In Today's Daily Reckoning:
*** Back from the holiday... going deep within the DR
*** Money Honey, the bubbleonians and Mr. Magoo running
*** 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,
TheStreet.com, CBS MarketWatch.com 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
*** "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 Scoot.com - 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
*** 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
*** 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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THE DAILY RECKONING GREATEST HITS: First aired September
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
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
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 commerce...as 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 now...at 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,
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Last modified: April 01, 2001
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