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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 1 JUNE 2001 


Today:  More Theory Than In Fact

*** Surprise, surprise - techs do just what they said they 
would do...

*** Could McTeer be serious? Or is he just a comedian? 
Should you go chapter 11 for the health of the economy?

*** Travel bargains...looser credit, but tighter 
access...and a company you can buy for less than 5% of 

Market Watch 

To remind you, this section of the Daily Reckoning is 
written by Eric Fry, editor of Eric has 
been the guest host on CNN-FN this week, 9:30 - 11 E.S.T. 
But Eric is becoming a celebrity. 

He'll be appearing on the FOX network's "Cavuto on 
Business" show. It is a 1/2 hour roundtable show that 
appears three times over the weekend. Saturday at 10:30 AM, 
6:30 PM and Sunday at 9:30 AM. I am told it appears in the 
same time slots in each time zone across the country.

*** The stock market correction has been "overdone," 
Federal Reserve Bank of Dallas President, Robert McTeer, 
pronounced yesterday. And we are darn glad to know it. 
Unfortunately, McTeer provided no specific stock picks or 
model portfolio by which to profit from the anticipated 

*** As if in reaction to McTeer's "call," the stock market 
rallied a bit yesterday. The NASDAQ Composite gained 26 
points, or 1.3%. Even after Thursday's token bounce, the 
NASDAQ sits about 9% below the level it achieved last week. 
And lest we forget, the struggling index is still 58% below 
last year's all-time high.

*** Lately, the news issuing from the technology sector has 
been so grim, that not even diehard bulls can ignore it. 
"Surprising" is the word appearing very often in the latest 
batch of earnings warnings and cautionary comments from 
Wall Street analysts.

*** In particular, Sun Microsystems "surprised" Wall Street 
earlier this week by warning that its earnings for the 
current quarter would be less than half what most folks had 
been expecting. But the most surprising thing about Sun 
Microsystems announcement was that it surprised anybody. 
Sun's very own CEO, Scott McNealy, has been complaining for 
several weeks about the poor "earnings visibility" at his 
company. Investors simply ignored him.

*** As High Tech Strategist editor, Fred Hickey wrote two 
months ago, "While most market strategists, chart 
technicians and analysts are proclaiming in unison that 
they see a "bottom," the CEOs' most-used phrase today is 
"no visibility." The only bottom they see is the bottomless 
pit into which they are staring."

*** The Dow Jones Industrials gained 39 points yesterday to 
10,912 - within hailing distance of the emotionally 
significant, but fundamentally irrelevant, 11,000-level.

*** McTeer's comment about the stock market selloff being 
overdone typifies the new and improved Federal Reserve that 
has emerged during Chairman Greenspan's reign. The 
Greenspan Fed is not as focused on the stability of the 
banking system or the strength of the currency as its 
predecessors have been. Rather, Greenspan's gang devote 
themselves to micro-managing and cheerleading the economy.

*** And why not? The Fed did such a good job of protecting 
the value of the dollar - only down 95% since the Fed took 
up its mission - who is better qualified to manage the 

*** Would a national Chapter 11 filing be patriotic? 
McTeer's hope for economic growth via debt-driven 
consumption sounds more idiotic than patriotic.

*** Mitchell Securities bank analyst, Charlie Peabody 
points out that even though the Fed is "cutting rates," not 
all interest rates headed lower. Yields are rising for debt 
maturities that are longer than two years. This state of 
affairs affects different types of borrowers differently, 
and the news is not all good.

*** For example, people wishing to take out a new 30-year 
mortgage on their home will find that rates are higher now 
- not lower - than when Alan Greenspan begun cutting rates 
in January.

*** Furthermore, even when applying for mortgages that are 
tied to one-year rates (which are lower than they were 5 
months ago), consumers usually must qualify for these kinds 
of mortgages based on what their monthly payments would be 
on a 30-year fixed rate mortgage.

*** Therefore, Peabody concludes, "For every notch that 
rates rise, some tier of consumer won't qualify for access 
to credit, some tier of consumer will buckle under the 
weight of their rising debt service burdens, and the 
affordability of housing (as well as the ability to 
leverage against the value of this asset) will deteriorate. 
The bottom line is that the consumer's ability to sustain 
this economic expansion is in the process being cut out 
from underneath him."

*** The hapless euro fell against the dollar again 
yesterday. So unrelenting is the euro's decline that it is 
becoming monotonous. Financial commentators are running out 
of reasons to explain its weakness. By the end of the New 
York trading session the euro had reached a new low for the 
year of 84.5 cents.

*** BCA Research believes that the euro's weakness stems 
directly from the fact that the investment capital flowing 
out of the euro-zone is much greater than that flowing in. 
I get it, people are buying the dollar and selling the 
euro. I guess that explains it.. 

*** We mentioned a couple days ago in the DR that, thanks 
to our unofficial recession, travel bargains abound. The 
reason for the deals is that folks aren't traveling. To 
judge from recent stats compiled by Dennis Gartman's 
eponymous, Gartman Letter, most families' will spend their 
summer vacation in their own backyard, running through the 
sprinklers and grilling hot dogs.

*** Gartman states that this spring 17 of the top 25 travel 
markets in the US report "marked declines" in hotel 
occupancy rates compared to last year. In New York, 
occupancy fell to 73.3%, from 84.2% one year ago. San 
Francisco Bay at even worse, last year's 85.2% occupancy 
rates fell sharply to 70.8% this year.

*** Not even the "Happiest Place on Earth" could buck the 
trend. DisneyWorld occupancy rate fell to 77.8% from 84.5% 
last year.

*** Greg Weldon, editor of Weldon's Money Monitor, who 
brought the Gartman data to our attention, also provided a 
firsthand report from DisneyWorld. "I can say in no 
uncertain terms, that while I was there last week, hotels 
in Orlando were very aggressively advertising discounted 
rates for the Memorial Day weekend space-with neon signs, 
billboard ads and repeated radio ads." 

*** Tellingly, Dennis Gartman notes one bright spot: 
"budget" hotel occupancy rates rose 1.3 percent compared to 
a 3.5% decline in "luxury" hotel occupancy. Consumer, where 
art thou?

*** How about this for a darned cheap stock? Tenneco 
Automotive - maker of name-brand auto parts - has $3.5 
billion in revenues.but 73 million in losses...for the 12 
months ending March 31st. At the current share price, you 
could buy the whole company for $110 million. The problem 
is that the company owes $1.6 billion and is in danger of 
going bankrupt. It is a "turnaround situation." says the 
CEO. Of course, if he succeeds, buyers at today's prices 
will do quite well. If he fails, well, forget I mentioned 

Eric Fry

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Dear reader,

I return to painting - if only to introduce my method. 
You've heard of 'taking a broad brush' to a subject? Well, 
today, I have gotten out a spray rig - with a wide nozzle. 
Using this heavy equipment I intend to put a thin gloss 
over 2000 years of western history in less time that it 
would take a Republic congressman to sound out the word so-

The question on the floor - still lying on the carpet like 
a smear of cheese dip after last night's party - is this: 
why has the idea of laissez-faire economics taken hold in 
Anglo-saxon countries, but not in the country of its birth?

Yesterday, I reported that French workers were entitled to 
4 weeks vacation. I was wrong. 

In 1981, in the name of 'solidarite,' the Mitterand 
government decreed that, henceforth, every French worker 
would have the right to 5 weeks of paid vacation.

There is no word in English that conveys the sense of the 
French word 'solidarite." Socialists and agit-prop 
demonstrators occasionally try to use an anglicized version 
of it - solidarity - but the word has neither meaning nor 
emotional power in English.

"Solidarite means nothing in French either," explained a 
very bourgeois dinner companion a few months ago. "But it 
is like the word 'racism' in English. It is used to shut 
people up. No politician in France wants to risk being 
'contre' solidarite."

What a wonderful world we live in, dear reader. So full of 
intricate, subtle meaning. So marvelously complex...and so 

There is no better place for an American to enjoy this 
fascinating world than in France. You don't have to listen 
to people charging one another with being 'racist' - a pre-
occupation of American politics. Instead, you listen to 
arguments about 'solidarite' - and you are amused.

The French still imagine that they are one people, with one 
language, inhabiting one distinct place. They may have 
competing ideas...but their interests are in harmony. 
What's good for the truck drivers is good for all 
Frenchmen. When the drivers went on strike, blocking major 
highways and causing a 100-mile traffic jam, people were 
overwhelmingly sympathetic. They felt the need to stay in 
'solidarite' with the drivers.

America is different. It is a collection of different 
peoples. We recognize that different groups not only have 
different ideas, but different interests that compete with 
one another. Many people might be sympathetic to truckers, 
but few would feel they had a right to snarl up the entire 
nation's highway system. If they have a beef it is with 
their employers, not with the rest of us. Let them sort it 
out themselves. Laissez faire.

"Why has the 'laissez faire' concept been lost in France," 
Mark Skousen asked his audience. "Perhaps it is a question 
of faith," he wondered aloud. "Adam Smith's idea was that 
things would work themselves out for the public good, 
guided by 'an invisible hand.' Smith was a moral 
philosopher. He saw the 'invisible hand' as the hand of 

America has more churchgoers than any other developed 
nation. It always has had higher levels of religious 
participation. Looking around the U.S., region by region, 
the higher the level of church attendance - the more likely 
the voters are to favor the 'invisible hand' of the free 
market over the iron fist of government. It is rural areas, 
and especially, the evangelical, super-church regions of 
the south and southwest that vote for the free-market. With 
little faith in the 'invisible hand,' the Chardonnay 
drinkers of Manhattan and latte swillers north the 
Housatonic look for the hands of Hillary and Jeffords to 
set their vacation policies.

Before Ceasar, the Roman Republic was a bit like the 
American Republic before Roosevelt. People took their 
vacations according to tradition, consensus, the give-and-
take of the market, family obligations and so forth. But 
when the Republic gave way to an empire, the operating 
principle changed too. Emperors began to determine the 
character of life by decree. Power shifted from the clans 
and families of Republican Rome to the tyrants of Imperial 

Neither the Frankish kings, Richelieu nor Napoleon could 
resist the lure of Roman power. Once a Roman territory, 
France became a kingdom, a republic, an empire (Napoleon 
actually crowned himself Emperor in a moment of 
unparalleled absurdity), and then a republic again. 
Whatever, it called itself, France has always continued in 
the tradition of Imperial Rome. Paris is the center of 
power, as was ancient Rome, from which laws and roads 
radiate outward. 

All over France, mothers rock their infants to sleep hoping 
that their children will do well in school and make it into 
the few 'grand ecoles' in Paris and thence into a 
government ministry. Perhaps they will help set interest 
rates...or rig bids for Air France contracts...or determine 
vacation policies. However much they might retard progress, 
they will earn a good living and enjoy the feeling of 
superiority that you get from being 'inside the beltway' - 
at the center of power.

In America, things are not so different. But at least we 
all know the regulators are morons. And women do not wish a 
bureaucratic job upon their infants. Instead, they imagine 
them as respectable professionals - lawyers, doctors, or 
university professors - or, if they can't make it into the 
professions, as successful businessmen.

Yet, in America, the idea of an 'invisible hand' is widely 
known and widely accepted. This is not because more people 
have read Adam Smith; it is because the intellectual 
traditions of the U.S. are different. 

While Nero and Caligula were proclaiming holidays, 
persecuting enemies, murdering relatives and destroying the 
economy...providing bread and circuses to the Roman 
mobs...and otherwise acting like modern American democrats, 
the Saxon tribes on the north cost of Germany were already 
developing a system of evolved rules which would become 
know as "common law." 

Rather than relying upon a written legal code (such as the 
Roman law...which was the basis for the Napoleonic Code), 
common law was an attempt by judges and juries to find the 
essential principles that allowed people to go about their 
business without doing too much harm to one another. Once a 
principle was discovered, subsequent judges would continue 
to refine it and apply it until it was replaced by a better 
one. No decrees or centers of 
bureaucrats were necessary.

This common law tradition - in which people decide for 
themselves when to work and when to take a holiday, or how 
much to charge for a pound of potatoes, or how high short 
term interest rates should be - was exported to America, as 
well as to the other Anglo-Saxon colonies. 

'Tis a pity it exists in today's America more in theory 
than in fact.

Your editor,

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