In Today's Daily Reckoning:
*** A battle of the titans in the currency markets...so
far, the dollar is ahead on points...
*** 'Complacency' in the stock market as the summer nears
*** Insider selling - fast and furious...why federal
judges are so bad...our gardener in the tizzy...and more
*** There's a three-way battle going on in the currency
markets. I've been watching the dollar against the euro -
but the action, the last couple of days, has been between
the yen and the euro. The dollar index fell 7 points
*** The euro hit a new low against the yen yesterday, and
still rests near a new low against the dollar. European
Central Bank officials are meeting today - and promise a
rate hike. It should be on the news this morning.
*** The English pound has sustained some 'collateral
damage' in the war of the titan currencies. The pound has
been knocked down to its lowest level (against the
dollar) in 6 � years. $1.45 will buy you a pound today.
Of course, if your memory goes back more than 6 � years
you may recall that you could buy a pound for just a
little over $1 in 1985.
*** Meanwhile, in the stock market, "there's a little bit
of complacency," says one analyst, speaking of the
highest levels of confidence, optimism and self-esteem in
*** The Dow fell 112 points yesterday. Nothing special...
a few weak earnings announcements. Mostly, investors
expect stronger earnings, which prompted this quip from a
Federal Reserve member: "Isn't it odd that there is such
confidence in strong earnings numbers coming along in the
second half, while there is a comfortable acceptance of
'slowdown' as benign...." Another mystery.
*** The Nasdaq rose - 21 points. It was led by none other
than Amazon.com - which shot up almost 10%, following a
reaffirmation by Goldman Sachs that the world's biggest
e-tailer is a "trading buy" with a "positive" outlook.
I'm sure Bezos has a positive outlook, but what's
positive about the outlook for Amazon shareholders? The
company just opened its French branch - accompanied by
some fanfare in Paris. And it announced it is going to
sell digital books. More below, as we 'unfog the future.'
*** Amazon wasn't the only Internet to rise. The whole
sector did well yesterday. Linux was up 15%.
*** Oil rose 58 cents - to a new high of $33.32.
*** Gold rose too - up 70 cents. Platinum, however, fell
*** And Treasury bonds bounced after a 3-day decline. I
wondered, in yesterday's letter, whether we may have seen
a top in bonds for this cycle. We'll have to wait and
*** "Insider selling of large blocks of stock, that is $1
million worth or 100,000 shares or more, through July was
$43.1 billion, which is twice as much sold in the
comparable spans of 1998-99. In fact, sales for the first
six months of $39 billion tops all of last year." This
item illustrates the way things get around on the
Internet. It is from Bob Chapman, via Bill Murphy's Le
Metropole Caf, via Harry Schultz. (Incidentally, I got
Harry's web site wrong yesterday - as you may have
noticed. The correct address is www.HSLetter.com)
*** Like information on the Internet, "many things in
society, life and business are clear examples of
contagious behavior," says Ray Devoe. "'Ideas and
products and messages and behaviors spread just like
viruses do.'" Ray is quoting from a book by Malcolm
Gladwell, which describes the process leading up to "one
dramatic moment when everything can change all at once."
Little changes can have big effects. Finally, when these
changes occur, they happen in a hurry." (see: The Tipping
Point: A Strategic Alternative History
*** And here's some depressing news. Class-action jackals
have launched a suit against Microsoft for "overcharging"
its customers. MSFT, the suit claims, "harmed consumers"
with its monopolistic business practices.
*** Of course, in a free country, Microsoft would be
allowed to charge as much as it wants. So, why don't
federal judges throw these low-life ambulance chasers out
of court? The answer comes from Paul Craig Roberts on an
Internet forum: "This is because White House nominations
and Senate confirmations of federal judges defer to
career bureaucrats in the Department of Justice (sic).
The bureaucrats choose the judges according to the
department's litigation interests." Roberts went on to
say that he got a letter from a federal judge who
explained this to him...and remarked in his letter "that
he has never seen a judge who has reined in the
government be elevated to a higher bench."
*** My last few days in the bucolic tranquility of
*** But what's this? Mr. DesHais is in a tizzy. He talks
to himself all the time anyway...but now he is having a
heated exchange. A bulldozer arrived yesterday to clean a
century's worth of muck and mud out of the pond. Mr.
DesHais is a purist...a retrograde rustic...a romantic
soul who detests all forms of mechanization. Though I
have never heard him mention computers...I'm sure he
regards them as the devils' own work.
"They're going to ruin the banks of the pond," he argues
forcefully (to no one in particular...I am eavesdropping
from my office window). "They're going to make a big
Finally... after 45 minutes or so...
"Mr. Bonner," he calls to me, agitated. For a moment I
think he's been drinking. But then, he seems steady -
just upset. "I need to talk to you."
"Okay...come on up..." I reply, leaning out the window.
"Mr. Bonner...I don't like to bother you." (He is always
very courteous and deferential. He treats me as though I
were the aristocrat he wishes I were.)..."But do you know
what they are doing down there?"
Yes, of course I do...I hired the guy with the bulldozer
and have been waiting more than a year for him to show
"Well, I'm just afraid they are going to make a big mess.
And I was planning to put that whole area in order this
winter. But if they tear up the banks of the
pond...they're going to kill the trees...what a
mess...what a mess...what a mess..."
I felt I must intervene at this point...this lament could
go on as long as a Grateful Dead song...
"Well, what else could we do?" I ask.
"I'll dig it out myself..."
"But the pond must be at least 2 acres..." I protest. "It
would take 10 years to dig it out by hand" (a slight
exaggeration, but you have to use hyperbole to get your
point across sometimes).
Several top geologists quit big firms, and start out on
their own. The new stock pays 100%-2,000% a year. But As
usual... nobody notices the good news until it's too
late. Early investors make all the money before Wall
Street even gets wind of the deal. The pattern is
repeated. Again and again. With the right tip you could
have bet a whole lot less than the ranch - and still made
For reliable hands-on intelligence - and your shot 1,000%
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
I found the photo in the attic of the chateau. Rummaging
through old books and ledgers left by the previous owner,
a photo of five men in uniform fell out.
The surprising thing was that these men were not wearing
the familiar French uniforms. Instead, they wore outfits
like the one in the photo of my grandfather from 1918.
These men were American soldiers in France in WWI. On the
back of the photo are their names:
C.A. Leland from Atcheson, Kan.
H.V. Hayes from Waco, Tx.
R.R. Reinert from Chicago
H.R. Schultz from the Sanford Ranch in Montana
And D.R. Arnold, also of Chicago
How the photo came to be in a French chateau on the other
side of France, I do not know.
I wondered what happened to them. If they survived the
war - they must have lived through one of the most
spectacularly unpredictable series of events in human
history... war... revolution... depression... Stalin...
Hitler... Jackson Pollack... the dust bowl...
television... air-conditioning... freeways...
Communism... cubism... Republicanism... anti-smoking
campaigns... Lee Greenburg... class action suits... maybe
even Bill Clinton and Michael Jackson.
Few, if any, of these 'jerks' of history could have been
foreseen by the handsome young men in the photo. And who,
when the guns of August opened up in 1914 and the 'fog of
war' fell over Europe, could have anticipated the series
of lethal explosions that these guns were to trigger: the
destabilization of Russia and the rise of the
Bolsheviks... the weakening of Liberal institutions in
Germany and the advent of Nazism... the reign of terror,
initiated by Lenin and then pursued with such vigor by
Stalin...the holocaust...the demise of Liberalism in the
West, replaced by a different sort of liberalism - with
government growing from 13% of GDP in 1913 Britain to
over 50% after WWII...and similar expansion of state
power in America...and the nearly-complete repudiation of
the bourgeois culture that had evolved over 2,000 years -
in art, architecture, and literature. (Only music escaped
- it could not be intellectualized.)
As Harry Potter discovered in his latest adventures,
'unfogging the future' is tough.
"Don't forget," Jules reminded me on my last trip to the
U.S., "buy a copy of "Harry Potter and the Goblet of
Fire." Among other things, the book tells of Harry's
visit to Professor Trelawny's School of Divination, where
students learn how to 'unfog the future." But Harry finds
that the professor is a bit of a fraud. She has had only
two predictions come true in 15 years - a record that
might only be envied by a hard money financial guru.
Buying the book proved difficult. So great was demand for
the book that the few bookstores I visited were sold out.
I came home empty handed - and ordered the book from
Harry Potter was such a sensation that Amazon was able to
use it to secure 63,550 customers, not including your
correspondent. Yet, the company's real achievement was to
do so at a net loss of at least $5 million. It is not
hard to lose money on books. But losing a lot of money on
one of the biggest short-term sellers in history deserves
a word or two.
Amazon appears to have paid about $78.68 for each of its
new Harry Potter customers. The idea must be to begin
making money on them in order to recover the investment.
But, as I explained yesterday, Amazon does not enjoy the
Internet's famous economies of scale. A book, unlike an
e-mail message, costs money to produce. The 100,000th book
is not much cheaper to produce than the 10,000th. And
other people are selling the book too - so Amazon cannot
control its own margins.
But let's assume that Bezos and company can somehow get a
5% profit margin on future sales to these people. To
recover the original investment, each customer would have
to spend an average of $1560... plus interest. And that's
just to get back to breakeven.
We cannot presume to unfog Amazon's future. We have no
idea what the jerks of history will do with the firm.
Amazon may turn out to be a decent company yet.
But without the inducement of super-low prices...that is
to say, those that give the company no margin of
profit...it is unlikely that customers will spend $1560
dollars with Amazon. I buy books from Amazon...but I know
that the lowest price is only a couple clicks away. And I
have no reason to be loyal to Bezos.
Amazon is, of course, not alone. The Internet rain forest
is crowded with companies on the edge of extinction.
The B2C sites have mostly gotten their e-tails beaten.
Now, the content sites are suffering too. In July, Feed
Magazine joined forces with Suck.com. It was either that
or death; Feed faced capital starvation. The WSJ - with
one of the few successful pay-for content sites - reports
that APBNews has closed up shop. CBS's Internet group has
laid off a quarter of its staff. "TheStreet.com and Salon
are swooning," says the WSJ.
Internet content sites - such our own dearly beloved
DailyReckoning.com - do have some economies of scale.
Once prepared, the cost of replicating readership is
extremely low. But as the Industry Standard, and our own
experience, suggests: "One thing is becoming clear; the
Internet is no bargain." TheStreet.com, for example,
employs nearly a third of its staff to work in technical
Which experiments will succeed? Which will fail? We don't
In Divination School, Harry Potter studies crystal ball
gazing, palm reading, and tea leaves. There is a special
pattern - a large, black dog - which is especially
ominous. It is called the 'black grim' - and it means
By now, the 'black grim' has almost surely visited all
five of the young soldiers in the photograph. By this
time next year, unless some new magic is found, many
internet companies will be paying no more interest...and
selling no more shares.
Beyond that, the future is still fogged.
Your writer in residence, enjoying the last foggy-dew
days of summer...
P.S. It is impossible to unfog the future. So good
investments are made on the basis not of what we know
about what will happen, but what we don't know.
Ignorance, in other words, is the key to good investing.
In the course of your work, it often happens that you
will work all day...but only in one hour will you do
something that is really productive. Maybe a good idea
will come to you. Maybe you'll make a good move of some
sort. Maybe you'll just get lucky.
You might as well only work that one hour, and play golf
the rest of the day. But the problem is, you don't know
which of the hours you work will turn out to be the good
one. As someone once remarked, "when I work 14 hours a
day, it's amazing how lucky I get."
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Last modified: April 01, 2001
Published By Tulips and Bears