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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Second Coming of the Bull Market

*** Investors - and consumers - throwing in the towel? 

*** Havoc in the markets - and "beige" is such an 
innocuous color...there's that nasty little phrase 
again: "conflict of interest"...

*** Home equity "mining" still in vogue - could it be 
all that's left...aoutiens and the route de la 
"Velorution"... readers react...wealth in the 20th 
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*** "Investors could be throwing in the towel," an 
investment analyst told Bloomberg. "The market decline 
has been such a long, drawn out process, I think they're 
giving up." Investors reportedly "yanked" $14.7 billion 
from stock funds in July. 

*** Our hero, the almighty American consumer, may be 
capitulating too. According to the Fed, consumer 
borrowing dropped $1.6 billion in June - the first 
decline since 1997, and the largest since 1992...the 
last time the "r" word was on everybody's lips. 

*** And there's that messy little phrase 
again..."Merrill Lynch - while refusing to admit any 
wrongdoing - has agreed to pay $400,000 to settle a 
claim by Debasis Kanjilal, a New York pediatrician," 
writes Prudent Bear's Marshall Auerback. 

*** Kenjilal lost $500,000 betting on Infospace - a 
Henry Blodgett recommendation. The doctor and his wife 
sued Blodgett and the firm for $10.5 million. While they 
bought Infospace at close to its peak price of $133, 
they had to sell it for $11...the suit claims Blodgett's 
recommendation constituted a "conflict of interest".

*** Mary Meeker, Queen of the Internet, may have also 
been conflicted. Meeker has been named in a suit by 
several investors who lost money on Amazon and eBay. 
They accuse Meeker of making positive recommendations 
based on "her desire to attract and retain investment 
banking clients for Morgan Stanley." 

*** Revulsion...retrenchment, this 
all just "negative drivel"? Perhaps. More in a "guest 
essay" below. First, let's check in with Eric. 


Eric Fry reporting from the scene of the crime:

-'s such a nice, neutral color. It seems like 
the Roy Rogers and Dale Evans of color - one that could 
not possibly offend and certainly not one that could 
cause any harm. But now we know better.

- From the moment the Federal Reserve released its 
"beige book" yesterday, investors gaped in horror and 
fled for their financial lives. By the time the 
pandemonium had subsided, the Dow had dropped 165 points 
to 10,293. The Nasdaq spiraled down about 3%...falling 
61 points to 1966.

- Few stocks escaped unscathed, with all Dow components 
except Coca-Cola finishing lower on the day.

- Bonds celebrated the grim economic news by rallying 
sharply - the 10-year Treasury note yield falling down 
to 5.05% from 5.17% on Tuesday.

- The so-called beige book is an anecdotal survey of the 
economy produced by the Fed. The latest edition, 
released Wednesday, featured an economy down on its 
luck. Specifically, the country's months-long 
manufacturing slump is now reverberating throughout the 
entire economy.

- "Manufacturing activity declined further in recent 
weeks," the survey concludes, "as producers responded to 
ongoing weakness in demand and worked to balance 
inventories. Reports of reduced work hours, lost 
overtime, forced furloughs, plant shutdowns, and layoffs 
were pervasive."

- Low-lights included: "Conditions in real estate 
markets softened"; "Many districts noted that airline 
bookings, hotel occupancies, and hotel room rates fell 
in recent months"; "Retail sales generally remained weak 
in June and July"...

- The beige book "does not paint a pretty picture," 
First Albany Corp.'s chief investment officer Hugh 
Johnson told "The illusion of a second-
half economic recovery is now transmuting into the 
prayer for a recovery in the first half of 2002," 
cautions my friend Michael Lewitt of Harch Capital 
Management. "Don't bet your last dollar on a recovery 
anytime in 2001 or early 2002 - or it may become your 
last dollar."

- As a hedge fund manager specializing in junk bonds, 
Lewitt enjoys a front row seat from which to view 
economic booms and busts. He observes, "U.S. companies 
defaulted on $53.8 billion of corporate debt in the 
first six months of 2001 and may break last year's 
record of $131.8 billion." 

- Yet despite the "repayment optional" mentality that 
many borrowers exhibit, banks continue to lend willy-
nilly to corporate and consumer borrowers alike.

- Meanwhile, home-equity "mining" has become, for some, 
a kind of career. "There are people [in hot areas] who 
live on refis of appreciated housing," observes James 
Grant citing the Mortgage Bankers Assoc. "Mortgage 
originations this year will reach [a record] $1.54 
trillion...fully half of this year's refi transactions 
have put money in the borrower's pocket." 

- In 1945, Americans owed mortgage creditors just 14% of 
the value of their homes - the rest, 86%, was theirs in 
equity. In 1985, they owed 32%. As of the first quarter, 
they owed 45%, leaving 55% in equity. During the 
fabulously prosperous 1990s, homeowners ran down their 
equity by almost 10 percentage points. 

- Tell me again what "savings" the boomers are counting 
on to fund their retirement years?


To Addison, back in Paris...

*** You may remember, back in March, that our own Thom 
Hickling was on the scene as a coalition of Socialists 
and Green party activists won the mayoral election in 
Paris. While partying in the streets in front of Hotel 
de Ville with the victors, Thom snapped a photo of some 
celebrants holding a sign reading: "Deviation".
In case you didn't see it the first time:

*** At the time, we were puzzled by the sign's meaning. 
Not anymore. Soon after the election, the Green Party's 
Alain Lipietz named a three-mile stretch of road along 
the right bank of the Seine the "route de la Velorution" 
- a compound of the word for bicycle and revolution. He 
banned cars from it, through Aug. 15. The rest of the 
story made international news.

*** "For the aoutiens, as Parisians who stay in town are 
known," says UPI, "the sweet days of empty streets have 
vanished. Vehicles that usually use the George Pompidou 
way, as the segment of road is properly named, are being 
obliged to use and clog up the streets." Now even the 
socialists have joined in condemning the pollution and 
traffic problems caused by the Greening of Paris.

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The Daily Reckoning Presents: A Guest Essay... a 
rebuttal of sorts. 

by Addison Wiggin

"You plant a rose, you get a do not get a 

Her accent was thick, but since the discussion had 
veered headlong into the subject of religion, we had 
abandoned my French altogether.

La Fete de la Vierge - a religious celebration in honor 
of the Virgin Mary - is next Wednesday. My French 
colleagues will be taking the day off from work. 

"Well, I don't know anything about it," I said. 

"What denomination are you?"

"I'm a deist..."

"What's a deist?"


"Is that like being a Buddhist? I'm a Buddhist. Sort of. 
I'm Catholic by birth..."

"A deist is a kind of agnostic, but respectful."

"Do you feel responsible?"

"For many things...but I don't expect much personal 
attention, er, from above."

"Me either. You plant a rose. You get a rose."

Yesterday Porter suggested that while we'll "undoubtedly 
have continuing economic cycles - booms and busts - I'm 
more convinced than ever before that Bill's view of the 
20th Century as a period of ruin for humanity is totally 
wrong. And, more importantly, I'm convinced that the 
coming years will be better for us than we could 
possibly imagine. Better financially. Better physically. 
And vastly richer."

Much of Porter's optimism can be found in a report 
published by the Cato Institute titled: "The Greatest 
Century That Ever Was". 

The report shows the progress we've enjoyed in the 20th 
Century - largely due to advances in technology. "Life 
expectancy has increased by 30 years," reads the 
report's executive summary, "infant mortality rates have 
fallen 10-fold; the number of cases of (and death rate 
from) major diseases - such as tuberculosis, polio, 
typhoid fever, whooping cough, and pneumonia - has 
fallen to fewer than 50 per 100,000; air quality has 
improved by 30 percent in major cities since 1977; 
agricultural productivity has risen 5 to 10-fold; real 
per-capita gross domestic product has risen from $4,800 
to $31,500; and real wages have nearly quadrupled from 
$3.45 an hour to $12.50."

The list of improvements in human life in the last 100 
years is truly remarkable. In fact, if you haven't 
already, I suggest you give this report a once-over: 

The Greatest Century That Ever Was

"The central message of the study," writes Cato's 
Stephen Moore, "is that the fruits of a free society are 
prosperity, wealth, and better health. All of the 
evidence [suggests] that in every material way, life in 
the United States, with a population of 270 million, is 
much better today than it was in 1900, when the 
population was 75 million.

"Moreover, the American people are net resource 
creators, not resource depleters...We have produced more 
than we have consumed, leaving savings and wealth to our 
children and grandchildren."

"Capitalists and entrepreneurs continue to make the 
world a better place" writes Mr. Stansberry. "And for 
this, they make a profit and their investors earn a 

As an example he provides us with a company worth 
looking into - Antigenics. "The company has trended 
higher this year, despite the bear market," says Porter, 
"moving from $11 to over $17 today because its success 
isn't tied to our economy, but instead to the 
technological prowess of its scientists."

I was intrigued, so I took a look. Antigenics is 
currently trading at $16, has a market cap of $438 
million...but no reportable earnings. Porter himself 
mentioned they have not had a saleable product since 
1994. So, I wondered, how do you know if it's a good 

"If I taught a class," said Warren Buffett, "on my final 
exam, I would take an Internet company and ask 'How much 
is this company worth?' Anyone who would answer, I would 

To my mind, you would have to dunk Antigenics into the 
same litmus solution. The only way you could hope to 
even get your money back from this stock would be if 
somebody else wanted to own it exuberantly enough to pay 
you more for it than you paid. Which might even have 
worked last year. 

"What a refreshing piece by Porter Stansberry," wrote a 
DR reader on the website discussion board. "...amid the 
continuous negative drivel that one usually reads here. 
The sky is not falling. Once the bull market resumes, 
what will you do?" 

"You could become professional mourners," he suggests 
"and appear at funerals with your doleful faces."

That might be a little too ambitious for us. 

In fact, today I've set my sights a little lower. While 
we're all grateful for the advances of the 20th Century - 
personally I'm a big fan of the Internet - I'll resist 
the temptation to explain them all and suggest only that 
the Second Coming of The Bull Market is a little farther 
off than one might expect...leaving the "little guy" in 
a bit of a precarious situation if he's expecting to 
flip stocks for a profit.

Jeremy Grantham points out that in 1929, the markets 
settled into a 17-year bear market, succeeded by a 20-
year bull market...followed in 1965 by a 17-year bear 
market, then an 18-year bull. "Now are we going to have 
a 1-year bear market?" asks Grantham. "It doesn't sound 
very symmetrical." 

All the usual suspects - Fed rate cuts, the so-called 
productivity 'miracle' - have been rounded up and are 
standing quietly in the line waiting for their mug shots 
to be taken.

"Given that the Fed has now reduced interest rates six 
times this year," wrote Richard Russell on Tuesday, "the 
stock market should be surging higher. Since 1971 there 
have been 13 Fed rate-cutting cycles (not counting the 
current one). In 10 out of the 13 cycles, the S&P was 
higher six months after the first Fed cut, and this was 
true of the Nasdaq as well. From 1971 through 1999 the 
average gain for the S&P six months after the first Fed 
cuts was 12.4% and the average gain for the Nasdaq was 

Instead, the S&P at 1183 is 10.4% below its level at the 
close of 2000, just 3 days before the first rate cut. 
The Nasdaq is down 20.4% for the year this year...and 
the average mutual fund down 8.65%. With the news that 
$1.6 billion dollars was "yanked" out of investment 
funds in July, you might expect them to decline further. 

"Reckonings don't last. Redemptions follow," Porter 
asserts. No doubt, this is true. But how long do you 
want to wait? Can you afford to wait at all? 

"Broken promises, unfulfilled expectations," writes Mark 
Rostenko, editor of the Sovereign Strategist. "Rate cuts 
don't work, earnings ain't getting better, the Fed is 
still full of crap and propoganda, why [would anyone] 

"In 1929 the S&P 500 peaked at 21 times earnings," 
points out Mr. Grantham. "In 1965 it peaked at 21 times. 
Not so long ago it peaked at 33, and is now somewhere 
around 26... 

"[Does anyone] really think," he continues, "we're on 
the edge of the next bull market when the p/e of the S&P 
is still higher than its pre-'29 crash?"

"Folks are catching on that it might not be so simple 
this time around," says Rostenko. In a bear market, with 
investor recrimination on the rise, one might be a 
little more skeptical about companies with no 
earnings...and no products. But that's up to you...

You plant a rose. You get a rose.

Until then,

Addison Wiggin, 
The Daily Reckoning

Addison Wiggin is the managing editor of The Daily 
Reckoning. A founding member of the DR Blue Team, Mr. 
Wiggin is also the author of The DR Weekend Edition - a 
weekly wrap-up of contrarian investment analysis.

DR Blue Service:
About The Daily Reckoning:

Daily Reckoning author Bill Bonner

Bill Bonner is, in spite of himself, a natural born contrarian. Early each morning, Bill writes The Daily Reckoning—his take on the financial markets and what’s going on in the world—and 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 up—not 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 ’90s—opening offices in Florida, London, Paris, Ireland, and Germany.

Agora's publication 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.


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Last modified: August 13, 2001

Published By Tulips and Bears LLC