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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Madame de St. Georges

*** Japanese stocks down are U.S. 
stocks...the race to the bottom continues!

*** Dow below 10,000 - will investors panic? End of 
the "psychedelic era" for stocks...

*** Hope doesn't pay the bills...AMZN, too 
expensive at any buyers saying: No 
inflation...and more

Today is an important day.

Here's the story:

*** Yesterday was a bad day for Wall 
began badly - when Michael Jackson rang the opening 
bell - and ended badly...with the Dow down 171 
points and the Nasdaq down 51. 

*** This brings the Dow below the 10,000 level... 
and the Nasdaq below 1,800. 

*** Dell and IBM each fell 3%. MSFT dropped 5%. GE 
ended down 1%. These are the stocks that people 
own...and count on for their retirement financing.

*** American stock holders are getting discouraged. 
First, they lose money - most have lost money for 
the last two years. Then, they lose interest. That 
is why profits are sinking on Wall Street and why 
Schwab announced, yesterday, that it was cutting 
its payroll by 1,400 workers. Investors are still 
holding, but they are not there are 
fewer commissions for the brokerage houses.

*** "The '90s were the psychedelic era for stocks," 
writes Ben Stein. "There is no precedent for their 
return in most of our lifetimes. But we still keep 
hoping that the bubble will return - and then we'll 

*** "[I]nvestors who lost big in the tech debacle 
often cannot bring themselves to sell because that 
would mean final recognition of their folly in 
getting in on the wrong side of the bubble. Not 
only that, but if they sold after colossal losses 
and the stocks did by some miracle rebound, they 
would be suicidal. Thus, they refrain from selling 
because of a combination of fear they will be wrong 
again and denial of the finality of the end of the 

*** "Through the prisms of fear or just plain self-
delusion investors see hope..."

*** But hope doesn't pay the bills. Eventually, 
consumers lose income. They may have to cut back on 
over-time pay...or get a smaller bonus...or lose 
their jobs completely. For a while, they get by by 
refinancing their house...or running up credit card 
debt. But soon, the combination of lower income and 
uneasiness causes them to cut back. In July, 
personal spending rose - but only by 0.1%...only a 
fifth as much as the rise in personal incomes. 
People are beginning to do just what they've done 
in Japan...they are spending less and paying off 

*** As a bear market continues, investors finally 
decide to get out of stocks. That hasn't happened 
yet. But many investors must be beginning to think 
about it...some because they want to, others 
because they need to.

*** Credit card companies are having a harder time 
collecting their payments. The delinquency rate 
rose for the 8th month in a row in July - to 5.06%. 
Hotels, restaurants and airlines all report 
declining revenues. Consumer confidence is falling.

*** So far, housing has been a bright spot. But, as 
the San Jose paper puts it, "Housing is due for a 
crumble under weight of economy." (Do they speak 
English in San Jose?)

*** As a group, housing stocks are up about 80% 
from two years ago. Daily Reckoning readers will 
remember builders such as Centex and Toll Bros. We 
noticed that they were still cheap 18 months ago - 
when techs were expensive. Now the techs are less 
expensive...and the builders are less cheap. 

*** The best move would probably be to get out of 
both of them. Neither is a good thing to own at the 
beginning of a recession. And the tech stocks are 
still preposterously expensive. The FT reports that 
software stocks still trade at a P/E of 58...and 
telecoms are still at 60 times earnings.

*** Amazon shares fell 6% $9.31. But 
AMZN is probably too expensive at any price. Very 
likely, Amazon will go bankrupt - wiping out all 
shareholders' equity. The latest news from the 
River of No Returns is that the company announced 
it was heading into the jungle of online PC sales. 
Bezos is a little late, as, for the first time in 
history, PC sales just began to contract.

*** While Wall Street falls, the Nikkei Dow in 
Tokyo gives it a race for its money. The Nikkei 
index hit a 17-year low on Wednesday...and dropped 
another 41 points yesterday. Which will hit 5,000 
first...Tokyo or New York?

*** But at least the financial press is on top of 
this story:

"Japan's bad loans become worse," worries the 
Financial Times.

"Japanese companies to cut more jobs," again, the 

"Japan steps closer to recession," the BBC.

*** The situation in Japan has gotten so bad that 
Gateway has closed its operations there.

What else can I tell you?

*** "If there is something that offers a bigger 
bang for your buck than natural gas, I don't know 
what the hell it is," relays our natural resource 
man John Myers, all the way from Calgary. After 
last winter's peak, "the sluggish economy," says 
John, "moderate weather and rising inventories have 
severely depressed natural gas prices this summer." 
John's got his eye on two companies he thinks will 
be Johnny-on-the-spot when the price begins to turn 
again. Watch this space.

*** Oh yes, this is interesting - the bond market 
is signaling that inflation is not going to be a 
problem. The gap between inflation-adjusted T-notes 
and those that are not adjusted for inflation has 
narrowed to just 1.39%. Strangely - and perhaps 
insanely - bond buyers are implying that inflation 
will not exceed 1.39% annually for the next 10 

*** So what will it be today? Greed or Fear? Will 
investors want to buy stocks at these "bargain" 
prices? Or will they prefer to sell stocks today so 
they can enjoy their Labor Day weekend without 
worrying about more losses? 

We will see, dear reader, we will see.

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by Bill Bonner

Pierre was giving me a signal.

He waved his finger behind his back, urging me to 
stop talking.

We were looking down from the ramparts of the 
chateau at a field grown up in small trees and 
bushes that needed to be cleared. I had just 
suggested that perhaps Madame de St. Georges would 
like some help from a man we knew who does that 
kind of work, a Monsieur Dupont.

But Madame had already made Monsieur's acquaintance 
and didn't care to be reminded of his existence. 
That was what Pierre's index finger was telling me.

It turns out that Mr. Dupont and Madame de St. 
Georges' late husband shared a common interest - 
drinking...the late Mr. de St. Georges was out with 
Mr. Dupont on the night the former died. Driving 
home, the road took at sharp turn to the right - 
the same turn it had always taken. But for the 
first time in his life, Mr. de St. Georges 
continued straight ahead, flipped his car over, and 

If Mr. Dupont feels guilty about letting his friend 
drive while drunk, it is a guilt he seems to bear 
privately and stoically. Perhaps he comforts himself 
with the knowledge that however drunk Mr. de St. 
Georges was that night, his companion was even 
drunker. Alas, the two had failed to designate a 
driver and shared the blame evenly.

We had come to visit Madame de St. Georges to see 
her house - a magnificent chateau about 15 minutes 
from Ouzilly. I will give you a brief description 
of it, dear reader. For it is a reminder that 
progress is far from guaranteed.

Like my own house, the chateau was reconstructed in 
the 19th century on the foundation of a medieval 
fortress. Built of gray limestone, it is just what 
it appears to be - a massive stone house that had 
been left to take care of itself for nearly half a 
century. It would an ideal place to film a horror 
movie...or stage a Halloween party.

Once tended by a team of maids, gardeners, and 
laborers, the house now has only the widow de St. 
Georges to look after it. The maids and gardeners 
are gone. The shutters hang at various angles, with 
paint peeling off so heavily they look like strange 
animals shedding their skin. Trees and bushes grow 
up where once there were gardens and lawn.

Inside, too, is more evidence that the de St. 
Georges fortune has been declining for a very long 
time. Family portraits grace the grand salon - none 
more recent than 1910. Even the collection of dead 
birds - so extensive that it attracted the interest 
of ornithologists from Paris - stopped growing in 
1955 or so.

"My husband's uncle collected them," Madame de St. 
Georges explained. 

The cabinet took up a good section of wall space. 
In it, standing on the top shelf, were a few birds 
that looked like terns or miniature sea gulls. 
Below were row upon row of birds that looked as 
though they had been brought in for lunch and 
forgotten. They were bright colors and dull ones. 
They were big and small...dozens, maybe hundreds, 
of them. 

"They were all found or shot here," the chatelaine 
told us, "and all stuffed."

They did not look stuffed. They looked...dried out. 

A grand stone staircase rose to the second floor, 
supported by two stone columns. On the wall in 
front of us as we went up the stairs was a 
collection of swords and more old paintings. 

Like the paintings, the furniture was ancient. 
Except for the bedrooms that had been fixed up for 
paying guests, all of the furniture had been in the 
house for at least 50 years.

Most people take material progress for granted. But 
it is not guaranteed. Investors are shocked by the 
idea of a 17-year bear market. Economists are 
appalled at the suggestion of a Japan-style 11-year 
slowdown. But markets, assets, living standards, 
and incomes can go down for very long periods.

The Romans brought innovations such as baths and 
running water to Britain. When they left in 410 AD, 
the quality of life fell dramatically. The standard 
of living did not recover in Britain until, 
perhaps, more than 1,000 years later. That 
"perhaps" is there because no one really knows. But 
it is almost certain that the Anglo-Saxons in 
Britain lived more primitively than the Romans, at 
least until after the Norman Conquest in 1066...and 
probably until the 18th century. 

Throughout Europe, the story was much the same. The 
Romans began a long decline and fall early in the 
First Millennium and finally "returned to trend" 
when Rome was sacked by the Visigoths in 410 
AD...the same year the Romans left Britain. 
Thereafter, standards of material prosperity 
declined...only to return to Roman Empire levels 
many centuries later. Economists and historians 
have used up many pens, much ink, and a lot of 
typewriter ribbon attempting to explain why - but 
no one really knows. 

In the Middle Ages progress was very slow - with 
some areas "backwards walking" for decades...and 
all of Europe hit by periodic setbacks, caused by 
disease, bad weather, and war. 

The wars of religion, for example, created such 
havoc that fields and whole towns were abandoned or 
destroyed. Peasants took refuge from murderous 
armies by hiding in the hills and forests - where 
they often starved. 

Most people grew richer in the 20th century, but not 
all. In the Soviet Union, for example, people 
labored hard for 70 years - only to get poorer each 
year. And even while people made material progress, 
trends in art, architecture, crime, politics, and 
manners were mostly retrograde. 

In America, stocks rose in the average year of the 
20th century. But an investor could have held stocks 
for 50 years - from 1929 to 1979 - with zero 
capital gains in real terms. 

Even in real estate, there are trends and 
countertrends - as nature gives and takes. Property 
prices in France fell for a 70-year period in the 
19th century. In the 20th century, as I've described 
in previous letters, our office building in 
Baltimore probably peaked in value before WWI...and 
has been in decline ever since. We bought it in 
1993 for about 20% the cost of construction.

I do not know when or how the St. Georges family 
made its money. But I know what happened to it. 
Monsieur de St. Georges enjoyed a life that had 
been set out for him by his father - a life that 
seemed ideal. 

He worked only about two days a week - overseeing 
his farms. The rest of the time, he went hunting or 
fishing, and participated in many local committees 
and organizations, both public and private. He had 
money; he had a beautiful wife; he had time; he had 
the respect of the people around him. But the farm 
economy in France changed dramatically after 1960. 
Labor became more and more expensive. Huge sums 
needed to be invested in equipment. World commodity 
prices - in real terms - fell. Margins tightened. 
Thus did Mr. de St. Georges buck the trend of a 
century. Over the course of his entire 62-year 
life, he became poorer. 

He and his wife lived well and enjoyed it...even 
now, his widow is a lively and attractive woman. 
She does not look like the sort of woman a man 
would want to leave.

But as time went on, Mr. de St. Georges lived less 
and less well. Finally, he did not seem to enjoy 
living at all, some people thought...and they 
wonder why he missed the turn.

Nothing is guaranteed in life, dear reader. 

Certainly, not progress. 

Bill Bonner

P.S. In Business Week: "If you're looking for a 
rosy economic forecast, don't knock on Warren 
Buffett's door. The Berkshire Hathaway chairman, 
and King of All Value Investing, has been telling 
executives he meets with to brace themselves for a 
long slowdown. Not only is there no turnaround in 
sight this quarter or even this year, according to 
Buffett, but those who've met with him say that he 
is predicting eight years of economic stagnation."

People can walk backwards a long way.

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About The Daily Reckoning:

Daily Reckoning author Bill Bonner

Bill Bonner is, in spite of himself, a natural born contrarian. Early each morning, Bill writes The Daily Reckoning—his take on the financial markets and what’s going on in the world—and 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 up—not 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 ’90s—opening offices in Florida, London, Paris, Ireland, and Germany.

Agora's publication 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.


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Last modified: September 03, 2001

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