Contributed by Bill
Publisher of: The
Fleet Street Letter
MONDAY, 17 SEPTEMBER 2001
of the Earth
*** A New Mood in New York...and all America...
*** Stocks fall worldwide last week...markets open in
the U.S. today...
*** Industrial production falls for 11th month in a
row...consumer sentiment heading down...airlines going
|"After Brash Decade," says a headline in today's |
International Herald Tribune, "A New Mood in N.Y." Eric
Fry, our Wall Street correspondent, describes it:
"Suddenly, religious faith and patriotism are in
vogue. Chanel purses and Hummers are not," begins Eric's
report for today. "Overt self-indulgence is 'out'. Faith
"I have never seen my church more crowded than it
was yesterday. Flag-waving has made a stunning comeback
as well. The stars and stripes are everywhere. It looks
like most Americans used a chunk of their tax rebates to
buy flags. After a lengthy search, my wife bought a
large 5' by 10' flag that now hangs from the front of
Eric's report continues:
Eric Fry in New York:
- "We are going to pursue a new kind of business model
going forward," promised a teary-eyed Howard W. Lutnick,
CEO of Cantor Fitzgerald. "We will have a much different
business model...[sobs]...we have a new class of
partners here - the families [of the firm's victims]. I
have to take care of these families."
- This is but one face of the new America. It would be
easy to be cynical and assume that Mr. Lutnick's
altruism will not last more than a month or two. Greed
is simply too powerful a temptation. But I believe
Howard Lutnick, and I believe that America has
changed...for the better.
- "Adversity can have many positive effects. Enduring
national character is shaped by shared trauma," observes
Francis Fukuyama in a recent Financial Times story.
"Peace and prosperity, by contrast, encourage
preoccupation with one's own petty affairs and allow
people to forget that they are parts of larger
communities. The long economic boom of the Clinton years
and America's easy dominance of world politics has
allowed Americans to wallow in such self-indulgent
behavior...This was nowhere more true than in the world
of high-tech and finance..."
- Fukuyama continues: "Tuesday's attacks on Wall Street
were in this respect a salutary lesson. The
weightlessness of the new economy will not protect you
from falling concrete; your only hope in this kind of
crisis is the heroism of firefighters and policemen
(several hundred of whom were killed during the attack).
Microsoft or Goldman Sachs will not send aircraft
carriers and F-16s to the Gulf to track down Osama bin
Laden; only the military will...the United States is
likely to emerge from the attacks a different country,
more unified, less self-absorbed...And it may also
become a more ordinary country in the sense of having
concrete interests and real vulnerabilities..."
- Even assuming that our nation becomes less frivolous
and that it rediscovers faith and patriotism, what will
become of our economy and stock market? For months, the
Daily Reckoning has predicted that sliding corporate
profits and an over-leveraged consumer would weigh on
the stock market. Profits are still sliding and the
consumer is still burdened with debt. Last Tuesday's
attack certainly will not improve either condition.
- A consumer spending slowdown seems all but certain.
Even though many restaurants in and around Manhattan
continue to do a brisk business, big-ticket purchases
have ground to a halt.
- Given this situation, it is easy to remain bearish -
too easy. The U.S. stock market may well be a tough
place to make a dollar over the next several months, if
not the next several years. But over the next few weeks,
we'll see what's been termed a "Patriotism Rally".
- Consider the following factors - two of them fact, two
of them rumor - that may contribute:
* Fact No. 1 - The SEC has lifted restrictions that
prevent companies and company insiders from buying
unlimited quantities of their own stock.
* Fact No. 2 - Cash has been piling up in money market
accounts for several weeks as the stock market has been
selling off. This cash could easily re-enter the stock
market over the next several days.
* Rumor No. 1 - Many people I know are saying that they
will be buying stock on Monday as an act of patriotism.
As crazy as this might sound, one of my friends told me,
"E-mails are flying back and forth across the country in
which people are telling each other that they will be
buying stock on Monday. It's a national grassroots
* Rumor No. 2 - I have heard from a couple professional
fund managers of a "gentleman's agreement" to neither
sell stocks nor sell stocks short on Monday.
- Purists will scoff at the notion of "patriotic
investing." But who knows, it just might happen and it
just might stabilize the markets and restore confidence
for a while. Longer-term, of course, things like
earnings will matter more to the stock market than
patriotism. Stocks pledge allegiance to nothing but
their underlying values.
Back to Bill in Paris...
*** "Hope of a 'Patriot Rally'" excites investors, says
the IHT. "Doing my part...I'm buying stocks on the
open," CNBC quotes a flag-waver.
*** Meanwhile, a chain e-mail message flies through the
net, encouraging Americans to buy $200 to $1000 worth of
stock when the market opens today as an expression of
solidarity and patriotism.
*** We do not scoff at the idea of "patriotic
investing." We welcome it with the kind of mischievous
curiosity we feel when a rich widow is introduced to a
gigolo. Something unpleasant is bound to happen, but it
gives us something to talk about.
*** We've been waiting on two things: a day of panic
selling...and a strong rally. Both should occur before
this 2nd stage of the bear market runs its course and
either could begin today.
*** Wall Street was closed most of last week. But the
Europeans were open for business. And stock prices fell
in near-panic selling...before bouncing back. France's
CAC 40 index ended the week down 11%, the German DAX
ended down 12%.
*** In Japan, investors used the occasion of a closed-
down Wall Street to steal a march on the Americans. The
Nikkei Dow, racing the U.S. Dow for the bottom, gained
and surpassed the U.S. index...closing at 9520 this
morning, a level it has not seen Ronald Reagan's first
*** Industrial production fell for the 11th month in a
row. Continental's chairman, Gordon Bethune, tells us
that the airlines are all going bankrupt. And consumer
confidence - already down to its lowest level since
November 1993, before last week's attacks - seems sure
to fall further.
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FRUITS OF THE EARTH
"I believe that there are not two separate worlds, the
spiritual and the material...and that it is useless to
set them apart."
"I love this time of year," said my daughter, Maria.
"But, Dad, why are we doing this? We could just buy
wine...and it would probably be better."
We were working on opposite sides of a row of grape
vines in Mr. Deshais' vineyard. The gardener had invited
us, like Tom Sawyer, to help with the grape harvest -
the vendange. We had never picked grapes. And the day
was so pretty that any excuse to be outside seemed like
a good one. So Maria, Henry, and I joined him, picking
off the bunches of dark purple grapes, laying them in
Grape harvesting is easier than getting in tobacco.
There is little heavy lifting. And the weather is not
hot...on Saturday, it was almost perfect.
The sky was bright blue for a few minutes...and then the
sun was blocked by fast-moving clouds. A cool wind blew
across the vineyard. So we wore sweaters and jackets,
taking them off as we warmed ourselves up from the work.
"Isn't it amazing," Maria was eating grapes and looked
like a cover girl on a health magazine, "Isn't it
amazing how this stuff just comes out of the ground. I
mean, how nature puts these things together...and makes
such nice things..."
"Yes...but you have to work with the earth," our
gardener corrected her. "You have to learn how to coax
the good things out."
"As ye sow, so shall ye reap," I added, having nothing
original to say.
"But it's not even that easy," Mr. Deshais replied, from
experience. "Look at this plant." He pointed to a vine
in the next row with curled leaves and brown, dried up
little grapes. "It has some disease. You never know,
some years you get a good harvest; some years you
"And this year's harvest is not very good...I didn't
work on it as I should. You know, my life was a little
messed up last year..."
Readers waiting for an insight - from either Mr. Deshais
or your correspondent - will be disappointed. We have
none to offer, other than the observation that you
already know so well:
Investors, generally, get what they deserve...but not
necessarily what they expect. As they plant, so do they
reap. Matter and spirit cannot be completely separated.
For the last 10 years investors planted little - savings
rates actually fell below zero. Rather than tilling the
soil, they consumed harvests of previous years and
depended upon the kindness of strangers to fill in the
Though they labored little in the vineyard, investors
nevertheless expected bumper crops - polls showed
investors anticipated 18% annual capital
Instead, harvests - as measured by business profits -
collapsed. Since '98, as Dr. Richebacher reminds us,
America's leading sector - technology - has produced
Take away profits, said Keynes, "and the whole process
The whole process was in the process of stopping when
terrorists attacked on Tuesday. Now, there is wild talk
about a "patriot rally" and a new boom. Commentators
compare the terrorists' attack to the Japanese attack of
"Men, like dogs, are only too easily conditioned and
always expect that, when the bell rings, they will have
the same experience as last time."
If only the dogs who attacked the WTC had read more U.S.
economic history. Surely, they had no desire to nudge
American capitalism to even greater glory. Yet that is
what the pundits say is coming.
"The Dow fell 2.9% on the first trading day following
the Japanese attack on Pearl Harbor," writes James K.
Glassman in the International Herald Tribune today.
But, then, he points out, "as it became clear that the
U.S. economy...would boom and the war would be won, the
market began to climb powerfully."
Pearl Harbor gave the U.S. market a shove. Trading at
about 20% of GDP, U.S. stocks were about as cheap as
they had ever been. But not as cheap as they were about
to become. Six months later, stocks hit an all-time low
of 16% of U.S. GDP...before beginning a long, slow bull
market that didn't end until 1972, with stocks reaching
78.1% of GDP.
For reference, readers might want to know that stocks
today are about 135% of GDP...nearly twice as high as
ever previously recorded. (The previous record was hit
in August 1929). Patriotic readers might wish to see the
market rise today. Perhaps it will. But we doubt that a
terrorist attack makes the fundamental picture so much
brighter that it will turn nature on its head. Even - or
perhaps especially - in times of war, investors are not
likely to reap a harvest they never sowed.
When we had picked the two rows of grapes, we dumped the
grapes into big plastic trash barrels in the back of a
truck and headed back to the house. The grapes were
dumped into tubs and Henry, 11, and Edward, 7, took off
their shoes and socks, put on shorts and got ready for
I made sure they washed their feet...and put them in the
tubs, where they began mashing the grapes. The boys
giggled and tromped about, turning the grapes into
liquid without the benefit of technological advances of
either the Information Age nor even the Industrial Age.
They worked as boys have for thousands of years. After a
while, they grew tired. Mashing grapes was no longer fun
for them. Their legs were red and their feet were
"Can we stop now?" asked Edward.
"Just a little more..." came the reply.
Finally, Mr. Deshais drew off the juice. We tasted it
and were not disappointed. Then, it was mixed with "eau
de vie" alcohol...
"Homemade," said Mr. Deshais, "this is the real stuff,
made the traditional way. This is the way you make
pineau in the old fashioned way...the good pineau, not
like the stuff you buy in the supermarket."
"I thought it was illegal to make eau de vie," I
Bill Bonner, not keeping quiet.
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The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.