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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 31 JULY 2000 


Today:  Sympathy

In Today's Daily Reckoning:
*** Bear returns to the office...
*** Big techs...big trouble
*** A surprise passenger on the ship...Donegal...and 

*** The bear decided to go back into the office last 
week. Not a big deal. Return a few phone calls. Catch up 
on a little paperwork.

*** He's been enjoying a vacation at the beach...while 
investors and consumers continue their 'summer of love.' 
Margin accounts are still expanding. IPOs are still 
coming out. People still think stocks will rise forever.

*** But, last week, it seemed like time for the bear to 
go back to work and stir things up a bit.

*** The Dow fell 74 points - just enough to remind 
serious investors of what lies ahead. The Nasdaq took a 
loss of 179 points. The big techs - the worst place for 
your money - took a big hit. Cisco, for example, dropped 
more than $5 a share. JDSU fell more than $12.

*** Our old River of No Returns stock, Amazon, is now 
struggling to stay above $30. It was over $100 when I 
wrote about it last year. Amazon is not likely to 
disappear. But the stock still has a long way to go - 
down, of course.

*** Another Internet stock, iVillage, is featured in 
today's Financial Times. Candace Carpenter, the 'digital 
diva' who started the company, resigned as CEO. iVillage, 
which provides 'content for women,' lost 94 cents a share 
over the last 12 months. How much will investors pay for 
a 94 cents loss? Well, iVillage buyers are paying $6. A 
lot less than the $130 they paid a year ago...but still a 
lot more than they are likely to pay in the future.

*** The whole market looked terrible on Friday - with 
twice as many stocks declining as advancing. The Dow is 
still trading at 20 times earnings. The S&P is nearly 30 
times earnings. And the Nasdaq price is nearly 150 times 
earnings. So, when the bear finally finishes his 
vacation, he'll have plenty to work with. The Dow could 
easily be cut in half...and the Nasdaq reduced by 
80%...before this cycle is over.

*** The Nikkei Dow has been suffering too - it fell below 
16,000 last week. Investors who believe stock prices 
always go up over the long term might want to recall that 
the Nikkei was over 39,000 in 1989.

*** Philip Morris announced an increase in the price of 
smokes. Look for more price hikes as the tobacco 
companies become regulated utilities run for the benefit 
of lawyers and bureaucrats, rather than shareholders or 

*** Meanwhile, in Zimbabwe, the government has announced 
that it will confiscate, without compensation, half the 
commercial farms in the country. 

*** We passed a pleasant night aboard the Normandy making 
the passage from Cherbourg to Rosslare, Ireland. The 
gentle rocking of the ferry made for a good night's 

*** Our dreams were interrupted in the middle of the 
night when the intercom asked: "Would anyone with medical 
training please make themselves known to the ship's 
staff." Hmmm...some poor wretch must be sick, I thought 
to myself before drifting back to sleep.

But in the morning we learned the cause: "During the 
night," announced the ship's captain, "our passenger list 
grew by one - a woman gave birth to a healthy boy. Many 
thanks to all who helped out and congratulations to the 

*** We almost needed medical attention ourselves when I 
forgot that the Irish drive on the left side of the road. 
It seemed like every truck in the republic was on the 
same road we were - making our way from the southeast 
corner of the Emerald Isle to the northwestern most 
extremity. And since my steering wheel is on the left 
side, as it is on an American car, I could see around the 
trucks in front of me only by pulling out in the lane of 
on-coming traffic. This made for some excitement in the 
car...but I had the situation in hand until I forgot 
which side of the road I was supposed to be on. For a 
moment, I thought the truck facing us must be passing and 
would have to yield. But then I realized, it was I who 
was passing...I quickly gave way, to the sound of shrieks 
coming from the back seat. 

*** Ireland is a beautiful place, much favored by nature, 
though as I reported on my last trip, man has been less 
generous. In England, you will occasionally find a house 
of weathered, mellow brick and a Tudor-style which is 
fetching. Or maybe a mansion with Italian pretensions. 
Sometimes, even a Georgian house is nice to look at.

*** But in Ireland, almost all the buildings I saw from 
the N3 motorway - public and private - were dreary. There 
were some exceptions - the entry to the King's School at 
Ennisfree, where Oscar Wilde was a student, is 
magnificent. And there were one or two Georgian manor 
houses that didn't look bad. And we passed a couple 
thatched cottages that were picturesque. But the general 
look of Irish architecture is depressing, for reasons I 
will explain later.

*** We stayed a few days at a St. Ernan's House Hotel, on 
an island just outside of Donegal Town. The House was 
built in 1826 for a nephew of Lord Wellington and has 
been carefully updated and tastefully decorated, with 
acres of ancient trees and gardens surrounding the house. 
The house itself shares the charmless quality of most 
domestic architecture in Ireland, on the outside. But the 
interior is nicely done. We had a drink in front of the 
fire (even in July, a small fire is welcome here). And 
then took our places in the dining room for a very nice 
dinner. I had the black pudding (blood sausage...which 
goes by 'boudin' on French menus). It was very good. 
There are only twelve rooms. The O'Dowds, who run the 
place, would be happy to have you visit. Tel: 353 73 

*** I'll have more to tell you...tomorrow...

Your man on the scene...

Bill Bonner

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Meanwhile, you could have been making good money from a 
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SYMPATHY FOR THE DEVIL (First aired 10/22/99)

You have to admire old Beelzebub. If human weakness is 
his cake, irony is his icing. He lathers it on 
thick...and gooey. 

Hardly a soul gets close without coming away with sticky 
fingers...but what thanks does he get? Religious 
modernists have been trying to run him out of the church 
for years...and now academic writers are trying to ignore 
his work in the financial markets. 

I have promised to stick to useful market commentary in 
today's message. But I cannot resist this observation 
after reading Edward Chancellor's book, "Devil Take the 
Hindmost": failing to give the devil his due is probably 
the chief shortcoming of the eternal bulls. 

Of course, in this post-modern age...with its Internet, 
online trading, Geraldo and Howard Stern...we no longer 
believe in the devil. We believe in psychologists and 
chronic fatigue syndrome. We are logical beings. We are 
alone in the universe with markets that are computer-
driven, efficient and nearly perfect. If the price of AOL 
discounts earnings to the year must be right. 
The price is always right...there is no room for human 
emotion...folly, wishful thinking, chicanery, tomfoolery 
or a severe case of Seasonal Disaffection Disorder. 

Chancellor recounts the stories of several market manias, 
including the well-known Tulip-mania in Holland, and 
other less well-known bubbles. In each case, investors 
are gripped by the thrill of fast, easy money. This 
leads, of course, to where all impossible dreams reach. 
Judgement is impaired. Slightly at first. Then grossly. 
The worst of the human sins and weaknesses rise to the 
surface like the scum on a cold bath. Greed, gluttony, 
hubris, envy, jealousy, treachery, stupidity - you name 
it...a bubble makes people behave as badly as IRS agents 
or English clergymen. 

In 1720 the South Sea Company had a monopoly on trade 
with the Spanish colonies of South America. But what 
created the South Sea Bubble was a plan to privatize the 
British national debt. The details are confusing. So was 
the market's reaction to them. Isaac Newton commented, "I 
can calculate the motions of the heavenly bodies, but not 
the madness of the people." 

But such is the nature of manias, that the more obscure the 
vision...the more delightful we can imagine it to be. It is 
a little like the difference between meeting a woman by 
candlelight...and seeing her the next day at the beach. The 
first meeting requires imagination. It is the bull market 
phase. The second is the correction and usually requires 
gin and tonic. 

Freud tells us that when the devil visits his paramours 
at night...he comes bearing gifts of gold. But by morning 
light...the gold turns to excrement. Daylight destroys 

One of the heavenly bodies to whom Newton wrote was Lady 
Mary Herbert; he wisely advised her that the South Sea 
stock could be kept up "for some time, perhaps some 
years...but a melancholy prospect for those who shall 
stay last." 

Seeing the money that was being made...and the demand for 
shares...a number of other companies rushed to get out 
IPOs. But the South Sea Bubble did not last long. By 
midsummer of 1720 the price of the shares had risen 
800%...and insiders were bailing out, even selling short. 
By September the stock had fallen 75%...and not long 
after became totally worthless. 

"The progress of science is cumulative; the progress of 
financial markets is cyclical." That's how Jim Grant puts 
it. The devil is a product of human emotion, imagination 
and experience - not science. He comes and goes, 
cyclically...taking his opportunities for mischief where 
he finds them. He lodges in the human heart, not in the 
brain. (He prefers the grander accommodations.) But it is 
in the heart where the serious decisions are made. 

There have been some revisionist works on the South Sea well as Tulip-mania. Professors of finance 
have tried get rid of the devil showing 
that it was rational to pay such high prices for 
investments. Their argument is simple. Since no one can 
know when prices will rise or fall...or how much...all 
prices are inherently logical. The investors who bought 
the tulips or the South Sea shares, even at the height of 
the mania, were acting sensibly. 

The devil appreciates this kind of thinking. So do the 
markets. They bring in the fools like a carney at a 
circus. But even the supply of fools, though usually so 
fulsome and copious, eventually runs thin. Selling 
overwhelms buying...and the rational price gets a lot 
lower. (see: The Hidden Logic of Market Manias

Even investors who understand how the devil operates are 
tempted to ride along with him...just for the fun of it. 
As prices rise, and friends and neighbors get rich, the 
temptation is almost irresistible. James Cramer of said of Internet companies: "As company 
after company went public and was successful, eventually 
it hit these journalists that maybe it's for real. It 
became too difficult to stay negative and have 
credibility, because people are just making too much 

It was too much of a temptation for London banker John 
Martin in 1720. "When the rest of the world is mad," he 
said, "we must imitate them in some measure." `Tis a 
pity, though. When he looked for a fool to buy his 
shares...none was available. He waited too long. He lost 
a fortune. 

Your correspondent,

Bill Bonner

About The Daily Reckoning:
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Bonner writes his email letter from Paris, France, each morning --
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Last modified: April 02, 2001

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