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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The God of War

*** Happy days are here 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 
called yesterday:

"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 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 "[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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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 Germany and 
Russia into WWI.

That war, too, began with a terrorist incident. Gavrilo 
Princip, too, wanted to stir things 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 
immense advantage.

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 
defensive barriers.

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 
other side.

Your editor, American, and flaunting it...

Bill Bonner

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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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: October 16, 2001

Published By Tulips and Bears LLC