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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Generous Tit For Tat

In Today's Daily Reckoning:

*** Blah, blah, blah....another blah day. The Dow rose less 
than 3 points. The Nasdaq fell 93.

*** The price of gold rose a little as the dollar fell a 
bit against the euro.

*** Who can get excited about this kind of action?'s something interesting. The International 
Herald Tribune headline: US Reports A Surprising 5.3% Gain 
in Productivity... What makes it especially surprising is 
that it suggests that productivity is growing faster than 
GDP. Hmmm.... if output per unit of labor is going up 
faster than total output, this means that the labor figure 
must be falling. People must be working less. Do you 
believe that?

*** "What do the numbers show?" I once asked our accountant 
when we were considering selling a business to another 
publisher. "Whatever you want them to show," he replied, 
explaining how the complexities of the profit and loss 
statement could be stretched in a dozen different ways 
without violation of the accounting profession's elastic 
code of ethics.

*** Likewise, the inflation, productivity, and GDP numbers 
have come to resemble a bricklayer's tee shirt - so 
stretched is it from the original garment. Once you allow 
the idea that output can be determined by what the number 
stretchers think something should be worth - such as 
additional units of computer power - rather than what 
people are actually willing to pay for it... the whole 
thing is hopeless. Output is imaginary. And productivity - 
the amount of output per unit of labor - is an illusion 

*** Meanwhile, back in the Old World, they measure the 
economy in the old way. "Hedonic" metrics are used only in 
the U.S. (Though they are sure to catch on elsewhere - 
accounting fads that obscure the truth are always welcome.) 
Even with honest measures, Germany is doing pretty well. 
Unemployment is falling - to its lowest levels in 5 years. 
Chancellor Shroeder has pushed through a Reaganesque tax 
cut. And economic activity is reaching such a pace that the 
central bankers are threatening an increase in interest 

*** And in France, things are booming too. President Chirac 
has said he would like to follow the German's tax-cut lead. 
And what Ed Yardeni calls a "stealth New Economy" is 
producing a "quiet revolution" in the way the country does 
business. Industrial production is up 4.6%. And the streets 
are mobbed, even in August, as tourists from all over the 
globe come to France to spend their money.

*** But pity the poor Japanese. "Clueless in Tokyo," is how 
Yardeni puts it. "Rather than jumping aboard the New 
Economy bullet train," says the economist best known as the 
popularizer of Y2K, "they've chosen a discredited Keynesian 
policy mix of profligate fiscal spending with zero interest 

*** What's wrong with the Japanese anyway? How is it that 
they are completely cut off from the benefits of the New 
Era? Doesn't information technology work on the island? 
Have they no computers? All the things that Greenspan 
applauds - innovation, technology, productivity - are they 
unknown west of the Aleutians? 

*** The clueless Japanese save. Americans spend. The U.S. 
boom owes nothing to the New Era, and everything to the 
willingness of U.S. consumers to draw down their savings. 
"Coming from a high of 8.7% of disposable income in 1991, 
the personal savings rate hit a historical low of 0.6% in 
the first quarter of 2000," writes Dr. Kurt Richebacher in 
his latest letter. "Could this be the way nations prosper?" 
(Please see: What Makes a Nation Wealthy?

*** Perhaps not. But is certainly the way they light a fire 
under the economy and the stock market. The billions of 
dollars worth of foregone savings are taken up as 
additional consumer spending and investing. Business 
revenues increase. Stocks go up. It has nothing to do with 
innovation, technology or productivity. Of course, the fire 
goes out quickly if and when people decide that a dollar to 
two stashed away might not be a bad thing. That moment may 
have occurred in the 2nd quarter when, for the first time 
in many years, savings rates began to rise.

*** Cisco fell more than $4 yesterday. Investors must have 
come to their senses. It may be a good company. But it's 
not a $68 stock. 

*** More bad news from the retail sector. Walmart is close 
to $50 a share. Gap fell almost 15% after a poor earnings 

*** For the third time in a row, all three contestants in 
the latest WSJ stock-picking contest lost money. The latest 
results: the pros lost 6.6% of their money over the last 6 
months. Journal readers lost 17.3%. And the dart throwers 
lost 40.2%. It is hard to make money in this market.

*** Sept. crude oil is at $31.34. And AMZN is still 
fighting to stay above $30. 

*** I came back to Ouzilly on the train last night. All the 
family is now here - all six children... including Sophia, 
who spent much of the summer in Rye, NY. There's also 
Will's girlfriend, Suzannah. Plus, we have Elizabeth's 
brother and his family visiting, with their three little 
children. What a tribe! 

*** We installed a local network on our computers in the 
Paris office. But when I got back to Ouzilly, I discovered 
that somehow my normal compuserve system didn't work. I 
can't connect. I am cut off.

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"We all know deep down inside this it is reciprocity that 
keeps society going."
Ken Binmore

Is it love or money that makes the world go around?

Maybe it is both. 

In almost all primate species the males hunt. The females 
gather. Men in primitive tribes gain status by hunting big 
game. The more successful they are, the more affairs they 
have. Some monkeys are more direct, males returning from 
the hunt trade meat for sex. 

But along the Rue St. Denis, they take cash.

I decided to walk home from work on Wednesday night. We are 
in a new office in a new part of town. The walk would be an 

The streets are just as packed this time of year as they 
are in the winter months - but the people are different. 
Tourists replace locals. And there is less dog poop on the 
streets. The disgusting little dogs have gone off to the 
country with their masters.

My route home took me across the Rue St. Denis, where 
economy-class tourists jostled lowlife locals on the 
crowded streets. This is not a high rent area. The whores 
look as though their peak earning years are behind them. 
One, a woman with legs as straight and skinny as tomato 
stakes and a body like a sack of potatoes, made a beckoning 
motion to me as I passed. Ah...the division of labor, I 
thought. Something for everyone.

"Eeuuwww," I heard behind me. A pair of Japanese women were 
practicing the tight French vowel, "u". But the sound they 
were making sounded like it came from a duck blind on the 
lower Chesapeake. It was nice to know that some people have 
a worse accent than I do.

I continued down the rue St. Jacques. Ahead of me were 3 
young men - unmistakeably American. "It was like 
awesome..." said one, beginning a line of conversation that 
would go nowhere..."all the like 
altogether....I was like..." They had the baggiest shorts I 
have ever seen, with pockets so big you could take a nap in 
one of them. And the young men walked in such a loose 
manner I thought their arms would fly off.

As you go west along the Rue St. Jaques, you are going up 
market. The women get prettier. The crowds thin out. There 
are storefronts of Christian Lacroix, Yves St. Laurent, and 
other fashion moguls. As the rents increase, the displays 
in store windows thin out. Volume must decline - replaced 
by thicker margins.

I have been trying to connect the dots - between 
instinctive behavior, the division of labor, productivity 
and the price of gold. As the division of labor expands 
people become more dependent, and more willing to trust, 
others. They develop an expanding faith in an expanding 
system... such that they no longer feel the need to protect 
themselves with their own stocks of grain, or their own 
stock of money. 

Recalling Adam Smith's dictum that the division of labor 
would increase with better communications and a bigger 
market, I wondered how the Internet boosts productivity, 
expands the marketplace and reduces the need for gold as 

"Are you kidding," said Addison, "the Internet isn't 
increasing productivity at all. Do you realize how much 
time it takes to read the Daily Reckoning every day? And 
there are thousands of readers. We sent the latest one to 
27,845 people. You are personally," Addison pointed his 
finger at me, "responsible for a big drain on output."

I was thinking about that, crossing a square near the 
Louvre, when all of a sudden... a man on roller skates 
smashed into me, practically knocking me to the ground. He 
apologized and set off on his way before I could get his 
license number... But I was ready to forgive anyway; it was 
an accident. Generous Tit for Tat is the best philosophy.

All along the way, life went on. Buyers met sellers. Lovers 
walked in each other arms. On the rue de la Colisee, about 
8 men stood in various spots - each talking on his cell 
phone. I wondered if they were talking to each other. 

Finally, I stopped for dinner at the Cafe de La Trocadero. 
Behind me, a woman of about 80, who looked as though she 
had been very beautiful as recently as a quarter century 
ago, sat at a table with a younger woman. The older woman 
was dressed in what looked like a gypsy skirt - a light, 
multi-colored fabric coming down to the ankles... and a 
conservative blue sweater. I didn't get a good look at the 
younger woman. 

But I heard her speak: "So please go on...." she said, 
"tell me what happened when you went off with your 
philosophers." There was something about the way she spoke 
the word, "philosophers" that made me wonder what meaning 
to give it. Was she mocking the idea? Were they a rock and 
roll band with that name?

"Oh," replied the older woman, "it was wonderful. We had 
all gone to Corsica. I was deeply in love with Jacques, as 
I explained to you. I was in love with them all, actually. 
But there was something special about Jacques. The sun 
shone so bright every day... I got quite a tan. And we went 
to a bar every night and stayed almost until dawn. 
Laughing. Singing."

"But you know," she confided, "you can't do that forever. 
After a while, something went wrong. Maybe we had had 
enough. Paul seemed to get very jealous. He stopped 
painting. And we were out of money. But those were the 
happiest days of my life. I knew they couldn't last. And 
maybe that was why I loved them so."

Your humble reporter...listening...watching. Taking it all 
in. Trying to make sense of it.

Bill Bonner
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)

Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

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Last modified: April 01, 2001

Published By Tulips and Bears LLC