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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Dead Presidents

*** Slow day on Wall thoughts turn to 
politics...FLASH: the rich dumb guy won...

*** Take out and shoot it. Dead senators...Dead 
presidents... does anyone really care?

*** More global hot air...Cisco's numbers...and more! What? 
Yes, more!

*** Yesterday, the nation's attention turned away from Wall 
Street and towards Washington. Rich and poor, humble and 
proud - all good citizens shambled like sheep to their 
nearest polling places to decide by whom they would be 
sheared. Would it be the rich and pampered son of a major 
political figure and product of the Eastern Elite 
Establishment who is completely committed to the status 
quo...or the rich and pampered son of a major political 
figure and product of the Eastern Elite Establishment who 
is completely committed to the status quo? 

*** Unable to find any difference that anybody seemed to 
care about, the media concentrated on caricatures of the 
candidates. One was supposed to be smart...the other was 
supposed to be convivial. 

*** It's 6AM EST, the race for president seems to hinge on 
the votes of a few hundred people in Florida. Who will be 
the victor? With no guidance from the mass media, The 
Daily Reckoning will make its own projection: The rich 
dumb guy will win.

*** But the most interesting and encouraging election news 
comes from the great state of Missouri where over a million 
people voted for a corpse. Though many members of the 
Senate have appeared to be in various stages of rigor 
mortis while in office, no Senator has ever taken his post 
in that condition. Americans are willing to overlook almost 
any handicap it seems - stupidity, cupidity, or terminal 

*** Polls showed that what voters really wanted from the 
election was continued gridlock in Washington. In that 
regard, what could be better than a Senator whose every 
joint was locked... permanently. Surely voters are also fed 
up with fast-talking political spin-meisters. Again, the 
junior Senator from the show-me state will be a model - 
being incapable of speech at any speed and whose only 
opportunity for spin will be in the grave.

*** Turning now, from dead senators to dead presidents... 
that is, from politics to markets... Wall Street had 
anticipated the Bush victory and had already run up prices 
for Microsoft (thinking a Bush justice department would lay 
off), and Philip Morris (Bush is supposed to be pro-
tobacco). Both companies edged higher yesterday.

*** But there was little action or excitement on Wall 
Street, pending the election results. 

*** Not that it seemed to make much difference. "No matter 
who wins," the Reuters newswire informed us, "the stock 
market should go up, experts said."

*** One of the experts: "It will be a rally either way."

*** Maybe it will. But if the market is destined to go up 
today, and everyone knows it, why didn't it go up 

*** Instead, the Dow fell 25 points and the Nasdaq was 
unchanged in yesterday's trading. 

*** Cisco 'beat its numbers' in the last quarter. But the 
closer analysts looked at the numbers, the less they seemed 
to like them. The problem with Cisco's numbers is the same 
problem with the entire economy's numbers. Operating 
statements look okay - but balance sheets seem to get 
weaker and weaker. Receivables rose twice as fast as sales. 
And inventories increased at nearly the same pace - dollar 
for dollar - as sales. 

*** Cisco said it would reduce inventories next year. This 
was not good news to the people who make the products that 
crowd Cisco's shelves. Broadcom fell 19% yesterday. Other 
chipmakers were similarly affected. (see: Earnings Went 

*** Oracle fell more than $1. The company is plagued by 
weak sales growth, and rumors of management distress.

*** GM fell too - 6%. GM is not a major supplier to Cisco, 
but it is a major supplier of light trucks, the market for 
which seems to have softened. Honda announced a 12% decline 
in its profits.

*** Oil rose 54 cents to $33.40. 

*** And the dollar index fell slightly. But then, when the 
election news from Florida was announced - the euro fell, 
though it is still above 86 cents. Who knows what effect 
the next flash update will have. 

*** "In the first three years of the Blair administration, 
the British pound behaved more like a dollar-based currency 
than a satellite of the deutschemark/euro," writes the 
Fleet Street Letter's Brian Durrant. "It had appreciated by 
25% against the euro - while simultaneously tracking the 
dollar in an approximate range of $1.55 to $1.67... But 
this relationship has broken down since May 2000 with 
sterling tumbling to $1.40 and actually weakening against 
the euro. A de-rating of the British pound is now taking 
place..." (see: Who Will Put The Spring Back In The Euro?

*** Gold fell 60 cents to $265.40. 

*** " leaves pile on Amazon's carpet," said the 
tag-line of an email message I received yesterday. The 
accompanying note informed me that had turned into 
a dog. After spending $25 million to purchase the company, 
it now looks as though it will have to be put to sleep. The 
pet store on-line is "winding down operations." Analyst 
Holly Guthrie of Janney Montgomery Scott says AMZN stock is 
a "sell" and worries that its commerce partners are "slowly 

*** "My dog, having been raised in Asia," writes Marc 
Faber, noting investors' Pavlovian tendency to buy stocks 
when interest rates go down, "has a slightly different 
reaction to declining interest rates. He knows that a 
decline in interest rates after an economic boom financed 
by excessive credit growth signals a period of mounting bad 
loans - a la Japan after 1989 and the rest of Asia after 
1997." (See: Sectors to Own v. Those To Avoid (Like The 

*** "This time last year," Barron's reports, 196 computer 
and electronic new issues returned on average 86% on their 
first day." In the following weeks, they rose an additional 
88.6% - on average.

*** But this year, according to Comm-Scan, an investment 
banking service, the average computer and electronic IPO 
has gone up 74% on the first day...only to fall an average 
of 54% afterwards.

*** "Global Warming is a Fact," declared a headline on the 
editorial page of the International Herald Tribune. The 
source of this fact is a report from U.N.'s 
Intergovernmental Panel on Climate Change.

"There's just one problem," writes atmospheric physicist S. 
Fred Singer, research fellow at The Independent Institute. 
"In spite of what the IPCC summary implies, temperature 
hasn't warmed appreciably in the last 60 years, since 
showing a major rise between about 1880 and 1940."

"Overwhelming evidence, from well-controlled weather 
stations, satellites, balloon-borne radiosondes, and from 
proxy data and ice observations, speaks against those 
surface data that show a recent warming trend. Several of 
us, as official reviewers for the IPCC report, have raised 
these points but our arguments have evidently been ignored 
by the controlling group that wrote the summary," Singer 

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For those readers who are less hip than your editor, if 
that is possible, 'dead presidents' is street talk for 

And for those readers who are unfamiliar with inner city 
public schools, in certain areas children may pass from the 
1st grade through the 12th without ever having much grasp of 
reading, writing or arithmetic. In an innumerate society, 
dead presidents substitute for the decimal system, as in, 
"Gimme a Lincoln and I'll give you a rock."

Anyone who has lived in the inner city of a metropolis such 
as Baltimore or Newark knows that for all the talk of 
poverty, the scarcity of dead presidents is not the 

Just the contrary, the days after the welfare checks come 
out are the worst. Drunks get drunk. Addicts get high. 
Children, untended, play on the sidewalk until 2am. Fights 
break out. Deals go bad. People get shot.

The burden of today's letter is that what is true for the 
ghetto dwellers may be true for everyone else: More money 
does not make people richer. It makes them poorer.

What brought this to mind was yesterday's insight from 
Peter Bernstein's book, The Power of Gold. 

"One might think that Spain in the middle of the sixteenth 
century should have been the richest nation in Europe by a 
wide margin," writes Bernstein. "It was not. The impact of 
this immense and sudden addition to monetary wealth was 
felt throughout the rest of Europe and even out to the Far 
East, but in Spain no lasting payoff remained form the 
spectacular exploits of the conquerors and the fountains of 
blood that flowed from white men and Indians."

"Once the gold began arriving in quantity," he continues, 
"the Spanish were far more proficient at spending than at 

The new-found gold had the same effect on the Spanish as a 
welfare check:

"The massive imports of gold and silver stimulated the 
spending skills at the same time that they stifled 
Spaniards' incentive to produce. Spain acted like a poor 
man who makes a great windfall at the gambling tables but 
comes to believe that the money is his destiny rather than 
a non-recurring event." 

Gold bugs, if there are any still living, will be 
disappointed to learn that any unearned increase in the 
supply of money - whether it is hard or soft...paper or 
precious metal - will have the same effect. Bernstein 
continues with a quote from the Spanish popular assembly, 
the Cortes:

"Though our kingdoms should be the richest in the 
world...they are the poorest, for they are only a bridge 
for the [gold and silver] to go the kingdoms of our 

Money passed through. But no new wealth was created. Fields 
and workshops were abandoned. In Spain, "agriculture laid 
down the plough, clothed herself in silk, and softened her 
work-calloused hands."

In 16th century Spain, as in inner city ghettos, idleness 
was not accompanied by tranquility. Charles V and his son, 
Philip, used his money to go to war with Francis 1st of try to subdue the Dutch and Belgians...and even 
to send the Spanish Armada to England in hopes of toppling 
Queen Elizabeth 1st. 

All of this cost money. And typical of people who get 
something for nothing - there is never quite enough. 
"Instead of transforming the gold and silver into new 
productive wealth," writes Bernstein, "the Spaniards paid 
the precious metals out to other countries, and spent so 
much that debts to foreigners soared."

This may trigger the same synapse connection in your brain, 
dear reader, as it did in mine. A flood of new money will 
have the same general effect - whether it is hard money in 
a 16th century backwater economy...welfare payments in a 
miserable inner city ghetto...or a vast new supply of 
purchasing power in the most advanced economy on earth.

For the last few years, America has been rehearsing Spain's 
16th century role. Let me count the ways...

Instead of gold and silver from the New World, U.S. 
spending power expanded with the money and credit from the 
conquistadors of the New Economy. 

This additional spending power did not really lead to an 
increase in America's productive capacity. Actual 
investment, productivity, and wages in non-information 
parts of the economy have been stagnant for at least the 
last two years. Instead, the 'money' is spent on foreign-
made products...and then reinvested in American assets. 
While America has been supposedly enjoying a great economic 
boom, more and more of America's assets have gone to 
foreign owners. Merger and acquisition efforts by foreign 
telecoms alone, for example, accounted for some $70 billion 
last year. 

Foreigners have taken up the new money with the same 
enthusiasm as the world took Spain's new-found gold and 
silver. Approximately $7 trillion now circulates outside of 
the U.S. itself. American corporations have borrowed this 
money back...along with yen and euros too. Federally-
sponsored agencies - such as Fannie Mae and Freddie Mac - 
borrowed $255 billion in 1999 and are on track to borrow 
even more this year.

Thanks partly to this source of funds, home mortgages in 
the U.S. have increased by $1.5 trillion since 1995.

I will spare you more figures. As I explained yesterday, 
when Americans borrow overseas, it increases demand for 
dollars on world markets, boosting the value of the dollar 
- thus further increasing the purchasing power of dead 
presidents. The circle appears virtuous. But it is as vice-
ridden as a Chicago polling station. Debt levels increase. 
Savings disappear. The whole country gets poorer.

A sharp observer of Spain's economy, Pedro de Valencia, 
wrote in 1608, "So much silver and money...always has been 
fatal poison to republics and cities. They believe money 
will keep them and it is not true: plowed fields, pastures, 
and fisheries are what give sustenance."

The flow of new money dried up in the second half of the 
16th century. In July of 1576, King Philip of Spain did what 
sovereign nations as well as individuals do from time to 
time: he went bankrupt. His army of mercenaries mutinied. 
"It was said," writes Bernstein, "that at one point the 
captain general [of Philip's army] did not have enough 
money for lunch."

Your correspondent...on his way to lunch...

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...

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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"

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Last modified: April 01, 2001

Published By Tulips and Bears LLC