Contributed by Bill
Publisher of: The
Fleet Street Letter
TUESDAY, 31 JULY 2001
Much Money Do You Really Need?
*** "What are you worried about?" asks the Great
O'Neill...while the markets take a summer snoozer...
*** A burst of "curiously psynchronized bearishness"...
when WILL the recovery begin?... Real estate headed
south in the West...
*** "Misery index" at a four year high... "When times
are tough, the temps are first to go"...who wants a job
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*** "When you look at the US economy, what are you
worried about?" The question was put forth by
"avuncular" secretary of the Treasury O'Neill.
*** Apparently, according to the Financial Times,
O'Neill has sifted through the data, read the reports,
asked the pointed questions...and determined that "since
1945, every severe economic downturn had been associated
with a shakeout in the car-sector and falling demand for
*** But cars and light trucks have "held up well"...and
housing is okay...so O'Neill has "a lot of confidence"
in the present economic situation.
*** Really, what do we expect him to say? "Sorry
folks... the 'crotte' is hitting the fan." No. That task
is better left to less-than-avuncular newsletter
*** For example, when we look at the US economy, we see
corporate profits tanking - Intel down 94% this year, GM
down 74% - over 1.1 million jobs eliminated since the
beginning of the year and unemployment rising at it
fastest pace since 1992.
*** Do you suppose it too presumptuous of us to ask the
Great O'Neill if these figures are cause for concern?
Perhaps it is...
Eric, what's new on Wall Street?
Eric Fry reports from New York:
- "Summertime and the livin' is easy"... means, among
other things, it was a snoozer on Wall Street yesterday.
- The Dow fell 15 points to finish at 10,402, while the
Nasdaq dipped 11 to 2,018. The S&P 500 broke even on the
day. Few individual stocks or sectors distinguished
themselves. Motorola jumped almost 10% and semiconductor
stocks bounced a little. (Hope springs eternal!)
- Still, there was a mite of activity that faintly
resembled news: three of Wall Street's hot-shot
investment strategists lowered their earnings estimates
for the S&P 500.
- In a burst of curiously synchronized bearishness,
Credit Suisse First Boston's Thomas Galvin, UBS
Warburg's Edward Kerschner and J.P. Morgan's Doug
Cliggott each decided yesterday that their prior
estimates were too high.
- Maybe these guys played in the same golf foursome over
the weekend. Or maybe these bearish seers think so much
alike that they can't help but agree...at exactly the
- Yet, not all three gentlemen are in complete agreement
about what the lower earnings might mean for the stock
- Cliggott, who cut his 2001 operating earnings per
share for the index from $50 to $44, warned clients, "A
very cautious approach to the U.S. equity market makes a
lot of sense until there are unambiguous signs of a real
- By contrast, the slightly more upbeat Galvin expects
stocks to begin moving higher well in advance of a bona
fide earnings recovery. Wisely, Mr. Galvin declined to
mention exactly when the stock market rally might occur.
- $38 billion worth of tax rebate checks from Uncle Sam
are starting to arrive in mailboxes across America. Wal-
Mart, ever the opportunist, has offered to cash the
checks at no charge. Helpfully, consumers can also
convert checks into pre-paid Wal-Mart shopping cards.
- Thanks to Wal-Mart, therefore, consumers can instantly
invest their tax money in family size packages of
Pringles...super-sized squirt guns for the kids...and
- I spent the better part of the last two weeks in
California - ground zero of the dot.com disaster - and I
can report seeing very few signs of toxic economic
fallout. Indeed this morning's San Franciso Chronicle
headline proclaimed, "Tax Revenue Leaps with Home
- Of course, most of this "good news" is rear-looking.
The Chronicle writes, "Last year's red-hot real estate
market pushed the Bay Area's overall property values to
record heights - and now county tax collectors are
raking in the riches...[A]ssessed values on property
rolls jumped more than $75 billion in the nine Bay Area
- Unfortunately, property taxes for the newly-assessed
homeowners will now rise just as their property values
are starting to fall.
- The local Marin Independent Journal reports that May's
median home price in Marin County was 11.3% below the
April median home price - "the largest single month-to-
month decline in several years." The median home price
in the tiny Marin County hamlet of Mill Valley plunged
35% in June from May levels.
- Across the Golden Gate Bridge, the residential rental
market in San Francisco is feeling the heat, too. The
number of apartments available for rent has increased
600% since Labor Day of 2000. As with the tech bubble,
it looks like � the Valley � is already showing
leadership with respect to real estate... in the wrong
Back to you, Addison...
Addison reporting from Paris...
*** The "Misery Index" indicator, all-but forgotten
between 1998-2000, is being trotted out once again.
According to the Dismal Scientist, the index - which is
the sum of the unemployment rate and the rate of
inflation - reached a four-year high in May.
*** "Job Seekers Get Professional Help" reads a headline
in MSNBC. "The job market, which had been slowing since
December, has crumbled in the last few weeks," the
article reads. One placement firm in Scranton, PA,
reports a 20% increase in job seekers in the past month.
*** Kelly Staffing Services reports their second-quarter
earnings have dropped 70% from a year ago. "When
companies go through down times," says a company
representative, "the temps are the first to go." Kelly
also revised fourth-quarter recovery estimates, saying
they don't expect a turnaround until some time in 2002.
*** Jobs. Paychecks. Money. Who really wants a "job"
anyway...and why? How much money do you really need?
Bill posits just such a question - in a DR classique
*** Misery could be measured on a different scale in
Paris today: the centigrade scale. It's sweltering. And
while the city takes on the kind of haze you might like
to see in a post-card of the Seine...air conditioning is
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The Daily Reckoning Presents: a DR Classique originally
broadcast on Friday, 20 August 1999.
HOW MUCH MONEY DO YOU REALLY NEED?
By Bill Bonner
"Women," said my old friend, Mark Ford. That's the
reason we earn money.
I misunderstood at first.
Yes, a woman can cost a lot to maintain. She will need
food, clothing, transportation, shelter. Her children
will need braces and tuition. But it is not need that
underlies man's drive for wealth...it is desire.
People do not buy chateaux because they need a place to
live. Nor do they invest in stocks because they need
pocket money. They seek wealth and its trappings for
Dorothy Parker said, "You can't be too rich or too
thin." But when Howard Hughes died, it looked like he
was both. Hughes had the kind of wealth that meant he
could do what he wanted. He didn't have to listen to
anyone. He was so rich he could eat Campbell's chicken
noodle soup every day if he wanted and wander around
with Kleenex boxes on his feet.
In the end...Howard's wealth may not have helped him
much. It cushioned him from reality...protecting him
from the things that might have brought sanity to his
He might as well have been on welfare. Those people,
too, are cushioned from the reality of everyday
life...so they never have to learn how to earn a living
and get along in the real world. That is also often true
of the children of rich people. They don't have to learn
how to hustle...and many never do. In this sense, wealth
is not merely a burden like the Chateau de Bourg
Archambault...but a threat.
At Ouzilly, deep in the French countryside, you can live
well on very little money. On a beautiful day, you can
sit out on the terrace of a stone farmhouse...you can
drink local wine...you can eat local food...you can
putter in your garden and take day trips to visit
medieval towns. Life can be quite good - even with very
But when you don't have money, you don't have the option
of changing your lifestyle. As long as I am content to
live in rural France, or rural Arkansas, for that
matter, I can do so on little money. But what if I want
to live in New York? Or Paris?
I'm going to find out how much it costs to live in Paris
in a couple of weeks. We're moving to an apartment near
the Trocadero. The modest, 4-bedroom apartment rents for
17,000 francs per month-about $3,000. Not bad. Cheap by
New York standards. Paris is actually one of the
cheapest major cities in the world. Still, with school
fees, meals, transportation, maintenance, furniture,
utilities, professional fees...we estimate it will cost
us about $100,000 a year to live there. But the tax rate
in France is 60%...so I will have to earn $250,000 just
to keep my head above water.
Hmmm...this won't be cheap. How much capital would I
need to earn $250,000 per year? Well, if I could get a
reasonably safe return of 6%...it would mean that I
would need $4.3 million. This does not provide a
luxurious lifestyle by any means. In fact, it barely
pays the bills of a bourgeois American family...with six
children in school.
[Bill has since moved his family to a much larger place
in the fashionable 16th arrondisement of Paris. Of
course, I can tell you this while he's on vacation - he
will scarcely notice... Addison]
Most people think you need at least $10 million before
you can be considered rich. That amount would provide
you with about $600,000 in income. Most people could
live comfortably on that much.
But wealth is not always forthcoming when, and in the
amounts, we want it. So, in practice, people don't
really calculate how much they "need" to live the way
they want. Instead, they try to earn as much as they can
and adjust their sights accordingly. They do not need to
live in Manhattan...life in Omaha is good enough for
Warren Buffett, after all. They do not need to go to the
Tour d'Argent for dinner. The food at Madame Grammond's
is just as nourishing. So why the pressure to earn ever
Bunker Hunt said that money was "just a way of keeping
score in life." But to what end? What's the prize, in
other words? Once you have a comfortable place to
live...and decent food to eat...does additional wealth
really add to your quality of life? Does it help your
children...or does it hurt them? Does it make you
happier? More secure?
The major thing it does is expand your field of choice.
You can decide for yourself whether you want to live in
Omaha or New York, for example. More choice leads to
more thought...about what living well really means.
This, in turn, may have the effect of enriching your
life in unforeseen ways. Or it may simply make life more
complex and difficult...like having to choose a long
distance phone service or an insurance program.
"Women," repeated Mark, "without women, money would mean
nothing." At last I grasped his meaning. He was reaching
for the deeper truth. For all the practical advantages
of having wealth, men strive for it for impractical
reasons. Money is status. There is some reproductive
imperative that causes men to seek status and women to
prefer men who attain it. To express it crudely, money
is a way of scoring (metaphorically, of course)...not
just keeping score.
The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.