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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Last Oozings Of The Dollar

In Today's Daily Reckoning:
*** Big Tech rally seems to be running out of gas...
*** Four E's still plague the Dow...
*** Record dollar...record trade deficit...Yankee 
professors...and the secret to the Book of Exodus...

*** "There's a general feeling," said a hopeful analyst, 
"that the market is oversold." That general feeling 
helped the techs go a bit higher yesterday - but just 31 
points on the Nasdaq. The rally looks as though it is 
losing momentum. 

*** The Big Techs still have a long way to go - down. 
Steve Sjuggerud reminded me that Yahoo has fallen from 
$250 to $105 over the past year. But it is still trading 
at more than 200 times earnings. Yahoo is expected to 
earn 48 cents per share this year, and 59 cents next 
year. That's an increase of about 20%. Big deal. At that 
rate, you'd have to wait 15 years before the CURRENT 
price is justified by earnings. 

*** The Yahoo price probably reached its zenith, Steve 
believes, when it ceased being an investment and became a 
popular sensation. The lead character in the movie 
"Frequency" traveled back in time and urged his friend to 
buy the shares. If only we could travel back in time! 

*** "Let's face it," urges an email sales letter for 
Michael Murphy, "the future - and the real money - is in 
technology." The letter continues, promising to tell me 
"the top 6 tech stocks you must own for 2001." I want to 
know. They are sure to be good short-sale candidates.

*** The Dow, meanwhile, was full of short-sale 
candidates. It fell 101 points. 

*** The Advance/Decline ratio continued to slump - 
indicating widespread damage. There were 1147 advancing 
stocks on the NYSE, 1648 declining ones.

*** New lows beat new highs almost three to one - with 
138 of the former and only 48 of the latter.

*** The Old Economy index was troubled by the Four E's 
again. In particular, word came out yesterday that the 
U.S. trade deficit and the U.S. dollar both hit records. 
The dollar index hit a new high of 116.14, and the euro 
shrank to 84.79 cents. The euro has fallen in 8 out of 
the last 11 trading sessions.

*** And the trade deficit ballooned to 31.89 billion in 
July. I have been estimating the trade deficit at $1 
billion per day. Now, it has surpassed that number.

*** The trade deficit has been widely blamed on the fall 
of the euro, which hurts sales of U.S. goods in Europe. 
But Americans have been on a shopping spree all over the 
world. The U.S. deficit with China is $7.64 billion. It 
is about the same with Japan. Even with Canada, the U.S. 
has a $4.75 billion net deficit.

*** Oil hit a 10-year high of $37.80. If oil stays above 
$30 for the rest of the year, it will mean an average 
price for the year of more than $28...$9 more than the 
10-yr. Average.

*** Both gold and platinum fell $2.90 yesterday. Everyone 
wants dollars. No one wants gold.

*** "Don't Fear Baby Boomer Stock Selling" says MIT 
economics professor James Poterba. One of the cliches of 
the great bull market has been that the Baby Boomers 
would buy stocks until about 2010. And then the boom 
would be over. Now, we find that the boom may indeed last 
forever. "Warm days will never cease..." See below.

*** Another New England academic, Roger Ibbotson of Yale, 
says the Dow will reach 110,000 by 2025. He estimated 
that stocks would rise 12% per year - but not necessarily 
in a steady line. He also noted that 401k's, self-managed 
retirement funds and the Internet, have given people "all 
the tools and all the information to do radically 
destructive things with their life savings. With more 
freedom of choice," he said, "folks sometimes might make 
the wrong choices, but on the whole it's improving our 

*** Collective thinking seems to encourage bad choices. 
Folks made a lot of wrong choices in '29 too, thanks in 
part to the encouragement given by another Yale 
professor, Irving Fisher. In October, 1929, Fisher gave a 
speech in which he said, in effect, 'unless there are 
more crazy people in the markets than I think,' the boom 
will continue. It turned out there were a lot more crazy 
people than he thought. The boom ended the very next day 
- with the Crash of '29. How the Great Depression 
improved society is perhaps a subject for philosophers.

*** Here's something interesting from Le Figaro. "A pair 
of Jewish researchers claim to have discovered the hidden 
meaning of the Bible." The Book of Exodus has never been 
confirmed by the records of ancient Egyptian history. But 
we have the story from the Jewish perspective. From the 
Egyptian viewpoint, say the researchers, the story tells 
of the people of Akhet-Aton which was the capital of the 
first monotheistic pharaoh. These people were exiled to 
Canaan around 1344 B.C., whence they founded the kingdom 
of Judea 40 years later. 

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All I have to do is read the paper. I feel smarter. 
Richer. Cooler.

The dollar is my home currency. And every day, it goes 

With no effort on my part - I feel superior, just as I 
would if the Orioles won the World Series. And I get 
richer, too - without working more. 

The popular media creates a whole alternative emotional 
life. I have no control over the dollar's rise or fall. I 
don't even follow the Orioles. Yet if my currency rises, 
my home team wins or my man gets in the White House - I 
share in the victory.

I can barely get Jules to take out the trash...but maybe 
I can boss around the Washington Post 
columnist Richard Cohen recently suggested. I know it is 
hard to increase my own income...or save money...but 
thanks to Mark Malloch Brown on page 10 of today's 
International Herald Tribune, I can feel good about 
myself for supporting a program for "Halving World's 
Poor." (I presume he means halving the number of poor 
people...not cutting each one in half.)

Through the magic of mob-thinking, I can stand up to 
terrorists I have never met...and give advice to 
politicians whose names I can't pronounce.

The sensation mongers provide a fantasy world. It is 
complete with friends, heroes, villains, nice guys, the 
possessed...and hopeless clowns.

George W. Bush kissed Oprah. Isn't that nice! I think 
I'll vote for him.

And, favorite lesbian couple, Melissa 
Etheridge and Julie Cypher announced that they are ending 
their relationship. I hope it won't cause too much pain 
for the kids. 

"Our top priority continues to be what is in the best 
interest of our children," they said "...our family will 
always remain intact." That's a comfort.

And how 'bout dem O's? I see they lost yesterday to 

But the dollar - there's a winner!

The same rag that brings me up to date on the Orioles 
includes an editorial by Paul Krugman in which the 
economist tells us that "the fall of the euro now looks 
very much like herd behavior. To justify the euro's 
current weakness you have to believe not only that 
America's 'new economy' will keep delivering spectacular 
growth indefinitely, but that Europe will never 
experience a comparable surge of its own. And that is 
just not plausible."

Will the dollar - that apple in the eye of global 
investors - ooze juice forever...while the euro is 
forever dry and barren? 

Plausibility is not a requirement for mob thinking. There 
was, after all, the Michael Jackson wedding...the non-
inhaling Chief Executive of the world's largest economy 
...the O.J. Simpson trial...Mission Impossible II...the 
Spice Girls...the balanced budget and saving Social 

"The extraordinary weakness of the euro," writes Krugman, 
"is possible only because investors, focused on the short 
term, have stopped thinking about tomorrow..."

As long as the Fed will save the day, there is no need to 
worry about tomorrow. But that was yesterday's point. The 
burden of my letter today is that the euro is oversold - 
thanks to the fantasyland of collective thinking. 

"Euroshambles," as the cover of the Economist put it, has 
become a popular slogan. And like all slogans, it is the 
bastard son of a lie mated with a moron. On Tuesday, I 
introduced you to one of the parents - the statistical 
lie of 'hedonic' measures; today we meet more of the 
family. (See: The Oracle Of Delphi

The very same IHT that gave me the news of the O's 
defeat, the breakup of the lesbian couple, and Krugman's 
comments also reports on page 13 that the "U.S. Trade 
Deficit Soars to Record $31.89 Billion." 

Last year, the total increase in America's GDP was about 
$500 billion. The trade deficit is about 75-80%% of that 
number. This represents money that is sent out of the 
country to buy goods and services...but comes back to buy 
capital assets. We know it comes back, because if it 
didn't the dollar would fall. The rising dollar 
represents, in effect, an over-funding of the trade 

The trade deficit is just a part of something else - a 
huge buildup of debt in the U.S. "Credit excesses have 
many parallels in history," wrote Dr. Richebacher 
recently, "but those in the U.S. of the last few years 
are of such extreme magnitude that they suggest a form of 
collective, manic euphoria." 

"The crucial measure," continues Dr. Richebacher, 
referring to the relationship between the national 
economy and debt levels, is "the so-called credit-to-GDP 
ratio. For fully three decades since the end of WWII this 
ratio has fluctuated very little around 1.4."

For every dollar of GDP, in other words, the economy 
carried $1.40 of debt. But debt levels began to increase 
as the boom of the 80s got underway...slowly at first, 
and then, in the late 90s, at a spectacular rate.

Today, the total GDP of the U.S. equals about $10 
trillion. But debt has risen to $26 trillion. The ratio, 
2.6, is almost twice the historical norm...and means that 
there is about $12 trillion more in debt in the system 
than there would be if the debt ratio had remained 

Where did that $12 trillion go? Of course, a lot of it 
went to buy the running shoes and videos. Some went to 
buy new cars...and new houses.

But we know that the GDP has increased only modestly. 
Consumer spending would show up in the GDP figures. What 
doesn't show in the GDP figures is investment spending. 
And we know the prices of certain assets - conspicuously, 
dollar-based equities - have skyrocketed.

Could there be, say, trillions of dollars worth of debt 
capital speculating on in U.S. assets? 

In very rough numbers, the S&P currently has a P/E of 29. 
Its average is around 12. Getting down from 29 to 12 
would mean a loss of about 60%. The current capital value 
of the NYSE and Nasdaq combined is about $16.3 trillion. 
A 60% loss would be nearly $10 Trillion - not too far 
from the $12 trillion of extra debt in the system.

In other words, a return to normal debt levels would 
parallel a return to normal stock prices.

I don't know when it will happen. But it is implausible 
to think it will never happen. 

Your correspondent,

Bill Bonner

P.S. This is the first day of Autumn. See Keats' poem, 
from which I got today's title. 

To Autumn 
By John Keats 

Season of mists and mellow fruitfulness, 
Close bosom-friend of the maturing sun; 
Conspiring with him how to load and bless 
With fruit the vines that round the thatch-eaves run; 
To bend with apples the mossed cottage-trees, 
And fill all fruit with ripeness to the core; 
To swell the gourd, and plump the hazel shells 
With a sweet kernel; to set budding more, 
And still more, later flowers for the bees, 
Until they think warm days will never cease, 
For Summer has o'er-brimmed their clammy cells. 

Who hath not seen thee oft amid thy store? 
Sometimes whoever seeks abroad may find 
Thee sitting careless on a granary floor, 
Thy hair soft-lifted by the winnowing wind; 
Or on a half-reaped furrow sound asleep, 
Drowsed with the fume of poppies, while thy hook 
Spares the next swath and all its twined flowers; 
And sometimes like a gleaner thou dost keep 
Steady thy laden head across a brook; 
Or by a cider-press, with patient look, 
Thou watchest the last oozings, hours by hours. 

Where are the songs of Spring? Ay, where are they? 
Think not of them, thou hast thy music too,- 
While barred clouds bloom the soft-dying day, 
And touch the stubble-plains with rosy hue; 
Then in a wailful choir, the small gnats mourn 
Among the river sallows, borne aloft 
Or sinking as the light wind lives or dies; 
And full-grown lambs loud bleat from hilly bourn; 
Hedge-crickets sing; and now with treble soft 
The redbreast whistles from a garden-croft, 
And gathering swallows twitter in the skies.
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"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

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Last modified: April 01, 2001

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