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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Way We Wish We Were

*** Stocks sold THIS the "bottom"?

*** "All stocks should be sold"...

*** GE takes a hit..."infinite justice"...and more...

Investors sold off stocks again yesterday. At 
first, it looked as though the panic selling we've been 
expecting may have finally begun. But there was no 
panic. Just orderly selling as the big institutions, 
foreign and domestic, got out. 

After falling more than 400 points on heavy 
volume, the market turned around. This led many to think 
that, after 8 rate cuts and $5.135 trillion in losses, 
as measured by the Wilshire 5000, Wall Street had found 
its bottom.

Probably not. 

It's a major bear market, says Dow Theorist 
Richard Russell. "All new money should go into short-
term Treasury obligations. All stocks should be sold and 
placed in short term Treasuries."

Japan's stocks sold off this morning, too. But 
Japanese stocks have been selling off for the last 12 
years. If a bottom is to be found anywhere...perhaps it 
will be on the other side of the world... 

Eric, what else happened yesterday?


Eric Fry in New York:

- Ouch! Things seem to be going from bad to worse these 
days. The stock market swooned again. This time the Dow 
fell 144 points to 8,759 and the Nasdaq dropped 1.8% to 
1,528. It could have been worse. In fact, it was. At one 
point the Dow had fallen down to the levels reached 
during the Asian Crisis of 1998.

- It's hard to say exactly what sparked the stock 
market's recovery in the final hour of trading. Maybe it 
was the announcement that Defense Secretary Donald 
Rumsfeld ordered more than 100 U.S. warplanes to the 
Middle East. Or maybe it was the mere mention of Robert 
Rubin returning to Washington for a meeting with 
Greenspan. (We want Bob! We want Bob!) Lawrence Lindsey 
was also invited. Whatever the case, we might need 
similar announcements tomorrow to keep the rally going.

- Outside the stock exchange, lower Manhattan was no 
more inviting a place than it was on Monday. The area 
continues to feel like a war zone.

- The health club on the ground floor of 30 Wall St. 
that once teemed with the chiseled bodies of young 
financial professionals working up a sweat now serves as 
a rest stop for emergency workers. It's also a temporary 
home to numerous bomb-sniffing dogs. Cases of Alpo are 
piled high next to the weight machines. Narcissism is 
certainly more fun than the tedious task of insuring our 
national security.

- Yet, amidst the emotional hardship, New York City has 
never seemed more civil. Because everyone shares a 
common pain, everyone seems to be a common friend. As a 
native Californian, weaned on stories of mean-spirited 
New Yorkers, I can attest that this urban legend has 
always been patently false. It is even more false now.

- It had to happen. Companies are now lining up to blame 
their poor third-quarter performances on the WTC attack. 
General Electric was one of the first in line when it 
announced earlier this week that its Employers 
Reinsurance Corp. subsidiary, one of the main reinsurers 
of the World Trade Center towers, would lose $400 
million to $600 million after-tax. "It is the first time 
in more than seven years that GE has had to warn on 
profits," the Financial Times reported.

- However legitimate GE's warning might be, we can 
expect hundreds more somewhat less legitimate earnings 
shortfall warnings. This attack provides very convenient 
cover for already slowing sales and/or managerial 

- Jim Grant, with whom I share an office, assures me 
that our building at 30 Wall Street is the absolutely 
safest structure in downtown Manhattan. It seems that 
once upon a time the building was the Assay Office of 
the U.S. government.

- In Grant's book, "The Trouble With Prosperity," he 
notes that an 80-foot smokestack used to extend from the 
roof. "Through this stack had poured the noxious vapors 
of melting gold. New Yorkers would take bouillon-bearing 
dust, foreign coins, or scrap jewelry to the assay 
office ($100 minimum order required) and receive in 
return gold bars or United States money at the statutory 
rate of $20.67 to the gold ounce."

- To safeguard all the gold on the premises, the three 
stories above ground rested upon a five-story 
underground vault. Writes Grant, "Its floors were 
reinforced up to a load-bearing strength of 1,000 pounds 
per square foot. The underground vaults were protected 
by reinforced concrete sheathed with 2 �-inch sheet 
steel." I feel better now.

- Speaking of vaults of gold, AP reports, "some 11.8 
metric tons of gold worth an estimated $110 million and 
30.2 million ounces of silver valued at $121 million are 
buried in the rubble below one of the collapsed 
buildings in the World Trade Center..." But, "even if 
for some reason the gold can't be recovered, there's 
plenty of supply in the world. One company estimated the 
trade center hoard to be 0.3 percent of the global 

- Even if stocks continue to disappoint their most 
ardent admirers, New York's commercial real estate 
market may be picking up a bit. "25 million square feet 
of office space in lower Manhattan is either completely 
destroyed or otherwise out of commission," says my 
friend Randy Fuchs, vice-president of

- 400,000 office workers have been displaced. This all 
adds up to lots of opportunity for commercial real 
estate professionals in and around New York City. "The 
attack on the Twin Towers has spurred a new real estate 
and construction boom," the New York Post reports. "From 
tragedy some good things come to an industry that was 
beginning to look down a dark hole," Lenore Janis, 
president of Professional Women in Construction, tells 
the Post.


Back to Paris...

*** "In the wake of last week's attacks," writes 
Marshall Auerback, "outright nationalization of Japan's 
troubled financial institutions becomes a very realistic 
option. In wartime, markets do not operate freely. There 
is a tendency toward increased regulation and 
centralized, government-directed activity - even among 
governments which, under normal circumstances, champion 
free markets." See: "It's A Wartime Economy, Stupid!"

*** Little by little, day by day...the madness of the 
financial bubble on Wall Street seeps down the East 
Coast to Washington. 

*** Asset values deflate while the conceits of politics 
get puffed up. Gone is the "lock box" that protected the 
non-existent Social Security trust funds. Gone is the 
worry about fiscal restraint or preserving the budget 
surplus. Gone is the concern about the "moral hazard" of 
bailing out industries...swept away by the hot air of 
war whoops. 

*** The billions are adding up...but how can you fight a 
campaign for "Infinite Justice" without an unlimited 

*** "Infinite Justice" is nothing if not optimistic. But 
is nature more likely to allow infinite justice than she 
was to give up unlimited capital gains? 

*** Oh, if only we could live in an irony-free world! 
More below...

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by Bill Bonner

George Soros calls it "reflexivity". 

It's the market's nasty habit of punishing simpleminded 
hope, group thinking and outsized ambitions. Those who 
expect unlimited profits end up without a pot to put 
their portfolio in. 

And the best time to sell stocks and take a vacation, it 
turns out, is the precise moment when most people expect 
it to rise. 

The rest of life is much the same. The left, rational 
side of our brain is constantly confounded by the other 
half. We get love not by going after it directly, but by 
giving it away. We are born...we learn...become wiser... 
and then, when we finally feel we have things figured 
out, we die. Good and evil lie side by side in this 
world, so close, sometimes, it can be hard to tell one 
from the other. For everything that is created, 
something is destroyed. And for every little nanogram of 
courage, truth or justice, some poor soul lies 
smoldering on an ash heap in hell.

The paradox that the left side of the brain cannot 
imagine comes to the right side as an intuition: that 
pride goeth before a fall...what goes up must come 
down...and that, over time, all vanities are corrected. 

But that is not the world I write about today. Instead, 
bowing to popular demand and commercial pressures, today 
I give you the world as we would like it to be - a world 
dumb enough to be a campaign slogan and simple enough to 
cause a bar fight:

Daily Reckoning readers will recall that everything was 
going along just fine until September 11. Investors had 
not paid too much for stocks. Consumers had not spent 
more than they could afford. Businesses had not over-
invested in unprofitable projects. Americans had not 
become too confident in their economy and their 
future...nor had Europeans extended them too much 

The revolution led by information technology had seen 
its bubble popped. The silliness was passed. Earnest men 
and women were getting back to business, putting those 
new technologies to work in ways that would permanently 
boost productivity and increase asset values from here 
to eternity. 

Alan Greenspan had cut rates 7 times already - bringing 
the key rate to half what it had been at the beginning 
of the year. The bottom was in sight...Abby Cohen said 
so. So did almost all the CNBC guests. And Rukeyser's 
elves, too.

Then, last week, a group of evil men with horns managed 
to slip through our normally rigorous security 
precautions (remember...vigilant security guards even 
caught Henry trying to board a plane with his super-
soaker!)...and knocked the U.S. economy down again, just 
as it was struggling to its feet. Because of that, the 
third quarter is probably going to show a loss. 

Whatever happens, it is the fault of the terrorists. Who 
could have foreseen such an attack? Who could have 
imagined the damage they could do? 

But the attack on the WTC and the Pentagon gave 
Americans a new sense of purpose and of faith in our 
free economy. Even as I write, a new American armada is 
gathering - one that will unleash a fury of "infinite 
justice" on our enemies. Their cities will be laid 
waste, never to be rebuilt. Their crops will be 
destroyed and their fields will be salted. Their 
soldiers will be smitten and their fortifications 
annihilated. Their leaders will be brought to trial and 
publicly executed.

Then, with new energy and determination, the American 
economy will come roaring back. After a brief decline, 
stocks will rise - and go on rising, nearly forever. 

That is what happened the last time America was 
attacked. Six months after the attack on Pearl Harbor, 
stocks hit an all-time low. But then, spurred on by the 
new war economy, stock market capitalization rose 
steadily, from only 16% of GDP in 1942 to a peak of 
78.1% of GDP 30 years later. 

That, dear reader, is the world as most Americans 
believe it to be.

Wouldn't it be nice if they were right? 

Not only would we have the prospect of a new boom to 
look forward to, but also Osama bin Laden to blame if 
they are not.

"When people are riled..." writes Frederick Sheehan, 
"discourse explaining to them their own culpability may 
be the wrong tactic to employ." 

"The average Congressman may not understand the Black-
Scholes option pricing model," he continues, "but can 
sense an opportunity to lead a popular crusade."

Americans are riled. They are sure that whatever ill-
wind blows their way must come off the sands of some 
far-off Arabie, stirred by a man with a beard on his 
face and a diaper on his head. 

They are sure, too, that once America is mobilized 
against this evil...peace and prosperity will follow, 
just as it did following the Japanese attack in 1941. 

But in 1941, stock prices in America had been falling 
for the last 12 years - as in Japan today. In 2001 
America, stock prices have been falling for only 2 

In 1941, America's factories geared up for a world war, 
involving vast amounts of material - jeeps, planes, 
food, trucks, oil, bombs, name it. The War on 
Terrorism involves the use of very limited resources. 

After all, there are only a few dozen terrorists. 

Instead of gearing up, aircraft and automotive 
industries are gearing down. Boeing alone is laying off 
30,000 workers.

In 1941, Americans lacked confidence. They had not yet 
emerged from the Great Depression. They saved money. 
They were reluctant consumers. The idea of a "patriot 
rally," was absurd back then. Investors could only 
imagine that stocks would fall further. In 2001, 
Americans are confident to a confident that 
they imagine that almost anything - even a new war - 
would cause a stock market rally. 

The left side of the brain cannot imagine it. But the 
right side suspects that a real rally will begin only 
when the idea of it has become as absurd to Americans 
today as it was in 1941. 

Your correspondent,

Bill Bonner

P.S. Uh oh. I've done it again, I've slipped into my bad 
habit...warning of doom and gloom. But wait...tomorrow I 
will give you some uplifting commentary. I'll tell you 
about another American president, 200 years ago, and his 
battle with Arab terrorists. But he set his sights lower 
than Mr. Bush. He aimed for just a little bit of 
justice...and hit is mark. More tomorrow...

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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 21, 2001

Published By Tulips and Bears LLC