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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 13 JULY 2001 


Today:  Regulation

*** 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 

"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 

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 

- 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 

- 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 

- 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."'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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"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 


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 

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 

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 

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 

Perhaps it is because of this regulation that we have 
few competitors in Britain...and profit margins are 

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:

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: July 13, 2001

Published By Tulips and Bears LLC