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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Rise of the Network Commonwealth

In Today's Daily Reckoning:
*** Back from the holiday... going deep within the DR 
*** Money Honey, the bubbleonians and Mr. Magoo running 
the show...
*** Eurotop 300 reaches 'lifetime high'... 'going postal' 
no longer... and more

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*** Bill is at Ouzilly today... and so Addison, here in 
Paris, is bringing you, once again, a shortened - but no 
less thrilling - rendition of the Daily Reckoning... 
followed by yet another greatest hit from deep within the 
'99 archives vault.

*** First, let's see where we stand for the post-Labor 
Day opening... the barbecue is cool and greasy (still 
needs to be cleaned), the beer's all drunk... friends, 
neighbors and children have all gone home. It's back to 
business as usual...

*** Today millions of average American investors - will 
wake up strap on their pants (one belt loop looser) and - 
once again - tune in to CNBC... for another dose of eye-
salve and Get-Rich-Quick advice from the Money Honey 
herself, Maria Bartiromo, host of "Who Wants to be a 
Zillionaire?" - the network's daily game show, which 
might otherwise go by the title: Fleecing the Amateur.

*** Of course, "...the [real] question for millions of 
investors who rely on CNBC, CNNfn, Bloomberg,, CBS and a dizzying array 
of financial newspapers, magazines and commentators is 
just how much such tips are worth," suggests an article 
in Newsweek. "The trigger-finger media misfired ... last 
week when Bloomberg News, CNBC, Dow Jones and others 
blindly touted a press release-which turned out to be an 
utter fraud-about accounting problems at the fiber-optic 
firm Emulex, whose stock plummeted more than 50 percent 
in just 15 minutes..." Que sera, sera.

*** Apart from ramped rumors in the press, "this is a 
market that has literally priced out risk" says Richard 
Russell "...risk is just not even considered in price. 
Which is one reason why when a stock doesn't meet 
quarterly 'expectations,' it is dumped unceremoniously by 
the funds and may lose 20% to 50% in a single session."

*** "As we go forward this fall," echoes Silicon 
Investor's William Fleckenstein, "it will be interesting 
to see whether we can continue to believe in the best of 
all possible worlds - slowing economic activity, the pipe 
dream of no inflation and strong earnings growth to 
support stocks. The bubbleonians sure do seem to think 
they can have it all ways..."

*** Fleckenstein continues: "I remember vividly in 1984 
when the Fed backed interest rates up to 14 percent 
because folks were so freaked out about inflation, even 
though we had Paul Volker in control and it was headed to 
4 percent. Now we've got Mr. Magoo running the show, 
which is guaranteed to produce more inflation (and 
already has), but folks are willing to give him the 
benefit of the doubt. It's the perfect bookend to the 
previous era."

*** "Last Thursday, Snyder Communications (who?), P/E 205 
with - 100% sales growth, gained 4.5%... It's not even a 
tech stock; it's a marketing company," writes Fleet 
Street Letter's Lynn Carpenter "But what really hurts? 
Carnival Cruise Lines, one of my favorite sad sacks with 
a P/E of 12 and superb growth, sales and financials shed 
another 4.5%... where's the order in that?" 
(see: Big Tech: You're Out of Order!

*** Meanwhile, European investors seem to be getting 
ready for another go at the wild speculation that kicked 
off the year 2000, too. The Eurotop 300 index ended 
yesterday's trading session at a 'lifetime high' of 1704. 
Paris, Amersterdam, Copehagen and London's FTSE all broke 
intra-day records. Leading the charge on the London 
exchange... an Internet directory called - up 
over 20 points.

*** Here in France, Jospin's Socialist government, with 
the 'right-winger' Chirac as President, has benefited 
greatly from the 'American-led' global economic boom 
starting 1997. 

*** But the French have a saying: Plus ca change, plus 
c'est la meme chose. The phrase, which I'm told by 
Isabelle here in the office can only be used when 
speaking about government reforms, means roughly: the 
more things change... well, you get the picture. 
Headlines in the Financial Times today indicate talks 
between the truck drivers' syndicate and the government 
over high petrol prices have reached a boiling point. The 
drivers barricaded the tunnel at Dover on September 1st, 
effectively stopping the flow of oil and gas from across 
the channel... petrol stations are already beginning to 
run dry.

*** Going Postal... a myth? In attempt to salvage the 
morale of over 900,000 employees and discourage the 
pejorative use of the term 'going postal', the U.S. 
Postal Service Commission On A Safe And Secure Workplace, 
issued a report last week that revealed postal workers 
were only a third as likely as others in the 'national 
workforce' to be victims of homicide at work. Comforting 
news for one and all, I'm sure.

*** Today is Paul Volcker's birthday; he turns 73.

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7, 1999.


Sooner or later, one way or another, the U.S. stock 
market will almost certainly be downsized. Creative 
Destruction will take care of many of the stocks listed 
on the NYSE. The rest will be battered by a falling 
dollar, higher interest rates, recession and/or 
inflation. But what will happen to the government in the 
post-Bubble age? 

One of the annoying realities of modern life is that 
government has so far resisted the trend towards 
downsizing. Taxes and spending by government in America, 
as well as most of the rest of the developed world, are 
at their highest levels ever. 

This may come as a shock to new readers of the Daily 
Reckoning. Bill Clinton disavowed Big Government four 
years ago. We're supposed to be running a surplus 
[still]. Government is supposed to be shrinking in the 
post-Cold War era. There is supposed to be a "peace 
dividend" - a bonus that results from not having to worry 
about Soviet expansionism in the New Era. 

But people are turning away from politics - because 
politics are becoming less important. Membership in 
political parties in both Britain and America is dropping 
rapidly. People are abandoning mainstream parties they 
way they have been abandoning mainstream religious 
affiliation since the 1950s. One way or another, 
government is about to change. The nation-state and big 
government are products of the special conditions of the 
20th century. When they pass into history... so will 
government as we have known it. 

What will take its place? 

My old friend, Jim Bennett, has done a lot of thinking 
about this. In fact, he's writing a book on something he 
calls the "Network Commonwealth." This is the form of 
government that he expects to gradually replace the 
nation state. 

Part of Bennett's inspiration, it turns out, is a book 
originally published in France called the End of 
Democracy. The book makes the point that the nation- 
state is merely a passing phenomenon, not an eternal 

Before our century, even France -- the quintessential 
nation-state -- was more a collection of different 
regional groups with local loyalties -- who spoke 
languages that were very distinct from one another. The 
Burgundians, the Picardians, the Limousins, the Poitovin, 
and so forth. Gradually, French replaced the local 
dialects and gradually people began to see themselves as 
French, rather than as members of a local group. 

The nation state had great advantages in a world where 
national groups confronted each other. The Germans could 
easily defeat Northumbria, for example, but defeating all 
of Britain was a bigger challenge. Thus, nations 
consolidated... and taxes rose. 

But contrary to Francis Fukayama, this is not the end of 
history. Political evolution continues. And Bennett 
believes it is evolving in the same general direction 
that business is evolving - towards looser networks 
unified by common culture and common purpose. 

The economists of the 20th century used the metaphor of 
the machine to understand how a nation-state should 
function. They created, in fact, a "Machine state"... 
where they tried to regulate everything using a command 
and control model. This led them to abandon 
constitutional restraints in the West... and moral 
restraints in Germany, Russia, China and Cambodia. 
Machines are not constrained by "silly bourgeois 

But the economists of the 21st century are more likely to 
look to the Internet...and to Internet the 
metaphor for political organization. The Internet is the 
marvel of our time...just as the machine was the marvel 
of the late 19th century. And the Internet suggests a 
different, more ambiguous form of organization. 

For example, political organizations of the 21st century 
are likely to be less concerned with geography. I can 
speak and do business with someone in New Zealand, over 
the Internet, more easily than I can deal with the guy in 
the apartment upstairs. The Network Commonwealth might 
exist in cyberspace...and in any territory that wanted to 
be a part of it. It would also tend to be much more 
voluntary. If a group of people did not want to be part 
of it...they could probably "opt out" as one does from an 
Internet discussion group. Thus the new Network 
Commonwealth might be more like the Hanseatic League of 
the Middle Ages, which endured for some 500 years... but 
with an organization so loose it was never completely 
clear which cities were members. 

The most important component of the Network Commonwealth 
would be their reliance on common culture. Communication, 
understanding and trust are the key ingredients in 
voluntary groups. These are very difficult to achieve 
across different cultures with different languages and 
different levels of "trust." 

Trust, by the way, is a concept that was explored at some 
length by Francis Fukayama. He noticed that some cultures 
were characterized by high levels of trust -- when people 
said they were going to do something... they did it. 
Other cultures have lower trust levels. In them, you 
cannot believe what people tell you...nor can you believe 
that the laws are what they seem to be...or that they 
will be administered in sensible, transparent and 
reliable ways. Low trust societies are typically poor 
societies - like those in Africa...and some neighborhoods 
in American cities. High trust societies, by contrast, 
benefit from ease and reliability of doing business...and 
create more wealth. That is true of Northern Europe and 
Japan - which Fukayama identifies as the most high trust 

Bennett believes that the cost of trying to do business 
over the Internet with people with different cultures and 
levels of trust will be prohibitive. People will order a 
sweater, for example, from Lands End in Michigan...but 
not from a factory in Nigeria. Thus, Network 
Commonwealths will arise among groups who share the same 
language and culture. 

Fukayama identifies France as a country with both high 
trust and low trust features. I think he doesn't really 
understand the French. It is a high trust society...but 
it operates in a different way from the Anglo-Saxon 
world. This difference is important...because it is why 
the French and the British have so much trouble getting 
along. They don't understand each other. They don't speak 
the same language. The costs of trying to operate 
according to the same rules with a shared agenda are too 

Meanwhile, Britain's leaders are trying to shoehorn the 
country into an awkward partnership with France and the 
Continent. Even the dawn of the Internet age... 
most of Britain's trade is with North America...not the 
Continent. Most investment in Britain comes from North 
America...not its EEC partners. And the trend is being 
amplified as the culture of the Internet becomes more and 
more developed in the Anglo-Saxon world. 

The most obvious Network Commonwealth is of the English-
speaking nations...America, Canada, New Zealand, 
Australia and Britain. William Rees-Mogg, writing in the 
Fleet Street Letter UK, has already proposed it. A simple 
arrangement between the English speaking nations to honor 
free-trade, free movement of people and capital, and each 
other's currency. It would be the biggest free-trade 
group on the planet...with the biggest market...the most 
fluid labor pool...and the most advanced technology. 

The effect would be to downsize the nation-state. Since 
business would be done freely across national boundaries 
...national identification would become less important... 
except perhaps at sporting events.

Your networked correspondent,

Bill Bonner
About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

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Last modified: April 01, 2001

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