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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Arithmetic of Democracy

In Today's Daily Reckoning:
*** Techs and Internets surge
*** This time IS different...investors are more na‹ve
*** The Madonna-like Fed - giving investors what they 

*** Stocks fell yesterday...led by the Nasdaq 100, which 
was down 155 points. Even before yesterday, the index was 
down 20% for the year.

*** Internets and techs were hit pretty hard. The magic 
is gone. It is only a matter of time until the spell is 
broken completely and they are priced like other 
companies. How much will Amazon be worth at 12 times 
earnings? A rhetorical question, of course, the great big 
river has no earnings. 

*** The Wall Street Journal seems to have picked up on 
the `debt' theme. "The numbers are startling," says the 
WSJ article. Businesses and consumers together are 
carrying more in debt than the total GDP of the country. 
Debt has risen more than 60% in the last 5 years.

*** The Dow did not escape the damage - it fell 75 
points. There were 1486 advancing stocks and 1446 
declining ones. 64 stocks hit new highs; 20 hit new lows.

*** But one sector did pretty well - the bio-techs. The 
cover of TIME magazine heralds "Cracking the Code" - 
which probably got the amateurs excited. Normally, the 
appearance of major story such as this would be clear 
sell signal. By the time this kind of news reaches the 
masses who read TIME it is plainly too late to take 
advantage of it as a new investment opportunity.

*** This time IS different. There are so many new players 
in the many inexperienced investors....the 
old rules don't apply quite the way they did. It takes 
more time, and more than TIME, to deter these pilgrims 
from their route to riches. 

*** While the lumpeninvestoriat was loading up on bio-
techs the pros were loading up on bonds. Bonds went up 
yesterday. Clearly bond buyers are the one, and perhaps 
only, group in the country who do not think things only 
get better. If employment were continue to tighten...and 
oil and housing continue to rise...surely there will 
another rate hike next month...and surely the whiff of 
inflation from an overheating economy would drive the 
price of fixed-interest obligations down. Bond investors 
seem to think that a slowdown, maybe even a recession, 
will lower interest ratest, not increase them.

*** Oh that heartbreaker metal - gold fell $6.20 
yesterday. And, whew, platinum - which is supposed to be 
heading to $800 this year - fell $24.10.

*** "History shows you can't have a stock bubble without 
a credit bubble;" says Bill King "and you can't have 
either without a Madonna-like Fed." The Fed is on record 
as being willing "to accommodate whatever amount of money 
and credit the economy may require." 

*** Even more disturbing details: the average US 
household's credit card balance, $7,500 as reported here 
yesterday, has grown 250% since '90. Household debt is 
101% of income. Bill King: "Pollyanna analysts say 
consumers are in good shape because their stock 
portfolios have soared... these analysts are ignorant of 
one of the most important (and immutable) laws of finance 
- asset prices are transitory, debt is constant. The next 
recession will be ungodly, and US policy makers are 
likely to face the same deflationary, debt contraction 
spiral that Japan had to face when its bubble economy 

*** "Last week," according to the Sovereign Society, "the 
29 member, rich nations Organization for Economic 
Cooperation & Development declared a "blacklist" of 35 
tax haven nations OECD has targeted for reform or ruin." 
Reform, in this case, apparently means cooperating with 
the US and other major nations to make sure none of their 
taxpayers escape. The blacklisted nations are threatened 
with economic sanctions if they fail to go along. 

*** Did Janet Reno really describe `cultists' as I quoted 
her the other day? Maybe not. Many people think that 
quote is just one of the many Internet-borne hoaxes that 
make their way through our collective intellectual 
digestive system.

*** Yesterday, by the way, was P.T. Barnum's 
birthday...and the date on which the bikini made its 
debut here in Paris, in 1946.

* * * * * * * * * Advertisement * * * * * * * * * * * * *

5 Myths of the New Paradigm

1929 Again? Low inflation lulls investors into a false 
security. But there's a lurking danger. In 1929, one of 
the worst asset bubbles in history, consumer price 
inflation was near zero. That encouraged loose monetary 
policies and fed the bubble. Truckloads of easy credit 
money are being dumped into the stock market today. And 
most investors are clue-less concerning the dangers. 
Could another Depression be coming? Read the 5 Myths of 
the New Paradigm... free.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


How did the U.S. government get so big? How could a such 
a dynamic people, whose country was formed in the shade 
of the Liberty tree and dedicated to the concept of 
freedom, allow themselves to become nearly as tax -and 
bureaucrat-ridden as France?

I asked myself this question as I stood on the quai, 
waiting for the train to Paris.

When the train pulled into little Lathus this morning at 
6:21, I was the only passenger to mount. The conductor 
was an attractive, almost coyishly seductive, woman of 
about 30...dressed in a SNCF uniform - with grey wool 
pants and a blue jacket with brass buttons. 

She opened the door for me and welcomed me aboard. "Nice 
service," I thought to myself.

Then, I saw that I was the only passenger on the train. 
Not a single person had come aboard since the train its 
departure from Limoges an hour before.

But upon arriving at Montmorillon there was a flurry of 
activity. The conductor got down from the train and 
greeted others on the dock. There were about 7 of them. 
They all shook hands. Then, one put on his conductor's 
hat, picked up a bicycle that was leaning against the 
office and rode it about 50 meters up the tracks, where 
he seemed to change a sign before returning.

Even including the passengers who got on board at 
Montmorillon, the ratio of railroad personnel to 
passengers was still about 2 to 1.

The French railway system is a government enterprise. It 
employs thousands of people - many of whom it probably 
doesn't need. A round-trip ticket from my house to Paris 
costs about $100. French taxpayers, of whom I have 
reluctantly become one, pitch in another $100 or so - to 
cover the real cost of the trip.

"Whatever your weakness," says Richard Russell, "the 
market will find it and exploit it." Greed, sloth, fear, 
hubris - the market takes advantage of them. But the 
market is a moralist. It not only exploits character 
weaknesses and moral failures - it corrects them. "Greed 
is a self-correcting sin" as James Grant put it. 
Investors who expect to double their money in a bio-tech 
stock, are soon joined by many others. The price of the 
stock rises far beyond what it is worth. Finally, it 
crashes...and the sin is punished.

That is what is so nice about markets. They improve us, 
irrepressibly taking money from weak hands and moving it 
to strong ones...punishing sin... rewarding 
virtue...taxing stupidity and bad luck. Unprofitable 
railroads, for example, go bankrupt... they are sold off, 
cut up, and paved over.

Markets make it easy for fools and their money to part 
company ...continually refreshing the capital pools with 
new investors and new money....while the old scum is 
skimmed off and piled on the banks to dry up and 

Politics resembles markets. Politicians exploit low 
motives and character weaknesses just as stockbrokers do. 
They promise something for nothing. They count on the 
herd instinct and the fear of missing out or being left 
behind. They use the same empty blather...and hollow 
slogans....and they rely on the wishful thinking and 
credulity of voters just as stockbrokers rely on 
investors' gullibility and their amazing ability to sound 
as cynical and world-weary as Methusela, while investing 
as though they were born yesterday. 

But politics is fundamentally different from markets in 
that it reinforces sin, rather than punishes it. The old 
scum just gets the ring around a bathtub 
that is never scrubbed. 

Employees of the french railway system want to see more 
money wasted, not less. They want more employees. More 
unprofitable routes. More brass buttons and more 

And each superfluous employee increases the pressure to 
add still more redundant workers and more brass buttons. 
Each of these employees will vote for the politician who 
promises to add to the burden on french taxpayers, rather 
than reduce it.

Jim Davidson outlines the arithmetic of modern democracy 
in a recent issue of Strategic Investment:

"[A] tiny fraction of Americans pays more tax than a 
majority which can elect the government," he points out. 
"The very structure of democratic government as known in 
the early day of the 21st century makes pillage an almost 
inevitable feature of tax policy."

Inevitably, the impulse to larceny will drive voters to 
want to increase taxes on the rich so that the money can 
be redistributed to themselves. It would be irrational 
for them to do anything different. 

That's as far as I've gotten on this today...the train 
pulled into the Gare Montparnasse...more tomorrow.


Bill Bonner

About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

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serious warnings and the state of the market with gentle humor"

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Last modified: April 02, 2001

Published By Tulips and Bears LLC