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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Division of Labor...And Gold

In Today's Daily Reckoning:

*** So far, the biggest financial story this millennium, 
according to the WSJ, is that "Bonds are Leaving Stocks 

*** Back when dot.coms were booming, and you could say 
'New Era' without smiling...that is, back at the end of 
the 2nd millennium, I recommended bonds to you. And 
they're doing pretty well. Long-term treasuries are up 
about 12% (total return). 

*** Did I also suggest buying utility stocks? If not, I 
should have. Utilities hit a new record high Friday. 
They're up 22% so far this year.

*** What's going on? Many analysts believe the rise in 
bonds, utilities and financial stocks is caused by a 
growing hope for a soft landing. Friday's employment 
numbers showed a decrease in payrolls...which encourages 
Fed watchers in their belief that there will be no 
further rate hikes this month. (see: At the Critical 

*** "Prices are currently reflecting a firmer belief that 
the Fed is done," Reuters quoted one investment banker. 

*** Maybe. But I will give you an alternative 
explanation. Since the beginning of this year, the 
dot.coms have crashed. Many are down 80%, 90%...even 95%. 
The Nasdaq and the Dow are both down about 7%. And, 
Investors Business Daily puts the return from mutual 
funds for the first half of the year at only 1.5%. 

*** Despite record amounts of new money flowing into 
equity mutual funds, the Dow, S&P and Nasdaq have been 
able to mount only limp, bear market rallies. This is 
because the smart money is leaving faster than the dumb 
money goes in. Institutional and professional money 
managers are moving to utilities, bonds and financial 

*** But Alan Greenspan still has faith in the New Era, an 
analysis of his last ten speeches, reported by Jim Grant, 
shows him using the words "money," "credit" or "leverage" 
40 times, while the words "productivity," "technology," 
or "innovation" were used 281 times. Is it possible that 
the Fed chairman has deserted his post?

*** The dollar was quiet on Friday, failing to extend its 
gains against the euro. It is still below its May highs - 
thus, still in a bear market. Among all the noise in the 
market, this is the critical event. The financial press 
all over the world is reporting on the strong dollar. The 
dollar has become the store of value that people really 
want. Everything depends on it - the current account 
deficit, bonds, stocks, oil, gold...inflation. Can the 
dollar hold? More below.

*** The Dow rose 61 on Friday. The Nasdaq rose 27. The 
week saw the Dow rise 2.4%. The Nasdaq did a little 
better 3.4%. Advancing stocks beat declining ones almost 
2 to 1.

*** Meanwhile, Steve Sjuggerud was looking over the list 
of the 197 top-performing industries, as rated by 
Investor's Business Daily. "What...has been the worst 
performing industry out of 197," he asked? "Internet e-
commerce. This group, which has taken a 
shellacking so far this year, just edged out sector 
number 196, Internet ... neither Internet content 
providers nor Internet retailers even made it onto our 
recommended list. The Wall Street Journal recently 
reported that from the market's top to recent 
levels $1.4 trillion has been lost in the Internet 

*** Amazon and Barnes & seem to be in 
competition to see who can go bankrupt first. Amazon's 
losses, of course, are legendary. But B&N is giving the 
river of no returns a race - losing more than 50 cents 
for every dollar of revenue. Amazon, meanwhile, is losing 
only about 18 cents per dollar of revenue on its 
operations. The trouble is, the company has $1.9 billion 
in debt. And a report from Lehman Brothers found that 
"from a bond perspective...the credit [is] extremely weak 
and deteriorating."

*** "June 2000 witnessed the most audacious effort ever 
by the world's wealthiest countries to shut down bank 
secrecy globally," writes Mark Nestmann of the Sovereign 
Society, But there are alternatives, including "the 
creation of a cyber haven on tiny Sealand, located on an 
abandoned gun platform off the English coast." (see: 
Offshore Secrecy is Not Dead

*** More darn cheap stocks? "If you're looking to buy on 
the cheap," says Dan Ferris "you can hardly look in a 
better place than energy and mining stocks right now." 
Earnings reports from last week reveal incredible health 
- and wealth - in these often overlooked markets: EOG 
Resources (EOG) second quarter earnings rose 384% over 
the same quarter a year ago. El Paso Energy (EPG) 
earnings were up 73% over last year's second quarter. 
CONSOL Energy (CNX) earnings rose 155%. Cabot Corp. (CBT) 
earnings rose 82%. Vulcan Materials (VMC) up 23%. Enron 
(ENE) up 26%. American Water Works up 36%. Many of these 
stocks are selling at single digit P/E multiples... (see: 
What's Cheap Now and Who's Making Money)

* * * * * * * * * Advertisement * * * * * * * * * * * * *

Meet Doug Casey "the most unusual investor in the world." 
He's been called the "ultimate insider" in the mining and 
natural resources business. See how he made a fortune 
when gold went from $103 in the summer of 1976 to
over $850 by January of 1980. Find out his take on gold 
today and his overview of the best places to invest on 
the planet. To see the report, click here:
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *


"Look," said Mr. Deshais proudly, pointing a finger at 
the shelf. There were jars of red balls in some sauce, 
various shades of jam, green beans, pickles. Dozens of 
them. Hundreds maybe. 

"Ah," continued the gardener, "you won't have to worry 
this winter."

I had not been worrying about not having enough to eat 
this coming winter. It had not even crossed my mind.

Mr. Deshais is fighting the division of labor.

It would be cheaper just to buy the tomatoes and lettuce 
at the local market. 

And Mr. Deshais, fanatic that he is, produces far too 
much. I am getting stuffed with radishes, squash, 
lettuce, and green beans at every meal. Occasionally, my 
nose twitches.

So bountiful is our garden that Mr. Deshais has taken to 
canning the surplus. A caldron of water boils almost all 
day long, as various legumes get tortured - scalded, 
cooked and canned. We are preparing for famine. 

A few years ago, everyone maintained an inventory of 
food. Only a fool would have trusted completely in his 
ability to buy what he wanted when he wanted it. But now 
we all seem to have an unshakeable faith in the division 
of labor...and the supply channels upon which our lives 

Progress has made Mr. Deshais's canned golden squash 

The question I raise in this letter concerns not golden 
squash, however, but squashed gold. If it is no longer 
necessary to keep an inventory of food, does it make 
sense to store cash? Is gold, the ultimate store of 
value, no longer necessary?

"It's over."

Readers of these letters may recall the words of the 
portfolio manager, quoted by Reuters, who explained that 
gold was finished as a financial asset. 

It was easy to dismiss the voice of 'progress!' The world 
has been making progress for thousands of years. But the 
cycles of greed and fear...and the self-interested 
reasoning of central bankers and not 
change. Human wealth, grows. Not always, but usually. 
Year after year, new technologies... 
further insights and refinements accumulate. 

But the homo sapiens sapiens, an animal of whom 
taxonomists were so fond they had to name it twice, are 
still the same near-ape creatures who wandered off the 
African savannah 100,000 years ago. Now, these same 
creatures fill the seats of London restaurants, the 
plastic spectator seats of the Baltimore convention 
center when the Worldwide Wrestling Federation puts on 
its show, and the benches of sweatshops in Bangkok, where 
the latest fashions are stitched.

This animal, whether dressed by Kenzo or Benetton, is 
still subject to the same hard-wired instincts that beset 
and enabled his ancestors. And not just his close kin in 
the human species - but the entire line of evolutionary 
tissue, from the lowest ameobic bacteria to the most 
highly refined matron in the 16th arrondissement of Paris.

This animal, whose collective wisdom priced gold at $825 
an ounce two decades ago, now considers it worth only 
$280. But, an investor's view of what things are worth is 
not a consequence of rational, computer-like analysis. An 
investment may be worth $15 one day and $30 the next - 
without any real change in the underlying asset. An ounce 
of gold is still the same element, occupying the same 
position in the periodic table that it did when George W. 
Bush was at Yale. It is not gold that has changed.

These marvelous animals, investors, episodically become 
expansive and optimistic - filled with the hope of riches 
far in excess of what is likely to come their way. Then, 
they reverse themselves, spasmodically, and fear that the 
sky is falling.

And yet, progress, continues. And progress, too, is a 
result of the most basic process of nature - 
specialization and the division of labor.

From the beginning of life millions of years ago - with 
single celled bacteria floating in a sea of primordial 
soup - to the crown of creation, the human being, nature 
has become increasingly specialized. The human body has 
billions of cells - liver cells, brain cells, blood 
cells...all cooperating to replicate themselves in a 
competitive, unforgiving world. If the liver cells go on 
strike, or the brain decides to cease functioning - it's 
over. Unless, the person has already produced an 
offspring, every cell in the body will soon be history, 
and the genetic material that gave them life will have 
reached an evolutionary dead end. Every cell of the human 
body depends on every other cell to do its duty.

A Roman senator, Menemius Agrippa, used this analogy to 
head off a revolt of the Plebes:

"One upon a time, the members of the body began to 
grumble because they had all the work to do, while the 
belly lay idle, enjoying the fruits of their labor; so 
the hands, mouth and teeth agreed to starve the belly 
into submission, but the more they starved it the weaker 
they themselves became. So it was plain that the belly 
also had its work to do, which was to nourish the other 
members by digesting and redistributing the food 

Against all odds, this argument worked. The Plebes were 
given a couple of seats among the tribunes and the 
rebellion was called off.

Not only do cells cooperate within a single body, 
individuals cooperate within a society. The society of 
bees has been studied for hundreds of years. Some bees 
collect honey. Others guard the hive. And one - the queen 
- reproduces. Since there is only one reproducing female, 
all the bees are closely related. Sharing nearly 
identical genetic material, they all cooperate to make 
sure that it survives - gracefully sacrificing their own 
lives for the good of the hive, as necessary.

Humans have much more diverse genetic material. Most 
people breed. Still, they have specialized to such an 
extent that most are completely dependent on others. 

One man produces bread. Another produces wool. And still 
another writes the code to produce electronic games, such 
as Grand Theft Auto, which Jules was playing this 
weekend. (In the game, contestants steal cars and then 
get points for running down pedestrians. They get extra 
points for killing policemen and wrecking police cars.)

If the bread makers, and everyone else involved in the 
chain of food production - from the farmers to the 
waiters at the Tour d'Argent - were to go on strike for a 
very long time ...millions of people would die. But it 
doesn't happen.

Farmers go out of business. Waiters quit and become 
actors. Truckers go bankrupt. Whole areas of the world 
suffer droughts and other natural calamities. But the 
food keeps coming. The division of labor in the 
agricultural sector expands. 

Even farmers would starve to death if the division of 
labor breaks down - for few of them produce more than one 
or two crops. And few keep an inventory of their 
production for personal consumption. Instead, they find 
it easier and more economical to drive to the local 
grocery store. 

Likewise, not even gold mining companies stock gold. They 
typically sell it as soon as they can. As we learned when 
the price of gold jumped a few months ago, they actually 
sell it before they mine it. Many gold mining companies 
actually own less gold than you and I do. They've sold 
everything they've produced - and then some.

Specialization has been given a big boost lately - from 
the Internet and economic globalization. Do these things 
mean "it's over" for gold?

More tomorrow...

Bill Bonner
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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Last modified: April 01, 2001

Published By Tulips and Bears LLC