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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  What's Wrong With America

In Today's Daily Reckoning:
*** The 'Summer of Love' gives way to the 'Autumn of 
*** When stocks go does retail spending. More 
alarming earnings announcements...ahead.
*** The economy is the stock market. Evening in the 
Tuileries Garden...and more...

*** More bad news from Asia. The Summer of Love is over. 
The Autumn of Anxiety seems to have begun a couple of 
days ahead of the calendar. 

*** South Korean stocks were off 3% soon after the market 
opened for business this morning. Then, they bounced 
back...but remained in negative territory. They've lost 
ground in every trading session in September.

*** Hong Kong stocks were down 2% at noon. And Tokyo 
stocks are struggling to remain over 16,000. The Nikkei 
was almost at 40,000 in January of 1990. Here it is, ten 
years later, and investors are still down more than 50%.

*** During the last 5 of those years, Japan's interest 
rates were near zero. But when people lose the urge to 
borrow, even interest-free loans will be turned down.

*** Meanwhile, back in the USA, the Nasdaq fell 108 
points, or 2.83%, yesterday. And the Dow followed in 
synch, dropping 118 points, or 1.08%.

*** There wee 2,215 stocks declining yesterday - against 
only 683 advancing. More surprising, the number of new 
highs dropped to just 92 - while 115 hit new lows. This 
reverses the trend of recent weeks, in which the number 
of new highs has outpaced the number of new lows by 2, 3, 
or even 4 times.

*** The financial media blamed the pullback on surging 
oil prices...and the slumping euro...both of which are 
hurting earnings.

*** Oil rose above $37 overnight and is now trading at 
around $36.73 per barrel. The New Economy may be more 
efficient in its use of oil per unit of output...but 
there's more economic activity all over the world. More 
cars. More heavy machinery. More power plants. And most 
of it runs on oil.

*** Inflation-adjusted, that is, compared to the dollar, 
oil is still pretty reasonable. It has been about $30 a 
barrel, in yr 2000 dollars, for about 100 years. It's not 
too far from there now. But it is a long way from the 
1/60th of the Dow that it has averaged for the first 9 
decades of the 20th century. The current ratio is 1/310. 
Either the Dow is much too high. Or the oil price is much 
too low. 

*** A re-adjustment is in order. Most likely, it involves 
a reduction of the Dow by at least 50%.

*** The Big Techs are becoming less big by the day. 
Yesterday was not a good day for them. They are trapped 
in a Kursk from which they can't escape. The Big Techs 
aren't worth their prices. Without the buoyancy of 
Popular Sensation...they will sink to the bottom.

*** Qualcomm seemed to find an air pocket yesterday. An 
analyst upgraded it which sent the price up $3.50. But 
it's still more than $130 beneath the $200 high it 
registered in early summer.

*** The dollar rose against the euro. Why do I bother to 
report it? The dollar always rises against the euro. The 
French franc is at 7.68 to the dollar. The rent on my 
Paris apartment has fallen by $500 since last year at 
this time. If you ever wanted to buy something in Europe 
- this may be the moment to do it. More below.

*** Al Gore's top economic advisor said yesterday that he 
expects the dollar to "tumble" sometime in the next 
decade. A safe bet. 

*** Now Ed Hyman confirms what Dr. Richebacher observed: 
when stocks go down, so does retail spending. Hyman 
reports that retail spending seems to track the Nasdaq 
100. When stocks are up, consumers spend more.

*** With no savings to speak of, consumers have little 
margin for error. Most, according to a Bloomberg study, 
live "paycheck to paycheck." They have lots of debt - and 
look to their stock portfolio statements for a measure of 
their spending power. The stock market really is the 

*** So, when stocks go down - expect an immediate 
downturn in the economy too. 

*** Gold dropped $1.90 yesterday. Platinum went up $8. 

*** "No matter how the equity markets open this 
morning... this is not the time or place to 'buy the 
dips'," warns Kevin Klombies our resident expert in 
'inter-market analysis'. "[T]here is an international 
factor at work more powerful than most will realize." A 
sharp decline in share prices - from London to Sao Paulo 
to Singapore indicates growing worldwide selling 
pressure...a crisis similar to the Asian Contagion seems 
to be forming. 
(see: If You're Planning to Buy the Dips - Beware)

*** I've been experimenting with various routes on my 
perambulation home each evening. Last night I walked 
through the Tuileries garden and then along the river to 
Trocadero. The chestnut trees are shaped so they form a 
high wall of green along the riverbank. Lovers strolled 
arm in arm through the gardens as the soft, evening light 
of late summer illuminated the yellowing leaves. The 
French have been working on these gardens for hundreds of 
years. The effort is paying off.

* * * * * * * * * * Advertisement * * * * * * * * * * * *

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the kicker - it's NOT government debt! In this special 
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"The race goeth not to the swift, nor the battle to the 
strong. But that's the best way to bet."

Jimmy Breslin

"Everybody is in such a hurry," said Mr. DesHais. "But 
you can't hurry a good cucumber," he continued, showing 
me one of his huge trophies. He was putting them in a 

"They're for seeds for next year. We won't have to buy 
many seeds next year. We'll have our own. We'll know what 
we're getting. And it's a lot cheaper."

Mr. DesHais...part-time gardener, sometime philosopher, 
and full-time dipsomaniac...resists the trends of modern 
life. He is no fan of the division of labor. No digital 
man. A good salad, to him, is worth more than a good 
stock tip. A glass of good, homemade liquor...cannot be 
valued at all. It is something beyond the money economy - 
like love and faith.

Mr. DesHais' traditionalism is thought to be emblematic 
of Europe's troubles. Like Mr. DesHais, Europe is widely 
considered "too rigid" and too conservative to fully 
benefit from the new technology and the free-spending, 
easy-innovation ways of America.

In the minds of many Americans, Europe is in a permanent 
slump...a world that will always be old, with a society 
that is always on the verge of rigor mortis. America, by 
contrast, will always be a new world, pullulating with 
new ideas, and robust energy.

Not that there aren't troubles in Europe. And not that 
there aren't good things happening in the American 
economy. But the burden of today's letter is that both 
are exaggerated. 

One of the hints that 'The Trouble With Europe' thinking 
might be overstated is a pair of recent articles in the 
New York Times. They take up one of Al Gore's favorite 
campaign targets - working families - and examine their 

'Working family,' is of course, a meaningless 
abstraction. Families don't work. People work. And the 
number of families in America without a member who works 
is not enough to fill a polling booth. Al means people at 
middle-income levels - who, we discover, seem to have 
benefited little from the New Economy.

In the last quarter of a century, weekly wages, adjusted 
for inflation, have fallen 13%. Americans have only been 
able to maintain their standards of living by putting 
more family members to work - and by going further into 

"Median family income," reports the NY TIMES, "is likely 
to pass $47,000," for 1999. "It was $46,737 in 1998. The 
gain is small potatoes compared with the most recent high 
point, $44,974 in 1989, an increase since that year of 
about $2,000 or 4.5%."

In the last ten years, in other words, median income is 
up a paltry 4.5% - not even a half a percent each year. 
And this is the median. Half the families in America must 
have done worse.

And even that does not fully describe what has happened. 
The average poor schlep works a lot harder and longer to 
get even that measly increase. The Bureau of Labor 
Statistics reports that the average American works 2 
hours more per week than in 1982, a number that is 
probably distorted to the downside, because more and more 
women entered the workforce - and many of them are 
working short hours.

"Twenty years ago," said a senior economist at the BLS, 
"you had one person in the household working. Today, 
you've got two. And who goes to the grocery store now? 
Who takes the check to the bank on the weekend? Who does 
the dishes after dinner?"

These are the sort of questions Mr. DesHais asks, too. 
Even without a degree in economics, he wonders whether 
the rush, rush, rush society is really the big 
improvement it is believed to be.

"It takes a lot of time to make a good ratatouille," he 
told me. "Or to put up all those tomatoes. Oh la la. Did 
you see all those tomatoes I canned? But then, you have 
something really good."

Americans (and Europeans too) work more than ever. You 
see them on the subway...reading their reports. On 
airplanes, they work on laptop computers. Even walking 
down the street, you hear bits and pieces of business 
conversations...coming from the mouths of men and women 
who look perfectly sane - yet speak to the air in front 
of them.

The information age has made it possible for people to 
work, regardless of the time of day, the place, or the 
weather. There is no off-season - no idle time waiting 
for the rain to stop and the fields to dry. No quiet 
hours around the campfire until the dawn brings a new day 
of activity.

The Europeans, in their more conservative - and perhaps 
more socialistic - way, have done much better than 
Americans. Instead of the bogus productivity increases of 
the BLS, Euroland has become more productive the old 
fashioned way - by turning out more real goods and 
services per hour worked. 

"German manufacturing since 1995," observed Dr. Kurt 
Richebacher, "accomplished an overall productivity gain 
of 30%, averaging 6% per year. In East was 
almost 10% per annum."

How does this compare with America? "Productivity growth 
in the manufacturing sector, other than high tech, [in 
America] remains stuck at an unusually low rate of 2% 
annually, comparing miserably with Germany's 6% rate."

Steady improvements in productivity have permitted a 
steady increase in earnings in Europe, where "real wage 
rates have virtually doubled," according to Dr. 
Richebacher, since 1973. "Just as an aside," he adds, 
"the average European has six weeks paid holidays every 
year, as against two weeks in America." 

Meanwhile, the monetary champions of both Europe and 
America - the euro and the dollar - battle it out in the 
currency markets. The betting overwhelmingly favors the 
dollar. The euro is a long shot...with long odds. Thus, 
were it able to deliver an unexpected sucker punch to the 
greenback, investors in the euro would realize a 
substantial profit.

The odds are set by players who may have the wrong idea. 
Like soccer crowds and voters - they may be reacting to 
herd thinking and empty slogans, rather than careful 
analysis or observation. Thus, they may have gotten the 
odds wrong. 

If the euro were to connect with a good upper cut...or 
maybe even an old-fashioned haymaker...the next round 
could be surprising.

Your correspondent...ringside...

Bill Bonner

P.S. The world economy seems to be slowing...and the 
dollar is dangerously exposed to collapse. The best 
investment for the next 6 months might be euro bonds.
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"

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serious warnings and the state of the market with gentle humor"

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Last modified: April 01, 2001

Published By Tulips and Bears LLC