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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
MONDAY, 30 OCTOBER 2000 

 

Today:  Deracination

*** Big drop in GDP growth - 'soft landing' or 'crash 
landing' ahead?
*** What's this? Euro up...Dollar down?...
*** Collusion in the gold market?... a dark and stormy 
day in Poitou... and more.

*** The Bureau of Labor Statistics reported on Friday 
that the nation's GDP growth rate had slowed in the 3rd 
quarter. The key component, according to Bloomberg's 
Caroline Baum, is "domestic demand" - which rose 7.5% 
(annual rate) in the first quarter, 4.7% in the second 
and fell to only 2.8% in the third.


*** Thus does the 'miracle economy' come to seem a bit 
more ordinary. Even with the wind of hedonics at its 
back, GDP in the 3rd quarter grew only at a 2.7% annual 
rate.


*** The source of the miracle was believed by some to be 
new technology. Others - curmudgeons, cranks, and 
Austrian economists - found a more familiar cause - new 
money. In the 13 years since Alan Greenspan has been Fed 
chief, Richard Russell observed over the weekend, he has 
increased the money supply by 3.25 Trillion dollars - 
more than all the other Fed chiefs, since 1913, combined.


*** Whatever the cause, the U.S. economy seems to be 
cooling off. The 'soft landing' that investors had hoped 
for seems to be getting close. We have our seat belts 
strapped on...and our tray tables stowed away...but we 
are not at all sure the landing is going to be as soft as 
predicted. This economy and stock market surprised 
everyone on the upside - perhaps it will be symmetrical 
on the downside.


*** Wall Street liked the GDP figures, which suggest that 
the days of Fed tightening are over. The Dow shot up 2% - 
or 209 points, to end the week with a 3% gain.


*** If this were still July or August, the financial 
press would be in full chortle about the rally expected 
for this week. Instead, the reports I read this morning 
were remarkably restrained. The four E's worry investors 
- Earnings, Energy, the Economy and the Election. Times 
have changed. What was cause for celebration a few months 
ago is now a source of anxiety. 


*** But as much as U.S. investors were encouraged by the 
slowing economy, foreign investors were unsettled. Much 
of the appeal of the dollar has been that it was backed 
by the U.S. miracle economy. Now, the U.S. economy seems 
to be growing no faster than the European one. Perhaps 
its money is not much more valuable either.


*** The euro gained about 1% on Friday. And the dollar 
index fell a point. It is surprising, to me anyway, 
that the dollar stood firm while the Nasdaq lost its 
footing. The dollar is not itself the source of the 
miracle economy...but it is the shroud on which the 
miraculous image appears. $1 billion per day come into 
the US from overseas to fund the current account deficit. 
When that stops the fabric will disintegrate and the 
miracle economy will disappear. Could Friday mark the 
beginning of the end?


*** About 20% of the dollar's support over the past year 
came from a single source - European telecoms. The 
companies needed dollars to fund U.S. mergers and 
acquisitions. Another big part of it came from US 
companies which raised money in Europe, taking advantage 
of European savers to fund U.S. growth. That too, seems 
to be fading - as capital investment declines.


*** But the financial media (and investors) are still 
very bullish on the dollar. "The euro on borrowed time," 
says today's Reuters headline. The inertia of sentiment 
has left mainstream investors with a target of 80 cents 
for the euro - even though the friendless currency may 
now be headed in the opposite direction. It is at 84 
cents this morning.


*** The Nasdaq barely made it into positive territory on 
Friday. Once it was thought that technology was immune to 
bad news. Now it seems resistant to the good news too. 
The index ended the week down 6% - or 19% for the year.


*** Gold fell 70 cents on Friday. 


*** "Despite wide press coverage of the price fixing 
scandal at Sotheby's and Christie's, anti-trust charges 
levied at Visa and Mastercard, and the ubiquitous central 
bank euro intervention," writes the international Harry 
Schultz, "the mainstream press won't even consider the 
possibility of meddling with gold prices. Yet, there 
hasn't been a free market in this precious metal for 
years. Recent intra-day price fluctuations tell the real 
story." (see: Collusion in the Gold Market? Impossible)


*** Investors Business Daily's index of leading mutual 
funds is down 6.10% per year.


*** Eight IPOs are scheduled for this week. It will be 
interesting to see how they do.


*** "Before trading was suspended in the stock last 
Wednesday," says John Myers, "Nortel had fallen $24. The 
stock is now down almost 50% in just seven weeks. Across 
the board the Canadian blue chip index is down 23% 
from highs achieved in early September. But despite the 
carnage, the TSE Oil & Gas index has held up remarkably 
well, which is great news for investor's seeking refuge 
from US market volatility." (see: Sack of Canadian Stocks 
Good for Oil and Gold
)


*** It is a dark and stormy morning out here in Poitou. 
This is a holiday week for school children in France - 
Tous Saints. But I fear there are more gloomy days ahead. 
More below.


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- Supplies are 15% below last year's level... 

- High demand + tight supply = skyrocketing prices 

Here's how you can cash in on next "energy commodity" to 
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time:
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DERACINATION


"You have to take your time, walk slowly. Otherwise, you 
might as well not bother."


Francois Debenest, recently retired after 40 years as a 
farmhand, was showing me a secret. We were out in the 
woods south of the house on Saturday morning looking for 
mushrooms. 


What follows, I must warn you, is another rambling letter 
of no particular importance. It concerns, loosely, a 
subject I know is as big a concern to you as it is to me: 
"deracination". 


"I know only two kinds...well, maybe a few more," said 
Francois, as we moved almost silently among the charme 
trees - which look like ironwood or beech. The ground was 
wet. The leaves, which lay on the forest floor were as 
limp and lifeless as a subway drunk. 


"They're very hard to see," said Francois, motioning with 
his hand for me to slow down. You have to take your time. 


"Do you see one?" he asked me a moment later. "It's right 
in front of you."


It may have been right in front of me, but I didn't see 
it. The cepp mushroom has a brown top - about 
the same color as the leaves. It must be a form of 
camouflage - maybe against impatient mushroom hunters 
like your author.


The mushrooms don't grow everywhere. In 40 years of 
looking for them, Francois and his brothers had found 
them only in this one little area of the forest. It looks 
no different from the rest of the woods...but go 20 yards 
in any direction, and you will find no mushrooms. 


Francois has guarded the secret as a fisherman keeps his 
fishing holes to himself or a private investor keeps 
quiet about his best opportunities. The best investments 
- like the best places to find mushrooms - are rarely 
discussed.


Now that Francois is retired, and has left the farm, he 
is willing to tell me where to find the mushrooms...


Daily Reckoning reader, MM, sent me this quote from a 
1930 G. K. Chesterton lecture entitled "Culture and the 
Coming Peril." 


The Coming Peril was: 


"...the intellectual, educational, psychological, 
artistic overproduction, which equally with 
economic overproduction, threatened the well being 
of contemporary civilisation. People were 
inundated, blinded, deafened, and mentally 
paralysed by a flood of vulgar and tasteless 
externals, leaving them no time for leisure, 
thought, or creation from within themselves." 


Despite making this statement more than 20 years before 
Neumann filled a room with vacuum tubes, making way for 
the PC revolution, Chesterton could be describing the 
Internet. You may be able to buy mushrooms over the 
Internet - but you cannot hunt for them. Hunting for them 
takes a different kind of knowledge, and a different kind 
of attitude. It takes time.


As the division of labor expands, fewer and fewer people 
have the time or inclination to hunt for their own 
mushrooms. We are all deracinated, cut off from direct 
knowledge of the things that really matter to us. We 
don't know what's in the food we eat...nor how it is 
prepared. We don't know who writes our software programs, 
nor do we have any idea how they actually do it. Mass 
investors don't know what the companies they buy actually 
do, and have way of measuring the value of the stocks, 
except for recent price trends.


My son, Jules, plays computer games, reads books and 
watches movies all day long. He doesn't even like to 
visit with friends - as they cut off the time he might 
spend with his virtual friends. 


According to a report in the WSJ, hotels now earn more of 
their profits from the in-room naughty movies than from 
their bars and restaurants. This, too, must be a show a 
preference for the virtual, or perhaps vicarious, over 
the real thing. Not only that, it represents a triumph of 
mass thinking. We no longer have to discover the baroque 
particularities of sex for ourselves. It is right there - 
mass-produced, packaged and clarified on the Pay-for-View 
system.


People don't know where the mushrooms grow - and don't 
seem to care. You can get them in the grocery store.


Even wealth itself is more and more of the collective, 
virtual sort. An article in the International Herald 
Tribune informs me that 4 million people have already 
signed up for a service called PayPal, which allows 
people to transfer money via email. The system's founder 
says he is handling $6 million per month in payments.


Wealth was once measured in useful, particular items - 
such as furs, weapons, slaves, cattle or land. Those 
items were replaced by gold, silver and other precious or 
rare commodities - such as the stones of Yap. Then, mass-
produced paper replaced metal. Paper currency and paper 
checks, notes, bills, and various paper bonds and other 
obligations served to represent wealth. 


And now wealth exists purely in digital form - nothing 
but long strands of 1's and 0's that convey the necessary 
information and have no tangible or individual embodiment 
of any sort. You cannot see it, touch it, feel it, eat 
it, weigh it or even use it to light a cigar. But it 
seems to do the job.


Is this deracinated wealth any less real, or less 
reliable, than analog wealth?


More to come...



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...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"
(Timothy)

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(Makram)

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(Joe)

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Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

 
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Last modified: April 01, 2001

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