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Co-brand
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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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BALTIMORE, MARYLAND
FRIDAY, 13 JULY 2001 |
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Today:
Regulation
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*** Wow! Irrational Exuberance is back!
*** But unemployment gets worse...debt defaults
increase...and Polaroid is still in business...
*** Lawyer sued...animals killed painlessly...and what
else?
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"Wow! It's been so long since we'd had an
irrationally exuberant rally on Wall Street," Eric
reports, "I'd almost forgotten how much fun they are.
For one raucous day, all the rules go out the window.
Stocks without earnings skyrocket, stocks with earnings
might also go up a point or two...and by the end of the
day everyone is richer...right?"
Well, they all felt richer. But they have a long
way to go. Lipper reports that the average tech fund is
down 22.6% so far this year. The average large-cap
growth fund has lost 16.36%.
Unemployment is getting worse. Even Motorola,
which helped spark yesterday's irrational exuberance,
said it was laying off another 3% of its workforce.
Investors didn't seem to notice that the news didn't
seem to square with the company's view of improving
business.
S&P dividend payouts have dropped 6.6% this year,
after a decline of 2.5% - the steepest drop since 1942.
And savers have already earned $25 billion less in
interest income this year than last - thanks to the
Fed's interest rate cuts.
"U.S. Corporate Debt Defaults Head for Record
High," says the Financial Times... But at least the
clouds parted from the towers of Waltham, Massachusetts
yesterday - long enough to allow a little sunshine to
fall on Polaroid. It's bankers announced that they would
give the company time to dig a deeper grave for itself
before itself forcing it into chapter 11.
What else, Eric?
*****
Eric Fry reports from Wall Street:
- The Nasdaq Composite surged 104 points - a spectacular
5.3% - to 2075. The Dow Jones Industrial Average surged
238 points, or about 2.3%, to 10,479.
- The proximate cause for yesterday's giddy rally was
the surprisingly "strong" earnings reported Wednesday
night by one-time stock market icons, Motorola and
Yahoo. Each reported some version of "earnings less bad
than expected." Then, shortly before the opening bell,
General Electric whipped the already excited bulls into
a stock-buying frenzy by reporting record second-quarter
profits.
- Also making the news yesterday, albeit of absolutely
no use to the bulls, was a grim initial jobless claims
report from the Labor Department. Claims rose by 42,000
to 445,000 in the week that ended July 7 - the highest
level in nine years. Maybe this news will matter to
somebody...tomorrow.
- There's other news that might grab a little attention
tomorrow, or one of these tomorrows: commercial airlines
revenues are in a free fall. The Air Transport
Association reports that domestic airline revenues fell
12% in May - the worst decline in more than 25 years.
Not surprisingly, therefore, the major U.S. carriers
will likely post their first combined annual loss since
1994.
- President Bush may be handing a few sous back to us
hard-working folks. But don't expect any tax breaks from
state and local governments any time soon. The Babson
Staff Letter reports, "As fiscal year 2001 ended (most
municipalities are on a July through June fiscal year),
fourteen states acknowledged that fiscal 2001 revenues
had been revised downward. Eleven states have lowered
revenue projections for the 2002 fiscal year."
- Since taking on more debt is a handy way to offset the
following tax revenues, it is probably no accident that
municipal bond issuance soared in the second quarter of
2001. Cities, counties and states sold a near-record
$76.2 billion of new bonds - the most since the second
quarter of 1998 when $76.9 billion were sold.
- "Burger King Pledges Humane Use of Animals," reads a
recent NYTimes headline. In the story that followed, a
Burger King spokesman explained: "We are the caretakers
of God's creation. We have a moral obligation to treat
[animals] humanely, and, when we do slaughter them, to
do so in a painless manner." Grantsinvestor.com's Andy
Kashdan tried to imagine what a similar political
correctness in the financial realm would look like.
"Would Merrill Lynch's Internet analyst Henry Blodget,
say, 'When in the course of generating the investment
banking fees necessary to sustain our extravagant
lifestyles, we recommend stocks that cause the slaughter
of client portfolios, we have a moral obligation to make
this process as painless as possible."
- And what's this? Statistical proof that investors get
- not what they expect - but what they deserve? Intrepid
DR Blue Team researcher James Boric has shown that the
stock market moves conversely to The University of
Michigan's consumer confidence index.
- "Since 1990," says Boric, "there have been 33 cases
where consumer sentiment rose or fell for two or more
straight months. There have been both uptrends and
downtrends. Once a trend is broken, the stock indexes
will move in the opposite direction as the consumer
sentiment trend 90% of the time - within three months."
- Why the lag time? "Most investors and consumers are
driven by a 'safety in numbers' mentality," says Boric,
"They are afraid to act on their own - so they wait for
analysts and other investors to confirm their
instincts... Consumer sentiment has risen for two
straight months. We'll see how long the trend lasts.
Once it is broken, the market will move down from its
position within 3 months."
*******
Back to Bill in Baltimore...
*** With a rally like yesterdays', is it time to buy
stocks? "The Wall Street Journal dumped 16 editorial
staff from its small-business watchers," replied Lynn
Carpenter. "So we're getting closer. Much closer. But
when Investors' BD cans its Internet and Technology
section, now soaking up valuable news space on pages A-5
to A-7 every day, then I'll be ready to leap. Somebody
might actually talk about investment as a business
proposition instead of magic rabbit trick again. Before
we can all start talking bull again, somebody's going to
have to start talking turkey first."
*** And here's a heart-warming story: AP reports that a
Louisville neurosurgeon decided to give a malpractice
lawyer a taste of his own medicine. Dr. John
Guarnaschelli charged that attorney Fred Radolovich
abused the legal process in suing him. According to
Guarnaschelli, Radolovich had no evidence of negligence
and never consulted an expert to find whether he had a
case. In a deposition for the doctor, trial lawyer Larry
Franklin said Radolovich did next to nothing about
preparing a case and was "hoping somebody would pay him
to go away."
*** The lawyer lost the case and had to pay $72,000.
Declaring that he had learned his lesson, he said he
would never take another malpractice case, "unless they
left the scalpel in the patient's chest with the blade
poking up through the skin."
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REGULATION
"More revolutionary than the invention of the printing
press," writes Michael Murphy, "More world-shattering
than the advent of space travel... And far more
profitable than the rise of computers and the Internet
put together... Here's your invitation to grow up to 8
times richer this year and every year, with little-known
stocks set to benefit first from today's great Human
Genome Bonanza... Right now I can name eight little-
known biotech firms that are going to use the human
genome project to become the richest companies on the
planet."
Exciting?
It's not every day that you have a chance to grow '8
times richer this year and every year."
Not since, perhaps, that day back in January 1999 when
Henry Blodget assured the world that the Internet bubble
was forever:
"Unlike with other famous bubbles ... the Internet
bubble is riding on rock-solid fundamentals, perhaps
stronger than any the market has seen before. Underlying
the crazy price increases are the foundations of what
could become the early 21st century's leading growth
companies... Just because the Internet stock phenomenon
looks like a bubble, it isn't a given that the bubble
will burst."
The hot fever of Blodget's Internet bubble has all gone
out of it, of course. Yet, Murphy still suffers from the
delirium of the true believer. His faith in the
transforming grace of technology is unshaken.
I know what you're thinking: I have come to bury Blodget
and Murphy. Not so, I come to praise them. For Murphy,
Blodget, Gilder and the rest speak their muddled minds
clearly, unfettered by arriere pensees or common sense,
as if afflicted by a strange Wall Street version of
Tourrette's syndrome...blurting out the most
preposterous nonsense at all hours of the day and night.
I must warn you, dear reader, I have nothing important,
or even interesting, to say today. No penetrating
insights. No out-on-a-limb predictions. Not even a
'darned cheap stock.'
Whatever I had worth saying, I must have said earlier
this week, because I woke up this morning with almost
nothing on my mind...and nothing on my desk save scraps
of papers and shards of ideas I have not been able to
assemble.
So, I write to you today for the pleasure of writing
itself - as a man who takes a walk with no destination
in mind, but just to feel his legs beneath him and the
world pass before his eyes.
If you are pressed for time, and cannot afford the
luxury of idle stroll, this would be a good day to sign
off the Daily Reckoning and come back tomorrow.
Where will this perambulation lead? I don't know, dear
reader. But a cogitation is forming in the back of my
mind which I will share with you:
It begins with the observation at the beginning of this
letter.
You see, the quote from Michael Murphy has been widely
read throughout the press. It was taken up by a
sanctimonious hack who insists that it is evidence that
financial newsletter writers - such as Murphy and your
editor - should be regulated.
Of course, every industry loves regulations.
It imposes costs, but the costs are passed along to
consumers. The real benefit to the regulated is that it
helps prevent competition.
In England, for example, where we publish a handful of
newsletters - including the Fleet Street Letter, which
has been published since 1938 - we are a regulated
business.
When we were just getting started, I went to visit the
regulators in order to try to understand the
restrictions under which we would labor.
"You are not allowed to use fear tactics to sell your
publications," explained the sniffy upper-class twit at
the equivalent of the SEC in Britain.
Pushing for a definition of a prohibited 'fear tactic,'
I posed the question:
"Do you mean, that in 1938, we would not have been
allowed to send a letter voicing our prediction that the
world would soon be caught up in the biggest and
bloodiest war in history...and that London would soon be
bombed, with thousands of casualties...and that the Jews
of Europe would be rounded up and systematically
exterminated...and that the war would end with the
introduction of such a powerful new weapon that a single
bomb could wipe an entire city off the face of the map?"
He was cornered. But not without recourse.
"Look, we expect you to conduct yourselves as
gentlemen," he countered.
He knew that he would get to decide what constituted
gentlemanly conduct. But soon, businessmen come to
understand what the regulators like and don't like. They
adjust their behavior, happy in the knowledge that
start-up competitors will have a tough time figuring it
out.
Perhaps it is because of this regulation that we have
few competitors in Britain...and profit margins are
higher.
So, I am grateful to the regulators. And I salute
Michael Murphy's eclat of outrageous enthusiasm for
stirring them up. For business reasons, I welcome the
regulation of newsletters with the same malicious
delight as a dentist looks forward to Easter candy.
Americans claim to live in a free country peopled by
free citizens.
The defining document, it is sometimes said, is not
Jefferson's Declaration of Independence...but Emerson's
essay on "Self Reliance."
"Whoso would be a man must be a nonconformist," Emerson
wrote. "I hope in these days that we have heard the last
of conformity and consistency. Let the words be gazetted
and ridiculous henceforward. Instead of going for
dinner, let us hear a whistle from the Spartan fife. Let
us never bow and apologize more."
Yet, for the last 100 years, Americans have surrendered
their spirit of self-reliance with, as Emerson puts it,
"the nonchalance of boys who are sure of dinner."
"I am ashamed to think how easily we capitulate to
badges and names, to large societies and dead
institutions," he added.
Since Emerson wrote, Americans have capitulated almost
completely. Almost no detail of life in these United
States is too insignificant to be regulated. No sentence
in the constitution seems to limit the power of the
regulators. Nor is there any apparent limit on the
amount of involuntary servitude - as measured by tax
rates - to which Americans will submit.
But why? More to come....
Bill Bonner
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| About
The Daily Reckoning: |
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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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