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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Big Ugly

*** Branson empire threatened in UK...real estate in 

*** Spending plans on the crash...

*** "Take me off your mailing list"...and the world as 
we would like it to be...I promise!

There is always some leveling circumstance...

Richard Branson has led a charmed business life 
since he launched Virgin Records more than a quarter of 
a century ago. 

But Forbes estimates that Branson has lost $1.1 
billion - or about half his fortune - since early 2000. 
Now, the worldwide airline industry crisis is hitting 
him hard. His only really profitable business is Virgin 
Atlantic, which has been forced to cut back drastically. 
"Atlantic losses could bring Branson empire down," warns 
The Times of London.

Airline stocks are crashing. But so are other 
stocks. And the economy seems almost certain to fall 
into the long awaited recession. 

But what about real estate? "Inventories of high-
end houses are rising and some sellers are having to 
trim their asking prices," reported the New York Times 
news service last week, describing the real estate 
market when the WTC still stood. 

But rates have been cut another 50 basis points. 
Will that give housing another boost? A guess: not 
likely. The public mood is changing in America. "It's a 
war-time economy, stupid," says Marshall Auerbach of 

Do people buy new houses in times of war...even 
strange, new wars? Stephen Roach, writing from Paris: 
"History tells us that blows like this instill a sense 
of fear, caution, and retrenchment that puts all but the 
most essential spending plans on hold." Consumer 
sentiment - bruised and tender - is turning against big 
new houses with big new mortgages.



Eric Fry in New York City:

- Stock-buying patriots made themselves scarce on Wall 
Street for the second day in a row. The stock-selling 
patriots held sway. Stocks managed a small bounce early 
on, but slid into the red by day's end. The Dow fell 17 
points to 8,903, while the Nasdaq slid another 1.5% to 

- Nasdaq 5,000 seems like a very, very long time ago. 
Not much of anything gained ground yesterday. The 30-
year Treasury bond lost nearly two points. (For you 
folks in the stocks-only crowd, a 2-point T-bond loss is 
about as severe as a 300-point loss on the Dow). Gold 
and oil also gave ground. December gold fell by $1.80 to 
close at $289.70 an ounce. October crude fell $1.11 to 
$27.70 a barrel.

- However seductive the idea that sheer patriotic fervor 
can power financial markets higher, we are discovering 
that earnings growth and underlying values are better 
goads to share prices. But didn't we already know that?

- Last Saturday, New York Post columnist Bruce Bartlett 
urged, "[D]on't let the terrorists win by showing that 
they got under our skin, that they frightened us, 
rattled our cages...I say 'buy.' Buy stocks - any stock 
- the company is unimportant."

Dear Bruce, 

The company IS important.

Eric J. Fry.

- Patriotism is an absolutely essential national virtue. 
So is investing wisely. They needn't be mutually 
exclusive. But neither must they be joined at the hip. 
In short, there is nothing unpatriotic about selling bad 
stocks. It is safe to say that America did not create 
the world's greatest economy and the world's most 
powerful army by investing its financial and human 
capital unwisely. 

- A successful hedge fund manager e-mailed me yesterday 
to say, "In my mind, selling stock to attempt to 
best manage your private affairs, is not a patriotic 
issue." He's got a point. Isn't selling simply one half 
of the investment process?

- Of course, there is a world of difference between 
profiteering and investing wisely. Concerning the 
former, stories of Osama bin Laden, the terrorist-
capitalist, are now gaining credence. Bloomberg news 
reports, "Trading skyrocketed in options that bet on a 
drop in UAL Corp. and AMR Corp. stock during the days 
before terrorist crashed hijacked United and American 
airlines jets into the World Trade Center and the 

- Similarly, there was extremely heavy put-option buying 
on the shares of Morgan Stanley Dean Witter & Co. 
immediately prior to September 11th.

- Whoever purchased these various options made millions 
of dollars. Authorities hope that these apparent 
"insider trades" will lead them to other terrorists 
affiliated with bin Laden. "I suppose from [the 
terrorists'] standpoint," Columbia University law 
professor John Coffee told Bloomberg News, "they're 
trying to pay for future terrorist activities by 
profiting from their past terrorist activities."

- Lynn Carpenter, who is not a terrorist, but who is the 
editor of both the Fleet Street Letter and the 
Contrarian Speculator, recommended buying put options on 
Morgan Stanley about two weeks before the World Trade 
Center tragedy. Those who followed her advice more than 
doubled their money. 

-Yet, immediately after trading resumed on September 
17th, Lynn apologetically urged her readers to close the 
position and to seek no additional profit from Morgan 
Stanley's misfortune. Lynn says readers e-mailed to 
praise her character. They're discovering what the rest 
of already know... Lynn is a woman of the highest 

(For more information see: Contrarian Speculator)

- We investors sometimes forget that the stock market is 
primal. It neither cares who suffers, nor who lives 
well. As we mourn the thousands of lost lives and the 
thousands more who will forever suffer the loss of loved 
ones, we do not assuage our grief by investing unwisely.

- If Cisco was a sell before last Tuesday (we think it 
was), it remains a sell now. Conversely, "if Consul 
Energy was a buy before last Tuesday," writes John 
Myers, of Outstanding Investments, "it remains a buy 
now. In fact, if anything about the stock market has 
changed, it is that stocks like Consul Energy might be 
even stronger buys." 

- War or peace, the world will need Consul Energy's coal 
along with all the other tangible commodities that 
enable a country to build, or to rebuild, or yes, even 
to wage war.


Back to Bill, now in London:

*** I must be hitting some raw nerve lately. "Take me 
off of your list immediately," wrote one DR reader. "I 
can't stand your doom and gloom attitude. This is a time 
to spread optimism, not pessimism."

*** "I know this is a purely emotional response on my 
part," admitted another, "but after reading this, I'm 
actually ashamed and embarrassed to be a subscriber."

*** No doubt, it is an emotional response. But what 
emotion? Perhaps it is my scornful attitude to a 
"patriot rally" that triggers such disgust. Perhaps it 
is the mocking tone...or the irresistible schadenfreude 
of seeing the myths of the New Era finally exposed. 

*** The Daily Reckoning is a free service, of course. 
Free in the sense that readers do not pay to receive it. 
It is also free in the sense that readers may come and 
go. And free, too, in the sense that I feel I can write 
what I really think. Since readers do not pay for it, I 
feel no obligation to write what they want to hear. 

*** Still...this is also a business and it must be bad 
for business to offend customers. So, tomorrow, I will 
try a different approach. I will describe the world as 
we would like it to be. I promise.

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The Daily Reckoning Presents: A Guest Essay, in which 
Dan Denning offers some thoughts on the post-attack 
investment environment...

by Dan Denning

Into this neutral air
Where blind skyscrapers use
Their full height to proclaim
The Collective Strength of Man,
Each Language pours its vain
Competitive excuse
But who can live for long
In an euphoric dream;

W.H. Auden, September, 1939

Autumns sunsets in Manhattan are surreal, almost 
ethereal. An old film professor of mine called it "The 
Golden Hour" when the light from the setting sun would 
cause the entire New York Skyline to shimmer. It made 
New York look like El Dorado and the City on the Hill 
all at once.

Remember that look. 

It will return someday. But it could be awhile. For the 
last 15 years, that look of golden resplendence was the 
image of America itself. We bathed in good fortune and 
prosperity. We were gleaming and unassailable, and the 
future was always ahead of us.

Today, eight days after the attacks on the World Trade 
Center and the Pentagon, we're beginning to find out 
that our world wasn't as invulnerable as we thought. The 
question now is: what's next?

My aim today is to try to decipher what's ahead in the 
investment markets and, if possible, to help you figure 
out what to do with your money. In future issues of The 
Daily Reckoning we will no doubt have a lot to say about 
America, terrorists, the war on drugs, Bill's gardener, 
the bible, Alan Greenspan, and the like. 

But today, let's take a few minutes to lay out what you 
might expect if, in fact, the investment climate in 
America has changed.

First, you can expect to see more volatility and big 
swings. As I mentioned to you last Friday, the Dow was 
certain to crash on Monday's opening in response to 
pent-up selling pressure around the globe. The Dow's 
biggest ever one-day drop on Monday is not the end of 
the selling, but the beginning. 

There will be mini-rallies in certain groups of stocks, 
defense for example. But even before last week's 
attacks, it was getting harder for investors to make 
money in publicly traded U.S. stocks. At 26 times 
earnings, the S&P 500, even after a horrendous year, was 
still selling at a higher P/E than the peak of the great 
bull markets in 1929 and 1964. 

And after declining from 180% to around 120%, the ratio 
between the total capitalization of stocks and GDP was 
still over two times as large as its historical average. 
For stocks to return to their normal value in the 
economy, they'd still have to decline by another $8 
trillion dollars.

And even before last week's attacks, the U.S. economy 
was at the end of a long cycle of prosperity. As with 
all other cycle ends, our economy had turned into 
nothing more than a circus. By the end, we had spent 
years overconsuming, overproducing, under-saving, and 
under-investing in businesses that created real wealth.

Is the U.S. slated for a 17-year bear market like 
investors saw in 1929 or 1964...or like the Japanese are 
seeing now? I don't know. But I will say this - even if 
this down-cycle is half that long, or even just one 
quarter, you will have a very tough time making money 
being long on the major U.S. stock indexes. 

Don't get me wrong. All is not lost. Many investors will 
remember that while there was no bull market in U.S. 
stocks during the '70s, gold, precious metals, and oil 
did quite well.

And even when there's no bull market in U.S. assets, 
there is usually a bull market...somewhere. Latin 
America and Asia in the 80s; real estate at various 
times (but probably not right now); the Swiss Franc and 
the D-Mark back when the dollar was not King of the 

"Money" seeks the highest return - no matter what's 
going on in the world. Markets aren't patriotic. As an 
investor, it will not pay to mix your emotions with your 
money. The bull market in the U.S. is over just as 
surely as the World Trade Center no longer stands.

You can wait, like the Japanese have for years, for some 
mythical event to turn things around. Another rate cut, 
increased government spending on military projects, the 
rebuilding of New York, all of these will be trotted out 
as reasons why the "bottom" is in and it's time to be 
long stocks again.

Meanwhile, the primary trend of the market will remain 
bearish. And if you can afford to make 1-2% on your 
money over the next 20 years, then investing in the 
indexes should suffice. 

But if you can't afford to hold on to U.S. stocks while 
they return to historic multiples of earnings and go 
nowhere, you do have real options.

Readers of the DR Investment Advisory are positioned in 
several gold companies, several bond funds, and a select 
few U.S. stocks with stockpiles of cash. Expect to see 
the investment world get much more conservative and 
start rewarding unspectacular but safe investments.

We're also long on a few foreign stocks that have strong 
natural resource businesses. If there is inflation in 
commodity prices due to the Fed's rate cuts, we think 
these businesses will do quite well, and investors will 
flock to them, driving up their share prices.

As speculators, we continue to sell the dollar vs. the 
euro. The dollar too, has been in a long, unsustainable 
bull market. And already we've made triple digit returns 
selling it short via futures options.

Prior to Tuesday's attack a correction of historic 
proportions was already bearing down on the U.S. stock 
market. It's possible that the time-frame has now been 
accelerated. I say this not to make a grim situation 
worse. I say it to point out that you have a critical 
dilemma facing you as an investor.

There is much you can do to compensate for the slumber 
of U.S. equities. But unless you accept that the bull 
market is over, I believe you will find a very nasty 
investment climate, indeed. 

Until that day when we bathe in good fortune again, 

Dan Denning,
for The Daily Reckoning

Daniel Denning is the editor of the Daily Reckoning 
Investment Advisory. If you are not already a Blue 
subscriber and are interested in the investment 
recommendations referred to in this article please
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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 24, 2001

Published By Tulips and Bears LLC