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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 8 JUNE 2001 


Today:  God, Man, and Alan Greenspan

*** Nasdaq and Dow up...for no particular reason...

*** Tough times on Wall Street...

*** Popping the 'lifestyle bubble'...darned cheap stocks in 
the Middle East...and watching paint dry in London...

Market Watch 

*** "Hope" was the big story yesterday, hope that Intel 
would offer up some encouraging comments in its late 
afternoon conference call.

*** Hopeful investors bought stocks in sufficient 
quantities to carry the Dow Jones industrial average to a 
20-point gain and to spur the NASDAQ to a 46-point advance.
After the close of regular trading, Intel announced that 
its business is awful, but not disastrous. Investors 
responded jubilantly to the not-miserable news. Shares of 
Intel, which rose $1.32 to $31.14 ahead of the midquarter 
conference call, rose another dollar or so, in after-hours 

*** As Hank Herrmann, chief financial officer at Waddell & 
Reed Financial Services, tells, "The market 
is putting its hands over its eyes and saying 'It looks 
good to me.'"

*** Bill Fleckenstein offers a similarly skeptical reaction 
to the notion that the tech sector is recovering, "Today, 
retail companies with PC exposure gave a first-hand view of 
souring conditions. Circuit City (CC) released its same-
store sales, which were down 25% year-over-year, led by 
poor PC sales. And Ingram Micro (IM) announced layoffs. It 
is no secret that demand stinks and PC inventories are up. 
There is not one single shred of evidence that anything is 
getting better for Intel."

*** Nor for anyone else. Yesterday's employment data, for 
example, showed initial jobless claims rose yet again to 
432,000 for the week ended June 2nd - the worst number since 
Sept. '92. Continuing claims for unemployment benefits 
spiked more than 7% in a single week.

*** A few of the newly unemployed came from Wall Street's 
ranks. So far this year, Wall Street firms have announced 
plans to eliminate more than 10,000 jobs.

*** Given J.P. Morgan's dire earnings forecast two days 
ago, it is certainly not the only Wall Street firm that 
might be going on a "Slimfast" diet. 

*** Says Goldman Sachs chief executive, Henry Paulson, "We 
are clearly in a down cycle, and I think you'll get worse 
before it gets better." Already, Goldman Sachs has 
announced plans to reduce its work force by 12%.

*** The slowdown affects numerous dependent industries of 
all sizes. At Patroon's restaurant, a popular midtown 
Manhattan venue for "deal-closing" dinners, owner Ken 
Aretsky misses the bubble. "The days when $1,000 
bottles of wine flowed like water are gone," he tells 
Bloomberg News. 

*** Still, the average fund manager made $436,000 last 
year, up from $322,500 in '99. The average fund investor, 
by contrast, lost 17%.

*** The days of Manhattan office rents soaring ever higher 
are also gone. Yesterday, a commercial real estate broker 
e-mailed a brochure to me advertising office space from a 
"motivated sublessor" at nearby 14 Wall Street. (This 
building is directly across Broad Street from the Grant's 
Investor offices at 30 Wall). It turns out that the 
motivated sublessor is none other than the struggling 
financial website,

*** The revenue-starved enterprise is offering the entire 
14th floor - 34,719 square feet - on a five-year sublet for 
about $30 per foot. All told that would be more than $1 
million per year - money that the would rather 
not have to pay. Were somebody's eyes bigger than their e-

*** US hotel room revenues are experiencing their largest 
decline in a decade. Likewise, airline revenues are 
experiencing extreme turbulence. 

*** May was a particularly cruel month for the commercial 
carriers, to judge from Continental's harrowing 10% revenue 
decline last month. According to the Air Transport 
Association, domestic airline revenues have been in a 
tailspin since January. 

*** Move over N.I.M.B.Y.s! Make way for Russian 
"I.M.B.Y.s." NIMBY a popular acronym for "not-in-my-back-
yard," refers to folks who prefer not to live near 
industrial facilities like nuclear power plants and the 
like. But Russia's parliament, the Duma, has adopted a more 
pragmatic and, yes, capitalistic philosophy. (See, they're 
learning!) The Duma approved a bitterly contested plan in 
which Russia may earn about $20 billion over ten years by 
importing and processing spent nuclear fuel.

*** While Lady Liberty tells the world, "Give me your 
tired, your poor, your huddled masses," Mother Russia says, 
"Bring me your highly toxic, your glowing, your radioactive 
waste masses." 

Eric Fry

* * * * * * * * * * * * * * * * * * * * * * **

And more notes...from Bill back in Paris

*** "Almost every statistic that involves consumer health 
is horrible and getting worse," write Chad Hudson of the Consumers continue to spend money they 
don't have, while their incomes go down and their costs of 
living go up. 

*** Brian Nottage, with, argues that the 
consumer is facing a second major crisis. After the blow-up 
of the bubble comes the explosion of the "lifestyle 
bubble" in which consumers have been living for the last 
few years. 

*** But when the lifestyle bubble pops, corporate earnings 
and stock prices must fall. Consumers must reduce down debt...and build savings. While there 
is no sure way of knowing when this will happen...or even 
if it will leaves stock market investors in a 
dangerously exposed position. "High risk, no 
thanks," concludes Peter Bernstein.

*** What's the alternative? How about Morocco, Egypt, 
Jordan and other Middle Eastern markets? "There is a very 
low correlation between the Middle East and the rest of the 
world," says a broker quoted in Forbes. How about CIB, an 
international bank in Egypt? "It's like being able to buy 
J.P. Morgan Chase with an 11% dividend yield and a P/E of 5 
times 20001 earnings." Or, Eastern Tobacco, another 
Egyptian company, it can be yours for only 4 times 

*** Meanwhile, in the Western Hemisphere..."Haiti is an 
embarassment." wrote my friend Doug Casey on a recent trip 
there. "Although, the quality of the cuisine is at least as 
good as that in France, dining out at the few restaurants 
that are still open is about all that passes for 
entertainment these days; the lack of tourists and 
abundance of crime combine to severely limit possibilities. 
So does the fact electricity is predictably out at least 
several hours every day; every home and business must have 
its own generator. And crime really is a problem." (see: 
Zombies Workers and The Fight For Survival) 

*** Tony Blair, of course, won yesterday's vote in Britain. 
"I just forgot to vote," said a friend in London, "the 
whole thing just didn't seem to make any difference." And 
this from my friend, Martin Spring: "Britain's election 
campaign is so boring that watching paint dry is more 
exciting. That's not a throwaway line - investigators 
actually compared the pulse rate and blood pressure of a 
test group watching vinyl emulsion drying on a wall and 
vote-chasing politicians, and got higher readings for the 

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"Tell me why do fools fall in love..."
fragment of popular song from the late '50s

Why must stocks fall in price?

I pose the question again today, dear reader, because I 
know it interests you, as it does me. If stocks do not have 
to fall in price, we could buy the big names of the S&P - 
even at 28 times earnings. Maybe they would rise 
higher...and stay higher...forever.

Stock prices rise from time to time - as if on an 
irregular, unpredictable ocean tide. Waves of bullishness 
rise up...between troughs of despair...and crash into the 
rocky shoreline. No matter how high the waves, nor how low 
the tide might ebb, sooner or later, as Jeremy Grantham 
reminds us - stock prices regress to sea level.
The memory of man runneth not to the contrary. 

Theory confirms experience, in this case as in others. 
After all, Why should investors be willing to pay more for 
a dollar of earnings this year than they were 5 years ago? 
Why would they settle for a return of 5% on one investment 
when they could get 10% on another?

Stocks are nothing more than partial ownership of 
businesses. People rarely buy businesses for fun. They buy 
them for the income they will produce and let the price of 
shares rise and fall along with business earnings. 

Over time, share prices tend to rise...but only in line 
with increased and accumulated earnings. If there were no 
competition and no alternatives, businesses might increase 
profit margins year after year. But that would be a 
different world than the one we live in. Without 
alternatives, there would be no stock market and no 
decisions for an investor to make.

As it is, competition holds profits down and directs 
investors' money so as force all investment profits down to 
the same sea level of returns, adjusted for risk and other 

Over time, an article in this month's Fortune tells us, 
companies' earnings grow alongside GDP, inflation, and 
stock prices. Investors should expect only about 6% per dividends of, currently, only 1.2%.

But during a 17-year bull market, stock market returns rose 
far above the mean. A drop back to sea level requires 
either a long period of low or zero long as 10 
to 15 years. Or, stocks could fall sharply - with the S&P 
down about 60% estimates Fortune, reducing P/Es from 28 to 
about 10 - and then resume its normal rate of return.

But, look carefully. For there, standing on the beach, an 
aged, care-worn little man holds out a staff. It is King 
Alan Greenspan Canute, bidding the waters to hold fast. 
'Stay where you are,' he commands. "Resist the tug of the 
business cycle, ignore the tilt of the credit cycle, and 
ignore the lunatic phases of investor sentiment...that 
inconstant moon of irrational exuberance and unreasonable 

"It takes faith to believe in the invisible hand," said 
Mark Skousen at last week's lecture in Paris. "You can't 
see it. And yet, we know it works."

Everyone has faith in something, dear reader. Some have 
faith in Adam Smith's 'invisible hand" of God. Others have 
faith in Mr. Greenspan's wrinkled mitts. 

Some people believe they can think their way to the truth. 
Others wait for it to be revealed to them. But one way or 
another, we arrive at a truth we find convenient and hold 
to it...until the real thing finally falls upon us.

Your correspondent...
Waiting for the truth to fall upon him

Bill Bonner

P.S. "Did you miss us?" asked Maria, upon our return from 

"Well, it just wasn't the same without you," came her 
mother's careful reply.

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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 08, 2001

Published By Tulips and Bears LLC