*** 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 & Noble.com 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
*** "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)
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: http://www.agora-inc.com/reports/CRIS/speculator/
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"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
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
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?
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 politicians...do not
change. Human wealth, grows. Not always, but usually.
Year after year, new innovations...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
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
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?
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Last modified: April 01, 2001
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