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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  They Shoot Horses, Don't They?

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 
gravity...and logic

*** 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 
find people. 

*** 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 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 
of Darwinism

"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 
wife announced. 

"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 

Your correspondent,

Bill Bonner

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 

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"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

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Last modified: April 01, 2001

Published By Tulips and Bears LLC