In Today's Daily Reckoning:
*** A respite from the Labor of Daily Reckoning...
*** What a dollar will buy in Europe...
*** Who asks for a raise in the summer? A day devoted to
no man, sect, race, or nation... and more.
*** Ahh, Labor Day... burgers, beer and baseball. What
better way to enjoy this, the unofficial final weekend of
the 'summer of love'?
*** France enjoys no such holiday. Having just finished
the month of August in which all the fine citizens of
Paris leave the city - and work - behind for fully
compensated late-summer vacations. Only the newly hired,
or chronically under-employed, fail to partake of Les
Vacances. Today marks the beginning of La Rentree...the
return. The metro is back to its crammed, stuffy self,
and the patisseries are once again full of freshly baked
clairs and tartes normandes.
*** Still, Bill thought he'd give you a little Labor Day
respite himself - in the form of a truncated Daily
Reckoning. These market notes have been brought to you by
Addison, followed by another Daily Reckoning greatest
hit... first aired Labor Day 1999. Read on, read on...
*** Friday saw the Dow close up 23 points at 11,238. The
Big Tech Nasdaq shimmied up 27 points to finish the week
at 4,234. And the S&P 500 inched its way 3 points higher
to 1,520... all very modest gains, but consistent with a
late summer Friday - when all the traders appear to be
taking their early leave in an attempt to avoid traffic
on the way to the Hamptons.
*** The S&P now stands just shy of its March 24 record
close - 1,527.
*** "Wall Street Bulls See Reasons To Smile," states a
Reuters headline boldly. "Recent economic data has showed
the economy slowing enough for the U.S. Federal Reserve
to most likely stay put on interest rates," says the
article "but not so deep as to hurt corporate America's
*** Still, "You wonder why people are happy that the
economy is slowing," an analyst in the article asks...
"Companies are not making more money...[yet] the stock
market is being priced for profit growth and we're not
getting the kind of growth needed and eventually it is
going to catch up."
*** This morning in Europe... US$.90 will buy you a Euro,
US$.94 will buy you 100 Yen and One Crisp US Dollar will
buy you 7.36 French Francs. By way of illustration: the
litre of Vins de Pays L'Aude I shared with my wife on our
modest dinner table last night cost a little over 8
*** "Traditionally, whoever leads on Labor Day - the end-
of-summer holiday in the United States - wins the White
House," Reuters warns us. Homo Digitalien Gore has lead
the fickle-public opinion polls since the end of the
Democratic National Convention on August 18. The election
is Nov. 7.
*** What's really at stake? Who knows. Gore has promised
to spend your money on increased compliance with Kyoto
environmental controls, Internet access in every
classroom and health care for five million children who -
for whatever reason - are not covered. Bush has promised
to spend a ton of money, too... to get elected.
*** "...so much money is changing hands - upwards of $2
billion in a presidential election year - the cloud never
lifts," says a website run by the non-profit group Public
Agenda. In a poll they conducted 59% percent of Americans
reportedly believe the election is 'for sale' to the
candidate who can raise the most money.
*** But chances are, this time, barring an immediate
collapse of the dollar, Gore will spend the early morning
hours of November 8 enjoying the fruits of this Fed-
inspired economy... that is, this vast illusion of
prosperity, whereby the average American consumer has
been willing to borrow and spend his way into negative
savings territory and dump his future happiness in the
laps of many a 20-something mutual fund manager.
*** "I'm going home for the long Labor Day weekend,"
wrote Lynn Carpenter last Friday, "wondering what it
means when CEO pay rises 535% over the past 10 years
while everyone else's pay rose just 32%.
"Shouldn't there be some more wage pressure than that?
This is full employment, isn't it? Is it possible that
we're just so darn happy that we don't need to bug the
boss for another raise? Do we have enough color TV's,
Lexus's and four-bedroom houses to satisfy the majority?
If so, we would be the first people in the history of the
world to know we had it good enough... on the other hand
I suspect those rising gas, food and insurance prices the
Fed has been ignoring is going to turn into wage pressure
yet. After all... who asks for a raise in the summer?"
*** In a pompously titled directive titled: "Labor Day:
How It Came About; What It Means," the Department of
Labor tells us Matthew Maguire, a machinist, and
secretary of Local 344 of the International Association
of Machinists in Paterson, N.J., proposed the Labor Day
holiday in 1882. "Labor Day differs in every essential
from the other holidays of the year in any country," said
Samuel Gompers, founder and longtime president of the
American Federation of Labor. "All other holidays are in
a more or less degree connected with conflicts and
battles of man's prowess over man, of strife and discord
for greed and power, of glories achieved by one nation
over another. Labor Day...is devoted to no man, living or
dead, to no sect, race, or nation."
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THE DAILY RECKONING GREATEST HITS: First aired LABOR DAY
Most people imagine that the market is like an ATM
machine that just dispenses cash without debiting your
account. You just have to stand at the machine long
enough... and you get rich. No brains required.
Yes, of course, the machine sometimes goes on the
blink...but it is soon repaired. Best to stay in line
even when it's not working well...so you'll be ready to
collect your money when it starts up again.
This view is the one held by most people today. It is the
view that informs the investment decisions of millions of
people...and that under girds most of the financial
industry. It is a view reinforced by experience... the
last two decades of market history provides no serious
counter-evidence. Stock prices (almost) always go up.
Keynes once commented that "practical men, who believe
themselves to be quite exempt from any intellectual
influences, are usually slaves to some defunct
economist." Keynes was, himself, the defunct economist to
whom two generations of economist were enslaved. He
viewed the economy as a vast machine that could be
adjusted by turning a few knobs and pulling a few levers.
Thus were his successors chained to their posts at
central banks and councils of economic advisors, fiddling
with the instruments of their respective economies...and
generally making a mess of them...
Now, most economists understand that an economy is much
more complex than Keynes imagined. Economies are
unbounded systems...they cannot be successfully commanded
and controlled, nor even predicted...but merely modeled,
based on probabilities. A stock market is the same sort
of thing. It is an equally unbounded system. It is not a
mechanistic, automatic, wealth-distributing machine. It
is more like a living thing. Real investors know that
this is so... they give pet names to the different
"moods" of the market... anthropomorphically describing
it as a "bull" or a "bear." They know from experience
that it can be many things. But it is definitely not a
Richard Russell says that "whatever your weakness...the
market will find it." He often describes a bear market as
"vicious" or "cunning" and "out to take as many people
down with him as possible." What machine would do that?
Is this just hyperbolic writing...or does the market
actually have a mind...a will...and even malicious
The answer is yes. And no. And maybe.
There...I hope that's settled.
A market reflects and influences the economy that
supports it. Not surprisingly, the qualities that make
for success in the economy...or perhaps I should say, in
real life...are generally those that serve investors
well. What works in an economy? Effort, discipline,
patience, and humility.
Perhaps no one illustrates these qualities more than the
greatest investor of our time - Warren Buffett. Buffett
(still) works extremely hard getting to know every detail
of the businesses in which he invests. He does not invest
on hunches. He does not guess about which technology is
likely to succeed. He does not check out the buzz on
Internet chat rooms. He applies a discipline and training
that he has worked on for many years.
When he decides to invest in a company, he does so
recognizing that it could take many, many years before
his investment really "pays off." He's very patient. And
he's smart enough to be humble. He does not invest in
things he doesn't understand. He has never bought stock
in Microsoft, for example, even though he plays bridge
with Bill Gates. When stock prices generally do not make
sense to him... he attempts to get clear of the market...
as he did in the late 60s.
By contrast, what hurts you as an investor is what hurts
you in the rest of life. Vanity: such as when you think
you are smarter than other investors. Sloth: such as when
you can't be bothered to study an investment before
buying it. Pride: when you won't admit that you've made a
mistake...and don't cut your losses. Greed: when you
think you can get a 20% return every year...without
working...or when you think you'll make a killing on a
[Big Tech] stock...even though you have no idea what it's
all about. Timidity: waiting too long to make your
move... needing the reinforcement of others before making
an investment decision.
Porter Stansberry sent me this quote from Reminiscences
of a Stock Operator, in which Edwin Lefevre described the
investment consequences of greed:
"The sucker has always tried to get something for
nothing... people who look for easy money invariably pay
for the privilege by proving conclusively that it cannot
be found on this sordid earth."
Sin and wickedness rarely goes unpunished. Investing
merely quantifies it.
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Last modified: April 01, 2001
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