Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 12 OCTOBER 2001
The God of War
*** Happy days are here again...is this the big bear
market rally we've been waiting for?
*** AOL up, AMZN up, GE up...sales coming back...
*** Mortgages still being refinanced...Is Japan turning
up, too? Viva Las Vegas! And more!
|Happy days are here again. Could this be the big |
bear market rally we've been waiting for?
A friend in one of the major brokerage houses
"It's unbelievable. The big institutions are coming in
and buying everything. They're buying the tech stocks.
AOL is going crazy..."
AOL rose 14% yesterday, after posting $24 million
loss in the 3rd quarter, and warning that earnings in the
4th quarter would be disappointing too...and that they'd
probably have to lay off more people...GE rose 3%...and
even Amazon caught a tailwind. Bezos lost $234 million
in the first quarter, $168 million in the second
quarter...and announced layoffs of another 1300
employees. That's good news, isn't it?
Eric, what do you think?
Mr. Fry in the Big Apple...
- Bombs keep falling and the market keeps rallying.
This war stuff is getting more bullish by the day.
Surely there are other countries we could be bombing
right now. Vaporizing the Taliban might get us to 2,000
or so on the Nasdaq. But if we ever expect the index to
return to 5,000, we'll need to find a few more targets.
- Yesterday, the Nasdaq soared 4.6%, to 1,701. The Dow
climbed 169 points to 9,410. The S&P 500 index gained
over 16 to 1097 - making it the first of the major
indices to erase all of its losses since September 11th.
- Helping to power the rally is the notion that
Greenspan's rate cuts are starting to have a positive
effect. Or at least the kind of "positive" effect that
comes from people borrowing money they may or may not
repay in order to buy things they may or may not need.
- The Fed chairman has been slashing rates since January
in the hope that somebody - anybody - would borrow money
and spend it somewhere in our economy. Perhaps,
consumers are taking the bait.
- While true that corporations are mostly cutting back
on debt, individuals remain addicted to the stuff and
they are borrowing almost as aggressively as ever.
Despite terrorist attacks and a slowing economy,
consumer lending remains a growth industry.
- I don't know how we American consumers do it, but
somehow, some way, we manage to borrow and spend no
matter how much borrowing and spending we've been doing
already. And we are not borrowing just to buy stocks
- Several retail chains have been reporting stronger-
than-expected sales. Yesterday Wal-Mart (WMT) reported a
surprisingly robust 6.3% rise in same-store sales.
- Earlier this week, the Big Three car companies each
announced surprisingly strong sales during the first few
days of October. Ford announced sales "way beyond"
expectations. Zero-interest rate car loans appear to be
driving the demand.
- "We see a direct relationship between more stimulation
(zero interest-rate loans) and more spending,"
Bridgewater Associates observes, "indicating that
consumers are still willing to buy if the financing is
cheap and prices are attractive."
- Mortgage refinancings are soaring as well. Even though
Bill is not quite ready to refinance his chateau (maybe
he's just holding out for lower rates), many other
American's are rushing out to join the nationwide
refinance-a-thon. "Get new mortgage" is on the national
"to do" list, just below "buy flag."
- Bridgewater notes, "Now we have stimulation from the
Fed, stimulation from the government in the form of tax
rebates, stimulation from the auto companies in the form
of zero interest rate loans and stimulation from the
mortgage market in the form of refinancings." Net-net,
Bridgewater anticipates some kind of economic rebound
before too long.
- Without job creation, no lasting recovery will
materialize - but that's not true of Mr. Inflation. He
shows up wherever easy money invites him.
- "The economy is changing," observes Outstanding
Investments editor John Myers. "Slow growth and rapid
inflation are supplanting rapid growth and low
inflation. This is the climate that existed in the 1970s
when the term 'stagflation' was coined. And all the
ingredients are present once again: a weakening dollar,
easy monetary policies, and geopolitical uncertainty."
- Maybe we should pity today's lenders, not the overly
indebted borrowers. Inflation, which falls like manna on
the borrower, is a plague to the lender.
- "Las Vegas' booming economy didn't go bust after the
September 11th terrorist attacks scared away many
potential airline passengers," the Las Vegas Review
reports. "But it slowed down faster than most US
cities." That's okay...it just leaves more room for
those of us attending the Agora Wealth Symposium, being
held this year at the Las Vegas Regent Hotel Oct. 31
through Nov. 3.
- "What better time for a contrarian investment
conference," Lynn Carpenter asks, "than when people are
afraid to travel...and many more are afraid to invest."
Bill, Lynn, and I will be speaking...if you're
interested in joining us, there's still time to
register. Call Agora Travel at 1-800-926-6575 or e-mail
- Meanwhile, "when it comes to Japan, a contrarian
instinct can quickly lead to financial ruin," quips Andy
Kashdan of grantsinvestor.com. "[But] a few hopeful
signs are worth watching." Kashdan says housing starts
and vehicle sales are recovering in the land of raw
fish, as are corporate earnings, "albeit from depressed
- "While [the] slow-motion pratfall [over the past 11
years] hardly instills confidence in the Japanese ruling
elite," James chimes in, "it has restored value to
sizable segments of a market once devoid of it."
see: Darkest Before Less Dark
Back to the City of Lights...
*** "Maybe we should speak French," I said to Maria last
night as we walked along the rue de Buci. Americans are
being urged to cower in their hotel rooms and apartments
like pathetic imbeciles. I'm not making this up. "Keep a
low profile," warns the International Herald Tribune
again...suggesting that we not wear cowboy boots or act
in that loud, obnoxious way that identifies us as
Americans. Perhaps we should wear false beards or
burqahs...and speak in pig latin.
*** "That's ridiculous, Dad," my daughter replied. "They
can tell you're an American as soon as you open your
mouth. You don't even have to open your mouth. They can
spot you a mile away."
*** Maria is right. The whole thing is ridiculous. What
is the point of going to war...forcing goatherds to
crouch in rude shelters amid their rocks...if we can't
stand upright in Paris or Chicago?
*** Maria and I continued down the street - speaking our
mother tongue, louder than ever.
A pox on them all!
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THE GOD OF WAR
by Bill Bonner
"Americans are walking right into a trap," said a friend
at lunch the other day.
"Terrorists don't expect to defeat the U.S. They know
they can't do that," he continued. "These people are not
dumb...I lived among them for many years. They have a
different idea of how the world works.
"They had a reason for striking the U.S." he explained.
"It was very simple. They wanted to show the rest of the
radical Muslims that they could reach right into the
heart of the 'Great Satan.' More importantly, they
wanted to provoke a response. As big a response as
possible. They don't care if they live or die. They will
measure their success by the extent they set the world
on edge and radicalize other Muslims."
Here at the Daily Reckoning our beat is money. But we
look to the rest of life - love, war, poetry - for
instruction. A man may be driven wild by love, or by
war, or by a bubble market. He may act wisely...or
foolishly...depending on the circumstance.
And he may be ruined or saved, often as not, by the
grace of the gods as by his own perspicacity.
What turns our attention to war is the fact that we seem
to be in one. And what causes us to comment is the fact
that the nation's bellicose spirit seems to have formed
a grand alliance with its wishful bullishness...thus are
we drawn into the war by alliances...like Germany and
Russia into WWI.
That war, too, began with a terrorist incident. Gavrilo
Princip, too, wanted to stir things up...to provoke the
authorities. He succeeded beyond his wildest dreams. By
the time the war was over, the major monarchies of
Europe had all fallen - the Hohenzollerns in Germany,
the Romanoffs in Russia and the Hapsburgs in Austro-
Hungary - and every major government of Europe had been
Ninety-three years later, Wall Street and the Pentagon
march to the same drummer. One of the causes of
yesterday's 169-point increase in the Dow was a rumor -
that Osama Bin Laden had been captured or killed. In the
group mind, the "war on terrorism" (the war of "infinite
justice" has been quietly dropped...) is as certain as a
bull market on Wall Street. It may take time. There may
be ups and downs...but the inexorable march of history
is towards higher prices on Wall Street and an American
victory against terrorism.
We do not know better, or worse. But a victory over bear
markets and terrorism is so widely anticipated and so
little questioned that we cannot help but wonder - in
today's letter - what surprises the gods may have in
"Surprise lies at the foundation of all undertakings,
[in war] without exception," wrote Carl von Clausewitz,
in his tome "On War" in the early 19th century.
Clausewitz, a Prussian soldier, had seen Napoleon's army
sweep through Europe. He, too, wondered who the god of
war might favor, and why.
A general who catches his enemy off guard has control of
the field, Clausewitz noticed. Not only does he cause
confusion and discouragement in the opposing troops, he
also determines the place and terms of battle - an
In the present war, such as it is, it was the enemy who
made the surprise move. The American response, as far as
we can tell, has been as predictable as a teenager's
slouch. It is not only the response the enemy
expected...but the one he wanted.
Sometimes you can win by doing what the enemy intends.
But few enemies are gracious enough to set traps for
themselves. More often, they set traps for their
That is why it is rarely wise to attack an enemy head-
on. Instead, a smart commander, Clausewitz explains,
attacks at the unexpected point - on the enemy's flanks.
"By directing a force against the enemy's flank and rear
its efficacy may be much intensified," the Prussian
Military history - like the history of markets - is a
sad chronicle of mob-thinking inspiring people to do
moronic things. Among the common stupidities is the
direct attack against fortified positions. "The
defensive form of war is in itself stronger than the
offensive," Clausewitz believed. Military strategy
should be focused not on how to attack the enemy but how
to get the enemy to attack you. The enemy then exhausts
himself - like the Confederate army at Gettysburg...or
the French in the early days of WWI - against the
This principle is especially relevant in cases of
guerilla warfare. The guerilla knows he cannot beat his
enemy in a pitched battle, so he hits with limited
resources at carefully-selected targets - blowing up
trains...shooting archdukes...or driving commercial
aircraft into skyscrapers - inviting his opponent to
strike back with massed force.
"The immediate object here is neither the conquest of
the enemy's territory nor the defeat of his armed
force," Clausewitz observed, "but merely to do him
damage in a general way." If the god of war smiles on
your enterprise, the enemy is provoked to attack in
force and then he is worn out by "a gradual exhaustion
of the physical powers and of the will by the long
continuance of exertion."
That is what happened to the Soviets in Afghanistan.
Could it happen to U.S. forces too?
I don't know. But, occasionally, the gods go over to the
Your editor, American, and flaunting it...
P.S. I have nothing against people killing themselves
for what they believe in - especially if it is something
insane. But, given my preference, I'd rather die of
natural causes...and I'm not even very happy with that.
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The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.