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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
MONDAY, 23 OCTOBER 2000 

 

Today:  Choir Practice At St. Marcel

*** The Fed - sailing between Scylla and Charybdis...
*** Asian markets back at 1998 levels...
*** Microsoft earnings...Adulterated Optimism...
MicroStrategy gets more money...Fruits of the Earth in 
Poitou...

*** "Fed Chairman Alan Greenspan," says economist Allen 
Sinai, "is stuck between a rock and a hard place."


*** A broker commented Friday that investors had turned 
gloomy and that only a change of direction by the Fed 
could break the negative sentiment. He is hoping that the 
Fed will begin lowering rates, rather than hiking them.


*** But even Harry Potter Greenspan is unlikely to be 
able to lower rates while oil prices are adding billions 
in extra costs to American businesses and consumers. The 
latest monthly inflation report had the CPI rising at a 
6% annual rate. And oil rose $1.05 on Friday. The Fed is 
"on alert," said the chairman last week, "for oil-driven 
effects on the economy."


*** Meanwhile, the stock market seems to be suffering 
from an Autumn of Anxiety malaise. Volatility is extreme. 
Stocks that disappoint investors get beaten down 20% to 
30% overnight. Volume is huge. 


*** Last week, for example, saw one of the biggest 
declines in the Dow ever...and one of the biggest 
advances for the Nasdaq. At the end of the week, the Dow 
was about where it had been on Monday...and the Nasdaq 
was about 5% higher.


*** There were 1464 stocks advancing on the NYSE over the 
week, while 1776 fell back. 103 hit new highs; 435 hit 
new lows.


*** The mood has turned from pure, unadulterated 
optimism...to adulterated optimism. Investors are still 
very bullish and willing to believe that they can get 
rich by buying stock in unfathomable businesses. 


*** MicroStrategy, run by the New Era impressario Michael 
Saylor, who proclaimed that we would all get rich when 
information "flowed like water," managed to raise another 
$53 million in private financing. The shares, which I 
warned you about in April, were priced as high as $333 a 
piece on March 10. Now you can buy all you want for about 
$25. 


*** Bulldogresearch.com reports that an e-company called 
Vignette is still selling at 1,789 times forecast 
earnings. 


*** But the thrill is gone. "[R]ed hot buzz generating 
ideas seem to have taken a vacation," says the USA today. 
And investors are beginning to ask why. Almost all the 
experts on CNBC say we have reached a bottom... but what 
if they're as wrong as they were a year ago... or a month 
ago? What if stocks don't shoot up again like they did in 
'98 and '99? What should I do?


*** In Asia, poor Ms. Wu is having another bad day. After 
3 days of recovery, the S. Korean stocks market headed 
down again this morning - losing another 3.2%. Falling 
stock prices have plagued Asia this year, as they did 2 
years ago. But in 1998, Alan Greenspan and other central 
bankers were able to take action - they increased the 
world's available liquidity through lower rates and other 
fiddling. Then, the crisis was quickly brought under 
control and the Asian markets rebounded. Again, in '99 - 
when spirits flagged because of Y2K worries, central 
bankers brought out the bottle and passed it around...and 
investors all over the world celebrated one of the best 
autumns on record.


*** But now stock prices in Indonesia, the Philippines, 
South Korea, and Thailand are back to where they were 
near the bottom of the '98 crisis, reports Floyd Norris 
in the NY TIMES. And in the New World, too, almost all 
markets are off about 15% so far this year.


*** A dose of the familiar lubricant - 98-proof liquidity 
- might be just the thing to loosen the animal spirits 
again. But alas, Greenspan will have to strap himself to 
the mast, blindfolded, and instruct his crew to keep a 
sober hand on the tiller, for they are sailing a 
treacherous course between Scylla and Charybdis... or to 
put it as mentioned above, they are between the rock of 
inflation and the hard place of falling equity prices. 
And there is little room for error.


*** "We are balanced right at the edge... an inch either 
way is going to show us how this is going to resolve," 
writes our own Kevin Klombies. During Japan's run-in with 
'the bubble' a decade ago, "the Japanese bond market 
peaked 15 months before the Nikkei 500. During those 15 
months, the Nikkei 500 Index screamed higher, then 
popped. What's happening here? The US treasury market 
peaked - 15 months ago. A drop to somewhere near 2000 on 
the Nasdaq is not only possible, but darn likely IF the 
bond market were to break to the downside." (see "Nikkei 
And Nasdaq Sitting In A Tree
..." )


*** Last Thursday's stock run-up was attributed to the 
announcement by MSFT that the company had beat earnings 
estimates. 41 cents per share was expected. Bill Gates 
delivered 46 cents. But, as usual there is more to the 
story. Bill King reported that operating profits actually 
fell during the period. Like so many techs, MSFT reported 
big gains from 'investments.' Without the investment 
income, MSFT would have reported only 33 cents in 
profits, says King.


*** Richard Russell reports that Warren Buffett lives on 
a diet of cheeseburgers, French fries, and softee ice 
cream - accompanied by a lavage of cherry coke. No 
comment. 


*** And Reuters reports that "a California performance 
artist has launched what she hopes will be a new women's 
movement against logging ancient redwoods - baring her 
breasts and reciting poetry to stunned timber crews."
"They stop their chainsaws and they stop their trucks and 
they pay attention," said Dona Nieto, who goes by the 
name "La Tigresa," as she prepared another demonstration. 
"I've changed some of these guys' lives. But I'd like to 
change the laws, and I'd like to change history." La 
Tigresa has brought what she calls "Goddess-based, nude 
Buddhist guerrilla poetry" to timber and logging sites in 
an area some 120 miles north of San Francisco that is one 
of the main battlegrounds in the fight between 
environmentalists and timber companies. 


*** Francois came over on Saturday and brought a basket 
of mushrooms he had collected in the woods. They're 
called 'sepps'. We ate them for lunch. I made a deal with 
Francois that probably contravenes at least a dozen 
French employment rules. But it gets him back on the 
job...and back on the farm...at least for a couple hours 
a day.


*** Then, on Sunday, Mr. DesHais came over holding a 
limp, large pheasant by the neck. The bird was beautiful 
- with blue, gray, brown, and red feathers. He offered to 
stuff the bird for us so we could display it on a 
mantel...and to cook the pheasant meat for lunch next 
weekend.


*** It is hunting season in Poitou. A couple weeks ago, 
hunters killed a wild boar in our woods. They drove up 
with the animal in the back of a pick-up truck. The 
handsome beast lay with no visible wound...still warm and 
sweaty from the chase. Later, they came back with a 
haunch from the boar, as is the custom, giving the 
landowner some of the fruits of his earth. 


*** This Sunday, shots came from the North and the East, 
as though the Russian Army was advancing on Berlin. There 
is so much shooting, it is a wonder any wild animal 
survives. 


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CHOIR PRACTICE AT ST. MARCEL


"Amazing Grace, how sweet the sound
That saves a wretch like me.
I once was lost, but now I'm found.
I was blind, but now I see."


Amazing Grace


"I know only one American song," said one of the three 
Pierre's in our little ad hoc choir, "Amazing Grace."


Pierre Augay recently retired as a colonel in the French 
Army. I know nothing about his service record except that 
he was in charge of his unit's choral group. This was 
another point he had in common with the other Pierre, 
Pierre de Liniers. The two Pierre's and I formed the bass 
section of the choir that gathered at the church in 
Lathus on Saturday night. Both, it turned out, had been 
paratroopers. And both had led their respective glee 
clubs.


We stood in the back of the group and sang "Jubilee Tous 
Les Peuples" and "Seigneur Prends Pitie" as best we 
could. With these two strong ex-paratroopers beside me, 
and the stone walls of the church to echo our basso 
profundo notes, we made a respectable trio.


"Now, I can get Bill to do things that he was never 
willing to do before," said Elizabeth to my mother. "He's 
always looking for 'material' for the Daily Reckoning." 


And yes, it is true. I bear all sorts of torments on your 
behalf, dear reader. I might have preferred to walk 
across the street to the bar at the Petit Auberge. There, 
a very different crowd had gathered, as it does every 
Saturday night. But that is another story.


This is the story of the group gathered at St. Marcel's 
to prepare four-part harmonies for the All Saints 
service....


I know, I promised to offer more comments today on gold, 
inflation...and what to do with your money in a world of 
ignorance. As you will see, that is exactly what this 
about.


Money and religion are both, to some extent, ways of 
addressing life's uncertainties. Even oil executives, as 
David Ignatius noticed, cannot tell you whether the price 
of oil is going up or down. And even the world's greatest 
heart specialist cannot tell you whether his own heart 
will be still beating tomorrow or the next day. 


In any case, it's the surprises that worry people. If you 
knew oil was going up in price, you could take 
precautions... fill up the tank... put in a woodstove... 
go long oil futures. The world quickly adjusts to 
expectations and everything works itself out. 


A man who knows he is going to die in two weeks has time 
to put his affairs in order, write out a proper will, and 
say goodbye to his loved ones - with the appropriate sobs 
and apologies. 


But surprises are hard to take. And even with Gilder's 
'Promethean light' of bandwidth plenty shining on life's 
parking lots and alleyways...the world is still a 
dangerous place. Maybe paratroopers are more aware of 
this than most people.


In his book "The Power of Gold," Peter Bernstein tells 
the story of Crassus, who lived just a few years before 
Christ. 


Crassus had sought profit from ignorance and uncertainty 
by organizing a private fire brigade in ancient Rome. He 
only put out fires if the owner had paid in advance for 
the service. And when an un-protected building was 
destroyed by fire, Crassus would buy up the ruin at a 
fraction of its worth. In this manner, Crassus became 
very rich and was sought out by Julius Caesar - a little 
like Hillary Clinton sought out Warren Buffett.


Crassus's big surprise came when he made the switch from 
the market to politics:


"Crassus was eager to show that he was more than a 
moneybags," writes Bernstein, "and that like Pompey and 
Caesar, he could successfully command troops in battle. 
Accordingly, he provoked a war with the Parthians in 
Mesopotamia and set off on his campaign with 44,000 
troops under his command..."


"The Parthians attacked the Romans with ten thousand 
horse archers and a corps of one thousand Arabian camels, 
making quick work of the job at hand. Crassus attempted 
to negotiate his surrender, (he was a businessman, after 
all) but the Parthians set upon his troops with such 
ferocity that only 10,000 of the original 40,000 managed 
to escape. For Crassus, the Parthians reserved a special 
fate that expressed their disdain for the money-mad Roman 
civilization that he represented. They finished him off 
by pouring molten gold down his throat."


Throughout the centuries, people have sought to protect 
themselves with gold, paper, yap stones, cattle, slaves, 
or furs. All have had their usefulness. But there have 
been many surprises too.


A person who bought gold in 1980 is no-doubt shocked to 
discover that the bullion coins he bought two decades ago 
are now worth, in real terms, only about a third of what 
he paid for them. Not exactly molten gold - but still, 
losses are always hard to swallow - especially when the 
gold was bought as a hedge against the risk of inflation.
There is a certain level of risk you cannot escape - 
neither with gold nor with information.


The makeshift choir at St. Marcel would have been an 
embarrassment to any Baptist church in even a third-rate 
Texas backwater town. Baptists do not mind belting out 
'Amazing Grace' and 'We're Sinking Deep in Sin' - and 
really enjoying it. They put on their robes and practice 
every week... never revealing a trace of irony or self-
doubt. They are convinced that life's hazards should be 
approached with religious faith, not with gold or reason.


As my brother-in-law preached to his congregation in 
Lovingston, VA, "all you have to do is to remember you're 
ABC's - Admit that you need God's help...Believe in Jesus 
Christ...and Commit yourself to follow him. And sing out 
God's praises with a loud and joyful voice."


This sort of simple, almost na‹ve, attitude barely exists 
in Europe. It is despised by the NYTimes and the 
Washington Post, of course, but it is probably the source 
of America's most important advantage. Americans are not 
afraid to do things badly. 


Europeans, by contrast, are cautious, circumspect and 
intellectual. 


The bass section did okay, thanks to the two 
paratroopers. But the altos were pathetic. Half of them 
were afraid to open their mouths, and the other half were 
tone deaf. One woman never said, or sung, a word. Maybe 
this was a product of the new ecumenical spirit of 
inclusiveness. In addition to welcoming ravers, guitars, 
agnostics and Protestants into the Catholic Church, they 
were inviting deaf and dumb people onto the choir. 


She was probably an atheist, too.


More to come...


Bill Bonner


P.S. Pierre Augay had a suggestion for next week's 
practice session... he will bring some warm whiskey. 
Thank God, they're not Baptists.
 
 
 
 
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