will not 
be visiting shopping malls in their spare time, no matter 
how many credit cards Capital One tries to give them
*** Remember the 'wealth effect?' Stocks went up and people 
felt richer. Their portfolio statements told them they were 
richer. So they spent more money and invested more freely. 
But what would happen when stocks went down? Would there be 
a 'poverty effect?' 

*** Alan Greenspan wondered the same thing. So he pulled 
together a panel of economists to study it. Well, it turned 
out that the 'wealth effect' was highly concentrated among, 
guess who...the wealthy! They were the ones who owned the 
stocks that went up. And when stocks went down, the wealthy 
didn't exactly begin to scrimp and save. But they did cut 
back - which is why you can get a beach house in the 
Hamptons for $10,000 less this year than last year, even 
though most consumer spending remained unchanged. 

*** But the study also found that while most consumers had 
never benefited from the 'wealth effect' they still acted 
as if they had. They stopped saving and went further into 
debt. Now, half of all U.S. households have less than 
$17,500 in financial assets. Those in the middle income 
range have only enough financial reserves to sustain 
spending for 2.2 months. And the bottom 40% of households 
have NO RESERVES whatsoever. If these people lose a job - 
or even overtime pay - they must cut back on spending.

*** The U.S. economy at the moment is like the economists 
who plunges one hand into ice water and the other hand into 
boiling water and proclaims, "On average, the water is 
warm." Although U.S. GDP registered a tepid 1.2% growth 
rate in the first quarter, our economy contains elements 
that are both red-hot and stone cold. Moody's reports, "An 
index of lumber product prices recently posted stunning 
gains of 91% for 2001-to-date, and 17% year-over-year." But 
at the same time, Moody's observes, "April's record 40.9% 
monthly decline in semiconductor equipment bookings broke 
the previous record drop of 25.3% set just two months 
earlier. Semiconductor equipment bookings have dropped 45% 
year-over-year thus far in 2001." Warm...on average.

*** Despite the 5 rate cuts by the Federal Reserve, we are 
in the middle of what the folks at International Strategies 
and Investments (ISI) term an economic "head fake." ISI's 
research uncovered two such head fakes in the last 30 
years. The economy firmed briefly in the middle of the 1970 
recession and, similarly, strengthened briefly before 
heading into the 1990 recession.

*** "The U.S. economy may be doing a touch better," ISI 
concludes, "but we seriously doubt it's about to take off 
because it's facing a number of headwinds including:

* Declining corporate profits.
* Declining employment.
* Collapsing tech activity.
* An over-extended consumer (as to much spending, too much 
debt, negative savings rate).
* Slowing global economic activity.
* A weakening California economy."

And a few notes from Bill:

*** The 'second half recovery' that investors have been 
talking about so eagerly is now only a month away. Will it 
arrive on schedule? As Eric points out above, if 
unemployment continues to rise, consumers will be forced to 
cut back their spending. And if they cut back, the recovery 
will have to wait - maybe for years. 

*** But what would make unemployment increase? A slowdown 
in consumer spending, of course! Hmmm...I'll have to look 
at this more closely..I'm not getting anywhere. More 

*** "Despite its 296-point loss for the week last week, the 
Dow has risen 17% from its March 12 low of 9389," write 
Blue Teamers Addison Wiggin and Dan Denning. "That's what 
is seen. What is unseen? Corporate profits have dropped two 
quarters in a row. First-quarter 2001 after-tax profits 
fell over 3% in the first quarter. They fell 4.3% in the 
fourth quarter. 

"Even worse, business investment is falling too, " the team 
continues. "Business investment fell 2.6% in the first 
quarter. It fell 3.3% annually in the fourth quarter. Those 
are the first back-to-back declines since, you guessed it, 
the recession 1990-1991. Investment is what creates 
profits. And without new investment, profits will continue 
to fall." If you're interested in Blue Team forecasts or 
investment advice be sure to enroll: http://www.agora-

*** The Internets were the big losers yesterday - with the 
index down 10% on the day's trading. Even the U.S. 
government is doing e-commerce - selling such things as 
wild mustangs and WWII ships. Doing business in a fashion 
described as "haphazard," Bloomberg reports that the Feds 
still took in $3.6 billion of sales last year - more than 
the $2.8 billion sold by Jeff Bezos just keeps 
drifting down that big lazy river of no returns.

*** I reported recently that the euro probably had about 3 
cents worth of downside risk (while the dollar could go 
down 30 cents). Well, already the euro is down more than 2 
cents. It is now at just a bit above 85 cents..and nearly 
at its all-time low.

*** Edward, 7. packed his bags and set off on his class 
trip cheerfully this morning. He seemed happy to go..but I 
thought I saw a tear welling up in the corner of his 
mother's eye as her 'petit dernier' went out into the wide 
world without her.

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[In honor of Memorial Day, the Daily Reckoning presents 
American Hero, first written and aired May 22, 2000]


"It looks just the same as it did 56 years ago," said 
Colonel Flamm Dee Harper, USAF (Ret.). "France is a 
beautiful beautiful now as I remember it. 
Except you don't have to worry about running into a German 
patrol around every bend in the road." Col. Harper, a 
small, handsome man of 80 years, stood on the hillside 
speaking into a microphone to a crowd of about 200 people. 
At his right was a young lieutenant, the USAF attache from 
Paris who served as his interpreter. Further down the hill, 
a group of about a dozen French officers were formed up 
into a square, starched and grave...with enough gold braid 
to back a currency. 

On his left were two flags, hoisted on recently implanted 
poles - the Stars and Stripes and the French drapeau - and 
a marching band of about 40 pieces, resplendent in dark 
blue suits with white insignia. They were the municipal 
band of little Montmorillon, the sous- prefecture about 10 
minutes away from my house. 

Montmorillon was celebrating the return of Col. Harper, an 
American pilot who crash-landed in this field in 1944. 
In front of me, a blonde woman had tears in her eyes. She 
looked as though she was about 55 years old. I did the math 
twice to make sure - she had to be at least 70. 

"I want to thank Jacqueline Thomas, who saved my life," 
said Col. Harper. 

For more than half a century, Jacqueline Thomas, who stood 
before me, had wondered whatever happened to the young 
flyer she found in her grandfather's vineyard in 1944. It 
was the vineyard, as much as Jacqueline, who saved him. 
Born in Albion, Idaho, Harper was 21 years old when America 
entered WWII. Like so many pilots, he was fascinated by 
machines and speed. And when a group of P- 38s flew over 
Utah in 1943, Harper saw them and knew what he wanted to 
do. He enlisted in the air force and was sent to flight 
school. A few months later, he was already flying his 29th 
mission over France. His target was the German ammunition 
depot at Sillars, about 20 miles from here. 

But something went wrong. A time-delay bomb went off and 
ignited the powder magazine just as he was passing overhead 
- at an altitude of only a hundred feet. The debris hit the 
aircraft, putting one engine out of action and damaging the 
other. Worse, Harper had been struck in the head by flying 
glass. So much blood streamed down his face that he could 
no longer see. Smoke filled the cockpit. 

Harper undid his harness and started to bail out. Then he 
realized that the ground was only about 50 feet below. So 
he sat back down in his seat and prepared to crash. 

Seeing the field again, for the first time since the event, 
Harper turned to me: "I don't know how I survived. A P-38 
can't glide at less than, say, 130 miles per hour. I should 
have been killed." 

But the wires that held up the grapevines slowed the plane. 
Harper jumped out of the cockpit with no further injury. At 
first, Jacqueline Thomas thought he must be a German. She 
started to run away. Then by some instinct she decided to 
go to his aid. His face was covered with blood. And the 
Germans could arrive at any minute. 

She led him to her grandfather's house. No one was home. 

She tended his head wound in the only manner she knew - 
dousing it with "eau de vie," strong spirits that hurt so 
much that Col. Harper recalls the pain to this day. 

Not long after, Jacqueline's father arrived. He had seen 
the plane go down and was concerned for his daughter. 
Taking command of the situation, he had Harper take off his 
clothes and dressed him as local farmer. 

The two grabbed fishing poles and went down to the river 
where, pretending to fish, they made their way to a cave 
where Harper was hidden. 

Eventually, Resistance leaders were contacted. Harper was 
driven to a farm where another woman took charge of him - - 
Denise LaBrousse. She was there yesterday, too. Nothing 
seemed to have changed. Harper was vigorous - with a sense 
of humor and a friendly smile. Jacqueline still seemed like 
the teenaged girl who found him in the field. And Madame 
LaBrousse looked like she's probably always looked. She 
looked like she could make a good omelet - which is just 
what she did for Harper. 

As the story was told, each of these people made their way 
up to take their places alongside Col. Harper... Denise 
LaBrousse walking with difficulty with the aid of a cane. 
And there they stood. The mayor of Montmorillon had invited 
me to the ceremony as a representative of the local 
American community ("I not only represent it," I explained 
to Col. Harper, "I am it. Apart from my family, there are 
no other Americans in the area.") and as an interpreter. He 
now presented Col. Harper with a medal from the town. 
A representative of the French Air Force gave him another 
medal - a set of wings. The band struck up the Star 
Spangled Banner...and then the Marseillaise. 

Tears welled up in many eyes. Many of those present had 
fought in the war. Others had vivid memories of it. My 
friend, Gilbert Mining, was there. He had made his way to 
North Africa to join the Free French Forces of de Gaulle. 
He'd made friends with an American soldier...whom he has 
never seen again. Another old soldier sat next to me at the 
dinner following the ceremonies in the field. He had been 
with the French army at the Maginot Line. They were driven 
back by the Germans and finally pinned against the Loire 

"I asked my commander for permission to desert," said the 
retired schoolteacher. "He told me to go ahead. So I swam 
across the river. Then I fought in North Africa...and then 
back to France." 

Harper, meanwhile, went on to glory. He joined the local 
S.A.S. forces, Britain's underground operation that 
coordinated resistance activity throughout the war. John 
Fielding, an Englishman who was part of the local unit, was 
also at yesterday's ceremony. 

Together with the local French resistance, they blew up 
train lines to keep the Germans from moving troops from the 
south of France to the front in Normandy. 

But Harper did not remain on the ground, or under it, for 
long. Scarcely three weeks after the local paper in Utah 
reported him "missing in action," he was back in England 
and back in the cockpit on various missions. 

Later, in Korea, he was shot down again. His ribs were 
broken, but he managed to kill two North Korean soldiers 
with a handgun and was rescued by helicopter. He became the 
only pilot to get shot down in two wars and keep on flying. 
But the most remarkable phase of his career was probably 
during the period following his rescue in North Korea. 

While he was recovering from his injuries, Harper directed 
the activities of his unit of flyers. One of his pilots 
reported a massive build-up of supply trains in the sector. 

Harper was unable to get permission for an attack, but 
ordered it anyway. The pilots went to work. They discovered 
that the boxcars were loaded with ammunition. The whole sky 
lit up, brightened by the explosions. Encouraged, they just 
kept hitting the train, which just kept blowing up. 

Some military historians believe this attack was the key to 
ending the war. The ammunitions train was meant to supply a 
massive million-man Chinese army. Without supplies, the 
offensive was called off, and the North Koreans decided to 
resort to the bargaining table. 

But world politics were a long way away from the thoughts 
of those assembled here in Montmorillon this weekend. "I'm 
just glad to be alive," said Harper. 

Your correspondent, 

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 30, 2001

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