In Today's Daily Reckoning:
*** More mysteries...how come the Big Techs are doing
well? Why do they pay people to be unemployed?
*** Biggest drop in durable goods sales ever...higher
unemployment...bad news, but investors seem to like it
*** Border guards block progress...Mr. DesHais gets
*** Another mystery: how come the Big Techs are getting
bigger when the economy seems to be slowing? Techs, as
Barton Biggs pointed out yesterday, are cyclical. They
grow in a booming economy - and typically go down when
things slack off.
*** Yesterday came word that sales of durable goods fell
at the highest rate ever recorded - down 12.4%. Requests
for unemployment payments increased too, for the 4th week
in a row - another sign of that the red-hot economy is
*** Which suggests another mystery: Why do they give
people money when they lose their jobs, anyway? If public
officials really wanted to keep people employed - they'd
impose a fine...like a speeding ticket...on jobless
*** The Dow rose 38 points. The Nasdaq climbed 42 points.
It is still vacation season. Everything is quiet. In
fact, volatility is at a 2-year low.
*** The only excitement yesterday was in the biotech area
- where stocks rose about 5%.
*** But the bear managed to grab a couple of companies
for a little afternoon snack. The Financial Times reports
that Rolls Royce shares fell 22%. Elsewhere I learned
that Bausch and Lomb fell nearly 40% yesterday. More
about Rolls below.
*** There were 1431 Advancing shares on the NYSE; 1381
shares fell back.
*** "Any time there is a sign that those stocks [the big
techs] are going to start moving," said an analyst quoted
by Reuters yesterday, "everybody jumps into them." But
it's already standing room only in the Big Tech area. And
competition is heating up. Bill Gates announced he would
go head to head with Intel by producing Internet chips
himself. And Amazon will soon be selling automobiles.
Mercedes announced a price cut of nearly 20%.
*** Gold rose $1.80 after losing $2.60 on Wednesday.
Platinum rose $2.50.
*** Oil and the dollar both fell slightly.
*** Not all prices are falling. Electricity increases are
in the news everywhere. Oil is twice as high as it was a
year ago. Natural gas is hitting records. Labor costs -
from the anecdotal evidence, at least - are soaring.
*** Mr. Market is a man of mystery, paradox,
contradiction... he's not making it easy for us to figure
out his next move.
*** Since 1982, the Dow has never fallen below the low of
the previous year. The low for 1999 was 9120. So, far
this year, the Dow has not even come close.
*** But, "given the rapid and unforeseen changes that are
not taking place in the world," writes Marc Faber, "any
forecast that is based on the simple extrapolation of
past trends into the distant future is likely to be very
wide of the mark."
*** What's ahead? There are some things you can
extrapolate into the future: Technological progress will
continue to be made - in fits and starts, by trial and
error, luck and flashes of insight. Analog Man, though
facing extinction, will continue to crowd into hopeless
investment positions. And the future will reveal itself
in its own good time.
*** "He writes books called 'Earth in the Balance' and
lashes out at 'Big Oil'," writes Steve Sjuggerud of the
Ultimate Digital Man, Al Gore. "Yet he owns a quarter of
million dollars of Occidental Petroleum stock." Over the
last 100 years, the Dow has performed significantly
better under Democrat Presidents - 7.0% a year over 48
years - than under Republican Presidents - 4.0% a year
over 52 years. But past performance is not necessarily
indicative of future results...
(see: Will Al Gore Kill Your Nest Egg?)
*** And so, a very busy week is coming to a close. A few
friends remained after the Internet Conference, but they
are leaving today.
*** Game Boy has grown up and become a dad. Nintendo
announced a new 'Son of Game Boy' - to make its debut
next year. Jules will be excited about this. He's
visiting friends in Carcasonne in the south of France.
Henry, meanwhile, is staying with a friend on the
*** And the Border Patrol announced it has broken up an
improbable smuggling scheme in which Mexicans were given
bikes and biking gear and sent speeding through border
crossings as if they were part of an international race
*** One of the biggest impediments to the division of
labor (and material progress) has been the border guards
- who stop the free flow of labor, capital and goods.
Each economy has been imprisoned within its own
frontiers. But now the Internet gives people wings. You
can fly over borders via the Internet - work, trade,
exchange ideas and information - without ever getting
your passport stamped or having your underwear inspected.
*** Mr. Deshais seemed to have lost a skirmish,
yesterday, in his battle with demon rum. He had the high
ground in the morning. But by the afternoon, he was
dreamily stirring his pots of tomatoes - which he is
canning - and singing to himself. Like the rest of us
Analog folks, Mr. Deshais's progress in life is episodic.
A Perfect Financial Storm is gathering. Will the Nasdaq
and S&P 500 decline by half? Will the dollar fall, and
take the Dow with it? One expert in inter-market
relationships says yes. Find out how global stock, bond,
commodity and currency markets are brewing up the biggest
financial disaster in a generation - and what prudent
investors can do to prepare today. http://www.dailyreckoning.com/imra3
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
On the drive from Ouzilly to Mortemart, a distance of
about 25 miles, we encountered dozens of cows, hundreds
of sheep and only about six cars. There was little noise.
Except for the lowing of cattle and the calling of birds,
few sounds are heard in this part of the world.
Mortemart is an ancient town with a convent and a chateau
that once belonged to a friend of de la Rochefoucauld's.
It is a cute place, with exposed-stone houses, tiled
roofs, a covered market that looks at though it might
have sheltered Caesar's legions and a menacing swan in
the moat around the chateau. But it is tiny - with only
about 200 inhabitants.
Still, it has a restaurant that makes the pleasant drive
even more worthwhile.
We had been sitting at the restaurant - accompanied by my
friend Michel and his wife, Agnes - for only a few
minutes when something very unusual happened. It was a
warm night, so we chose to sit outside where we could
watch the stars and the occasional passing automobile.
What caught out attention was the arrival of a Rolls
Royce bearing license tags from Monaco. Hmmm... you are
almost as likely to take a vacation on a Russian
submarine in the Baring Sea as see a Rolls Royce in
Mortemart. The French tax wealth - so people hide it. And
this area is, after all, a long way from Paris.
But here was not merely a Rolls, but a fairly new one. It
parked alongside the restaurant and four people emerged,
an older couple and a younger one. The younger couple
were in their early 40s I would guess. The only thing I
noticed was that the younger man was in a wheelchair and
the younger woman looked very trashy - with a pair of
platform shoes, shiny pants and a face that would not
have been out of place on the Rue St. Denis.
I have been thinking about how the Internet changes the
"You are schizophrenic about the Internet," complained
Michel, philosopher and auto buff, "on the one hand you
say it is nothing at all and that the dot.coms will
crash...and on the other, you say it is completely
changing the world. It cannot be both."
But it does seem to be both. Like life itself, each day
is completely new...and much like the day before.
A new Rolls can be bought for about $200,000. But it will
not get you to Mortemart any quicker or more comfortably,
nor more safely than my $30,000 Renault. Why do people
buy them? What information - available on the Internet -
would lead a person to buy a Rolls?
As you may remember, Nietszche made the distinction
between the knowledge you have that is direct, personal,
and immediate - the things you know indirectly,
abstractly and remotely.
Michel gave me an example, "My neighbor's swan was eaten
by a fox. From the fox's point of view, the event had
real meaning - he was hungry. He ate. But from our
perspective, it is only has meaning in a literary sense."
The Internet extends the division of labor - by allowing
further and further specialization. This little hamlet
where we had dinner, for example, used to be almost
completely self-sufficient. The farmers grew wheat which
was milled nearby and cooked into bread in ovens right on
the property. Chickens, cows, pigs, vegetables - almost
everything on the menu came from the farm. Even clothes
were made here - the sheep were sheared, and the wool
spun into fabric and then made into clothes. There is
still a woodworking shop and a forge/machine shop on my
farm - both of which are still in use.
But now, even the local farmers buy their lamb from New
Zealand, their clothes come from Malaysia, and their roof
tiles come from Spain or Italy.
Not only are they dependent on the division of labor -
they have also lost the knowledge of isolation. Hardly
anyone recalls how to make raw wool into a sweater... And
when we wanted to fire up our bread ovens - just to see
how they worked - we had to get an 80-year-old man from
the nearby town to show us how. Younger people just don't
As the division of labor expands, knowledge also expands
- but it also gets spliced and diced into ever finer
pieces and spread all over the world. Our lives depend on
the food we eat - but we usually have no idea how the
food is produced or what is in it. We also depend on
water...and heat - and yet, we don't really know how or
where they come from. Who understands how a refrigerator
works? Who can write a software program? If you studied
electrical engineering in college, will you understand
genetic engineering? And how do we know that the Russians
are not preparing a nuclear strike against the U.S. at
this very moment?
The Digital Men believe that somehow with all the 1's and
0's pilling up - we will all gain access to the
information we want and need. There will no longer be any
trade secrets or rip-off auto repair shops.
But while information is cheap...knowledge is dear. It
takes time to learn how to do anything. It can take a
lifetime to master a trade - even a trade that is as
rudimentary and analog as woodworking or gardening.
And the Internet has done nothing to expand the supply of
time. In fact, au contraire, it has made time more dear.
A 1978 book by Herbert Simon, cited by Marc Faber in his
July newsletter, explains why: "In a world where
attention is a major scarce resource, information may be
an expensive luxury, for it may turn our attention from
what is important to what is unimportant."
Much of the expertise you find on the Internet - and
elsewhere - turns out to be fraudulent. Apart from the
obvious mountebanks in psychology, feminology, political
science, sociology, ethnic studies and other academic
sinecures, there are also the quacks in the financial
You may remember Henry Blodget, whose pronouncements on
Internet and tech stocks are still taken seriously. Marc
Faber reminds us of others: "Consider a company like
Qualcomm, a pioneer of wireless data technology. In
March, an analyst forecast that its stock would rise to
$500.. But now, barely three months later, the stock is
down to $56..."
Or, "take an [another] example, Computer Associates. Just
before Independence Day, the company announced that it
would miss analysts' estimates for its fiscal quarter
ended June 30...instead of earning 55 cents as analysts
had been expecting, it would report quarterly earnings of
just 11 to 16 cents (about 80% lower than expected.) How
is it possible that none of Wall Street's highly paid
analysts knew of the earnings shortfall before the
company made its announcement?"
The Internet is full of unimportant information -
distractions, time wasters, and urgent messages that mean
nothing. How do we know where - among the dirty pictures
and stock touts - to find what we really need?
And as the division of labor and knowledge fragments,
people become further and further removed from real
knowledge of anything. Most of what we think we know is
second hand, inferred, abstract, remote guesswork.
Information is no longer what we want. We can get as much
as we could ever want - for free. But it is an expensive
Instead, what we really want is to know what is important
and what is not. This is not information. Nor even
knowledge. It is not digital. It is analog. It is
judgment. Wisdom. Style. Grace.
A Rolls Royce is a not so much a means of transportation
as it is a fashion statement. It is a declaration of what
is important to the owner, an inside-joke maybe, or like
a Louis Patek watch...a tool for a scam artist.
The distinctive radiator, Michel pointed out to me, is
modeled after a Greek temple - rational, classical...
digital. But on top of the radiator (significantly) sits
a statue of winged ecstasy, Dionysian, irrational,
kitschy and completely analog.
Michel, it turns out, owns a Rolls Royce himself. "Why
don't you drive it?" I asked him.
"The air conditioning doesn't work."
Your humble, Renault-driving, scribbler,
P.S. Enjoy the weekend.
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Last modified: April 01, 2001
Published By Tulips and Bears