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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
TUESDAY, 16 OCTOBER 2001 

 

Today:  Natural Born Killers

*** Market still rallying...barely...

*** But people losing confidence in Greenspan-san...

*** Anthrax...REITs...longest downturn in manufacturing 
in 60 years...bankruptcies...Ricardo's Bar...and more!

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Bonds up...gold down - off $3 yesterday.

Go figure. The Fed and Congress are working around 
the clock to inflate the economy...and still the markets 
are telling us that it is deflation we have to fear, not 
inflation.

Robert Samuelson explains why, in NEWSWEEK: "Even 
zero interest rates can't reinvigorate the economy if 
other conditions are sufficiently unhealthy. Monetary 
policy is not some magical potion that can erase any 
disagreeable problem."

Samuelson points out that even as the Japanese 
lowered rates to zero, total bank lending went down for 
45 consecutive months. 

Meanwhile, Bloomberg reports that the U.S. is 
suffering from "the longest downturn in manufacturing 
since the '40s." Output is down for 12 months in a row.
If this isn't a recession, it is doing a good 
impersonation of one. A few days ago Polaroid declared 
bankruptcy. Yesterday it was Bethlehem Steel that went 
belly up. 

Let's see what else happened on Wall Street... 
Eric?

*****

Eric Fry, reporting from Manhattan:

- Given the fact that almost no American companies are 
making more money this year than they were last year - 
and that many are not making any money at all - the 
stock market is putting in a mighty fine performance.

- Stocks recovered from an early morning sell-off to 
finish the day just about where they started. The Dow 
gained 3 1/2 points to 9,348, while the Nasdaq lost 7 to 
1,696. 

- Maybe it was the new crop of anthrax incidents that 
kept the market from falling (remember, terrorism is 
bullish). Yesterday, Senator Tom Daschle's office became 
but the latest locale to receive a letter containing 
spores of the deadly bacteria.

- "Despite terror's current resurgence," writes Doug 
Casey, "and the fact that it's the only way relatively 
weak groups feel they can strike at their enemies, I 
feel it's not going to be a really long-lived factor. In 
the world created by capitalism spilling over borders, 
in the world of the Internet, in a world which will 
inevitably become more prosperous, people simply won't 
put up with it..."

See: A Brief History Of Terror
http://www.dailyreckoning.com/body_headline.cfm?id=1519 

- But even if by some fluke, anthrax turns out NOT to be 
bullish for stocks, it is making an exciting 
contribution to our national vocabulary. Words like 
"pulmonary," "cutaneous" and "necrotic" now roll off our 
tongues as effortlessly as "tree" or "cat." Think of it 
as a bull market in arcane medical terms.

- Meanwhile, the same old bear market in semiconductor 
stocks keeps dragging on and on...like a tiresome 
anecdote. The SOX Index of semiconductor stocks dropped 
almost 5% yesterday. Part of the problem, or maybe all 
of the problem, is that neither businesses nor 
individuals are buying very many computers these days. 
"U.S. retail PC unit sales are expected to fall 25% in 
2001 and 18% in 2002," reports Fred Hickey, editor of 
the High Tech Strategist.

- Rental housing is another sector signaling economic 
weakness. "Apartment REITs are not immune from the 
effects of the slowing economy," observes Kathy Shanley 
of Gimme Credit. Last week, the "segment leader" Equity 
Residential Properties "threw up its hands on guidance, 
saying there is 'no road map' for the current 
environment." 

- All in all, the brain trust at the International 
Strategy & Investment Group (ISI) predicts that fourth-
quarter GDP will be a "wipeout" - falling as much as 10% 
on an annualized basis. 

- "The total value of US stocks is STILL 120% of GDP," 
Dan Denning of the DR Blue Team reports, citing research 
by Jim Bianco. "Whenever this indicator has approached 
80% in the past - 1968, 1972, 1987 - severe bear markets 
followed." But considering that Greenspan and Congress 
are tossing a kitchen sink of monetary and fiscal 
stimuli at our economy, GDP might bounce a bit next 
year...unless, of course, we start saving too much.

- Oh, oh...what's this? Recently, the ratio of consumer 
installment debt to disposable personal income has been 
shrinking. In other words, the famously spendthrift 
American consumer has been backsliding...into a saving 
mode.

- If we Americans ever again expect to taste the fruits 
of economic prosperity, we will need to get out there in 
the malls and break out the plastic. At least, such is 
the sage advice of none other than New York Fed 
president William McDonough. "What we dearly want is for 
Americans to behave like Americans - to do the patriotic 
thing and go out and spend," Mr. McDonough exhorted in a 
recent Chicago Tribune story. 

- "Can you believe that a sane adult, much less the head 
of the New York Fed, would act as though the only thing 
an intelligent person should ever do is spend?" asked an 
incredulous Bill Fleckenstein in yesterday's Market Rap 
on Grantsinvestor.com. "There's never a time to save? 
These clueless types either don't know that there is 
such a thing as a business cycle, or they believe they 
have conquered it. I am not sure which is more 
dangerous." (www.grantsinvestor.com/agora.html)

- Fortunately, from McDonough's point of view, the 
credit-based consumption that will rescue our economy 
requires only two things: an interest rate low enough to 
induce a borrower to take on more debt and a banker dumb 
enough to make the loan. Seems doable.

***** 

Back in Paris...

...A mad world gets even madder...

*** The Figaro reports that "Americans are on the edge 
of panic" because of a few cases of anthrax, a disease 
still as rare as a sympathetic IRS agent. New York 
journalists, continues the report, have been gripped by 
a "psychosis." How could anyone tell the difference? 

*** White powder, so recently the subject of grins and 
smirks among the hip media set, is now treated as a 
health threat, we are told...

*** Following the WTC attacks I got a note from a friend 
in Nicaragua suggesting "with all the violence in the 
US," now might be a good time to relocate...Kathie 
Peddicord, who recently returned from Nicaragua, tells 
me the bar that Lonely Planet calls "the best bar in 
Central America" is for sale. 

*** "Ricardo's Bar is like something out of a Hollywood 
movie set...frequented by lovers, gangsters, and James 
Bond types. It has been visited by the rich and famous 
traveling incognito and by the elite of Nicaragua's 
government. It's also the meeting place for San Juan's 
expat community - the retirees, the real estate 
hustlers, and the local eccentrics." For the property 
lease and the bar, Ricardo is asking $110,000. 

*** Hmmmm...maybe I'll buy Ricardo's...and write the 
Daily Reckoning from a barstool in Nicaragua.

(For more on Ricardo's see: "All the romance and 
atmosphere of a Hollywood film - for $110,000" 
www.internationalliving.com/article/ricardos.html)

* * * * * * * * * Advertisement * * * * * * * * * 

Conveniently, the WTC attacks are being blamed for a 
surprise "slowdown" that has rocked the U.S. economy. 
Suddenly, it seems, corporate profits are dropping; 
investors are less sure...consumer confidence has been 
shattered. 

But...the writing WAS ALREADY ON THE WALL!

And according to one of the world's leading economists, 
we "ain't seen nothing yet." Experience proves that if 
you've been listening to the Fed's high-octane "new 
paradigm" propaganda you're in trouble...it can ruin 
you. Here's what you need to do - right now - if you 
haven't prepared for:

The Coming Economic Crisis
http://www.agora-inc.com/reports/RCLF/TheGoodDR
* * * * * * * * * * * * * * * * * * * * * * * * * 


NATURAL BORN KILLERS
by Bill Bonner


When it rains, it pours.

Old saying

War. Now, pestilence. 

"I ask myself," wrote Richard Russell yesterday, "does 
all this have anything to do with the fact that we're in 
a bear market? Or is it just a coincidence? Maybe I've 
grown up with too much belief (misguided belief?) in the 
mysterious power of the primary trend. Yet, I keep 
wondering, why did all this occur within the grip of a 
primary bear market rather than say in 1985 or 1990 or 
1995 when the primary trend was still bullish? Strange, 
eerie, very weird indeed."

Here at the Daily Reckoning we wonder, too. 

At the top of a bubble market, people develop such a 
distaste for cash that they search for ways to unload it 
- spending it recklessly and investing it in loony 
ventures without a prayer of success. So deep is their 
contempt for liquidity that they will borrow money from 
credit cards - at 14% interest - just for the pleasure 
of getting rid of it. And so great is their craving for 
ruin that they will mortgage their homes in order to buy 
stocks trading at record prices.

Eventually, the madness reaches a peak - and people 
suddenly rediscover that having a little money in the 
bank is not such a bad thing. Academic economists draw a 
line at the high water mark of the mania and then watch 
it drop off. But the tide of ruin runs deeper; beneath 
the surface lies a sea of trouble...enough dark, cold 
water to drench the reputations of economists, analysts 
and central bankers...and destroy the confidence of an 
entire generation.

It is as if, from time to time, people need to have 
their money taken away and their spirits crushed. 
Something always comes along to do the job. 

After 43 years of peace in Europe, a terrorist incident 
in Sarajevo set off a series of mishaps and misjudgments 
that left 8.5 million dead. Whatever lesson the gods 
were trying to teach - one would think that would have 
been enough to get the message across. But as the war 
came to an end a new and even more lethal menace 
appeared...

Whatever Osama bin Laden and other terrorists are 
cooking up in their germ warfare laboratories, they are 
likely to be second-rate maladies compared to nature's 
hitmen... 

In October, 1918, 200,000 Americans died of influenza. 
At first, people worried that this new strain of virus 
must be the work of German scientists. But the hysteria 
proved groundless. The Huns were not responsible...these 
were natural born killers.

The following winter of 1918-19, the virus swept around 
the world. Eight million people died in Spain alone, so 
many that the disease was henceforth known as the 
"Spanish Flu." 

In America, 675,000 people died - ten times as many as 
were killed in the Great War. Forty-three thousand 
soldiers died of the flu. Nearly one in three Americans 
got sick - including President Wilson. But, oddly, young 
adults aged 20-40 were most likely to die. People died 
quickly. One anecdote told of 4 women who played bridge 
together in the evening. Three of them died before 
morning.

"The 1918 has gone," noted the December issue of the 
Journal of the AMA, "a year momentous as the termination 
of the most cruel war in the annals of the human race; a 
year which marked, the end at least for a time, of man's 
destruction of man; unfortunately a year in which 
developed a most fatal infectious disease causing the 
death of hundreds of thousands of human beings. Medical 
science for four and one-half years devoted itself to 
putting men on the firing line and keeping them there. 
Now it must turn with its whole might to combating the 
greatest enemy of all - infectious disease."

Before it was over, the flu had killed 20 to 40 million 
people - more in a single year than 4 years of the Black 
Death, 1347 to 1351.

Why did the "Spanish flu" come along when it did? No one 
knows. What was it...and why did it go away? No one 
knows that either. 

But the threat of bioterrorism is bound to dampen 
enthusiasm for global trade, just as it did when Mr. 
Smoot got together with Mr. Hawley, back in the '30s.

Your correspondent...wondering...

Bill Bonner
 
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 17, 2001

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