*** The Fed - sailing between Scylla and
*** Asian markets back at 1998 levels...
*** Microsoft earnings...Adulterated Optimism...
MicroStrategy gets more money...Fruits of the Earth in
*** "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
*** 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
*** Bulldogresearch.com reports that an e-company called
Vignette is still selling at 1,789 times forecast
*** 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
*** 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
*** 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
*** 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
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"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."
"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
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
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
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
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
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 nave, 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
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...
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.
The Daily Reckoning:
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Last modified: April 01, 2001
Published By Tulips and Bears