Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 20 AUGUST 2001
*** Three weeks - and not a single e-mail...what do you
really need to be happy?
*** Greenspan - Hall of Famer - in for "just one more
season" - maybe tomorrow would be a good day to play
golf... Nasdaq down 10% in the last two weeks...
*** Henry's "Super-Soaker" - obviously a dangerous
weapon... Nicaragua, Sandinistas, dusty roads, quick-
witted chickens...and much, much more...
|*** No phone. No TV. No radio. No newspapers. No e-mail. |
For the last three weeks, I've been on vacation in
Nicaragua. (About which, more below...)
*** Our vacation began idiotically and ended the same
way. Henry had gotten a giant "Super Soaker" water toy
for his birthday, which he tried to take on the airplane
in Baltimore. The toy is either a water cannon or a
water-powered rocket(I have never seen it in action). It
is so big and clumsy that it might be mistaken for the
space shuttle - if you thought the space shuttle were
made of transparent plastic. But only a complete moron
would believe it could be used as a weapon.
Nevertheless, the security guards took the Super Soaker
toy away and put it in with the checked luggage on the
grounds that Henry might be planning to use it to hijack
"When was the last time someone used a Super Soaker in a
hijack attempt?" I asked the guard.
"Best to be careful," he replied without a trace of
*** But it's a good thing I didn't ask the question in
Houston. Returning to the U.S., we discovered that the
security forces of Houston were just as blockheaded as
those of Baltimore. "Security regulations are taken very
seriously," proclaimed a regular airport announcement,
"jokes or inappropriate comments may lead to your
arrest." But they would never take me alive...not as
long as I had my Super Soaker.
*** Nothing much seems to have happened in the markets
while I was away. The Dow and Nasdaq are not far from
where I left them. Neither is Gold, although it is up a
little. Amazon looks like it has fallen below the $10
mark. Still, let's check in with Eric to see what
happened on Friday...Eric?
Eric Fry reporting from Wall Street:
- Greenspan is beginning to resemble the Hank Aaron of
1976 or the Mike Schmidt of 1989 - certain Hall of
Famers who decided to play "just one more season."
- Aaron, a lifetime .305 hitter, and the all-time home
run leader, batted .229 for the Milwaukee Brewers in
1976 and managed to hit only 10 balls out of the park.
- Schmidt batted .203 during the 42 games he played in
1989 and hit only six home runs. At least he had the
good sense to hang up his cleats in May of that year.
- But the chairman of the Fed keeps suiting up every day
and taking his hacks at the plate. His teammates
politely pretend that the Hall of Fame central banker
can still hit for power. But the fans are embarrassed
for him. "The Chairman's" bat no longer packs a wallop.
- It's kind of pathetic really. The more he tries, the
more the economy stumbles, the more stocks slide, and
the more the dollar falls.
- Nevertheless, he will step up to the plate once again
tomorrow and take another cut at driving the economy out
of the park. I predict he will strike out - for the
seventh time this year.
- Once the FOMC game is over, we will return to a world
of withering corporate profits, declining employment,
and leveraged consumers.
- Is it any wonder that on Wall Street these days
sellers seem a little more anxious than buyers?
- SmartMoney.com's Igor Greenwald offers some friendly
advice to the chairman: Stay home on Tuesday.
- "Tuesday sounds like a fine day to go golfing. Maybe
take your hard-working wife on a nice daytrip... Just so
long as you cancel that Federal Open Market Committee
meeting widely expected to produce another interest
rate...Make up an excuse. Phone in a bomb threat. Go fly
a kite." He should do anything but show up and embarrass
himself, says Greenwald.
- The prospect of another rate cut certainly did nothing
to help the stock market last week. The Nasdaq fell more
than 4%... again. The troubled index has now lost nearly
10% in the last two weeks.
- At this pace, the Nasdaq will hit 1,000 by
Thanskgiving. In which case, cranberry sales may be very
soft this year.
- As stocks struggle, the so-called defensive assets are
gaining: namely bonds and gold.
- Treasury bonds soared, driving the 10-year yield down
to 4.84%. Meanwhile, Newmont Mining and Barrick Gold
each gained more than 7% on the week.
- Just when it looked like it could not possibly happen,
gold revived and demanded attention. As we have noted
once or twice in the Daily Reckoning recently, the gold
price has been firming gradually for several days,
coincident with the dollar's weakness. But still, gold's
reaction to the falling greenback had seemed a bit
muted, until Friday, when the monetary relic gained
$4.10 per ounce to $282.00.
- But for non-gold stocks, last week was rough. Stocks
tanked Friday in a disheartening fall sparked by an
earnings warning from Dell Computer.
- The Dow dropped 152 points, to 10,241, while the
Nasdaq fell 63 to 1867.
- "If the Dow Jones Industrial Average drops under
10,000 in the coming weeks or months," observes Jim
Stack's Investech, "it will have done something that
investors have never seen except in the depressionary
1930s - fall more than 4% in the six months after a 6th
Discount Rate cut by the Federal Reserve."
- Perhaps the Dow will manage to hold above the 10,000
mark, but a major rally seems highly unlikely.
- "Only an extreme bout of earnings optimism might put
the major stock indexes in positive territory for 2001."
Moody's writes. "Rallies of 11.6% in the S&P 500, 11.3%
in the Wilshire 5000 and 25.8% by the Nasdaq composite
are necessary to restore those market averages to year-
end 2000 levels. Likely declines in 2001 would produce
the first back-to-back annual drops in broad equity
market averages since 1973-1974..."
- "The S&P 500 price-earnings ratio stood at a miniscule
9.3 at the end of 1975," Moody's continues, "whereas the
P/E ratio still resides at a highly optimistic 26 at
present." Despite the very low valuations in 1975,
"Stock prices did not definitely recoup the losses of
1973-1974 until 1980." Six years later. Ouch.
Back to Bill in France:
*** Three weeks of splendid isolation. Did anyone miss
me? "The graveyards are full of indispensable people,"
says my friend Michel.
*** The dollar has fallen too - to less than 91 cents
per euro. The big surprise of the next few months may be
how far the dollar goes down. Ford announced 5,000
layoffs over the weekend. Instead of holding up the
economy, the automakers are beginning to drag it down.
*** That leaves only housing - the last man standing.
People are still borrowing the equity in their homes in
order to maintain current spending levels. Business has
been very good at the federally-backed lenders, Fannie
Mae, Freddie Mac, and the Fed. Home loan systems now
have debts of $3.2 trillion - about a third of GDP. And
probably a third of this is in foreign hands.
*** These foreign holders of dollar assets must be
getting a little nervous. If and when they decide to
lighten up... the dollar will drop below the euro... and
may keep falling.
*** September and October are often bad months for
stocks. Consumer spending and stock prices have both
held up through the summer. Just a guess: both will give
way in early autumn.
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By Bill Bonner
"The Sandinistas did some good things and some very bad
things," said Antonio.
We were racing along dirt roads near the Pacific Coast.
Antonio was pointing out the big ranches that the
Sandinistas had confiscated.
Now, landowners are getting their property back - or
compensation. It is a long, hard process, though. The
land may have been sold several times since the early
1980s. It will take years to sort out the mess in the
land registry records.
"People come down here and they think they can do a
title search like they do in America," he continued.
"But it isn't that easy. You have to ask around. Some of
the title claims are not recorded. You have to know who
owned the property and how they got it."
"But one of the good things the communists did was to
make people appreciate a good patron," he continued.
Longtime Daily Reckoning sufferers are familiar with the
twisty roads we sometimes take. But it is a rare road
that doesn't lead somewhere. Not always where we
intended to go...but often where we should have been.
Antonio is a patron. He employs hundreds of local men
and women - building roads, building houses, tending
cattle, cooking breakfast, doing laundry. He has teams
of workers with machetes who cut the tall grass in the
"Wouldn't it be better to use a tractor with a bush
hog?" I ask.
"Well, maybe, but this way gives people work," comes the
"At least you could give them scythes, so they didn't
have to bend over so much," I suggest.
"What's a scythe?"
Antonio's family once owned 100,000 acres of cattle land
in Southwest Nicaragua. Now, Antonio spends a good deal
of his time trying to get the land back.
It is beautiful land, a tropical paradise along the
Pacific coast. But nature rarely gives something without
taking something away. Nicaragua has been hit by tidal
waves, earthquakes, and volcanic eruptions. Antonio's
grandfather's house, for example, was located just a few
feet from our lodge - before it was swept away by a
tidal wave in the early '90s. Likewise, Managua was
leveled by an earthquake which killed more than 20,000
people. The nearby town of Masaya was also hit - it has
many houses with collapsed roofs and walls, still
waiting to be repaired a decade later.
There are also dangerous bugs. My wife is a healthy
woman. But when I found her unconscious on the bathroom
floor, with her eyes rolled back in her head and foam
coming out of her mouth, I knew that something about
Nicaragua did not agree with her. (Dr. Rosales from
nearby Rivas gave her a shot and some pills and she was
soon as good as new. After Elizabeth recovered, we spent
our days in idyllic bliss. We walked along the beach in
the morning...and then took an early swim. In the heat
of the day, we read and studied Spanish. Then, in the
evening, we went horseback riding and took another swim
in the warm ocean surf. There was little else to do, but
we were happy doing little else).
Antonio drove his pickup down the narrow dirt road as
though he were trying to outrun a tornado. Storms of
dust followed us, choking the poor campesinos walking
along the roadside, and covering the schoolchildren in
their bright white and blue uniforms. He rarely slowed
down - even for cows, chickens or humans. Instead he
just tooted his horn and counted on the survival
instinct of his fellow mammals to keep them out of his
Gradually, Antonio is cleansing the gene pool of animals
with slow reflexes. "One time, when I was in a big hurry
to get to Rivas," he explained, "I hit five chickens
along the way."
"You know, another good thing the Sandinistas did - they
made people poor. Rich people can afford to be
communists. But people in Nicaragua began to see
themselves getting poorer and poorer as their relatives
in Miami and Costa Rica were getting richer. People
don't mind being poor, as long as everyone else is poor.
But when other people are getting rich, they don't like
Antonio is helping to answer one of the most puzzling
questions of our time. Why has the level of government
spending continued to rise in America? Government is an
economic deadweight activity. That is, it is a cost...a
net consumer of capital - a black hole into which wealth
disappears. Typically, ceteris paribus, the more
government, the poorer people are. That is why "the
government that governs least, governs best."
Since the fall of the Berlin Wall, there has been less
need for defense spending in the U.S. And with the full
employment, boom economy of the '80s and '90s, there is
less need for social spending. Yet, taxes and government
spending continue to rise. Why? Americans would be
considerably richer if they didn't give up so much of
their income to government.
But, it is not absolute wealth that matters, it is
We drove through a small village. Looking into the
houses through open doorways, I could see the simplicity
and poverty in which the people of Nicaragua live.
Their houses often scarcely have walls - just rude
boards nailed onto posts. Nor do they have much
furniture - little more than a hammock and a rocking
chair. But what do they need? They have a tin roof over
their heads - and chickens and pigs running around the
yard. Occasionally, there is fish, too - taken right out
of the ocean with a simple hook and line. They don't
even need fishing rods; the hooks are swung around and
tossed into the sea, with the line wrapped around a
short board as it is trolled in.
Some kind of festival was underway in the village.
Several men were mounted on horseback, with a few dozen
cheerful onlookers standing by the road. In the middle
of the road, overhead, a chicken was tied to a rope
stretched between two trees.
"They are playing a game," Antonio explained. "The idea
is to see who can grab the chicken's head and tear it
off. And it's hard to do."
"Is the chicken alive?" I asked, wondering what the SPCA
"Well, not for long."
The sight of the happy, well-fed natives enjoying their
sport reminds us how little we really need to be happy.
Just food, clothing, shelter. And a chicken that is
smart enough to escape Antonio's truck. Everything else
is vanity, little more than an attempt to feel that we
are better than others - or at least to avoid allowing
other people to feel superior to us...
There are a lot of ways to feel superior, but in this
age of materialism we gauge our superiority in dollars
and sense. Nicaraguans can't afford more government,
because they are poorer than their neighbors. But
Americans are rolling in credit (which they confuse with
real money) - and don't mind giving up some of it to a
government that promises to tie up the rich - and wrench
their necks off.
Your correspondent, back on the job... but still
dreaming of the tropics...
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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.