Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 10 AUGUST 2001
*** "Involuntary vacations" on the rise...but a sleepy
'sideways' summer day on Wall Street...
*** Economy's got you down? - live it up! After all,
there's always credit...
*** 'Mall Rats' to the rescue...the new fad among
Prudential analysts - 'sell'... and The Second Coming of
Jim Davidson...plus, a little bit more.
|*** Let's think of it as an "involuntary vacation"... |
yeah, that's better.
*** Initial jobless claims rose to an unexpected 385,000
last week, says the BLS. "Layoffs are still taking place
at a fairly brisk pace," reports Bloomberg. The week of
July 7th saw the highest number of jobless claims since
*** But why use such downer language? "Jobless" and
"Layoff" - they sound so much like 'negative drivel',
*** "With The Economy Down, Many Still Live It Up!"
reads a headline in the San Jose Mercury News. A firm
called Trade Winds Aviation is reportedly doing brisk
business teaching tech workers taking "involuntary
vacations" how to fly airplanes.
*** "Most of the local 1,500 workers Cisco laid off in
April, for instance," says the article, "came away with
six months' worth of compensation, including biweekly
paychecks that kept coming for months..." What do you
suppose happens when the sun sets, summer fades and it's
time to go 'au boulot' (French term meaning roughly 'get
your butt back to work')?
*** Well, I guess there's always credit. "The once-
Puritan work ethic that emphasized saving over
consumption has given way to widespread credit use,"
says economic sociologist Richard Manning. US consumer
debt is now pegged at $6.5 trillion...leaving each
household in America, on average, $12,000 in debt. Au
boulot, folks, au boulot.
Eric, what's happening on Wall Street?
Eric Fry reporting from New York:
- My advice to Mr. Market: seek therapy. He's becoming
just a little bit too manic-depressive these days. He's
happy. He's sad. He's happy. He's sad. Yesterday, he
spent all morning singing the blues. But by the end of
the day, life didn't seem so bad after all.
- The Dow Jones Industrial Average managed a 5-point
gain to 10,298, while the Nasdaq Composite shed a mere 3
points to 1,963.
- Even though the stock market finished the day boringly
close to break-even, there was plenty of action
elsewhere. The foreign exchange market slapped the
dollar around and gold surged higher. The greenback
dropped 1.6% yesterday, its biggest loss since July 18.
- Gold, which always seems to delight in a struggling
dollar, soared $5.50 per ounce to $276.20. Why the
sudden dollar weakness and gold strength? Why not? The
weakening U.S. economy provides no shortage of reasons
to sell the dollar and to buy alternative stores of
- Alas, yesterday when retail stores reported their
mostly dismal same-store sales, it came to light that
one of the last-enduring the pillars of our economy may
be crumbling - the consumer just isn't spending as
freely as he was before. Although consumer spending is
not drying up completely, it is certainly not gushing as
freely as it did last year.
- "With only slight poetic license," writes Christopher
Byron, "it apparently comes down to this: after six
interest rate cuts and more sell-side cheerleading from
Wall Street than anyone has seen in a generation, the
best hope for growth in the economy now looks to rest
with America's 40 million mall rats between 10 and 19
years of age...
- "$42 billion worth of federal income tax rebate checks
will be going into the mail, and so far as I can make
out, the Bush administration's entire economic program
now boils down to whether America's teen-agers can get
their hands on the money and blow it at the mall before
their parents put it in the bank."
- Will it work? Byron continues: "Will an economic pump-
priming to the tune of a mere 0.4 percent of the
nation's GDP over the next two and a half months somehow
offset the impact of a loss of more than $6 trillion in
stock market value since the tech bubble popped in March
- On the other hand, hedge fund manager Michael Lewitt:
"If Americans started saving 1.6% of their monthly
income, it would lead to a 1.1% decline in real GDP
growth...In other words, if consumers stop spending,
this economy will fall off a cliff."
- Maybe what this economy needs is more Pentagon-issued
credit cards. AP reports, "Here's what a Pentagon
infamous for buying overpriced toilets and hammers
produced when it handed out credit cards to its
employees: 10 million purchases, $9 billion in debt and
plenty of examples of fraud. The fraud ranged from a
soldier who spent $3,100 at a nightclub to an Army
reservist's wife who went on a $13,000 shopping spree in
Puerto Rico...So far, 1.8 million cards have been issued
to defense workers, according to the GAO."
- The good news is that not each and every one of the
1.8 million cardholders has committed fraud. But think
how our GDP would grow if they did!
- "The Federal Reserve chairman [was] no impartial
observer of the boom," James Grant observes. "He seeded
it, accommodated it, celebrated it and defended it from
those who believed they saw it turn into a bubble. He
was as uncritically and besottedly bullish as the
luckless brokerage-house analysts who have fallen under
the gaze of the Washington inquisitor, Rep. Richard H.
- Grant continues: "Fearful of a Y2K calamity, the Fed
stuffed tens of billions of dollars of credit into the
banking system late in 1999. Not for the first time in
monetary history, excess credit raised speculative
spirits, inducing a sense of optimism bordering on
- Intriguingly, ever since Prudential Securities
divested most of its investment banking operation
earlier this year, a growing number of the firm's
analysts have learned to write: S-E-L-L. "The firm's
analysts rate 28 of the nearly 450 companies they cover,
or 6%, a 'sell,'" Crain's reports. "That is up from just
one - not even 1% - a year ago, according to First Call
- "That makes Prudential analysts four times more likely
to say "sell" than their peers at other firms, where on
average, only 1.5% of companies get slapped with 'sell'
- When Prudential analysts rate all but 6% of all stocks
they cover a "sell," we will know that the bottom is in.
To Addison, in Paris...
*** Hmmmn...here's some more "negative drivel" to spruce
up your Friday afternoon. "Historically, all busted
bubbles result in regression to mean value of the busted
bubble assets," writes Bill King. According to Barron's,
of 28 bubbles in various assets, all resulted in return
to, or below, mean valuations. That's a 14.5 P/E for
*** As we reported yesterday, P/Es on the S$P are
currently sitting at 26. A drop to 14.5 would mean S$P -
636...a stunning 547 point drop from today's opening.
*** What if the market doesn't revert? Well, when P/E
ratios are about 21 or so, reports the Leuthold Group,
the average return on stocks in the subsequent ten years
is only about 4.9%.
*** Still, it's summertime and the livin' is easy. And
as Money.com's Bethany Mclean reports "...as the summer
season segues into August, a good deal of the developed
world's equity players are headed for the beach." You
might as well enjoy what are likely to be lower volumes
and less volatility in the markets until the earnings
season heats up again in September.
*** Lastly, I'd like to bid adieu to our exceptional
intern, Jennifer Westerfield, today. She spent the
summer with us here in Paris... alas, duty calls and she
must return to Texas, where she'll resume classes for
her final year in college. We see bright days ahead for
Jennifer; she will be missed. Bon voyage!
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The Daily Reckoning Presents: The Second Coming of Jim
Davidson... in which the author - having made himself
famous among DR readers for experiencing a New Era
epiphany on the eve of the Nasdaq meltdown - takes a
look at the profitable applications of technology in
PROFITING FROM CELLULITE
By Jim Davidson
"Plagiarize, Plagiarize, why not use your eyes?"
- Tom Lehrer
If you've looked at Americans parading at the beach
lately, you might be licking your chops at the prospect
of any idea for capitalizing on cellulite. There has
never been more of a bull market in cellulite in the
history of the world.
I notice it all the time, mainly when limbering up in my
local gym, where the floor mats are directly behind the
Precor elliptical trainers, creating a perspective known
as the "Cellulite Gallery."
Some of the women gamely exercising have so much
cellulite dangling from their hips and legs that you can
see it jiggle through their tights. It is an unsightly
reminder of a major opportunity ignored.
Let me explain. The identification of cellulite, along
with the multi-billion market for remediating it, are
epiphenomena of technology.
The first thing that should be understood about
cellulite is that it is nothing new in evolution.
Indeed, "cellulite" is not even a medical term. It is
simply another word for "fat." Americans may be the
fattest people in history, but fat has been around
almost as long as life itself.
That said, you would find it impossible to track a
history of cellulite or cellulite remedies beyond a
horizon that extends back for more than a quarter of
century. The word "cellulite" was only invented by
French dietitian, Nicole Ronsard, about 20 years ago. By
contrast, there have been fat women through the ages.
Rubens' paintings; even those of Renoir, suggest that
portly women were considered the epitome of beauty in
Be that as it may, no one seems to have noticed the
unsightly globs and wrinkles of fat tissue jiggling just
beneath the surface of so many women's hips and legs in
Ruben's time, nor that of Renoir. Little attention was
paid to women's legs because they were never seen in
public. Even in private, the lighting was not very good,
and few women paraded around exposing their bodies to
scrutiny. Through most of history until recent
generations, legs were covered. Sometimes even women's
arms and faces were veiled behind layers of clothing.
Technology has helped make heavy clothing to hide
women's bodies anachronistic. The Information Revolution
in the last half of the 20th century made it much more
acceptable for women to go around half naked. For one
thing, technology has steadily diminished the importance
of physical strength in combat and making a living. A
woman can launch a guided missile as well as a man. And
the muscularity required for most jobs has steadily
Of course, an argument can prove too much as well as too
In principle, a woman might as well have pulled the
trigger on a machine gun, or ignited a blast from a
cannon as a man for many years past. But this did not
happen for good reason. So long as there were rising
returns to violence in an economic sense - meaning that
larger forces generally defeated smaller ones - it would
have been destabilizing for women to have entered
It was only during the last decades of the 20th century
that the Information Revolution created diseconomies of
scale in the deployment of violence, opening the door to
organizational challenges to the nation-state system.
This was a solvent that helped dissolve many traditional
Information Technology has raised the returns to the
most intellectually talented individuals, many of whom
are women. In the process, it has both reduced the
incomes of uneducated males and increased those of
educated females. This has made women more economically
independent of men.
So-called "women's liberation" was just the sociological
soundtrack that arose to keep these technological
developments company. Add to this already potent mix,
the birth control pill, which made recreational sex more
feasible in reproductive terms, and it is little wonder
that cellulite went undiscovered until recent years.
In traditional societies that emerged when physical
force was predominant in defense and muscularity was
crucial for securing a livelihood, women were far more
likely to remain in subservient positions. You can still
see this for yourself in many parts of the globe.
Not long ago, I was in a remote village in central
Turkey, reviewing the site of an amazing gold discovery
by Anatolia Minerals Development Corp. All the women I
saw wore baggy pants and long-sleeved blouses and
sweaters, not to mention, veils and scarves over their
faces. Without doubt, some of these women were hiding
cellulite behind their ample costumes. But they were
under no public pressure to trim and tone their bodies.
Any man who chanced to see their cellulite would be
taking his life in his hands.
Technological developments, now well established in
Western economies, have allowed women to drop the veil -
and more - to compete for the attention of men. A
logical, indeed, an almost inevitable consequence of
this competition under conditions of "full disclosure,"
has been pressure on women to "shape up."
All the billions spent on running shoes, health clubs,
spas, diets and other remedies for "cellulite" are but
the logical consequence of dynamic of human
relationships tilted in a new direction by technological
As I view the future, the probability is high that
entrepreneurs marketing remedies for cellulite will find
themselves selling into even more avid markets in the
future. Advances in biotechnology that extend life and
mitigate the deleterious effects of aging will prove
ever more profitable.
That technology is a major part of this trend should
inform your investments without making you into a geek.
The hidden logic of technological change permeates
almost every feature of society.
If you wish to succeed, in your business, your
investment and your livelihood, it would be a rash
mistake to dismiss the importance of technology.
for The Daily Reckoning
p.s. I have a prejudice to reveal, in that I am a
director of Anatolia. I would not have been in Turkey
otherwise. But that aside, Anatolia has something
extraordinary to report.
One of its drill holes at Cukurdere, Turkey, has brought
evidence to the surface of the richest gold find from
any drill hole in approximately 30 years.
The drill intersected a gold zone to a depth of 93
meters, with 26 meters at 27 grams per tonne, including
17 meters averaging 1.2 ounces of gold per tonne. To put
this in perspective, these results alone establish a
deposit worth approximately $2 billion. Yet the stock
rose on the announcement, to give Anatolia Minerals a
market cap of just $14,040,000 - a massive discount to
the value of the deposit, which is still being extended
by additional drilling.
If your interested, keep an eye out for my new
newsletter, Vantage Point.
James Dale Davidson is the author of several best-
selling investment books, including The Sovereign
Individual. In September of this year, Jim will launch
"Vantage Point": a new exploration of profitable
opportunities in the application of technology to
existing Old Economy businesses.
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The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.