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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Dublin to Waterford

*** Gold down, bonds up... Misters Greenspan & Market 
telling us the slump could last for months...

*** An immense geo-political, macro-economic tornado 
headed your way...

*** What's this - value in Japan? - say it ain't so...

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Gold fell $4.20 yesterday. Bonds were up too. Both 
markets are telling us that things are going to get 
worse in the U.S. economy before they get better.

"Greenspan says slump could last for months," says 
a Washington Post headline.

But he also said that "Prospects for ongoing rapid 
technological advance and associated faster productivity 
growth are scarcely diminished. Those prospects, born of 
the ingenuity of our people and the strength of our 
system, fortify a promising future for our free nation."

"Easy-money policies bring about, through a 
combination of innovations and booming financial 
markets, massive over-investment and a gross 
misallocation of capital," wrote the DR Blue's Dr. Marc 
Faber in a recent study of 19th century booms and busts. 

"The downturn is ushered in when the over-
investments lead to excess capacity and a collapse in 
prices, which in turn drive down profits, then stock 
prices, which in turn weakens the economy even more." 
The ingenuity and strength of our people 
notwithstanding, of course.  (Blue Readers see: Who Shall Decide When Doctors Disagree?)

Meanwhile, a study by McKinsey Global Institute 
confirmed a suspicion we have been harboring here at the 
Daily Reckoning: productivity has little to do with 
business spending on information technology. All those 
billions spent in the late '90s caused a boom...but they 
did not provide a lasting benefit.

Over to you, Eric...


Eric Fry on the island of Manhattan:

- The stock market wobbled a bit yesterday, but 
managed a decent performance...all things considered. 
The Dow fell 70 points to 9,163, while the Nasdaq 
Composite eked out a 6-point gain to 1,653.

- Terrorism never sleeps, we are discovering. Even when 
the terrorists themselves take a day off, the residual 
havoc and fear inflicted by their previous crimes 
lingers on. Investors keep trying to turn their 
attention to things like yesterday's solid earnings 
reports from Tyco and Coke. But instead, they must 
confront a daily news assault about fresh anthrax cases, 
and try somehow to factor these "exogenous events" into 
the risk equation that adds up to either "buy stocks" or 
"sell stocks." 

- I've done the math. The answer looks to me like "sell 
stocks." Or more precisely, sell some stocks and be very 
careful about the select few you chose to own. Terrorism 
is not bullish. Nor is declining corporate 
profitability, nor rising unemployment, nor collapsing 
industrial production. You get the idea.

- We're heading straight into a geo-political and macro-
economic headwind - maybe even a tornado. In such times, 
discretion is the better part of preserving accumulated 
wealth. Or, as Jim Grant put it recently, "Risk aversion 
entered a bull market 18 months ago..."

- "In the 1990s' boom," Grant explains, "the best 
offense was no defense. Savings, inventories and cash 
reserves were paired to the bone. Confident of happy 
outcomes, Americans renounced the theory and practice of 
a margin of safety."

- But Grant predicts, "Before the cycle is over, 
families will save more, corporations will borrow will be taken to excess in the downturn 
just as audacity was in the bubble."

- If Grant is to be believed, the risk-averse, post-
bubble era has a lot longer to run before safety is 
taken to excess, and caution gives way to a new risk-
taking mentality.

- We might need to see somewhat lower valuations in the 
stock market as well. For example, Fred Hickey observes 
that even though the Nasdaq has plunged nearly 70% over 
the past 18 months, it has hardly become a repository of 
value. Hickey compiled a table of the 36 largest Nasdaq 
tech stocks and compared their estimated 2001 P/E ratios 
to their average annual P/E ratios in various years, 
including 1987. The average P/E ratio of these stocks is 
now more than 40, compared to a P/E ratio of 21 at the 
market top in 1987.

- Residue of a bubble gone bust litters the economic 
landscape. And the former propagators of the bubble are 
now suffering the greatest financial distress: Wall 
Street and Silicon Valley.

- Merrill Lynch announced Wednesday that it would likely 
slash 10,000 jobs from its payroll. Yesterday, Bear 
Stearns joined the layoff chorus, saying that it would 
shrink its workforce by 7.5%. Lynn Carpenter had already 
found success selling Morgan Stanley short prior to the 
Sept. 11 attacks. Might be a good time to look at some 
of these other big financials. (see: A Number 2 Pencil
A Plain White Envelope)

- Meanwhile, "Unemployment in the heart of technology 
mecca Silicon Valley rose in September to 5.9%," Reuters 
reports, "a big gain from 1.8% in the same month in 2000 
as the area's high-tech industry continued to shed 
workers...This is the region's highest unemployment rate 
in seven years."

- Popular opinion has it that Greenspan's magic Fed 
funds rate will triumph over massive job losses and 
shrinking corporate profits. Seems a tall order for one 
little interest rate. But lower rates are spurring 
activity in some corners of our economy.

- "Auto sales have been booming," notes the New York 
Observer's Christopher Byron, "not so much because 
consumers are flush with cash as because automakers have 
been rolling out utterly irresistible deals to spur 
sales and get shoppers back in the dealer showrooms. 
Zero-interest [rate] loans are now commonplace, meaning 
that consumers are being offered what amounts to free 
money to buy a car - a powerful incentive to act quickly 
before the offer is withdrawn."

- At the same time, the mortgage-refinancing locomotive 
keeps chugging along. "Fleet Bank has been deluged with 
so many applications in the New England region that some 
of its offices are backed up for weeks," says Byron.

- Is the road to economic salvation paved with debt-


Back to Bill on the Emerald Isle...

*** This week's Barron's includes an interview with 
Jean-Marie Eveillard, who manages the Eagel SoGen Global 
Fund. The fund has returned investors an average of 
14.70% per year while Eveillard has managed it, since 
1979. Not bad, especially when you consider that Jean-
Marie's investments have the protection of real value, 
rather than the relative value of Barron's shopping 

*** "The market was good for 20 years," says Eveillard, 
"it has been bad for 18 months. If it has been good for 
20 years, it can be bad for longer than 18 months. And 
so if anything, September 11 has given us the idea that 
we should insist more than ever on what Ben Graham 
called the margin of safety."

*** Where does he find a margin of safety today? In 
Japan! (Kuwabarakuwabara!) 

*** "A great number of Japanese securities have been in 
a 12-year bear market...we own some Japanese stocks in 
which the net cash, which is the cash and the portfolio 
of securities after the appropriate haircut for 
liquidating the portfolio and paying the capital gains 
tax, is in excess of market cap. You are paying less 
than nothing for the businesses.

"It is a situation that would be unthinkable in the U.S. 
or in Europe, because you would have financial raiders 
rushing in. It is only possible in Tokyo because of the 
12-year bear market and because so far, although I think 
it will be changing in the next two or three years, no 
hostile takeover has succeeded in Japan."

*** Eveillard mentioned a couple of names - Okumura and 
Shimano - without providing much additional detail.

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by Bill Bonner

Europe is enjoying a wonderful Indian summer. The days 
have been much warmer than usual...warmed by a sun that 
seems as unwilling to yield to the approaching winter as 
an American investor to the bear market.

I left my hotel in Dublin this morning...walking down 
Thomas street towards Heuston Station. I passed the 
Guinness plant, which takes up what seems like an entire 
city block on both sides of the street. Guinness, next 
to the Irish people themselves, has been one of the 
country's most successful exports.

Nearby the Guinness plant was a store selling 
tombstones. "Come in and browse," a sign on the door 
invited passers-by. 

People browse in antique stores, in furniture stores, 
even in appliance stores...but what kind of a morbid 
personality would spend his time browsing for a 
gravestone? A perverse curiosity grabbed me as I 
passed...a sentiment of the sort that overtakes me when 
I pass the Senate Office Building in Washington...I 
decided to browse. 

Perhaps a visit to the headstone store in Dublin takes 
the place of the memento mori that people used to carry 
in the 19th century...a reminder to live well, and 
carefully, for death could come at any time. But the 
enterprise on Thomas Street was as much of a 
disappointment to me as it must be to the locals. 

Alone, I read the suggested inscriptions - "may he rest 
in peace"..."gone but not forgotten" and so forth...cut 
into polished slabs and crosses of stone. As light and 
silly as the sentiments were, the stones were worse - 
bright red and blue marble in oval, square and simple 
cross shapes...and some free-form like a blob from a 
lava lamp that was suddenly petrified.

How much better it would be to have more useful remarks 
chiseled into traditional celtic crosses...for even 
fools can be martyrs for something: "Don't forget the 
bend on O'Donagh Road"...or "A pack a day was probably 
too much for poor McConnell."

There are times when people are fearful...and times when 
they need a reminder that there are things to fear.

Maybe investors ought to carry memento mori too - such 
as a portfolio statement for the first 3 quarters of 
this year, with notations. Every dollar lost, too, must 
have something to teach. A little souvenir of the 
mistakes one can make might be useful. 

"Never again will I buy when prices are this high," 
would suffice for almost any market and almost any time. 

"If prices ever get that high again...don't forget to 
sell!" might be a useful thing to find in your tickler 
file at the top of the next bull market.

"Pay no attention to shills, analysts and central 
bankers," is the sort of sentiment that is not only 
useful, but timeless.

In science, and you may want to quote the Daily 
Reckoning on this, people make new mistakes all the 
time. In war, investments, and the rest of life...they 
make the same old ones.

When the memory of an egregious foolishness is 
forgotten...count on it to be repeated.

However little useful advice and information you are 
accustomed to finding in the Daily Reckoning - I have to 
warn you, dear reader - you will probably find even less 
today. In fact, you have already gotten it. What follows 
are merely more notes from my trip to Ireland.

As I made my way down to the station, I passed through 
good neighborhoods and bad ones. The bad ones seemed 
familiar to me. People looked like my relatives. The bad 
neighborhoods of Dublin are not very different from the 
poor white sections of Baltimore or Philadelphia. 

People look the same, wear the same bad clothes, eat in 
the same bad restaurants, and shop for the same mawkish 
furniture and pay for it over time. The streets are 
dreary and depressing - along with almost everyone in 

The train left Dublin on its way to Waterford with few 
people on board. Clearing Dublin, we found ourselves 
cutting through some of the most beautiful countryside 
on earth. Very green fields, often with sheep grazing, 
are bordered by stone fences, or hedges. Hills rise up 
and fall away to little copses of trees...around which 
groups of cattle lay sunning themselves.

But everywhere and always, nature achieves her balance; 
the Irish countryside is blemished by Irish buildings - 
houses, barns, factories, stores and office buildings...
like small pox on a beautiful girl. 

I say this with no malice aforethought. My father's 
family came from Ireland. This is his country. But I am 
always a bit disappointed when I see what his people 
have done with it.

There are a few attractive houses and public buildings. 
But not many. And more often than not, the attractive 
buildings - old churches, rectories, and mansions, often 
with carved stone lintels and arched doorways - are 
attended by weeds or wrecking crews, or are already 
half-demolished and converted into pigsties. 

The typical Irish house is depressing. It is made of 
cement walls with plain windows and doors stuck in at 
regular intervals, topped by a gray slate roof. For most 
of the year, to make matters worse, it is cold and wet. 

But since I am in a mood to improve, having already 
reformed the country's tombstone business, I offer a 
suggestion: Put on shutters, ivy, a thatched roof, a 
more sophisticated doorway - perhaps with Georgian 
columns - something, anything to add a little grace, 
charm or beauty. 

The train trundled along, stopping to pick up passengers 
and let others off. After about an hour, a downpour 
began. Water rolled down the windows so heavily that I 
could barely see out. 

A few minutes later, we stopped at the village of Athy. 
So small was the station that the cars at the rear were 
left well rear of the platform, with an orchard on one 
side and a graveyard on the other. The rain had calmed 
to a drizzle...and there in the cemetery was an ancient 
celtic cross...practically alone and untended. 

The limb of a nearby tree, swaying in the breeze, 
touched it lightly...and water dripped off, like blood 
from a martyr.

Bill Bonner,
In the land of his ancestors...

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 21, 2001

Published By Tulips and Bears LLC