Contributed by Bill
Publisher of: The
Fleet Street Letter
TUESDAY, 21 AUGUST 2001
*** Stocks rally...but cold fear keeps creeping up...
*** Cheap sleeps on Fifth Avenue thanks to bust on
*** Torture, basket cases, the dollar...and more!
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*** A WSJ headline: "A Year Into Slowdown, Economy's
Last Pillars Show Signs of Stress. Car Sales and
Construction Have Begun to Pull Back: Office Vacancies
"The Wilting Consumer," an article at Dismal.com, tells
us that consumer spending - already growing at the
slowest pace in 5 years - is heading lower. And the IMF
warned over the weekend that the dollar will fall
*** The next couple of months will tell the tale.
Consumers should be running out of refinancing cash.
Spending should go down. Stocks should follow. The GDP
growth figure for the 3rd quarter should go negative. And
the dollar should drop.
*** "A feeling of cold fear creeping up the back of my
neck..." That's how James K. Glassman describes the
onset of what could turn out to be a very serious bear
But Glassman is quick to dismiss his instincts in favor
of his prejudices. Drops in stock prices are nothing to
worry about, he says, because "short-term movements of
stock prices are utterly unknown and unknowable."
Nevertheless, Glassman seems pretty sure he knows what
is going on: stocks are going to take off. "Recognize,"
he urges readers, "that the jet fuel for higher stock
prices accumulates in times like these; all that is
needed is something to touch it off."
Advice to Glassman: trust your instincts.
Let's see what Eric reports...
Eric Fry writing this morning from Wall Street:
- Stocks rallied a bit Monday, which is something of a
rarity lately. So maybe we should glorify the advance
with a special name. How about, the "pre-FOMC" rally? Or
maybe, the "Post-Friday-Shellacking" rally? Or how
about, the "Finally-one-day-without-a-tech-stock-
- Whatever we call the happy event, stocks did not fall
Monday. In what now passes for a rally on Wall Street,
the Dow advanced a modest 79 points to 10,320 and the
NASDAQ climbed 14 points to 1,881.
- The dollar, also an habitual loser of late, managed to
regain a little lost ground yesterday against both the
euro and the yen. The greenback fared even better
against gold, as the yellow metal fell $3.40 to close at
$278.60 an ounce on the December contract.(see also:
- But outside the stock exchange it is becoming bad
business as usual in the Big Apple.
- "Sharp drops in occupancy this summer are forcing the
city's top echelon of luxury hotels to take an ax to
prices," Crain's reports. "[T]he elite players in the
city's $5.5 billion hotel business have lowered rates
significantly for the first time since the dark days of
the Gulf War in the early 1990s."
- "I'm not going to airbrush it. Business is tough,"
Christopher Knable, general manager of the Regent Wall
Street, tells Crain's. I do not doubt Mr. Knable. The
hotel is only a block away from my office and the place
looks about as active as an Iraqi Immigration and
- Crain's continues: "Tongues are wagging about cuts at
the city's most expensive hotel, the St. Regis at Fifth
Avenue and West 55th Street. Rooms there are being
touted for a mere $390 per night, almost half the
hotel's record-setting average of $714 last year... The
venerable Plaza, meanwhile, recently sent out e-mails
offering rooms for $175, the Fifth Avenue hotel's lowest
price in years.
- "This discounting comes as the entire New York hotel
industry is taking a bath from the economic downturn and
stunning cuts in corporate travel.
- "Occupancy plummeted to 57.4% for top-priced hotels
last month, down 19.4% from the previous July, according
to preliminary results from PKF Consulting."
- Also on the downswing: insider buying. Reuters reports
that "Buying of shares by company executives in their
own companies has dropped to the lowest level in almost
eight years, according to Lancer Analytics. Insider
buying, measured by the dollar value of shares bought,
declined to $77.9 million in July, or 50 percent, from
$154.7 million in June.
- "For the first half of the year, monthly volume of
insider purchasing has ranged from $150 million to $180
million, consistently well below its five-year monthly
average of $322.1 million."
- But Lancer Analytics also notes heavy insider buying
in selected oil and gas stocks like Rowan Cos. Inc.,
Baker Hughes Inc., Chiles Offshore Inc., Apache Corp.,
and Burlington Resources Inc.
- Insiders aren't the only ones buying oil and gas
stocks these days. As Outstanding Investments editor
John Myers points out, mergers and acquisitions activity
in the oil patch so far this year is three times greater
than last year and a staggering 10 times greater than in
- It sure seems like the folks closest to the action see
something they like. Maybe we ought to pay attention.
Meanwhile, as the stock market slides from bad to worse,
so do employment trends on Wall Street. "J.P. Morgan
Chase & Co. now expects to cut its total work force by
up to 8%," says Dow Jones News, "or about 8,000 jobs, up
from a previous forecast of 5,000, people within the
company estimated Monday."
- In previous issues of the Daily Reckoning, I've
mentioned a friend of mine who builds $2 million to $5
million homes just outside of Manhattan. By his own
account, his clients are "almost entirely from Wall
Street." Last weekend, he offered up the latest anecdote
of his clientele's changing fortunes.
- "Eric, something happened this week that's never
happened to me before," he said. "One of my clients just
called me up out of the blue and said that he could not
afford to continue the renovation we had already
started. I had just knocked down the old house a couple
of days earlier!"
- "The guy's walking away from his $30,000 deposit
because he can't afford to complete the project," my
friend said. "Apparently, a couple of IPOs he had
expected to go through were cancelled."
- Obviously, lower interest rates alone will never get
our economy back on track. We'll need more IPOs.
Back to Bill in Paris....
*** What else?
*** Well, if Rothschild was right, that the secret to
making money is to invest "where blood is running in the
streets," investors should be looking at Zimbabwe. A
series of e-mails reached me last week from white
farmers describing how they were beaten and driven from
their land by gangs of thugs. In one letter, a man
described his torture at the hands of Mugabe's goons.
Today's International Herald Tribune tells about a black
farmer - a member of the opposition party - who was also
evicted. The Mugabe government claims to be
redistributing the land to the poor, but the IHT reports
that the black farmer's land was given to a banker and
several policemen, cronies of the ruling party.
*** Nature rarely takes something away without giving
something in return. Zimbabwe used to be the
"breadbasket of Africa," but it has been going backwards
since Robert Mugabe took over in the '70s. Now it is a
basket case. Could this be a good time to invest in
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by Bill Bonner
"...despite all that's wrong with the world, things
are getting better all the time. Somehow, over time, the
opportunities overwhelm the difficulties."
With this phrase, in this space, Porter Stansberry took
issue with the Daily Reckoning. Thus did Porter place
himself among a large group of millennial optimists,
technophiles, and free-market True Believers...including
George Gilder, Paul O'Neill, James Glassman, Laurence
Kudlow, Michael Murphy, and just about every other
right-thinking Republican and Democrat in the Western
World. All of them are sure that the forward march of
Progress is inevitable and irreversible.
Today, I return to Porter's comments if only to scoff at
But first, I reminisce about my vacation in Nicaragua.
Why not? I am back in my Paris office, surrounded by the
noises of the city and young men and women diligently
going about their business at desks next to mine. What
harm is there in letting my mind wander back to those
empty beaches and sunsets worthy of Frederic Church?
Our habit was to ride horses in the later afternoon,
after the sun had lost its noon-time heat. One of our
favorite rides took us up into the hills, far beyond the
reach of electric poles and running water.
After about 20 minutes, we often found a group of
children - some mounted on a pathetic little scrub horse
and some walking along behind.
"Buena..." a little girl replied softly.
The boys wore dirty shorts and nothing else. The girls
wore dresses - ripped and badly used. They had reddish
brown skin, the color of adobe mud, with large hooked
noses, like Mayan statues. No trace of Spanish blood was
A few minutes further along, we came to a farmstead, a
rough country ramshackle of boards and tins, open to the
air with a dirt floor and a mud oven from which smoke
seeped out as though from a burning house. The ground
around the cabin was beaten earth, worn and rutted by
heavy rain and decades of bare feet. Chickens ran loose.
The skin of an armadillo was draped over a fencepost to
which a pig was tied by a piece of string.
These people had neither electricity, telephone, nor
running water. How much better were their lives than
those of their ancestors 1,000 years ago? In an
emergency, modernish health care was available an hour
or so away. Otherwise, nothing much had changed.
Probably the biggest lifestyle and technological
improvement of the last millennium was the introduction
of the horse by the Spaniards in the 16th century.
Most people are richer today than they were 100 years
ago, says Porter. And they live longer. This seems to
prove Porter's case. Surely people will be even richer
and longer-lived in the future, won't they ?
Maybe yes, maybe no. God may share His plans with
Porter... but he has not yet drawn me into His inner
circle. I do not know what will happen in the very long
run. Nor do I know what will happen next week, nor next
year, nor 10 years from now.
At the end of the last century, it seemed, as it does
now, that progress was inevitable. People expected
progress in every aspect of life. The world's economies
were booming. The industrial revolution was in full
flower and spreading its beneficent aroma throughout the
world. A person could already hop on a train in Paris
and ride in luxury all the way to Moscow. A man in
London could order his spiced tea from the Orient and
his carpets from Istanbul. Was there any reason to
believe that this bounty - products of new technology,
free markets, and enlightened political stewardship -
would not continue?
Europe had enjoyed nearly a century without a major war.
It was widely believed that war was a thing of the past,
not of the future. It also seemed - at the height of the
Belle Epoch - that manners, art, and personal security
were improving, along with material and healthcare
Yet, only a few years later, the entire world began the
most costly and barbarous wars in history. With hardly a
pause for breath, from 1914 to 1945, people shot,
tortured, murdered, blew up, poisoned and starved each
other on a scale the world had never seen.
Torture had been officially banned as early as 1780 and
had been gradually disappearing from use in the Western
world since then. Slavery had completely disappeared
from civilized countries by the end of the 19th century.
Yet, in 1914, the world began walking backwards. By
1919, France had already lost 20% of her young men of
military age...and the wars had scarcely begun!
It turned out to be a century of what Brzezinski called
"megadeath," with an estimated 187 million victims.
By 1945, all of the world's major economies - save one,
the U.S. - were in ruins. Japan, the Soviet Union, and
Germany were little more than heaps of ash and twisted
France and Britain were mostly intact, but geared up for
war, not for peacetime production. Worse, both were in
the hands of socialists and syndicalists...which so
inhibited their recovery that they were soon overtaken
by their former enemies - Germany and Japan.
Progress is never guaranteed. And, could it be, like so
many other things in life, that it is least likely at
the very moment it seems most promising? Just look back
at the last two years. At the end of 1999, it seemed a
cinch that investors would be richer today than they
Instead, investors began walking backward in early 2000.
The Federal Reserve calculates that the total value of
Americans' stocks has declined from $12.5 trillion at
the end of '99 to only about $8.7 trillion today.
Will the next 10 years bring peace and prosperity? Will
people actually be richer 10 years from now...or poorer?
Investors in U.S. stocks in 1939 were poorer than they
were in 1929. Investors in Japanese stocks were poorer
in 2001 than they were in 1991. The people of Nicaragua
were poorer in 1990 than they were in 1980.
Who knows. But it hardly matters anyway. What do you
care how long the average person lives? What really
matters is how long you live. The same can be said of
wealth. It, too, is both relative and personal. What
counts is how much wealth you have, not the aggregate
Even if progress were a feature of the grand scheme of
things, what really matters is how the little scheme of
things affects you. In any period of time, some people
gain and some people lose. Nature gives something and
takes something back. Some people make progress and some
people go backwards.
Over the last two years, for example, people who sold
Amazon.com made financial progress. Those who believed
that AMZN would always go up "over the long run," on the
other hand, have fallen back.
More on backwards walking...on Thursday.
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.