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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Noble Retaliation

*** Another nasty day on Wall Street...

*** War is bullish...but Dow falls 382 points...

*** Like putting pets to sleep...a $2 billion margin better than telecoms...knock down the 
Bronx...and more!

Another nasty day on Wall Street. Eric provides 
details below.

But first, in keeping with our new upbeat outlook, 
I'll pass along the good news:

"War is bullish," wrote Joe Granville on the eve of 
another war 10 years ago. Indeed it was. The Gulf War 
knocked the Dow down 4%. But within a month, stocks were 
up nearly 20%...and never looked backed.

"By tragic irony," writes Gene Epstein in Barron's, 
"the death and destruction [last Tuesday] should 
stimulate the economy just at the point when stimulus is 

Wars provoke spending. In the present case, the 
Social Security "lock box" has already been opened. A 
$40 billion package of emergency spending has been 
proclaimed by Congress. Rebuilding, more security 
measures, insurance claims...not to mention the war of 
Infinite Justice...all must be paid for. 

And then there's the "multiplier effect," which is 
supposed to amplify these outlays at least by 100%. The 
result: "the money that is about to flow as a direct 
result of this catastrophe has changed the outlook for 
the better" writes Epstein.

And last night, the maestro himself, Alan 
Greenspan, confirmed what we all wanted to think: 
terrorists dealt the economy a nasty blow...but the long 
term looks very bright, especially with all this new 
economic stimuli. 

Heck, if you can head off a recession by knocking 
buildings down...why not level all of the Bronx and 
trigger a real boom? 

And maybe someone should mention this to the 
Japanese. They've been spending like crazy - running 
such huge fiscal deficits that they've created the 
world's largest public debt. They've built bridges, 
railroads, tunnels, airports...they've spent money they 
didn't have on projects they didn't need. And for what? 
Japan is still in a slump 12 years later...with its 
Nikkei Dow racing its Wall Street counterpart for the 
bottom. Maybe Japan should try destroying things instead 
of building them up.

Eric, what do you think?


Eric Fry, reporting from New York:

- Wall Street is returning to something that resembles 
normal. A few of the sandwich shops are not only open 
for business but are actually receiving some. I ate 
lunch in a nearby restaurant where people had to wait 
for a table.

- But inside the Exchange, life is anything but 
"normal." They must have forgotten to tell investors 
that war is bullish. Stocks just keep grinding lower. 
The trading action seems remarkably placid. But the 
phrase "orderly decline" is cold comfort to anyone whose 
stocks are declining in an orderly fashion.

- The Dow Jones Industrial Average dropped 383 points, 
or 4.4%, to 8,376. The Nasdaq fell 3.7%, to 1,471. For 
those of you keeping score at home, the once-adored 
index has now tumbled 71% from the all-time high it set 
in March of 2000.

- The losses are beginning to feel like real money. For 
investors trading on margin, the losses are feeling like 
lots of real money.

- A friend of mine who is president of an independent 
brokerage firm down here on Wall Street tells me, "We're 
having to sell out a lot of accounts right now to meet 
margin calls. It's very painful. Closing these accounts 
when people have lost so much money is like taking your 
dog to the vet to have it put to sleep."

- The award for the largest margin call met by a single 
individual yesterday goes to Sid Bass, one of the 
(somewhat less) wealthy Bass Brothers from Texas. 
Somehow, Mr. Bass incurred a margin call approaching $2 
billion that he satisfied by handing over to Goldman 
Sachs 135 million shares of Walt Disney Co. 

- For us plain folk, selling $2 billion worth of stock 
to meet a margin call is remarkable on two counts. First 
of all, $2 billion is simply a lot of money for one guy 
to be tossing around to satisfy leveraged wrong-way bets 
in the stock market. Secondly, why isn't Sid Bass 
playing golf? What's the thought process here? "A multi-
billion personal fortune is not bad, but my life would 
be so much easier if I just had a couple more billion."

- Goldman Sachs paired off against the gold market 
yesterday and Goldman won. The New York brokerage raised 
its rating on the shares of Newmont Mining yesterday to 
"Market Outperform." (That's pretty good for a gold 
stock). Thanks to the endorsement, Newmont rallied more 
than 4%, despite the fact that gold fell $2.50.

- Italian fashion house Prada Holdings (you know, the 
folks who make shoes with the coveted red stripe down 
the back) has decided to postpone its planned IPO. This 
fashion victim of the global stock market slump may be 
waiting awhile. Who knows when the next once-in-a-
lifetime opportunity to sell the richly valued shares of 
a luxury goods company will present itself.

- Going out on a limb, the Wall Street Journal predicted 
yesterday "Jobless Rate Likely to Increase." The 
question is not whether joblessness will increase, but 
by how much. The airline industry alone has announced 
more than 100,000 job cuts in the last 48 hours. Each 
one of these lost jobs will beget at least one or two 
more. This is not pretty.

- Like it or not, economies in a recession shed jobs. 
And like it or not, stocks in a bear market fall. For 
Leon Cooperman, a well-known hedge fund manager, that 
sometimes means it's wise to sell stocks short. "I'm 
doing what's economical for my investors and it has 
nothing to do with patriotism," he tells the Wall Street 
Journal. "I'm very patriotic. I have a flag in front of 
my home. I cried a lot over the weekend. But I owe it to 
my investors to do what is rational." 

- A friend of mine sent me the following email: "If you 
had purchased $1000 worth of Nortel Networks stock one 
year ago, it would now be worth $49. If you bought $1000 
worth of Budweiser (the beer, not the stock, at $3.80 
per six-pack) one year ago, drank all the beer, and 
traded in the cans for the nickel deposit, you would 
have $79. Those lucky Michigan residents who receive 10 
cents per can would of course have $158."

- There's a lot to be said for tangible assets.


Back to Bill in Paris...
*** Uh...thanks Eric...
*** GE fell 7% yesterday. Fannie and Freddie, the twin 
mortgage monsters, fell 4%. 
*** More and more evidence comes out showing that the 
U.S. economy was already going down before September 11. 
Housing starts fell 6.9% in August. U.S. exports 
plummeted in July by $2.1 billion - the largest ever 
decline. Nothing is more dangerous to the world economy 
than declining was a collapse in trade that 
marked the Great Depression...when wealth walked 
backwards for several years.
*** As Eric mentioned, since the terrorists' attack the 
aviation industry alone has laid off 100,000 employees. 
And the costs and delay of additional security costs are 
estimated to cost the economy half of 1% of GDP. But 
maybe that's good too?
*** An email message of uncertain provenance suggested a 
solution to the kamikaze threat: "If the FAA solemnly 
announced that passengers were free to carry private 
firearms, that would end discussion of the plane-hijack 
option among terrorists, whose greatest fear is to die 
in humiliating failure."
*** I doubt the FAA will go along. But I hope Daily 
Reckoning readers are still willing to fly. I'm flying 
to Las Vegas at the end of October for a major 
investment conference. "We're calling together a panel 
of investment experts and advisors - from all over 
Europe and North America - to meet with Agora 
subscribers for a serious discussion about our financial 
future...," writes my colleague Addison Wiggin. "We'll 
be gathering at the Las Vegas Regent Hotel for 4 days, 
Oct. 31st - Nov. 3rd 2001. If you'd like to reserve a 
place call Agora Travel at 1-800-926-6575 or 1-561-266-
6570." Both Eric Fry and I will be speaking...
*** "Dad," my daughter Maria asked last night, "how 
could war be good for the economy?...I mean, everything 
gets blown up, people get killed...We read about the 
second world war in school. People were, like, 
starving...and their houses had all been completely 
*** We were dining together on the rue des Lombards at a 
small restaurant with good food and bad waiters. It was 
too late in the evening to try to explain the paradox of 
savings...the multiplier effect...and Keynesian 
economics. Besides, after a few glasses of wine, I could 
barely recall them myself. 
*** "I don't know..." I replied truthfully. "But 
whatever it is, I doubt people are better off for it..."
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By Bill Bonner

"This is not the first time that America has been at war 
with Muslim terrorists," writes Ben Macintyre in the 
London Times.

Exactly 200 years ago, President Thomas Jefferson faced 
"a daunting enemy: a loose-knit, ill-defined group of 
barbarous Muslim terrorists armed with knives, 
bankrolled by a wealthy extremist who...declared war on 

The cast of characters of the drama included the new 
president, who came to office with scarcely any greater 
mandate than George W. Bush. But unlike President Bush, 
President Jefferson presided not over a superpower, but 
a mini-power...a small, newly-hatched nation that had 
only been able to win its independence from Britain 
thanks to the intervention of the French Fleet.

Instead of being on top of the world, as America is 
today, the United States was closer to the other end. 
"On Jefferson's accession," explains Macintyre, "almost 
$2 million, one-fifth of the entire annual revenue of 
the United States, was being paid out in tribute, or to 
retrieve Americans captured by the corsairs."

Which brings us to another important character, the 
Pasha of Tripoli, the Osama bin Laden of his day. The 
Pasha encouraged the "barbary pirates" to capture 
American vessels and hold them for ransom. American 
sailors were often killed...or "took the turban," 
converting to Islam to escape death.

Another character who needs introduction is General 
William Eaton, a former U.S. army officer who had been 
made consul in Tunis and promoted himself to the rank of 
general. "Bad tempered, foulmouthed and a hard-drinking 
habitu� of the local brothels," Eaton sounds like a man 
we might like. Eaton so detested the Pasha of Tripoli 
that his anger sometimes "rendered him semi-incoherent," 
says Macintrye.

Jefferson sent the U.S. navy, which, like America's 
naval and air forces of today, could shell Tripoli from 
a safe distance. But the real breakthrough came when 
Eaton launched a daring overland attack.

And here, dear reader, I interrupt the story for 
editorial comment and philosophical reflection. What is 
striking about this tale is the modesty of both the 
means and aims of the U.S. forces. Here at the Daily 
Reckoning we have a fondness for modesty. In fact, it 
may be our only redeeming charm. We like stocks at 
modest P/Es, wine at modest prices and women with modest 
tastes. We know that we are neither smart enough, nor 
well-informed enough, nor lucky enough to understand the 
latest technologies or to predict the future. Nor do we 
even hope to outperform the market's long term mean 
performance. If we have one hope, it is to progress up 
to the mean, rather than regress down to it. We aspire 
to mediocrity...and feel happy to achieve it. 

And if we have a competitive edge it is a modest one. We 
know we are fools; we don't have to wait for the market 
to prove it to us. So rather than race down the highway 
of life, we poke along like an old, owlish drunk, 
knowing that our faculties are impaired and our judgment 
is poor. Oddly, driving so slowly, after a lap or 
two...we often find ourselves in the lead!

And so, we appreciate the scale of General Eaton's 
endeavor. Macintrye describes it: "Eaton's 'army' gave 
new definition to the word motley, consisting of 16 U.S. 
Marines and other American sailors, 40 Greeks, a number 
of itinerant Italians, a squad of Arab cavalry, a 
hundred other assorted mercenaries and 190 camels."

With this force at his command, Eaton set off across 500 
miles of the Sahara desert, from Alexandria to Tripoli. 
The troops nearly starved to death or died of 
dehydration. The mercenaries mutinied three times...each 
time checked by the marines, who threatened to shoot 
them. Finally, the rabble arrived, "half-dead" at the 
seaport of Derna. Three American brigs opened fire from 
the port while Eaton, "half mad before the march and 
considerably madder at the end of it," immediately 
attacked. Most of Eaton's army were too frightened or 
exhausted to move forward. Still, the audacity of his 
attack carried the day. The Arab force, much larger and 
better armed, surrendered. 

The Pasha sued for peace and a treaty was negotiated. 
The Pasha agreed to stop interfering with American 

This was, however, not the end of America's problems 
with North African pirates. A few years later, the U.S. 
was again at war with Britain and pirates based in 
Algeria once again preyed on U.S. ships. James Madison 
announced a war of "noble retaliation." Minor skirmishes 
were fought with the pirates over the next 3 years - 
until 1815, after which no further tribute was paid.

Bill Bonner

P.S. Pirates plagued the Mediterranean long before the 
Declaration of Independence. The Roman historian Appian 
wrote that by 67 BC the pirates of Asia Minor had become 
a power in their own right.

"From attacking ships at sea they began to assail 
harbours, castles and whole cities. It seemed a great 
and difficult undertaking to destroy so large a force of 
seafarers who were scattered abroad, had no fixed 
possessions to encumber their flight, no single 
homeland. It was such an unprecedented type of war, 
subject to none of the rules and with nothing clear-cut 
or certain about it, that it caused a sense of 
helplessness and fear in the capital."

But Pompey the Great (106-48BC) decided to rid the 
Mediterranean of them. With 500 ships, 5,000 horses, and 
120,000 troops, he swept the sea, from Spain to Libya to 
Cilicia, now part of Turkey. Finally, cornering the 
pirate fleet, Florus writes that "as soon as they saw 
the beaks of our ships all round them, they threw down 
their weapons and oars, and with a great clapping of 
hands - which was their sign of supplication - begged 
for their lives."

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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 25, 2001

Published By Tulips and Bears LLC