Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 11 JUNE 2001
Fall In Love
*** Technology closes down NYSE...traders take a break...
*** Semi sales down 75%...Juniper falls 18%...
*** Investment bankers are 'crying poor'...unemployment
worsens...money supply soars...but where's inflation...?
*** 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
*** 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 grantsinvestor.com 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.
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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WHY FOOLS FALL IN LOVE
"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."
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
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
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 man...so 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
"Don't go out there," I had to warn my mother. "It's not a
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....
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The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.