In Today's Daily Reckoning:
*** A blah, blah summer day
*** Labor is still tight - no matter what the BLS says
*** Dollar up...retailers down...Cisco defies
*** Blah, blah, blah - nothing but blabbering gibberish
coming from the financial press today. Investors are
"concerned about a slowing economy," said one report.
Others were worried about a still-tight labor market.
*** That labor market is worth mentioning. The Fed's
Beige Book report came out yesterday - with all the usual
blah, blah. The Beige Book painted with shades of gray -
gave mixed signals on the labor market.
*** On the one hand, we have the BLS figures - and the
New Era illusion - that higher productivity reduces the
cost of labor per unit of output. On the other hand, we
have the reality of the labor market.
*** One DR reader reported that the people he knew
complained of being forced to work 10 to 15 hours a day
to keep up with the workload. Employers polled by the Fed
said that "employees don't show up for work." And that
they needed to offer free food and sign-up bonuses to
*** So, it was a blah day on Wall Street. The Dow, which
had reached above its May trading range on Tuesday,
retreated back into the range on Wednesday - falling 71
points. The nation's top retailer, Walmart, met analysts'
expectations. But meeting expectations is not good enough
in this market. And WMT lost more than $4. Retailers -
which represent 2/3rds of the economy - fell 3.37%,
according to the S&P Retail Index.
*** The Nasdaq managed a little progress - but not much.
It rose nearly 5 points. Much of the gain came from
Cisco. "Cisco's earnings defy gravity," said Red Herring.
"And the end of this phenomenal success story," the
journal continued, "does not appear in sight." CSCO beat
analysts expectations - by, guess what - a penny. And it
expects to increase sales by 50% over the next year. Even
so, the stock, trading at 140 times earnings, defies
logic as well as gravity. It is more than 300% of what it
ought to be, which makes the downside a lot more menacing
than the upside is appealing.
*** The Dow is up for the year - but only a trifling
1.8%. That's about half of the inflation rate. Adding in
dividends, a typical Dow investor is still losing money.
*** Oil rose a big $1.23 yesterday - bringing the price
back above $30.
*** Richard Russell reports that CSCO has $55 billion
worth of options outstanding. MSFT has $61 billion. Intel
has $40 billion. These represent, of course, a latent
'short interest' in the stocks. And since the companies
have demonstrated a willingness to re-price the options
lower in order to keep key personnel, it seems likely
that they will be exercised. Even at lower values, these
will mean a huge dilution of shareholder interests.
Ultimately, only the employees may profit from these
*** The dollar rose again. The euro fell to 89.88 cents
at one point - but closed above 90. This is the market I
am watching most closely. The dollar could hit a new high
and signal another major bull phase. Right now, I
wouldn't bet on it. But who knows? Advancing stocks beat
declining ones yesterday...and the number of new highs
was 3 times the number of new lows. Money is still
pouring into mutual funds. And the rising dollar means
that foreign money is pouring into U.S. markets too.
*** One place it must be coming from is Japan - where the
Nikkei once again fell below 16,000. Japan has fallen.
And it can't get up.
*** And Amazon.com lost $2 1/16 yesterday, to close just
above the $30 mark.
*** "By living transnationally, you can flat-out enjoy a
higher standard of life at a lower cost," writes my friend
Jim Davidson. If you're interested pursuing higher
standards for yourself, I'm told there's few spaces remain
on the Sovereign Society European Advantage Tour, Sept. 16-
23 them... contact Amberlee Huggins by e-mail:
(see: What If You Don't - As Yet - Have Millions?
*** Meanwhile, here in the Paris office, the summer blahs
are as far away as Wall Street. "It sure is a jolie matin
this morning," said my assistant Addison, redundantly.
We're here next to St. Merry's - where the bells ring
every quarter hour. Maybe we'll put an audio feed on the
Daily Reckoning so you can hear them. The sun is out, and
across the street a pretty young woman in her pyjamas is
watering the flowers on her balcony. In the next
apartment over, a portly, shirtless man is playing
classical works on the piano. His playing equals anything
I've heard in any concert hall or on CD.
*** I'm going to ask Addison to take some photos and put
them up on the website. Watch this space.
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"Who are the fittest: those [species] who are continually
at war with each other, or those who support one another?
We at once see that those animals which acquire habits of
mutual aid are undoubtedly the fittest."
Russian anarchist, Peter Kropotkin,
redefining the 'tooth and claw' image
"You want to do what?"
The conversation was beginning badly. Elizabeth had just
introduced me to a young woman in riding pants and boots.
Was her name Celine? Or Sandrine?
It didn't matter. But I soon learned the purpose of the
"I've asked her to ride the horses when I'm in Paris," my
"That's nice," I replied.
"And, of course, we have to pay her."
"Wait, don't you think this is taking the division of
labor a little far? I mean...paying people to ride your
horses. What kind of hobby is that?"
"Maybe I should take up golf," I added sarcastically. "I
hate golf. But this will give me a way to do it without
actually having to chase the little white ball myself."
"Or maybe I should pay Doug Casey to play polo for me," I
said, warming to the idea. "I always wanted to be a polo
"Hmmm... if I'm going to take up a sport, I might as well
try to be good at it. Maybe I could pay Cal Ripkin to
play baseball for me. He could play baseball and I could
do the milk ads."
There are limits to the division of labor. I know no one
who's made a successful career out of offering to sleep
with other men's wives. That is something men usually
want to do themselves. People will pay others to take
care of their houses while they are away on vacation...
but few will pay to have someone take the vacation.
There are limits to everything.
You may have forgotten, as I almost did, where this line
of thinking began. I realized that there was some truth
to the idea that "progress!" reduces the need for gold.
That encouraged me to look at out how progress actually
I have been taking apart the drive train of progress -
examining each piece, from the piston of self-interest,
to the gears of specialization to the universal joint of
the market to the turning wheels of productivity. And all
of it is slathered with the grease of collaboration - the
parts working together to drive the machine forward with
the least amount of wasteful friction.
The mechanical metaphor is not the right one - the actual
process is more organic, biological, and evolutionary -
but it will do for now.
For decades a debate has raged in academic circles about
the grease. Is it really based on some instinct to
cooperate and be nice? Or does it have a corrosive
character - a cold calculation of rational self-interest,
leaving people to exploit each other, taking advantage
whenever they can get away with it...and defecting from
the social contract whenever it suits them?
We've seen that this is not what people do. At least, not
most of the time. They don't do it because it doesn't pay
for the group. Defecting invites retaliation.
In Northern Ireland, if an IRA gunman wants to stir up
trouble, he will kill a Prostestant. He can be pretty
sure that this will touch off reprisals. They actually
call it 'tit for tat' killing.
A refinement of the Tit for Tat computer program, called
Generous Tit for Tat, proved even more successful at
winning the 'game theory' exercises. It often forgave
rather than retaliate. Taking the system as a whole, and
looking at it over a long period, more generous
strategies seem to work. Both in games... and in life.
Primitive hunters share out meat - even to those who
don't participate in hunts. People give gifts - often
with no thought of direct or immediate pay back. Generous
actions appear to build trust and social standing - which
allow further refinements to the division of labor, and
the well-being of the group.
Trust is essential in a large, diverse society... as well
as human's oldest division of labor and most sublime
partnership - marriage. Pairing off by twos is an
enduring feature of all cultures - from the most advanced
to the most primitive. There have been some exceptions -
such as a West Africa tribe that allowed the chief to do
all the mating for the group... and perhaps some hippie
communes... but they have been evolutionary dead ends.
Trust in marriage allows a man to hunt and a woman to
gather... with the confidence that their fruits will be
shared out. It allows a man to have a reasonable degree
of confidence that the children he is supporting share
his genetic material... and it allows a woman a similarly
reasonable confidence that the man upon whom she relies
will not defect when he is needed to help raise the
Even in today's world, a breakdown in trust in a marriage
destroys the basis for collaboration. A defecting partner
is soon on his own - doing his own laundry and gathering
his own cereal at the local supermarket.
But trust, like the division of labor, and the faith
people put in paper money - sometimes breaks down.
Marriages fail. Partnerships break down. Deals go bad.
Kids play Grand Theft Auto... and then steal cars. That,
too, is a fact of life. People defect. Things go wrong.
And when they do, the market sorts out the wreckage.
Thus, we have made little progress in our thinking about
gold. We return to where we began. Gold now has many
competitors - innovations that have niched out ways to
protect wealth from inflation. There are derivatives and
exotic investments nearly as numerous and varied as
butterflies. Lepidopterist investors can search for them
to their hearts' content. But none of them have quite the
track record nor the balance sheet of gold itself. "Gold
is," as Doug Casey has written, "the only asset that is
not simultaneously someone else's liability." In the
great meltdown of financial assets that could lay ahead -
Deutschebank or Goldman or the Bank of England could
default. But an ounce of gold will not.
The market, in its wisdom, prices gold largely in
accordance with the trust that people have in its
competitors. That trust is now running so high that
people feel they can rely on electronic impulses - not
just for their next meal, for which they will pay with a
credit card, but for a stream of income in their
retirements which could stretch 30 years into the future.
Thus, a modest prediction: gold is likely to experience
another cyclical rise before 'progress!' puts it out of
P.S. Reciprocity is the single most important rule of
human relationships. When Jesus said to treat your
neighbor as you would want to be treated, he was not
merely providing moral guidance, but describing the way
things tend to work best.
One of the interesting discoveries of the zoologists and
economists studying cooperation is that the longer the
relationship, the more cooperative people are likely to
be. Short-term relationships tend to be exploitative,
like a dinner in a tourist restaurant. But a long-term
relationship is more like dinner in a restaurant catering
to locals. The food and service are better - because
there is more at stake. People tend to give up short-term
benefits for themselves - in favor of the long-term
benefits of the relationship.
"Wouldn't it be cheaper and simpler to sell the horses,"
I asked Elizabeth rhetorically, "and let someone else pay
you to ride THEIR horses."
"It doesn't work that way," she said. With a logic that
would choke a computer, she explained that while it is
reasonable for her to pay someone to exercise her horses,
no one would pay her to exercise theirs. "But don't
worry," she added generously, "I don't expect you to pay
for it. I'll pay for it myself."
"Oh no," I replied quickly, feeling a little miserly,
"you shouldn't have to do that."
"Yes...I'll pay for it," she said firmly.
"Okay," I gave in graciously, "Or I'll shoot the darned
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Last modified: April 01, 2001
Published By Tulips and Bears