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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Living Universe

*** Stocks down - panic ahead?

*** What's up? Well, people are beginning to understand 
how a bear market works...and the Europeans are 
beginning to notice that dollar-based investments are at 

*** More pink slips...spending slowing...GE below 
$40...and more!


Last week was not a good week for stock market 
investors. The Dow dropped 234 points on Friday alone, 
bringing the week's losses to 3.46%.

What's going on? Investors are beginning to 
realize that we're in a bear market - and it's not just 
the tech sector. 

Big, mainstream Dow companies are taking a 
beating. Walmart, the nation's leading retailer, was at 
$ it's at $46. GE lost 2% of its value on 
Friday, closing below $40. AOL is down to $32 - after 
losing 2/3rd of its capital value.

Fannie Mae, Freddie Mac and the builders are also 
heading down - suggesting that the real estate bubble 
may also have reached its end.

Little by little, investors are beginning to 
understand that the virtuous circle of expanding credit 
- increasing sales - increasing stock prices...has 
turned into a vicious circle of collapsing profits and 
pink slips, which will inevitably be followed by 
declining sales, more layoffs, further cuts in profits 
and ultimately, lower stock prices.

"The market looks ahead 6 months" - or so they 
say. Stock buyers are looking ahead towards a recession, 
bankruptcies, and deflation.

Bond investors, too, seem to be anticipating 
deflation. The premium they are willing to pay for 
protection against inflation (as measured by the gap 
between inflation-adjusted TIPS and normal 10-year 
notes) has fallen to just 1.52%. America has hardly ever 
seen inflation rates that low since the end of the Great 
Depression. But that's what the bond market is telling 
us to expect.

Addison...additional observations?


Addison Wiggin in Paris:

- "The market - and investors - are going to have to 
sweat for every penny of upside in the future," reports 
the Industry Standard. The S&P closed Friday at levels 
last seen in 1998. Those "buy and hold" investors who've 
held on for the long run have toiled away for three 
years and come up empty-handed.

- The jobless rate rose to 4.9% Friday from 4.5% in 
July. 550,000 people have been "made redundant" in tech, 
or tech-related industries, since the beginning of the 
year. "The U.S. labor market will deteriorate sharply," 
reports Bloomberg, "hitting consumer confidence, retail 
sales and slamming the brakes on recovery." 

- News also came Friday that manufacturers laid off 
twice as many people in August as in July. People with 
no savings and no paychecks make poor consumers. They 
can spend for a while, but not for long.

- That's why credit card debt write-offs soared to $2.8 
billion in the last quarter...up 27% from a year ago. 
People can still spend - by borrowing against credit 
cards and home equity. But they can't keep up with the 
debt payments when they lose income.

- Things don't look too good for new hires either. 
Colleges, says an article in the Dallas Morning News, 
are "taking steps to prepare their students for a 
Spartan job market." [We have no idea what a Spartan job 
market figures are available to us on the 
employment picture in ancient Sparta. Perhaps he meant 
"sparse".] Businesses report that they plan to hire 
nearly 20% less new grads in 2002.

- And there's evidence that consumer spending has 
started to act out Greenspan's worst nightmare in broad 
daylight. The big "c", which makes up 2/3 of the U.S. 
GDP, slowed by 16% in the 2nd quarter. "The most telling 
[sign of the times]," writes The Blue Team's David Tice, 
"is that people who still have jobs are fearful and are 
firing their maids and lawn care services. Cell phones 
and cable services have been canceled and entertainment 
has been reduced to Blockbuster."

- Another sign of the times? The dollar dropped 1.3% on 

- And the Chicago Board of Exchange Gold Index (GOX) was 
up 3% on Friday. "Foreign demand for gold rises when the 
U.S. dollar weakens," says Dan Denning, editor of The 
Daily Reckoning Investment Advisory. (Dan issued a buy 
on a new gold play Friday morning - and watched it rise 
1.5% by the end of the day. If you are not currently a 
Blue subscriber, please see and subscribe today:
"After The Tech Wreck"

- As I reported in The DR Weekend Edition, Friday saw 
the S&P 500 fall 20 to 1085. The Nasdaq logged its own 
worst close since April 4, down 17 to 1687. And the Dow 
followed up its 192 point loss Thursday with a 234 drop 
Friday to close out the week at 9605 - also a low since 
April 4. Only 216 points remain between here and the 
Dow's weakest finish for the year. 

- The opening days of September have been brutal for 
stocks. Last week the Dow lost nearly 3.5%, but it and 
the S&P are down 8% since opening trading on the 27th of 
August. The Nasdaq tumbled 6.5% for the week, and has 
lost nearly 12% in the last 10 trading days.


Back to Bill, also in Paris (we're all in Paris!):

*** This may be another big day on Wall Street. 
Investors are nervous. So far there has been no panic 
selling on Wall Street. But don't rule it out.

*** Nor should you rule out a big bull rally. "There 
should be a major rally...that could last for a year or 
more...before the final collapse," warned Sheldon 
Jacobs, a mutual fund "guru" whom I had the pleasure of 
meeting with over the weekend.

*** Stocks could go wild on the upside or wild on the 
downside. Either way, the fools need to fully express 
themselves before the bear market is over. 

*** But thank God for fools. It would be no fun watching 
the market without them. And they will drive stocks down 
to bargain prices - at P/Es below 10 - before they 
finally hit bottom. Until then, the best advice is to 
enjoy the spectacle from a safe distance.

*** What else is new?

*** Well, I notice that the Japanese stock market is 
still racing Wall Street to the bottom. The Nikkei 
closed at just 10,280 on Friday as economic conditions 
reached their lowest point in a quarter of a century.

*** And, oh yes, Elizabeth got into London after two 
very nice women carried her passport over to her in 
Paris. We enjoyed a couple of days on our own in London 
- that is, without children. We rode the big Ferris 
wheel on the river, visited the national portrait 
gallery, had lunch at the Savoy...and went to church at 
St. Paul's Cathedral...more below...

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If any man come to me, and hate not his father, and 
mother, and wife, and children, and brethren, and 
sisters, yea and his own life also, he cannot be my 

Jesus Christ
Luke 14:26

The Reverend Canon Philip Buckler wrestled with the 
above passage in his sermon at St. Paul's Cathedral in 
London on Sunday. He is not the first to do so. For 
hundreds of years, this quotation has bothered and 
bewildered men of the cloth of all denominations - from 
purple-fringed priests to bible thumpers in sweaty 
searsucker suits...

This was one of Jesus's "hard sayings" - hard to make 
sense out of. Because the words seem as much a 
contradiction of Christianity as the Albigensian crusade 
or the Borgia popes. It is almost as if Christ forgot 
himself that day. 

Immediately prior to the Reverend Mr. Buckler's sermon, 
the world-renowned boy's choir had already revealed the 

Dressed in black robes and crenulated collars, the boys 
sang out:

"Love is his news, love is his is his law, 
love is his is his name, love is his law..."

Which is it? Love or hate? But consistency is the 
hobgoblin of small minds...and Jesus had no small mind.
Surely the learned translators of King James' day would 
have translated the passage more conveniently if they 
could have. Digging into the etymology of Aramaic or 
Greek words, they might have discovered that Jesus must 
have meant that you should "prefer" the kingdom of God 
even to the most important and basic pleasures of human 
life...and even life itself. 

And yet, there it is, the dreadful word, "hate" - like a 
wart on a model's nose. It is there for everyone in the 
world to see and to wonder about. 

"Could it be that Jesus exaggerated, just to make his 
point?" asked Mr. Buckler from his gilded pulpit. 
Before him, an audience of casual worshippers would have 
been perfectly happy to believe that Jesus overstated 
his position. 

Most of those sitting in the rows of chairs seemed to be 
tourists enjoying the spectacle of pomp and splendor, 
rather than a regular church congregation. 

American tourists were there - recognizable in their 
blue jeans and running shoes. The Japanese tourists were 
recognizable too - with their orange hair and cameras. 
There were even a number of British tourists - middle-
aged couples who looked as though they had come down 
from Leicester or up from Brighton for the weekend. 

But Buckler knew better. "The Exaggeration Hypothesis" 
might be slipped by the lumpenchristians, but it 
would never pass through the ranks of ecclesiastical 
glitterati around him. For there was an entire team of 
priests, deans, vergers, wandsmen and canons upon the 
stage...including the lead priest, a pale man with the 
feeble, twitty voice of an aged vicar, and a team of 
clerics dressed in shimmering silver lame gowns.

If Jesus' words could be dismissed as hyperbole in this 
case - maybe he was exaggerating about other things too. 

Maybe he did not really mean you should "love your 
neighbor," for example. Perhaps "admiring" or 
"respecting" your neighbor would be good enough.

And so the churchman put up a fight. Not as dramatically 
as an angel might wrestle with a devil or as amusingly 
as two fat women might wrestle in a mud bath. The 
contest was more the equivalent of a computer nerd 
trying to open a bag of potato chips. And like so many 
priests and pastors before him, Mr. Buckler was unable 
to get it open.

Daily Reckoning readers may wonder what this has to do 
with investment advice. I wondered too. So I put the 
question to Dan Denning, Bible Scholar and Investment 
Analyst, who just happens to be visiting us in the Paris 

"The Bible is full of challenges and paradoxes," Dan 
replied, "just like the financial markets. In this 
passage, I believe Jesus is challenging his listeners to 
understand that they can let nothing - not even life 
itself - interfere with their love of God.

"But there's another side to this that has relevance for 
investors. Jesus goes on to say that those who would 
follow him must "give up all their possessions." The 
idea here is that a person must be willing to forego the 
here-and-now pleasures...that is, current consumption... 
in order to realize a greater reward somewhere down the 

This squares perfectly well with our understanding of 
how economies really work. People must save money in 
order to get richer. If they are not willing to set 
aside some of their production - to delay gratification 
in favor of a hoped-for but uncertain reward later on - 
they will never get richer.

"Thus is the universe alive," wrote Emerson. "All things 
are moral."

Bill Bonner

P.S. - The living universe - created by God - has its 
own ways of punishing sin and rewarding virtue. But 
neither sin nor virtue is always easy to spot.

Fed governor Robert McTeer urges American consumers to 
keep spending, recognizing that this may be "irrational" 
for any individual household. Already deeply in debt, 
spending more now - on the eve of recession - may not be 
merely irrational, but a form of financial self-
loathing. But there is the paradox: what may be bad for 
an individual, says McTeer, is good for the economy. 

Is it really? Would the living, moral universe make a 
virtue of spending money you don't have...and reward 
those who spend their money rather than save it?

Who will turn out to be dumber - the Americans who spend 
their money...or the Europeans who save it?

Will American baby boomers - who loved current 
consumption so dearly that they put themselves further 
in debt than any other generation - be saved by 
inflation? Will their debts be wiped out like a slate of 
sin by a forgiving god? 

Or will they get what they've got coming - and get it 
good and hard? 

I don't know, dear reader. But we will all find out.

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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 10, 2001

Published By Tulips and Bears LLC