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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Agnes World

In Today's Daily Reckoning:
*** Summer Rally Rallies... 'buy' signals from bears
*** Too dangerous to short...too crazy to go long
*** Bond traders are golden.

*** The summer rally finally got off the sand and found a 
little traction yesterday. The Dow rose 64 points. 

*** Perhaps more impressive, there were 1739 stocks 
advancing, with only 1151 declining - reinforcing a trend 
that has been going for a couple of weeks. There were 100 new 
highs on the NYSE and only 32 new lows.

*** These numbers were enough to push the Dow above its 200 -
day moving average and to trigger a "buy" signal from Lowry's 
Buying Pressure gauge and Richard Russell's PTI index - both 
of which have been bearish for a long time.

*** So at least we have a little drama to break up the 
monotony of summer trading. Will the Dow continue to rise to 
a new all-time high? Or is this just the 'summer rally' to be 
followed by an autumnal decline, when stocks turn brown and 
fall to the ground?

*** More immediately, should you rush into the market to take 
advantage of the bear's vacation? Or get out of town before 
he comes back?

*** Stocks, alas, remain preposterously overvalued. One of 
the causes cited for yesterday's rally was the latest 
earnings announcement from Yahoo. The company doubled sales, 
and earnings beat expectations by 2 cents a share. But 
critical analysts (I didn't know these people still existed) 
noted that nearly 2/3rds of Yahoo's advertisers were dot.coms 
- whose ability to continue spending money is suspect. And 
the company is selling at 67 times SALES! 

*** Investors may be able to add and subtract, but I'm 
convinced that they cannot multiply. In order to get down to 
a generous P/Sales ratio of 2, sales would have to go up 
about 33 times. That's over $30 billion in annual sales. And 
even then, it would have to have a profit margin of more than 
10%. By selling advertising on a website? 

*** "It is too dangerous and crazy to short," said the once-
great George Soros in May. "You could have shorted the market 
in March of '29 and lost everything. If you cannot go long 
and cannot go short, the only other place to go is away." 

*** Barton Biggs, he of the make-believe plumber: "What 
worries me is the longer the craziness goes on, the greater 
the odds are that the bear market, when it eventually comes, 
will be secular rather than cyclical." 'Secular' is a 
technical term from economics, meaning 'real bad.'

*** And according to Ludwig von Mises, "there is no means of 
avoiding the final collapse of a boom brought about by credit 
expansion. The alternative is only whether the crisis should 
come sooner as the result of a voluntary abandonment of 
further credit expansions, or later as a final and total 
catastrophe of the currency system involved."

*** The WSJ reported the results of its investment contest. 
In the period Jan 11 to June 30, the 'experts' produced a 
loss of 20%. A group of WSJ readers lost 37%. But the dart 
throwers did better - they lost only 7.7%. Implication - 
hardly anyone is making money in this market.

*** Bonds were mixed yesterday. Gold fell $1.90. Platinum, 
though, continued to rise, by $2.80 (October contracts). Oil 
went up 62 cents to close above $30 again. 

*** Even Amazon rose yesterday - up almost $2.

*** "Bond investors," replied Gary North, avoiding the 
President's "f" word, "lost [money], 1940 to 1980. When gold 
hit $850, the FED locked in on its tight money mode, and 
bonds again became profitable investments, or did a year 
later. Gold fell. It continues to fall. Bonds continue to be 
good investments."

*** "The bond traders," he says, "are today's surrogates for 
the gold standard. When their views are honored by 
politicians, gold falls. Bonds pay interest; gold doesn't. 
The case for gold is this: when interest rate push comes to 
depressionary shove, bond traders will be sacrificed. 
Politicians will inflate. That's when investors need gold."

*** Uh oh. Old timers Harry Schultz and Richard Russell have 
come to the conclusion that the newsletter industry is dying. 
I don't know about dying but it surely is changing.

*** One of the big problems in the industry is finding and 
keeping good people. The Labor Department may tell us that 
the market for workers is softening. But you'd never know it 
by talking to people in our business. Everyone is looking for 

*** The same problem seems to plague law firms. From Doug 
Noland of Credit Bubble Bulletin: "Recently, the Financial 
Times ran a story, 'Law Wars in San Francisco Dotcom Start-
Ups - Law Firms Have Been Forced to Double Salaries to Stop 
Attorneys Quitting.' The article began by highlighting the 
fortunes of a recent law school graduate who saw his starting 
salary increase by $30,000 to $125,000 even before 
graduation. His 'unsolicited raise is part of what is now 
commonly known in the US legal profession as the 'Gunderson 
effect.'' This is a particularly interesting example, 
unmistakably demonstrating how wages (among other things) are 
an inflationary tinderbox waiting for a spark."

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In the second race at Ascot I bet on a horse named Agnes 

I liked the name. One of my favorite cousins was named Agnes. 
So, I chose intuition over calculated reason. The horse 
started well, but was soon absorbed into the pack from which 
she never emerged. The winner, if I recall correctly, was the 
number 7 horse, named Nuclear Debate. Since I had no cousin 
named 'Nuclear' I lost.

The loss, therefore, was not my fault. It was the fault of my 
kin. As silly as that seems, it is not much sillier than the 
claim made by Agnes World's breeder against a Wall Street 
brokerage firm.

Today's letter (to give you a sneek preview in case you would 
rather mow the lawn or watch the Sopranos) is about what 
comes after the bubble collapses and people suddenly wake up 
to the fact that they have lost money, have little hope of 
ever recovering it, and that someone other than themselves 
must be to blame for it.

Readers of a more philosophical mind will find something too 
- more evidence that the term 'rational humanism' is 
oxymoronic. Humans may use reason when it suits them, but 
they are far from rational.

The breeder listed on the Ascot racing program for the horse 
known as Agnes World is Calumet Farm of Kentucky. I'm afraid 
I have lost the details in my travels, but if I recall 
correctly, the owner of Calumet Farm is a very rich man from 
London who owned a large portfolio of stocks as well as a 
large stable of race horses. Nor is this man a stranger to 
the business and investment world. Not only does he have a 
lot of money, he also has a lot of experience. He is no 
widow, though he may once - many years ago - have been an 

I should point out that his large portfolio of stocks is 
considerably less large today than it used to be. To make a 
long story, which I don't have in front of me anyway, short - 
he lost money, sued the brokerage and recovered a multi-
million dollar judgement. The brokerage had apparently 
forgotten to tell him that stocks went down as well as up.

This, I believe, is a trend in the making. One of the 
unlovable weaknesses of the human character is the 
unwillingness to take responsibility for our own mistakes. 
The stars are blamed...the godsparents, spouses, brokers , 
the devil - anyone but ourselves. Hillary Clinton famously 
blamed "a vast, right-wing conspiracy" for her husband's 
failings. Stalin blamed "reactionary bourgeois elements" for 
the failure of his lunatic programs. 

If a tribe of savages sacrificed a virgin to bring rain - and 
the drought continued - they would be more likely to question 
the girl's virtue than their own cockamamie beliefs. 

Poor people are convinced that their poverty is the fault of 
the system, or the rich, or the government. Provided the 
camouflage of democratic politics, they feel quite entitled 
to steal whatever money they can reach. Of course, the rich 
do the same thing - but they rationalize it differently. They 
receive huge subsidies for growing sugar, for example, and 
are convinced that it is in the national interest for America 
to be a sugar producer.

"More money is stolen with a pen than a gun," says Ray De 
Voe. He refers to the kind of theft that has become so 
popular of late - cooking the books by CFOs, selling IPOs to 
the public as though they were investments, and hyping stocks 
on the Internet. (

"The [NY Stock] Exchange announced" wrote Floyd Norris in the 
NY Times on June 30, "that Thomas Hanley, 56, formerly the 
lead banking analyst for UBS Securities, had been censured 
and fined $75,000." Mr. Hanley had circulated a rumor about 
Banker's Trust Corp. which had the salutary effect of causing 
the stock price to rise $13 a share. 

We presume Mr. Hanley was long. 

Earlier in the month, the Justice Department announced a 
round-up of Sopranos: "In the largest one-day securities 
fraud indictment ever," wrote the WSJ majestically, "the 
Justice Department alleged that members of the country's five 
largest organized-crime families conspired to manipulate 
publicly traded securities in 19 companies, bilking investors 
out of $50 million over five years."

So, some of those attempting to blame others for their losses 
have a valid claim. But the line between just cause and legal 
opportunism is likely to be persuaded substantially in the 
direction of the tort lawyers. Goldman, Merrill, Alex Brown 
and other underwriters have famously deep pockets and are 
sure to become targets. 

Christopher Byron reported on one Goldman offer: 

"When Goldman, Sachs & Co. raised $100 million in an IPO for 
the bizarre iVillage Inc., 15 months ago, $8.4 million went 
to Goldman and the other underwriters before iVillage ever 
saw a dime. As for anyone who bought shares at the first 
trade in the after-market (for $95.88 each) and hung on to 
them since...why, those luckless souls have seen 94% of their 
money disappear. But you'd better believe the underwriters 
still have their $8.4 million."

Tort lawyers will argue that Goldman's imprimatur on the deal 
implied that it was at least suitable for sober, if not 
sensible, investors. In that regard, they have a point.

Your completely blameless correspondent,

Bill Bonner

P.S. After losses on the first few races at Ascot, we 
abandoned my 'random walk' approach to betting in favor of 
Elizabeth's insider trading. Elizabeth had met a man who 
lived next door to a bookie. He suggested 'Giant's Causeway,' 
which paid off 80 pounds on a twenty pound bet.
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...

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Last modified: April 02, 2001

Published By Tulips and Bears LLC