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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  One Hundred Years Of Investing

In Today's Daily Reckoning:
*** Bear is back at the beach
*** Beware the Big Techs
*** A brush with Presbyterianism...ignorant 
investors...and abandoned castle...and more...

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*** After a brief visit to the office last week, the bear 
went back to the beach on the weekend. Stocks rose. The 
Dow was up 10 points by the close of business. The Nasdaq 
rose 104 points.

*** Stocks in Japan, beaten down for the last decade, 
managed a 2% increase. 

*** And the big techs in the US came back with the 
Nasdaq. Cisco rose 2 5/8. Intel, Qualcomm...these big 
techs are the great hope for many thousands of investors. 
They allow the investor to feel as though he owns a piece 
of the glorious future of technology, without knowing 
anything about either the future or technology.

*** Reuters reports on a survey by Doremus showing that 
investors have little idea what they are getting when 
they buy stocks and bonds. They seemed to think 
Caterpillar was in the pet business, for example, and 
Halliburton, the giant oil-service business, was a fish 
company. Many investors also apparently believe that they 
are protected from trading losses by the FDIC when they 
buy T-bonds. 

*** These investors are the people who bought Amazon at 
$113 last December in the belief that they had to get in 
on The Next Big Thing - the Internet. Amazon shares sold 
for less than $28 yesterday. CMGI, another 'must own' of 
1999, also hit a new low.

*** But now it's the big techs - Intel, Qualcomm, Cisco. 
People think owning these shares gives them a way to 
profit from the future. Unlike the Internets, these 
companies have profits. And as I have mentioned several 
times - there is almost no way earnings can grow enough 
to justify current share prices. They, too, will soon the summer of love turns into the autumn of 
anxiety and the winter of our discontent.

*** Remember, bonds now yield 8 times as much as stocks. 
The Dow yield is only 1.6%. The S&P yield is lower - at 
1.1%. And the Nasdaq yield is not even worth mentioning. 
It only makes sense to stay in stocks if prices are 
rising enough to surpass "risk free" bond yields. A 
stagnant market isn't good enough.

*** Oil fell to its lowest point in 3 months - to $27.43.

*** Gold fell 90 cents. Platinum rose $1.39. 

*** "Investing is not a purely rational pursuit," writes 
my old friend, Mark Hulbert, "If it were, those with 
higher IQs would have better track records. They don't. 
Successful investing also requires mastery of your 
emotions, which otherwise can wreak havoc..." Mark makes 
the point that the rational thing to do in a bull market 
is to be fully invested in stocks, following a momentum-
based system, such as OTC Insight or MPT Review. But when 
the market turns, these approaches lead the way down, 
just as they led the way up during the bull phase. Over 
the very long run, investors might do well just to stay 
with the system (they certainly did well for the last 18 
years). But investors often over-estimate their own 
tolerance for risk and fail to control their own 
emotions. When these high-flying approaches plummet, 
investors panic and sell - often at the worst possible 

*** The Irish Independent reports that foreigners are 
being attacked in Dublin. No reason was given.

*** And the infamous prison, the Maze, is being closed 
down. The Maze has been the holding tank for IRA and 
protestant terrorists. The murderers are being released, 
following the terms of the Good Friday peace agreement. 

*** "I'm very glad to see that the Loyalists are coming 
out," said one honest protestant woman quoted in the The 
Mail, "but I'd be happy to see the Catholics rot in 

*** "The meaning of life does not jump out at us from 
desk-top computer screens," said the Archbishop of Tuam. 
Ireland is booming. Almost everywhere we go, new houses 
are going up. The roads are often jammed with traffic. 
The bar in Donegal Town, where we stopped in for a drink 
on Saturday night, was so full we could not get a seat. 
Father John Cunningham, leading a group of pilgrims from 
Arizona, took the mike and sang "Oh dear what can the 
matter be, seven old maids locked in the lavatory." The 
upsurge in material wealth seems to be upstaging 
Ireland's traditional piety.

*** The Archbishop spoke on the summit of Croagh Patrick 
in County Mayo, a 'Holy Mountain,' from which St. Patrick 
is said to have banished snakes from Ireland. Twenty 
people were injured making the trek up the mountain to 
hear the Catholic bishop. "There is a danger," he said, 
"that ruthless greed can become reality."

*** Meanwhile, on Sunday, I led my own small band of 
pilgrims into the Presbyterian church in Rathmelton. The 
Church of Ireland church, Anglican, was closed. And the 
Catholic service had already commenced. So, what the 
heck, let's see what Presbyterianism is all about.

"You all know how to ride a bicycle," said the minister 
in his sermon, with a heavy accent that seemed almost 
Scottish, "there are certain rules you have to follow. If 
you dunna follow the rules, wha' will 'appen? You'll fall 
down, won' you?" 

"It's just the same with God's rules. You have to follow 
them. Or you will fall down."

Hmmm...this seemed simple enough. But the service was 
almost painfully plain. There were no chants. No 
elaborate robes or vestments. No sculpted figures. Not 
even an altar. There was no communion. No confession. 
I wondered how Presbyterianism survives. It has no 
mystery or magic. Nor does it have the vitality of the 
Southern Baptists.

*** After church, we went to the beach. There are a lot 
of very nice beaches in Donegal. You drive over moor-like 
hills and then down to very private coves, sometimes with 
thatched cottages near the water's edge. The kids were 
happy throwing rocks and playing in the sand. Elizabeth 
and I went for the coldest swim we've ever had. I was 
afraid to go far from the beach - fearing that my muscles 
would go numb and I wouldn't be able to get back to the 

*** The scenery in this part of Ireland is spectacular. 
There are fields, moors, salt water marshes, mountains, 
and craggy rocks marching out into the sea. We explored 
one castle,which was in ruins...climbing up the derelict 
tower for a dramatic view over Lough Swilly. The castle, 
in the middle of the field, has been forgotten. Its 
owner, a local farmer, did not seem to know when it was 
built, or by whom.

Until tomorrow...

Bill Bonner

P.S. More Greatest Hits below...

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(First aired Sept. 22 1999) 

Blame it on the weather. After weeks of beautiful fin de 
Bubble weather in the late summer...fall is here. It is 
rainy, gray and cool. 

Thus do one's thoughts turn gray, too, as I darkly look 
through the glass at the financial news. I've been 
talking about the bubble and the coming bear market for 
quite a while...where did it come from...where does it 

Stick with me for a moment. It is important because the 
next phase of the market cannot begin until this one 

It is a grim paradox of life that all that life dies. And 
as the fire of life burns hotter, life's energy is used 
up faster too. A tree, for example, uses little 
energy...and can survive for hundreds of years. There are 
trees in California that were alive at the time of 
Christ. A chart of the life cycle of such a tree would 
show long, slow, steady grow...then, a peak...and a long, 
slow, steady death. You can't even tell whether a tree is 
alive or dead's life energy lays so 
quietly and deeply within it. 

Markets, being natural things, follow the same rules. 
They can grow quietly and steadily for many years, in 
line with the underlying economies on which they are 
based. Or they catch fire...explode upwards...and quickly 
burn up whatever energy they had. 

Back in 1900, you could buy a barrel of oil for just a 
bit more than $1. An ounce of gold, meanwhile, was about 
15 times as much. This relationship went up and 
down...never too far out-of-whack for the entire century. 
A few months ago, you could still get an ounce of gold 
with 15 barrels of oil. (Today, an ounce of gold is only 
worth 12 times as much as a barrel of oil. My guess is 
that the ounce of gold is ready for an adjustment 
upwards...but who knows?) 

Also, back in 1900, the Dow was at 61. So, in other 
words, it took three ounces of gold to buy the Dow. This 
too was subject to a lot of bouncing up and down. In the 
late `20s, for example, it took six ounces to buy the 
Dow. But that soon went back to normal when the Dow fell. 
Then in the late `60s, it took as many as 20 ounces of 
gold to buy the Dow. But that, too, was soon history when 
the price of gold soared...and the stock market fell. 
As late as the early `80s, the basic relationships were 
still intact. The Dow was worth about three ounces of 
gold...which, in turn, was worth about, well, 10 to 20 
barrels of oil. 

But something happened in the late `80s. The juice 
started flowing at a much faster pace. The chart shows 
the Dow stopped looking like the growth pattern of a 
redwood, and began looking like a morning glory. Today, 
it takes 40 ounces of gold to buy the Dow. Oil, 
meanwhile, has doubled in price in the last year. Still, 
while you could buy the Dow with about 50 barrels of oil 
in 1900...and still do so in the early `, 
you'll have to bring 400 barrels of the black stuff to 
the table. 

Inflation over the period - 1900 to 1999 - reduced the 
value of the dollar to about 5 cents. So, if an ounce of 
gold sold for $20 in 1900, it ought to sell for $400 now. 
Likewise, a barrel of oil that sold for $1.19 then should 
sell for...what's this...$23.18. 

That's almost exactly the price of oil today. 

So, oil is where it was in 1900. Gold is a little low, 
but not far from where it should be. And stocks? They've 
gone "off the charts." If the market were only to keep up 
with inflation, the Dow should be at 1,220. Instead, it's 
nearly 10 times that high. 

Back to the shows a ragged line bumping along 
year after year. It took 82 years to go from 61 to over 
1,000. And then, took off. The chart looks like 
a topography map, with the line going from the tidal the piedmont...gently rising, with minor hills 
and valleys...and suddenly starting to climb Mt. Everest. 
Now, standing at the peak of Everest, investors look back 
and think it was inevitable. This is the way markets 
work, they think. You just buy and hold, and over the 
long run you make money. But as I pointed out two days 
ago, if an investor had turned to look in 1982 rather 
than 1999, the view would have been completely different. 
Then, the long term...from 1900 to 1982...would have 
given him a net loss against inflation. 

What happened in the late `80s? Where did the juice come 
from? Where did the stock market get this sudden input of 
energy, enough to carry it from 3,000 to 11,000...from 
the late `80s until about 15 months ago? Why, after eight 
decades of "reasonable" behavior, compared to oil, gold 
and the dollar, should it suddenly go bubble? The bulls 
have their explanations. They say it is because the baby 
boomers are putting money in 401ks. Or the Internet is 
creating a New Era of productivity. Or, it's the end of 
the Cold War...there's a "peace dividend," and a golden 
age of capitalism. Or, as professors Glassman and Hassett 
claim, investors just woke up and realized how much 
stocks are really worth. 

Actually, the juice for this market blow-off came from an 
entirely different source. I will give you the details 
tomorrow...the never before told story of how a bull 
market turned into a bubble... 

Your correspondent,

Bill Bonner 

(Note: 'One Hundred Years of Investing' is part one of a 
two part series. Tomorrow: "How A Bull Turned Into A 
Bubble.' Addison)
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...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

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serious warnings and the state of the market with gentle humor"

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Last modified: April 01, 2001

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