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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Heart of Gold

*** Wheee! A wild ride...but it's time to get off...
*** Bankers are good contrary indicators - like magazine 
covers. Guess what they're invested in now...
*** More collective imbecility...Technology!

*** Wheee! The market took investors for a wild ride 
yesterday. The Dow plunged 433 points before bouncing 
back to close down 146 points - below 10,000 for the 
first time since March.

*** The Nasdaq, meanwhile, followed the same trajectory, 
coming near the 3,000 level early in the day, but ending 
the session down 42 points.

*** The proximate cause of the market's trouble was the 
IBM announcement I mentioned yesterday. IBM's sales are 
barely growing, giving investors cause to knock the share 
price down $18.

*** Despite the morning flop in prices, there was no 
panic or fear on Wall Street. Investors are accustomed to 
believing that share prices always go up in the long run. 
Many saw the big drop in the indexes as a decisive end to 
the bear market they said couldn't happen.

*** "People are asking themselves is this is the end of 
the sell-off," said one analyst quoted by the N.Y. TIMES. 

*** I will venture an answer: No. Prices may go up in the 
near term...but it is very unlikely that a genuine bull 
market can begin with prices still this high, and so many 
people so deeply committed to investments that can't 
possibly be profitable. Mr. Market just doesn't work that 

*** But what do I know? The euro continues to disappoint 
me. It hit yet another new low yesterday. Today, a euro 
is only 84 cents...and you can get 7.8 French francs for 
your dollar. The dollar may be "an accident waiting to 
happen" - but it has a lot of patience.

*** What really ails the euro? "Three things: statistics, 
perceptions and propaganda," says Dr. Richebacher. 
"Dollar strength and euro weakness is a matter of 
perception. But the 'technological gap' - suggested by 
the official statistics - is a function of the yardstick 
rather than the cloth. Look for the dollar to fall." 
(see: What Really Ails The Euro?

*** Gold seems to have unlimited patience too. It lost 80 
cents yesterday. More on gold, money...and wealth, 

*** AOL lost ground yesterday, even though it reported 
earnings in the last quarter up 100% from a year ago. 

*** MSFT came out with good numbers, after the market 
closed. Its latest quarter showed net income up 18%, the 
news of which is supposed to revive the market this 

*** The cost of living rose 0.5% last month, after 
falling in the previous month. The year-to-date inflation 
figure is 3.5% - more than twice the nominal yield on the 
S&P 500. In real terms, investors are losing a lot of 
money: a couple of percent points to inflation, net of the loss in capital value.

*** There were 994 advancing issues yesterday; 1888 
declined. The number of new lows rose to the highest 
level in 9 months - 297, while only 19 stocks hit new 

*** Amazon rose $3 is now trading at $24 
and change. Cisco fell $2 5/16th.

*** "Chase Manhattan Corp.," reports Caroline Baum on, "the second largest U.S. bank, reported 
today that third-quarter earnings fell 24 percent from 
the year- ago quarter, dragged down by a $25 million loss 
in Chase Capital Partners, its private banking unit that 
lends money to start-up companies."

*** Bankers have a habit of lending money to whatever 
popular sensation is in the news... Follow their lending 
and it will lead you to the next financial implosion: 
"Back in the 1970s and early 1980s, when OPEC was having 
its way with the oil markets, banks lent hand over fist 
to the oil and gas industry," Baum explains. "With the 
Organization of Petroleum Exporting Countries controlling 
the limited oil supply and oil demand rising, oil was as 
good as gold.

[But] "The price of oil collapsed in 1986, and so did the 
loans to the oil patch." The next target of lending was 
Latin America - where the loans went bad to such a big 
extent the banks had to be bailed out by the U.S. 
Treasury. Then, "proving that memory is fleeting, banks 
repeated their mistake, this time with emerging markets 
in Asia. In between they managed a couple of forays into 
real-estate loans, which left them holding the bag when 
prices collapsed.

"The coup de grace," says Baum, "was the banks' eagerness 
to lend, under very favorable terms, to Long-Term Capital 
Management, the hedge fund to end all hedge funds. When 
the fund almost collapsed in 1998, the banks professed to 
be shocked, shocked, at the degree of leverage and size 
of LTCM's positions. They were too shocked to explain 
their lack of due diligence."

*** Well, now the bankers are heavily invested, along 
with the Cisco Kids, in new technology start-ups. Will 
those go the way of oil loans and Brady bonds?

*** Are their bargains among the crashing techs and 
dot.coms? Maybe. The NY TIMES reports that, 
one of Ray Devoe's 65 Fallen Internet Angels, "now sells 
for less than $3 a share, down from a high of $98.50 last 
November - and less than half the amount of cash per 
share the company has in the bank." (For Ray's complete 
list see: The Shakeout: Fallen Angels, Still 

*** Today is a big day in history - it is the anniversary 
of the stock market crash of '87. It is also the date on 
which Napoleon began his disastrous retreat from Moscow, 
in 1812. Bonaparte ended up with fewer than 5% of his 
troops alive - about the same percentage of investors' 
money that will survive the retreat from Big Tech. 

*** Episodes of collective imbecility are defined and 
encouraged by big, dumb words. Napoleon pushed his troops 
onward with appeals to 'La Patrie,' which had little real 
meaning in Paris... but was utterly senseless in Moscow. 
In the Nasdaq Nation, the rallying cry is 'Technology'!

*** People are not buying as much 'technology' as they 
used to. James Paulsen, chief investment officer at Wells 
Capital Management: "Real personal consumption growth in 
technology went from an 80 percent rate in 1999 to 35 
percent right now," he said. "When there's not real price 
declines, it slows the growth." 

*** But what is 'technology?" My friend Michel notes that 
the word implies the use of information and electronics. 
"Thus, the transmission in your car is industrial 
equipment. But add a cheap little calculator and it 
becomes 'technology.' The word has no real meaning, and 
since it has no real meaning, it has taken on a magical 
dimension that allows people to believe that 'technology' 
will make people rich." 

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"I've been to Hollywood,
I've been to Redwood,
I've crossed the ocean for a heart of gold.
There's an expression, 
That gives direction,
And keeps me searching for a heart of gold.
But I'm getting old."

Neil Young

Despite the fact that 'money can't buy me love'...and the 
despite the disappointment of the law of declining 
marginal utility (the more you get, the less you 
appreciate it)... and despite the fact that Christendom's 
most reliable source said it increases the likelihood of 
burning in hell for all eternity...

...the quest for wealth remains popular.

Not only do people want to get it. They also are very 
keen on not losing it.

In both respects, gold has played an important role for 
many generations.

This is not to say that other ways of amassing and 
preserving wealth have not been found. "Money" is, after 
all, an abstraction. It represents purchasing power only 
by common agreement. An ounce of gold, for example, is 
inherently almost worthless. It is useful, say, for 
leveling an old table...or repairing a broken tooth. But, 
you cannot eat it...nor will it keep you warm. It is not 
even entertaining, unlike, say, a Jimmie Rogers song or 
the racy Aubade (so bad...) underwear ad which 
Rafael has turned into a screen saver.

Yap is an island in the Caroline chain somewhere in the 
vast Pacific. Peter Bernstein's new book, The Power of 
Gold, explains the Yap money system, as it was when 
anthropologists studied the island in 1903:

"The medium of exchange, or more properly, the store of 
value on Yap at that time was called fei. Fei consisted 
of thick stone wheels with diameters ranging from saucer-
size pieces to twelve-foot millstones. The stones from 
which these fei had been fashioned came from limestone 
quarries found on the island of Babelthuap, one of the 
Pealao Islands about four hundred miles away, and brought 
to Yap long ago, piece by piece, in canoes and on rafts 
by some venturesome natives..."

This, dear reader, is the similarity between the Yap 
stones and gold, and a point of difference with shares in 
Cisco. The Yap stones were hard to replicate. It was a 
coin that was hard to debase. 

Many high tech and shares are like gold and Yap 
wheels in that they are similarly inert. You could get 
about the same dividend yield from a stone wheel that you 
might get from a tech stock - that is, zero.

But while the earth gives up more gold grudgingly...and 
the stone wheels on Yap were almost impossible for the 
natives to reproduce...all it took was a few business 
meetings to increase the world's ready supply of Cisco 

But while the Yap stones offered no hope of investment 
yield - they paid no dividends, nor distributed any 
earnings - tech stocks have always held out the potential 
of making money for their holders. Paradoxically, this 
also limits their usefulness as a store of value. Tech 
stocks are valuable as long as people believe they are 
valuable. But they fall in value as investors seek to 
increase their rate of return by moving to an 

The attractiveness of gold is precisely that it is not 
engaged in any activity that might be profitable. It has 
no creditors. It reports no earnings. It issues no 
options to employees. It is financially, as well as 
physically, lifeless.

Gold bugs often say that they like the yellow metal 
because it represents "tangible" or "hard assets." Yet, 
the actual value of gold is pure abstraction - not much 
different from an electronic brokerage report that you 
see on your computer screen. Cut off from almost all 
financial, economic and utilitarian activity - gold, like 
the Yap stones, is worth only what people agree that it 
is worth.

"In fact," continues Mr. Bernstein, "the wealthiest 
family in the [Yap] community owned an enormous fei that 
no one could see or had ever seen. According to this 
family, their fei lay on the bottom of the sea. Many 
generations past, while an ancestor was towing it on a 
raft attached to his canoe, a terrible storm came up. 
[T]his man decided that life came first and money second: 
he cut the raft adrift and watched the huge stone sink 
below the waves. But he survived to tell the tale and to 
describe to everyone the extraordinary size and quality 
of the stone he had lost. Nobody had ever doubted the 
veracity of his testimony. As Furness [the 
anthropologist] described it, 'The purchasing power of 
that stone remains, therefore, as valid as if it were 
leaning visibly against the side of the owner's house.'"

Bernstein's subtitle for his book is "The History of an 
Obsession." He points out how, over the centuries, gold 
has been used as a convenient proxy for wealth. 

From the time of King Croesus of Lydia, the man whom 
people even today still wish to be as rich as - who took 
the throne in 568 BC - right up until approximately the 
moment when Alan Greenspan acceded to the throne of the 
Federal Reserve System, people still searched for a heart 
of gold. Wealth could be accumulated, exchanged, and 
preserved in the form of gold coins and bricks. This was 
as true for individuals as it was for central banks.

And one of the most successful and ubiquitous forms of 
gold was the Byzantine gold coin: the bezant. 
A contemporary of Emperor Justinian in the 4th century 
reported that the bezant "is accepted by everywhere from 
end to end of the earth. It is admired by all mean and in 
all kingdoms, because no kingdom has a currency that can 
be compared to it." 

In 1951, an economist called the bezant "the Dollar of 
the Middle Ages." 

But a dollar is not an exact replica of a bezant. A 
dollar is made of paper; the bezant was made of gold. 
Like the Yap's rocks, the bezant resisted inflation as 
well as rust. Bezants, even today, have value - even 
though the Empire that created them fell to the Turks in 
1453 - more than 5 centuries ago.

What will the dollar's value be in 500 years?

More to come... on wealth, gold, and the dollar,

Bill Bonner
About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

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Last modified: April 01, 2001

Published By Tulips and Bears LLC