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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Societal Implications

*** Slash, slash, slash - companies cut back wherever 
they can as earnings, sales fall...

*** Planet Hollywood goes chapter 11...

*** Amazon's sad story...stocks still far too expensive 
for a bottom...what kind of recession...Irma La Douce... 
and more!

Slash, slash, slash...quarterly reports are coming 
in and they are almost all bad. Sales down. Earnings 
down. Operations trimmed back. Jobs cut.

The Conference Board's Index of Leading Indicators 
recorded its biggest drop in 5 years. It is the "worst 
advertising year since the depression," reports "Battle for jobs intensifies as more are 
laid off," adds the LA Times.

But there's good news too - Planet Hollywood filed 
for chapter 11. 

Still, investors can't seem to come to terms with 
current events. They think stocks bottomed out on Sept. 
21...and they're looking for quick and easy victories 
against terrorism and deflation. 

Eric, what's the latest from Planet Wall Street?


Eric Fry in New York:

- "If ever you wanted to take a cruise, now's the time 
to do it," USA Today suggests helpfully. "Facing a glut 
of unsold cabins for departures in the next three 
months, cruise lines began slashing rates to levels not 
seen since the 1970s." The paper quotes Mike Driscoll, 
editor of industry newsletter Cruise Week: "They're 
trying to find the price point where people will put 
their fears away and take a cruise."

- The stock market is also busy trying to find the price 
point where people will "put their fears away" and take 
the plunge. Temporarily, at least, investors found that 
magical price point on September 21st, when the Dow broke 
below the 8,000-level. The venerable index has advanced 
almost 18% since then, despite incessant terrorist 
attacks and a barrage of bad earnings. The Nasdaq has 
soared almost 23% over the same time frame.

- It's nice to see the market rally. But the dramatic 
advance from the September 21st lows looks less like a 
new bull market than an old bad habit. What are 
investors buying exactly? A good story? You know, the 
one about the economic recovery that's just a few months 

- Wall Street is full of storytellers, and who better to 
tell one than on-line storybook seller: Amazon.

- Yesterday afternoon, the e-commerce pioneer hosted a 
conference call on which CFO Warren Jenson proclaimed, 
"While the history of Q4 has yet to be written, we are 
in great shape." Later, lapsing into dot-com speak, he 
assured the listeners, "Reaching pro forma profits does 
not require heroics, just execution."

- So just what does this "great shape" look like, 
according to the Book of Amazon? For starters, the 
company posted a "pro forma" loss of $58 million for the 
third quarter. After adding in a couple of "exceptional" 
items here and there, the true net loss - i.e., the 
money that used to be in an Amazon bank account but no 
longer is - expands to $169.8 million.

- Next up, Amazon's core books, music and video sales 
operations - which account for more than half of total 
revenues - fell about 12%. Sales in Amazon's smallest, 
but most profitable division, "Services," also fell 12%. 
Services include deals such as booking on-line orders 
for other retailers like Toys R Us and Borders 

- If you add it all up, you're looking at a company that 
will probably burn through about a half-billion dollars 
over the next nine months. Sounds...well..."great!"

- Blindly paying any price for any stock will accumulate 
losses more rapidly and assuredly than wealth. Price 
matters. So do earnings. Right now, the former is too 
high and the latter is too low.

- Amazon groupies are not the only ones suffering from a 
"new paradigm" relapse. "The surge in home refinancing 
is giving a boost to the overall economy," Fannie Mae 
CEO, Franklin Raines was heard saying last week. "In 
fact, a new economic paradigm seems to have taken hold. 
Traditionally, whenever the economy caught a cold, 
housing got pneumonia. Now the opposite is occurring - 
housing tends to do better than the economy."

- "That the head of a thinly capitalized company - 
operating with the implied backing of the U.S. taxpayer 
- having more than $330 billion of short-term debt and 
$1.5 trillion of mortgage exposure," comments the 
Prudent Bear's Doug Noland, "in what is clearly a 
hostile economic environment, would make reference to a 
'New Economic Paradigm' is, in a word, disturbing."  (See: Marx Would Be Absolutely Giddy)

- Is it possible that the stock market is buoyant once 
again because it anticipates an economic recovery not 
yet visible to mere mortals? If so, shouldn't many 
commodity markets be rebounding soon as well? What about 

- The oil market seems to be in a win-win situation 
right now, according to Outstanding Investments editor 
John Myers. An economic recovery would boost demand, and 
therefore prices. On the other hand, instability in the 
Middle East could disrupt supplies and therefore boost 

- Yesterday, the Wall Street Journal backed up Myers' 
assertion that volatile conditions in Saudi Arabia 
present an ever-present risk of supply disruption. Saudi 
college students interviewed by the Journal complain 
that "the U.S. is responsible for the drastic drop in 
per capita income to just under $8,000 from $28,000 in 
the 1980s. They also blame it for unemployment estimated 
to be at least 14%." 

- The U.S. is also to blame - we would imagine - for 
heat waves in Riyadh and the fact that the Saudi Arabian 
soccer team has never won the World Cup.

- Examining the demand side of the equation, BCA 
Research predicts, "Oil drilling stocks are set to rally 
at first signs of U.S. economic recovery. The number of 
active drilling rigs in the U.S. has fallen to 1,141 
from its peak of nearly 1,300 in July, as weakening 
energy prices and rising natural gas supplies have 
reduced exploration efforts...Importantly, the S&P well 
equipment and services near the lows set in 
1999, when oil was close to $10 per barrel." Watch this 


Back in the land of wine and cheese...

*** "[T]he current high [price-to-earnings] multiple 
means that there are still far too many people that 
think this is the bottom for it to really be the 
bottom," J.P. Morgan's Doug Cliggott explained in a 
letter to clients. "It's too early, or too expensive, or 

*** The highest P/E multiple at a market bottom in the 
past 40 years, on trailing net income, was 16.4 in 1960, 
Mr. Cliggott elaborated. Currently, the S&P 500 has a 
trailing P/E multiple of 39.2.

*** Mr. Cliggott also guesses that the recession has 
further to go. The average one since 1945 lasted 11 
months. This one probably began in March 
it about 4 more months before it reaches the average.

*** But here at the Daily Reckoning, we guess 
differently. We guess that this recession has little in 
common with the post-1945 recessions and a lot in common 
with the Great Depression of the '30s...and the present 
soft, slow-motion depression in Japan. 

*** If we're right...the slump will last much longer 
than 4 months.

*** Irma La Douce was staged at the Comedie Populaire 
theatre, near the Opera. I imagined the Doughboys from 
the Great Plains on furlough in they must have 
marveled over the delicious extravagance and opulence of 
these Paris theatres. Hardly a square inch of the place 
is left unadorned by gold leaf, marble, or figurative 
painting in the dreamy, romantic style. Clouds, cherubs, 
and plump, naked women decorate the ceilings. Scenes of 
ancient Greece...and theatre allegories grace the walls. 
The theatre alone is worth the price of admission. "How 
you gonna keep 'em down on the farm after they've seen 

*** The play was good, endearing musical in 
which a man falls in love with a prostitute and then 
becomes unbearably jealous of her clients. He decides to 
monopolize her favors by putting on a disguise...but 
insisting that he be her only customer. Jack Lemmon and 
Shirley Maclaine played the lead roles when it was made 
into a movie by the Disney Studios in 1963.

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The Daily Reckoning Presents: Doug Casey speculating on 
who the real losers in the War on Terrorism will be.

by Doug Casey

"The minds of the Romans were very differently prepared 
for slavery. Oppressed beneath the weight of their own 
corruption and of military violence, they for a long 
while preserved the sentiments, or at least the ideas, 
of their free born ancestors"

Edward Gibbon, 
Decline and Fall of the Roman Empire 

"The average man doesn't want to be free. He wants to be 

- H.L. Mencken, 
Notes on Democracy

In my view, the proper way to deal with the events of 
September 11th, 2001 would be to treat them as common 
law crimes, albeit of extraordinary scope and gravity. 

Ideally, the criminals who are still alive should be 
pursued, captured, tried, convicted and made to pay 
reparations - to the damaged parties, not to "society," 
or the government - to the greatest degree possible. 

That, however, is unlikely to happen for any number of 
reasons, including the fact there's a real war fever in 
the land, and Americans don't appear inclined to take 
any prisoners at the moment. Entirely apart from the 
fact the perpetrators aren't about to allow themselves 
to be taken prisoner.

That being the case, we'll just have to do the best we 
can. Under the circumstances, the best possible outcome 
would probably be the deaths of perhaps 50 or 100 
individuals who are directly involved, using small teams
of independent contractors working on a bounty, and 
letting the matter rest.

But that's a long shot.

The U.S. has already begun to go wild and use its high 
tech military to bomb targets. Afghanistan, a country 
where almost no Americans have been, and few can even 
find on a map, is in the crosshairs of many armchair 
warriors and bellicose pundits.

Afghanistan is one of the fifty countries I haven't been 
to, so as with most things where I lack firsthand 
experience, I hate to make a comment. But if the Soviet 
experience is any indication, it's not a good place to 
fight an offensive war, or even go on a manhunt. The 
people are xenophobic, inured to battle and discomfort, 
highly devout and typical of mountain dwellers the
world over, extremely tough and independent. 

After the Gulf War, Schwarzkopf was quoted, mirroring 
the wisdom of my cleaning lady with regards to windows, 
as saying: "We do deserts; we don't do mountains."

It's gratifying that Bush hasn't flown off the handle so 
far; whatever his faults, he deserves credit for that. I 
just hope this doesn't turn into a major military 
adventure because, even with the utmost care and 
precision, there are bound to be tragedies. Many of them 
will be pointless mistakes, like the aspirin factory in 
Sudan. Many attacks will kill a bunch of completely 
innocent civilians, all of whom will have friends and 

The U.S. has begun to deploy highly trained Special Ops 
forces to mitigate these problems, but it's still likely 
to be ugly. They'll inevitably take serious casualties, 
and some will be captured. When the captured soldiers
are tried and executed, you can bet it will raise the 
ante significantly.

Whacking a bunch of hornet's nests with a baseball bat 
is okay for young boys with time on their hands, but 
it's disastrous for a nation state in today's world. 

This is a political matter, and the average American 
really seems to want blood and vengeance, let the 
consequences including, possibly, actual justice, be 
damned. The U.S. will, in other words, react pretty much 
like the Israelis do. But just because the Israelis are 
experienced in these matters doesn't mean they're 
drawing the right lessons from their experience. 

In any event, to the degree Israel merits support, 
individuals from around the world will continue to send 
it billions - as they already do. It's not an activity 
that should jeopardize 280 million Americans.

What the US should have done, long ago, is cut off 100% 
of all foreign aid (+/- $14 billion annually) and 
military aid (+/- $8 billion annually), while recalling 
the troops stationed in over 100 countries around the 

U.S. soldiers in foreign countries act only as tripwires 
and provocations, which is to say they serve no useful 
purpose whatsoever. Natives like seeing American 
soldiers strutting their homelands about as much as 
Americans would if our streets were filled with Iranian 
soldiers. Even if they put forward an excellent reason, 
like defending those practicing their religion in Waco. 

If we were to call our boys home foreigners would have 
no more reason to attack the U.S. or Americans than they 
do to attack Canadians or New Zealanders.

War is the health of the State, whether it's the War on 
Drugs - which, I suspect, has already killed as many 
Americans and cost as much money as the Vietnam War - or 
the military type. The military and economic 
implications of a War on Islam are horrendous. But the 
societal implications are even worse.

Proposals are already being made for the long-awaited 
national ID card. How many new Federal agents will be 
hired with the $20 billion the Congresscritters are 
setting aside as a reaction to the WTC event?

It certainly isn't going to warm relations with a 
billion Muslims and Arabs when they read, as I did, 
comments in the paper like "I hate Arabs! I've always 
hated Arabs!" from some silly girl who doesn't even have 
a Jewish surname. These people are going to find it 
unpleasant to impossible to get visas to visit here. And 
their friends who live here are already finding it 
unpleasant to dangerous - as might almost anyone who 
looks "foreign." 

If it gets really serious, some might recall the 
concentration camps set up for scores of thousands of 
Japanese Americans during World War II as a precedent.

Freedom has been rapidly diminishing in America for many 
years, but this will put a near-final nail in its 
coffin. The hunt for the perpetrators, sympathizers, or 
even potential sympathizers has the potential to turn 
into a witch hunt unlike anything we've seen in either 
World War or the Cold War. 

You can already read and hear plenty of arguments about 
how we're going to have to give up some freedoms to 
counter this new threat. Privacy of any type will become 
suspect. (see: Dangerous Tax and Laundering Initiatives 

What's more, membership in "fringe" groups will become 
suspect. Not being a solid citizen toeing the line will 
be suspect. And the standard distribution of 2-3% of all 
people, everywhere, who are sociopaths is going to come 
out of the woodwork. 

Who would have guessed there would have been all the 
volunteers for the SA, the SS, and the Gestapo in the 
Germany of the 20s? Who would have guessed that so many 
Russians would join the NKVD and other secret police in 
the 30s, and that the average citizen would tacitly or 
actively support Stalin? Most of them were people who 
liked kids and dogs, had hobbies, and respectable jobs. 

But when the times changed, their true natures came to 
the fore. If you think we don't have the same 
distribution of people here, you're dreaming. Except it 
could become a real nightmare.

Doug Casey,
for The Daily Reckoning

p.s. Speaking of terror, it's perhaps a good idea to 
keep things in perspective. War is pure, unadulterated, 
compulsory, organized mass terror.

If you think war might be a good idea, it�s worth seeing 
two movies, both of them superb (and easily available on 
video): "Stalingrad" and "Enemy at the Gates." Both tell 
a story of the battle, one from the German, and the 
other from the Russian side. If you ever think you've 
got worries, just watch these flicks; they're a 
guaranteed attitude adjustment.

For 25 years, "International Speculator" Doug Casey has 
been scouring unknown regions of the earth for 
investment opportunities. To learn how you can profit 
from Casey's speculative travels please see his report: 

Nobody Notices the Good News - Until It's Too Late

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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 28, 2001

Published By Tulips and Bears LLC