In Today's Daily Reckoning:
*** Clinton, Duisenberg decided to 'do something' about
*** Euro rises, oil falls... techs bounce...
*** Analysts are out to lunch...record IPOs...voters
*** Clinton must have felt the pain of ordinary American
voters. He decided that it was time to release the
strategic oil reserves - the supplies stocked to protect
the nation in time of war - so that people can drive
their SUVs without paying Friday's market price for oil.
*** Wim Duisenberg and the other graybeards at the
European Central Bank must have felt someone's pain too.
Maybe their own. They're tired of people making fun of
the zero, I mean the euro. So, they got together with
Larry Summers of the U.S. and bought euros to drive up
*** There were, as you will recall, 4 things plaguing the
U.S. stock market last week - the 4 E's...energy,
earnings, the economy and the euro. Urged by people like
Ms. Wu in South Korea, the bureaucrats and demagogues
decided to "do something" about 2 out of 4 of them.
*** So, the fix was in on Friday. The euro popped back up
to 90 cents, briefly, before re-descending towards 88
cents. The Dollar Index fell to 113. And oil fell after
Clinton's announcement and was trading at $31.44 at 6AM
*** Lower oil prices and a higher euro provide a gap in
the cloud cover over Wall Street. The sun can shine.
"Wall Street Expected to Rise this Week," declares
today's Reuters headline. Maybe. But there are still the
other 2 E's - earnings and the economy.
*** Earnings could be helped by a stronger euro. But
there are big risks. ECB intervention might not work.
"When Europeans speak, people should listen," said the
French finance minister. Europeans have been reluctant to
intervene on behalf of the euro. If the intervention
fails to stop the euro's decline - Wim Dusenberg and the
euro itself will lose even more credibility. People will
stop listening all together.
*** On the other hand, the bigger risk is that
intervention will succeed in turning the euro around. The
euro has an inherent structural weakness. It is the
Esperanto Currency, backed by neither hard assets nor a
*** The U.S. dollar, on the other hand, has been the
biggest sensation in the currency world since the roman
denarius. It is backed by the world's only remaining
super-power. But like so many things in the U.S.
financial markets - the dollar has over-reached itself.
*** According to the IMF foreign investors already hold
about $6.5 trillion in US assets - 7% of the US stock
market, 31.5% of US treasury debt, 18.5% of US corporate
debt and an additional $650 billion in cash. With a
current account deficit approaching $450 billion - it
takes $450 billion of inflow just to keep the dollar
FLAT. Kevin Klombies: "...a VERY sharp rally in the euro
has the potential to clear $.96 ... and extend all the
way up to $1.05."
*** The Dow was flat last week. So was the Nasdaq, after
a 25-point fall on Friday.
*** Gold rose $1.60 on Friday. The Dollar Index fell to
*** Maybe this will be a good week for stocks. Analysts
think so. But analysts are always bullish. Whether they
sell investments directly or not, Wall Street
congenitally favors stocks and bonds just as the media
favors politics. Out of a recent sample of 28,000
recommendations made by analysts, 36.5% were "strong
buys." 37,5% were "buys." 25.3% were "holds." And only
0.6% were sells.
*** "The tendency to be overwhelmingly bullish has turned
into an epidemic," said one observer. It was obvious that
the lower euro and higher oil prices would hurt multi-
national corporate earnings. But until Gillett, Alcoa,
Goodyear and others announced their earnings results,
scarcely a single analyst noticed.
*** But now that the world's monetary and political
leaders have decided to "do something" we can stop
*** This week, 20 companies will launch IPOs, which will
take this year's IPO total beyond 1999's record of $68.7
billion. Tech Corp, a recent IPO, rose 189% after hitting
the markets. So hopes are high.
*** "Americans are spending an additional $115 billion,
nearly 1 percent of GDP, on energy this year," says the
NY Times "... more than half of [that money] is going
abroad to pay for imported oil, shrinking spending at
home and... acting as a drag on the economy." Still the
article goes on to report there are "structural reasons"
the rising energy costs will not bring on a recession as
it did in '73, '79, and '90. Among them? "... computer
technology plays a bigger role in the economy, shrinking
the role of oil and natural gas."
*** From a NY Times editorial on Jonathan Lebed, the 15-
year old boy from Jersey sued by the SEC for stock
manipulation: "The teenager's coming of age occurred in a
period of stock market mania, when hyping stocks was de
rigueur and when ridicule was showered on those who
pointed out the warts on a company's operations...
Jonathan is simply too young to remember the days when
investor disbelief was not in a state of permanent
*** There was record low turnout in French elections this
weekend. All over the world, people are turning away from
politics. More below.
*** Not much to report from Ouzilly. It was a beautiful
weekend. "A season of mists and mellow fruitfulness," as
Keats put it. A friend of my mother's is visiting. The
two women served in the WACs in WWII and spend their days
walking around slowly and reminiscing.
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"Those who, standing their ground and closing ranks
together endure the onset at close quarters and fight in
the front, they lose fewer men. They also protect the
army behind them. Once they flinch, the spirit of the
whole army falls apart. And no man could count over and
tell all the number of evils, all that can come to a man,
once he gives way to disgrace."
From "The Western Way of War"
The Greeks fought often. In two out of three summers the
property owners, called hoplites, would be called out to
These were not professional soldiers - but farmers,
artisans, philosophers and traders. Nor were they just
young men of draft age. Men were expected to fight until
they were 60 years old. Of course, with so much warfare,
many did not survive to retirement age.
The fighting was not high-tech. In today's battles,
soldiers may never even see the enemy. Bombs are dropped,
missiles launched, cannons fired - at targets well over
the horizon. And whole wars are fought for reasons that
are even more remote.
But the Greeks formed up their phalanxes and marched
straight at the enemy. Spears were used to jab. They were
scarcely ever thrown. The idea was to press against the
enemy...strike him down...march over him...and break up
In this, as in so many things, the Greeks were extremely
"If crowd-thinking is so bad," you might want to ask me,
"how come people do it?" Here is the answer.
The progress of man has been made by extending the
division of labor. Instead of doing everything for myself
- I can now go to the store and buy my bread, clothes,
fuel and everything else I need to live - and make my own
very small, very specialized contribution to the
commonweal of humankind in these daily letters.
As the division of labor extends, more and more people do
more and more specialized tasks.
I know what you're thinking - not another essay on the
division of labor! But please hang on...I am just warming
up what could be an interesting point.
The division of labor requires trust and cooperation. I
have no way of forcing the baker to bake bread or the
roughneck to bring oil up out of the ground. Still, I can
be reasonably confident that the bread will be better and
cheaper than if I made it myself...and that the diesel
fuel I put in my car's tank will be serviceable.
Progress, then, is a function of greater cooperation.
But force has played a big role in human affairs too.
When material welfare, and even survival, depended on
controlling good hunting ground...or good farming
ground...a group of people could benefit enormously from
using force. If they could expel or exterminate a rival
tribe - they might flourish.
The Greek city-states were tribal. Each tribe - had its
regional differences. They made war on each other...and
came together to fight the Persians and others.
Throughout the ancient world, the Greeks were feared.
They had no special technological or numerical edge.
Their big advantage was the one thing I have been ranting
When the call to arms was sent out, the hoplites, young
and old, notable and common, friends and relatives,
grabbed their armor and formed up. They stood shoulder-
to-shoulder, row upon row. Their polished helmets gleamed
in the sun. The front row of soldiers held their spears
straight ahead. The back rows held them straight up.
There was no skirmishing. No surprise. No tactics, other
than the steady closing with the enemy until, toe to toe,
they battled it out. The key to victory was solidarity.
Their enemies feared them. Because they knew they would
not give way. The Spartans, especially, had a reputation
for being willing to die where they stood rather than
"It was a sight at once awesome and terrifying," Plutarch
described the slow, dreadful advance "as the Spartans
marched in step to the pipe, leaving no gap in their line
of battle and with no confusion in their hearts, but
calmly and cheerfully advancing into danger."
Greek generals were usually on the front lines. When an
army was beaten, its generals were almost without
exception killed in the fighting.
Alcibiades, telling the story of Socrates' combat,
comments: "Indeed, in war the enemy will not dare to
press home their attack against men such as this;
instead, they go after the ones who are fleeing away in
From the generals to the newest recruit, all the soldiers
suffered the same fate. If they fought together and stuck
together, their enemies might break and run. But if any
one of them failed to do his duty...the whole formation
was likely to disintegrate. Then... Tyrtaios:
"For once a man reverses and runs in the terror of
battle, he offers his back, a tempting mark to spear from
behind, and it is a shameful sight when a dead man lies
in the dust there, driven through from behind by the
stroke of an enemy spear."
Group cohesion was paramount. The whole phalanx had to
think and act as one. Defecting was dangerous and
More to come...
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Last modified: April 01, 2001
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