In Today's Daily Reckoning:
*** Strikes, chaos...and oil crisis hits Euroland...
*** But will a high oil price mean the end of prosperity
in the Western world?
*** The Big Techs are headed down...caught in a crippled
sub from which they will never escape
*** "Euro...Oil: Europe Trapped" proclaimed yesterday's
headline in Le Figaro. "Britain Nearly Dry" says the
headline in today's IHT.
*** All over Euroland, the top story is the same:
strikes, chaos - caused by high oil prices. "This is the
worst crisis by far in 25 years," said a spokesman for
the Royal Automobile Club. "The government has to step in
immediately," he urged. Tony Blair, Britain's Prime
Minister lost no time raising his right foot. Fuel
supplies will be back to normal in 24 hours, he promises.
*** Wow, what a difference a year makes. Last year on
this date, I reported a rise in the price of oil to $24.
But the press reports of the time dismissed it. The
economy was much less dependent on oil, said the papers,
than it had been in the 1970s; there would be no crisis.
After all, the New Economy ran on electrons, not fossil
fuel. Didn't it?
*** I hope you will forgive me, dear reader, for quoting
myself. But it is not often I get to reprise my own words
without embarrassment: "People entertain [an] illusion,"
I wrote on September 14, 1999, "that oil will never be in
short supply. They think it will be cheap forever. But
what, really, are the odds that the dollar will stay
strong and the price of oil will stay weak over, say, a
*** We are now near 1 year and counting. Oil has risen
against the dollar by about 40%. Truckers, taxi drivers
and others who depend on stable oil prices are up in
arms. Parts of Europe are nearly paralyzed. The American
Petroleum Institute says crude inventories are at 24-year
lows. President Clinton has pledged to take action -
though he did not say what. And the nattering nabobs are
revving up their laptop computers to turn oil into a
popular sensation once more.
*** "An extraordinary windfall in the form of cheap oil
fueled unprecedented prosperity in the United States,"
writes William Drozniak for the Washington Post, in a
piece labeled, the "Reckoning." But now, "the good times
may be lurching toward a demise that could profoundly
reshape the nature and contours of the global economy."
*** But oil lacks the intangibility necessary for a real
runaway popular sensation. Too many people are too close
to it. Unlike a dot.com, a Big Tech, or a tulip bulb -
oil gets bought at market every day by millions of actual
consumers. Like bread, it can sell at high prices - but
not fantastic ones.
*** Still, as I wrote a year ago, "this trend has the
potential to be extremely profitable...as the price of
oil rises, more capital will be put to the service of the
oil industry. But it will take years before it delivers
more oil. In the meantime, the markets will anticipate a
shortage and bid up oil prices in a dramatic way." Since
then, oil-drilling stocks have risen more than 76%.
*** How much of that trend has already run its course, I
do not know. But I do know that the amount of dollars in
circulation is still rising at a reckless pace. M2 rose
at an 8% annual rate since July. M3 and MZM, measures of
cash, are rising at 10% year to year. This liquidity has
to go somewhere.
*** And it does not seem to be going into Wall Street.
The Dow rose just 37 points yesterday - largely on the
strength of J.P. Morgan's potential buyout by Chase. JPM
*** The Nasdaq, meanwhile, attempted a rally...but ended
the day 46 points lower. Mr. Bear, still maintaining a
low profile, has nevertheless brought the Nasdaq down
almost 10% so far in September.
*** The Big Techs are probably caught in a crippled sub
from which they will never escape. Cisco, the stock that
was supposed to grow forever, shrank yesterday. It fell
to $58 and change. Oracle dropped more than $4. And PRI
Automation fell more than a third following its
confession of lower earnings to come.
*** Perhaps as the ultimate bull market signal for the
gold market, Homestake announced that its miners hit
bottom at the old mine in Lead, Montana. They've been
digging for 124 years. But at today's gold price, it just
doesn't make sense to keep chipping away at the hard
*** The euro managed to hold its own against the dollar -
rising 41 mills. Perhaps it too has bottomed. You can buy
a euro today for 86.68 cents. A dollar will also get you
7.60 French francs.
*** "The Trouble with Europe" begins the headline on the
editorial page of today's IHT. This is a popular topic
among analysts, strategists and American triumphalists.
It is also an illusion...but more on that in the days to
*** "Is buying the euro a smart contrarian play?" asks
the Fleet Street Letter's Brian Durrant. "...the answer
is not yet." Durrant explains:
"Throughout the euro's decline 'currency experts' have
been trying to pick the bottom in the euro. It was once
$1.06, then parity, then 90 cents etc. So the big problem
is now that global investors are long. Some are Japanese
investors who bought into the hype and are now sitting on
catastrophic losses - and too scared to cut them. What's
more, the ECB have been reacting to euro weakness by
raising rates, deflating the economy and making a less
attractive investment target. As is so often the case
raising interest rates to defend a currency only makes
*** Durrant also points out the Merrill Lynch survey of
market sentiment has an excellent record of being a
contrary indicator of currency movements. When the
investors net exposure index to euros is above 50 it
tends to foreshadow further euro weakness. The only time
this figure has been below 50 was in May '99 and it
foreshadowed a summer bounce in the euro. The latest
reading in August 2000 was 60 which points to the further
weakness we have been seeing. There will be a time when
the euro is a raging buy against the dollar but not yet,
dear reader, not yet.
*** Besides, "...if the European Central Bank has a
mandate to keep inflation below 2%," asks our own Kevin
Klombies "...and inflation is closing in on 3% AND the
euro is acting like the Thai baht AND crude oil prices
continue to rise... how long do you think it will be
until the ECB either intervenes through direct purchase
of euros, raises interest rates dramatically, or both?
Our guess is - within the next 5 trading sessions."
*** Naughty, naughty. German competition regulators
accused Wal-Mart Stores of being too competitive last
Friday. They ordered the giant retailer to raise its
prices for household staples like milk, flour, butter,
rice and cooking oil.
*** The Internet's global population is approaching 300
million people. This according to a Neilsen/Net Ratings
report. The US has, by far, the highest number of at-home
computers users with 136 million. Japan, interestingly
enough, is a distant second with 26 million... ahead of
Germany, Great Britain, Italy and France. So the question
remains... why haven't the Japanese benefited from the
New Era? More on that, too, please stay tuned.
*** I'm getting back in the swing of life in Paris.
Elizabeth is back in the U.S., at another Baptist
wedding. So, I'm a single parent, with five children at
home and a full-time job. It's not easy. But I brought
Nadiege, our part-time housekeeper out in Ouzilly, with
me back to Paris. She takes care of the kids, the
cooking, the cleaning... I just read the bedtime stories.
And guess what, I've noticed that a lot of these stories
don't make sense. Still, Henry and Edward don't seem to
*** Little routines, like reading bed-time stories, seem
to bring order, balance and harmony to your life. I've
been enjoying getting to the office early and having a
cup of coffee at the Caf St. Merry next door, while
catching up on my reading. "Genius is habit," said
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Thom 'Bomb' Hickling is staying out at Ouzilly. He's a
writer who is helping me with a couple of projects.
As I've told you, he's also a musician whom we exploit
mercilessly. Jules, Sophia and I get out our guitars at
every opportunity and ask his assistance. (Getting in
tune with the high-tech times, we've pasted a picture of
the Thom Bomb here:
http://www.dailyreckoning.com/graphics/thom1.jpg If you
know him, you'll noticed he's lost the beard.)
But Thom has another feature - he comes from the
Christian fundamentalist subculture that seems to have
its roots in the American southwest. So, rather than go
to church on Sunday, we gathered together in His name for
our own little celebration on the veranda.
Thom's bible reading described how one of the world's
first, and still very popular, sensations got started. On
the site of the ruined Temple of Solomon, described as
'Solomon's Porch,' people gathered to exchange ideas and
information. This was the media of the day. It was slow.
Sensations took longer to develop. And they tended to be
Still, a few years after Jesus had been crucified, he was
already on his way to becoming a major cult figure.
Thom's reading from Acts of the Apostles described how
sick people gathered on Solomon's Porch hoping the shadow
of Peter would fall upon them and they would be cured.
No mention is made of FDA control panel or double blind
studies. In those days, being blind just once was enough.
Christianity gathered supporters very slowly at first. It
spread like a virus. From person to person, group to
group. Finally, in about the year 321 it reached a kind
of 'tipping point,' when Emperor Constantine converted.
Soon after, almost everyone wanted to be a Christian.
I have been puzzling over the role of the media in
propagating investment bubbles. Before the invention of
the printing press, popular sensations were rare and
People went about their business, relying on direct,
immediate and personal knowledge. Nietzsche refers to
this as one of two types of knowledge. The other is
indirect, abstract knowledge - the sort you might get
from a newspaper, where you don't really know anything
first-hand, and what you think you 'know' may have no
meaning to it.
"Globablization, Yes," affirms a headline in today's IHT,
"but Be Sure to Focus on People." The article begins with
this statement: "Either the 21st century will continue to
produce increasingly divided societies or we can make
concerted decisions to ensure that economies serve
Your guess is as good as mine as to what the sentence
means. What's a 'society?' What's a divided one? Who's
'we?' What's an 'economy?' How does it serve a
'community?' What is a 'community'? How is it different
from a 'society?'
The problem is not just bad writing. The problem is that
the sentence rests on a whole wobbly structure of
abstract ideas. The reader is supposed to know what a
divided society is. He's also supposed to have an
attitude towards the divided societies: they are bad.
Yet, if you look carefully at the component ideas you
find that each of them turns out to be wobbly...remote
from anything you could prove or disprove, or even have
an intelligent opinion about. All societies are divided.
They are collections of individuals and organizations
with different interests. If a society were not divided,
it wouldn't be a society; it would be a unity.
And if you look at the news carefully, you discover that
it represents a whole alternative universe of abstract,
obscure, wobbly ideas.
"The UN Should Not Forget Its Original Peace Mission"
says another sensation monger in the IHT. In this article
I am asked to have an opinion not about my own local
politicians - whom I know to be corrupt half-wits - nor
even about state-level mountebanks...nor even about the
chiefs of chicanery in Washington...but about the hacks
gathered in the Olympus of globalism, the UN.
The purpose of the article seems to be convince me that I
should support UN intervention in war. Hmmm...but if you
dismantle the argument, you find that it rests on an
accumulation of abstractions so thick and so slippery
that it would take a patient Eskimo with a blubber knife
to get through it.
And once you get beyond the greasy jingos...there is
usually nothing there.
The mass media invites you to join in mass thinking. It
increases the scope and speed of crowd thinking. In this
sense, all media is state media. For it encourages
collective, political thinking and focuses your attention
and emotions on 'problems' which the state offers to
Left alone, people develop their own ideas about how
things work. But with the help of a mass media, thinking
is standardized, like the products of an assembly line.
Political 'solutions' to problems you might not otherwise
know existed are popularized...and sensations are born.
This was hard to do before the mass media existed. Lunacy
was more isolated, more quirky and less infectious.
The crusades, for example, took hundreds of years to get
underway...and then hundreds of years to work themselves
out. People who had never been South of the Loire
river...and had no idea of how anyone's life would be
improved by waging war against the Muslims...nevertheless
signed up for a fool's errand - to conquer the Holy
The whole series of 8 crusades floated over the rough
waters of compound abstraction...to the unforgiving
terror of 13th century combat. Hundreds of thousands of
people died - many from disease and hunger.
Perhaps the most lunatic of the crusades were the
children's crusades. As many as 20,000 children from the
Rhineland made their way into Italy. Like nave investors
buying up the Big Techs at preposterous prices...they
believed a fantasy: that they would take the Holy Lands
from the Muslims by love instead of force. Instead, the
children were dispersed among the Lombard towns...or sold
into slavery to Muslims.
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Last modified: April 01, 2001
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