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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 11 JUNE 2001 


Today:  Why Fools Fall In Love

*** Technology closes down NYSE...traders take a break...

*** Semi sales down 75%...Juniper falls 18%...

*** Investment bankers are 'crying poor'...unemployment supply soars...but where's inflation...?

Market Watch

*** For 85 minutes Friday morning, a technological glitch 
on the New York Stock Exchange prevented investors from 
buying their favorite technology stocks. The exchange shut 
down for a little over an hour, forcing traders do 
something useful. Hundreds swarmed out onto Broad Street to 
smoke a cigarette or two while taking in the beautiful June 

*** Once the "systems" were restored, the traders returned. 
But investors never did.

*** By day's end, the Dow had fallen 113 points, dipping 
back below the 11,000 mark. The Nasdaq fell 2%, to 2215. 
Energy stocks were up. Exxon Mobil and Texaco both gained 
on the day.

*** The Big Board's shutdown occurred just days after the 
NYSE reported that its first-quarter profits fell nearly 5 
percent because it spent money to upgrade its trading-
related systems. So much for technology-driven productivity 

*** Even though Nasdaq stocks have fallen far from their 
record levels, tech stocks retain very rich price-to 
earnings ratios. "[They] continue to price in hyper growth 
in the future," Bridgewater Associates observes. "The 
Nasdaq has a P/E of 150, and the Nasdaq 100 has a P/E of 
75. The bullish argument is that higher earnings are just 
around the corner. Perhaps, but there is no indication of a 
rebound, yet."

*** In fact, semi-conductor chip sales are down 74% in the 
last 6 mo. Equipment orders are down 50%. And Juniper 
announced last week that its business stinks. Traders took 
the stock down 18%. Cisco fell 6%. 

*** The price of gold shot up $7.20 yesterday and gold 
stocks rose an average of 8%. "The XAU gold index 
outperformed the Nasdaq over last 2yrs," writes Harry 
Schultz. "both are down; but, Au stks lost less $ than hi-
tech stks! Nobody believed a gold bull mkt was beginning 
when we signaled it in 1969, 'at the beginning.' Gold will 
climb a wall of worry/doubt, as before. It is written." 

*** "We saw our gold picks rise between 3% and 16% last 
week... and BEGIX, the gold fund index is one of the best-
performing YTD - up over 20%," says our resident gold bug 
John Myers. "What's behind these increases? The Fed. With 
rumors of even further cuts, the latest monetary policy is 
beginning to resemble the mid 1970s when the central bank 
cut rates seven times. Those cuts helped create a flood of 
money, which spurred the price of gold from $103 to $520 an 

*** "Investment bankers are earning less for every 
transaction," Bloomberg reports. "The average fee reaped by 
firms such as Goldman Sachs and Merrill Lynch fell to an 
average 0.69 cents per dollar from 1.29 cents last year. As 
J.P. Morgan Chase disclosed last week, "The current weak 
environment continues to adversely affect revenue 
opportunities for J.P. Morgan's investment banking."

*** Because the number of stock IPOs this year totals less 
than half last year's number, investment bankers are 
"crying poor." A friend of mine who builds houses in 
Westchester County for the monied Wall Street crowd tells 
me, "The market for houses over $2 million is dead."

*** A story notes, "for the fifth week 
in a row, the four-week moving average of new jobless 
claims topped 400,000. Worse yet was the news that 
continuing claims by those who've already been looking for 
work for a while [reached] 2.85 million, the highest since 
November 1993. Meanwhile, the Conference Board's help-
wanted index slipped to an 8 1/2-year low."

*** The early chapters of the unemployment story are 
downright Gothic: "In April, the net change in consumer 
installment debt (i.e. credit cards) accelerated to a rapid 
11.2% annual rate of increase," ISI observes. "This net 
figure represents the difference between extensions and 
repayments. It's likely that the reason the net figure 
accelerated is that repayments slowed."

*** In other words, consumer debt is rising, not because 
consumers are breaking out the plastic more often, but 
rather, because they are paying down debt more slowly. 
That's not a trend that will do anyone any good.

*** "Contrary to popular belief the strength and resilience 
of the U.S. consumer is not a redeeming feature of the 
current cycle. The longer it takes for the consumer to 
capitulate fully, the more prolonged the downturn will be," 
predicts Credit Lyonnais Securities Asia's Dr. Jim Walker. 
Capitulation is just beginning, he says.

*** Equity markets have displayed a remarkable willingness 
to believe that the Fed's actions will truncate this 
particular business cycle. Instead, by prolonging the late 
cycle consumer boom, its policies are likely to do just the 
opposite and elongate it," says the ever-provocative Dr. 
Walker. "At this stage in the economic cycle, the resilient 
consumer is not the hero that rides to the rescue but the 
villain that pushes up costs, undermines profitability and 
exacerbates the investment down cycle."

*** It's my birthday. I can't believe I'm actually 30. I 
feel so old!...Okay, so I'm 42.

Eric Fry

And more notes!

*** MZM (money of zero maturity, commonly known as 'cash') 
has been rising at a 21.6% rate. $1 trillion has been added 
to the money supply over the last year.

*** Yet, despite all the new credit and cash, inflation 
appears not to be a significant threat. The Conference 
Board estimates inflation at 3.7% this year and 3.8% the 
next. (By comparison, the Conference Board sees salaries 
increasing an average of 4% this year - leaving consumers 
with net gains of almost nothing.)

*** "How come inflation is not keeping up with growth in 
the money supply?" I asked Dr. Richebacher on Friday. 
"Ah..., there is no simple answer," he replied. "But, I can 
tell you what I think. I think we have arrived at a crucial 
point. There is no turning back. This recession is going to 
be the worst one since WWII."

*** "Consumer spending and consumer stocks are likely to 
hold up surprisingly well," writes Robert Miller of our 
London Fleet Street Letter, "but the downturn is likely to 
be both unavoidable and severe - as the economy will need 
time to recover from the excesses of the boom." (How A 154-
Year Old Recession Can Help You Profit This Year

*** Richard Daughty, the Mogambo Guru, adds: "Greenspan and 
his posse of bankers at the Fed can lower interest rates 
until Doomsday and it won't do any good. And for two 
reasons. 1. When you are drowning in debt, the last thing 
you need is more debt, and 2) if you have already defaulted 
on some debt, you know that any new money you get
your hands on is going to be pursued by a ravenous pack of 
lawyers and their angry clients. But the only way to keep 
the whole thing from collapsing is to keep plowing more 
money into what is essentially bankrupt already. Lose
a million of Other People's Money or lose a billion, what's 
the difference to you? Besides, what can it hurt? And there 
is the chance that it might even work out! It never has 
before, but it might this time!"

*** Why do I live in France, asks a familiar message on the 
Daily Reckoning website? The taxes are high and the country 
is run by Socialists, my interrogator continues. But money 
isn't everything, dear reader. And theory is no substitute 
for experience. More below...

*** "Dad, did you put my money in stocks," asked Henry, 10, 
inquiring about a small inheritance. "If you put it in 
stocks, make sure you get me the good ones. You can give 
Maria the bad ones."

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"Investing is one of the subjects about which humanity 
learns much but retains little-a little like love. The 
wisdom of the ages about romance is available to anybody 
with a library card. Yet, I'll wager that the incidence of 
heartbreak and unrequited devotion is just as high today as 
it was in the first week of creation." 

James Grant

The Fed can loosen up the credit mechanism...and increase 
the liquidity in the financial system. But what happens to 
the cash? Where does it go? Why is it that sometimes stock 
market prices soar...and other times, it is the CPI that 
takes off?

No one knows for sure. Just as no one knows why fools fall 
in love...or what, exactly, is meant by 'the holy trinity'.

Yesterday was "Trinity Sunday." The old Pere Marchand would 
have known better. But his young, bearded colleague 
couldn't resist. He tried to rise to the challenge, with a 
sermon intended to conquer the mystery of the 'holy 

Explaining the absence of inflation or the course of true 
love would have been easier. Still, he struggled on... 
against an elusive enemy. 

"God is love," he said. "In our patriarchal society, we 
describe this love as the love of a father for his son." 

"He's put himself in very bad position," I thought to 
myself. His rhetorical cannon were firing off in all 
directions, not even coming close to the Holy Trinity. It 
was hopeless. I guessed that he would try a suicide charge. 

"But we know that there is more than just Father and 
Son...there is the Spirit, too, the Holy Spirit that 
completes the Trinity...God, the Father, Man, the son (for 
we are all God's children)... all bound together by a Holy 

It made no sense, of course. But it did no harm either. 
Parishioners knew no more of the Holy Trinity when they 
left as when they entered. Which was probably a good thing. 
What would happen if people took these ecclesiastical 
theories too seriously? God only knows.

In some churches in America, they have already modified the 
Holy Trinity to fit the fashion of the times. 'In the name 
of the Holy Parent...' said one duly ordained, kicking off 
a wedding ceremony in North Carolina.

What is wonderful about life is that even without 
understanding the Holy Trinity, the Designated Hitter Rule, 
or the Quantity of Money Theory, people still fall in love. 

A man who has 'fallen in love,' is a wonder. The experience 
is undeniable, though there is no theory to explain it. He 
loses control of himself and often becomes an embarrassment 
to his friends or an amusement to his enemies. Then, so 
certain is he - against all available evidence - that he 
will want to be legally bound to his wife for his entire 
life that he publicly commits to have and hold her 'til 
death us do part.'

Alas, death does not come soon enough for about half of all 
married couples. Instead, they take matters into their own 
hands, providing the coup de grace to the marriage vows, or 
in extreme cases, their spouse.

Neither reason nor logic explain love and marriage. Yet it 
is the way of most of the world. People fall in love, get 
married - and if they are lucky - for no act of will nor 
thinking leads them to it - they enjoy one of life's great 

That is the problem with thinking your way to truth, dear 
reader, is that so much of life resists simple logic and 
defies theory.

Mr. Goupil worked all day on Saturday. He has been a tile 
man all his life - a true artisan and perfectionist. We 
took up the old, uneven terra cotta tile, dug out the 
floor, and poured concrete. Now, Mr. Goupil is resetting 
the old tile. 

He is a short, stout stout in fact that his 
stomach practically drags on the ground when he is on hands 
and knees. What's worse, he wears his pants low; laboring 
out in front of the house, alongside the road, Mr. Goupil 
must have mooned half of Lathus as they drove by on 
Saturday morning. 

"Don't go out there," I had to warn my mother. "It's not a 
pretty sight."

But what is most remarkable about Mr. Goupil is how he 
manages to do so little during the course of a day. 

Yes, courtesy requires that everyone passing by must stop 
and have a conversation. And, yes, merely rising to shake 
hands takes Mr. Goupil longer than it would take me to 
drive to the next town. 

And, yes, paid by the hour, it is obvious why he does so 
little...but not how. 

After an entire day, he had only completed a couple of rows 
of tile. How could anyone move so slowly and still be 
breathing? Should I check his pulse from time to time? Or 
hold a mirror under his nose?

If I were doing the job myself, I could not have prevented 
myself from doing more than that. I would have kicked more 
tiles than that in place by accident. 

"Mr. Goupil is a luxury," Elizabeth explained. "And he 
comes with the house - like property taxes. Or like Mr. 
Deshais. We could get along without them, but it wouldn't 
be the same."

"I am yours until the end of June," Mr. Goupil explained 
when he arrived two weeks ago. But at the rate he is 
working, it will take him that long to set the tile in the 
entryway...he will never make it to the main room. 

So there you have it. It makes no sense. But it wouldn't be 
the same otherwise.

Your editor, enjoying life's mysteries....

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 11, 2001

Published By Tulips and Bears LLC