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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

THURSDAY, 31 MAY 2001 


Today:  American Hero

*** Consumers still spending...but less than it appears.
Dow stocks getting hammered.

*** Wild guess for the year 2020: Dow 10,000!

*** "Keep your financial advice to yourself," the stars 
advised. If only I had listened! Gold down $7.70. Should I 
change my buy recommendation to "market perform?"

Market Watch 

This section of the Daily Reckoning is usually written by 
Eric Fry, editor of Look for 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.

*** The rally seems to have stalled. The Dow fell 166 
points yesterday. The Nasdaq was down 91.

*** Consumers are still spending...but a closer look at the 
numbers reveals the weakness. Half of April's 0.04% 
increase in consumer spending is attributable to higher 
prices. And earnings, too, reduced for inflation, rose at 
only 0.01% during the month.

*** Looking more carefully at how consumers were spending 
their money, we find that they were still buying bread and 
beer - but not big ticket items, such as cars and homes.

*** Bankruptcy filings rose 17.5% to a new record for a 
first quarter. Scylla and Charybdis must be closing in.

*** Will lower stock prices further reduce consumer 
spending? "The ups and downs of the stock market," reports 
the Wall Street Journal, summarizing a Fed study, "don't 
foreshadow where the economy is headed. They drive it 
directly." Lower stock prices, less consumer spending. Less 
consumer spending, less business investment and lower 
profits. Lower profits, low stock prices.

*** We're a long way from a major buying opportunity, 
opines Daniel Turov in Barron's. "The Dow first reached the 
100 level in January 1906," he writes. "It traded above and 
below that level for more than 36 years; it wasn't until 
May 1942 that the market left 100 behind for the last 

"The Industrial Average first reached 1,000 in February 
1966," he continues. "It traded above and below that level 
for the next 17 years, leaving it for the last time in 
February 1983. 

"The Dow first reached the 10,000 level in March 1999. 
Considering the unprecedented gains of the past several 
years, would it be that unusual for this benchmark to take 
a decade or even two before leaving 10,000 in the dust for 
the last time?"

*** Investing in Latin America is risky. Argentina is on 
the verge of a financial crisis. But Argentina is always on 
the verge of some sort of crisis. Meanwhile, there are some 
good companies at bargain prices, Barron's reports. I don't 
know what Repsol does. But whatever it is, the Argentinian 
company gets little respect from investors for doing it. 
The $10 billion company is trading at 8 times earnings. 
Petrobras, the huge Brazilian energy business, can be 
bought for just 6 times earnings. And Mexico's telecom, 
Telmex, can be yours for just 10 times this year's 

*** But a warning. There is no law that says things that 
are cheap can't get cheaper. Gold closed yesterday at just 
$267 an ounce. Gold mining stocks fell 5%.

*** "I have seen 23 investment manias," writes Ray Devoe, 
"ranging from uranium producers, to bowling companies, 
airlines and color TV. Four of them were high-technology 
(including space exploration and scientific instruments). 
With the possible exception of 1968's 'Great Garbage 
Market' all of them were localized-so that when the bubbles 
burst, the impact on the economy was negligible.

"However, this time it is different in that the bubble in 
stocks was (and is) so widespread. This time bursting 
bubbles are much more likely to negatively impact the 
economy." (see: Good Intentions and Their Unintended 

*** "Accelerated Entropy," is what Dan Denning of the Daily 
Reckoning Blue Team calls it. "Businesses suffer from 
entropy in the same way organic life forms do. Trouble is, 
in the 21st century entropy - naturally built into the 
business cycle - is picking up speed... destroying some 
businesses faster than ever."

And a few notes from Bill:

*** A friend sent me a copy of my horoscope for last week: 
"Keep your financial advice to yourself," advised the 
stars. If only I had listened. I would not now be in the 
embarrassing position of trying to explain the depressing 
fall in gold prices - down $7.70 yesterday alone.

*** And the euro! At 85 cents - it only has a few mills to 
go before it hits a new all time low. But what can you 
expect from the euro? I dubbed it the "Esperanto currency" 
when it came out. Backed by neither a single government nor 
by gold, the euro is a monetary curiosity, a money based on 
good intentions.wishful thinking.and who knows what else.. 
And, as James Grant points out, it is a paper currency that 
isn't even available on paper. They don't release the 
actual bills until next year. So far, it is just electronic 

*** Perhaps, as Grant suggests, I should do what Wall 
Street analysts do...and change my 'buy' recommendation for 
the euro to a 'hold' ..or a 'market perform.' And maybe 
gold should become an 'accumulate,' rather than an un-
hedged long position. 

*** Maybe I should just give up - and admit that the gold 
and the euro may someday be decent places for your 
money...but their time has not yet come. But what's the 
point? You don't cancel a life insurance program just 
because you aren't dead yet.

*** "The median corporate bond rating stands at BBB, or 
weak investment grade," reports Grant in Forbes, "the 
lowest since 1981, the first year for which statistics are 
available. Also, just 28% of the junk-bond universe holds 
the top junk rating, according to Moody's Investors 
Service. That's the lowest proportion in at least 80 years, 
a span that includes the Depression."

*** Last night, my friend Mark Skousen came to town. He is 
on a world tour, promoting his most recent book (about 
which more.after I've read it). Mark gave a lecture at the 
Democratic Liberal party headquarters in Paris - luring the 
biggest turnout of free-market supporters in many years. 
Yes, there were probably 15 of us least. More 

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"What's the difference," Benoit asked me, "between America 
and France?" 

We were painting shutters on Sunday afternoon. Painting is 
not my favorite past-time, dear reader. It is tedious and 
repetitive. But it has one virtue - it lends itself to 

If I have any advice to give to the families of America, it 
is this: throw out the television and pick up painting 
brushes. The family that paints together, sticks together. 
Well, at least their hair sticks together.

Jules, Maria, and Sophia each had an answer for Benoit. But 
none could offer a convincing explanation of why or how the 
two countries differ. All agreed, however, that America is 
a 'freer' place. 

Even the Frenchman, Alexis de Tocqueville, noticed it - 
early in the 19th century. Americans were unrestrained... 
bound neither by law, custom, taste or dignity. The 
frontier was especially wild, he noted, as uncivilized as 
the people who inhabited it. 

Since Tocqueville took his famous tour of America, much has 
changed. The frontier has been tamed. So have its 
inhabitants. As noted here many times, since America gained 
its freedom from Britain, America's citizens have become 
the serfs of their own government. Americans worked from 
January 1st until January 8th each year, roughly, to pay 
their obligations to George 3rd. Today, successful Americans 
work from January 1st to June 1st to pay their tribute to 
George W's government. 

Still, my children - as well as most of the world's people 
- are convinced that America remains a 'freer' place than 

An article in Forbes reports that it takes just 7 days to 
start a business in the U.S., but 66 days in France. In its 
ranking of the "best places in the world to start a 
business" Forbes places the U.S. as #1. France is #25.

I've begun businesses in both countries. The numbers may be 
technically correct, but they focus on the wrong part of 
the story. The big difference between France and America is 
not the difficulty of starting a business, but the trouble 
of getting out of an unsuccessful one. Marks and Spencers, 
the British retailer with a store around the corner from my 
office, decided to close its doors in France after losing 
money for years. 

Uh...not so fast. The employees kicked up a fuss and a 
French court ordered M&S to stay in business until a 
settlement was reached. Operating stores reduced hours and 
empty shelves has added millions to the firm's losses.

Several investment strategists - including our own Steve 
Sjuggerud and Steve Hanke - conclude that you should always 
invest in countries that are moving towards more commercial 
liberty. But if you followed that advice literally, you 
would have taken your money out of the U.S. 150 years ago. 
And you would miss the benefits of investing in socialism.

France is a more demanding and unforgiving place than 
America. The schools are harder. Teachers do not worry 
about a child's self-esteem. If wrong answers are given, or 
untidy work is handed in, the poor children are scolded 
and, often, insulted. 

Children are expected to stand up straight, look guests in 
the eye and offer their cheeks for a kiss. People are 
expected to dress properly when they go out and always move 
to the right hand lane when driving...leaving the left 
lanes open for speeders. Husbands may have mistresses, but 
they are expected to be discreet about it. 

Rigidity is not without its benefits. Women are prettier 
and the food is generally better. In the business world, it 
is hard to get started - eliminating the casual 
entrepreneurs - but once you are established, government 
regulations raise up behind you like a drawbridge, to block 
potential competitors. Conduct your affairs in the proper 
way - and all of French society will conspire to keep you 
in business. 

France is a socialist country, with a very expensive 
national health care system subsidized transportation, and 
regulations governing almost every aspect of life (just 
like America!) 

Workers enjoy a 35-hour work week...with 4 weeks of 
vacation. But this puts pressure on enterprises to make 
sure their employees are productive. And while French 
workers tend to work fewer hours (no one works as many 
hours as Americans) it is rare to find workers as 
incompetent as those you routinely encounter in the U.S.

"But the real difference between the U.S. and France," 
observed one of the attendees at Mark Skousen's lecture 
last night, "is that the intellectual tradition of economic 
liberty never really caught on in France."

In Anglo-Saxon countries, Adam Smith popularized the notion 
of an "invisible hand" guiding individual market 
transactions for the benefit of all. How come those ideas 
never took root in France?

Neither Mark nor any of the attendees had a good answer. In 
fact, the discussion merely deepened the mystery.

Because it was in France that the idea of "laissez-faire" 
economics was first developed. Montesquieu, Say, 
Tocqueville, Bastiat - they elaborated the ideas of 
financial liberty long before Ayn Rand or Milton Friedman. 
"In fact," added Henri Lepage, host of last night's 
meeting, "Bastiat anticipated what is now known as 'public 
choice theory' long before James Buchanan was born. 

But what happened? "They died," said one attendee. 

"A similar phenomenon occurred in America," Mark pointed 
out, "the New England colonies, especially Massachusetts, 
were the most radical, liberty-obsessed part of the nation 
in 1776. But, today they are the most socialist states."


An explanation...tomorrow.

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: June 01, 2001

Published By Tulips and Bears LLC