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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
MONDAY, 13 NOVEMBER 2000 

 

Today:  All Quiet On The Western Front

*** Now Five E's?!? If it's not one, it's another. Who 
would have thought the Election would cause this much 
trouble?

*** Nasdaq down 12.2% for week - as investors pour bad 
money after good...

*** The euro, the elections, Armistice Day...and more!

*** If it's not one of the E's, it's another. You'll recall 
that after the Summer of Love - when just about everything 
seemed perfect - along came the Four E's. 


*** First it was Energy prices that disturbed investors. 
Then, Earnings - company after company announced 
disappointing numbers and blamed weakness in the Euro. Then 
the good people at the Bureau of Labor Statistics said the 
Economy's growth rate had declined... And now this, big 'E' 
number 5 - the Election.


*** Two of the E's bothered investors on Friday. Dell's 
announcement that it would grow at only 20% per year caused 
investors to think about their tech holdings. Are they 
really super-stocks? What kind of super-stock grows at only 
20% per year? That's not much better than a 'normal' growth 
rate. And if that's the case, maybe these companies should 
sell for prices that are closer to 'normal' too.


*** Dell fell, along with most of the techs and nets. Cisco 
lost more than $3. Amazon lost a bit more than $1, closing 
barely above $30.


*** Anyway, once the neurons, dendrites and cranial glop 
(to use the scientific term) got warmed up, investors still 
had to face the presidential Election. Who would have 
thought that a presidential election would have caused so 
much trouble. The election was supposed to produce a rally. 
October was supposed to give the market a bottom. But 
that's the way things work in an Autumn of Anxiety - 
nothing works out quite as it's s'posed to. 


*** Reuter's tells us that there is a light at the end of 
the tunnel - "Stocks to Rally if Election Turmoil Ends." 
But the post-election rally that will have to wait until 
there is a 'post.' And as the weekend news made tragically 
clear, not every light in a tunnel is at its end. 


*** The Dow fell more than 2% on Friday, down 227. The 
Nasdaq dropped more than 5%, 171 points. This gave the 
Nasdaq a loss of 12.2% for the week. The Dow lost 2% for 
the week.


*** There were 887 stocks making progress on Friday; 1925 
declined. 51 hit new highs; 71 registered new lows.


*** At 3029 - the Nasdaq begins what could be another very 
troubled week. More Earnings reports are expected this 
week...and the Election news, too, could be disturbing. 


*** "So where do we go from here?" asks Brian Durrant in 
the London edition of the Fleet Street Letter. Either the 
"Nasdaq is undergoing a healthy correction... and will 
recover as it did towards the end of last year." Or..."this 
is only the beginning of the meltdown in tech stocks." 


*** At bear market bottoms, stock prices tend to go down to 
the point where the dividend yield is more than 5%. Today, 
the Dow yields less than 2%. Look for stock prices to 
eventually fall 60% before the final bottom is reached. 
'Dow 4000' - if anyone is looking for a catchy title for a 
new book.


*** "The financial arrangements in many technology and 
telecom firms," concludes Durrant, "are worryingly 
reminiscent of the Japanese practices of zaitech, which 
served to flatter the profits of ordinary industrial 
companies at the peak of the Japanese stock market boom of 
the late 1980s. We all know what happened next..." 


*** What happened next was that Tokyo stocks hit a high of 
nearly 40,000 in January, 1990, and then fell 70%. Ten 
years later, the Nikkei is still trading below 15,000. 'Buy 
the dips?' ... 'Hold for the long-term?' ... Either of 
these bull market tactics would have been disastrous.


*** Tokyo and Hong Kong markets each lost more than 3% this 
morning. In Taipei, the loss was nearly 5%. 


*** And yet, almost $700 million of new money went into 
equity funds last week - even as stocks declined sharply. 
Investors may be losing faith in technology, but they still 
believe in stocks. 


*** Thus has the perfectly bullish situation of a year ago 
become perfectly bearish now. Mr. Bear can take down stock 
after stock, sector after sector - without causing panic. 
Plump, fresh new investors still arrive on Wall Street, 
like trainloads of new recruits at the trenches in WWI, 
ready to take the places of those who have been killed - or 
driven insane. 


*** "Election squabble could hit dollar," another Reuters 
headline tells me. Foreigners finance 4.4% of America's GDP 
each year - divided, roughly into thirds, between stocks, 
corporate bonds, and other debt instruments. The biggest 
single component last year was the $152 billion that came 
in from sales of U.S. publicly-traded businesses to 
European companies. The U.S. had the miracle economy - and 
everybody seemed to want a part of it. (see: Election 
Turmoil & The Great Currency Battle
)


*** Even on Friday, the dollar managed to rise against the 
euro...though the euro is still holding well above its all-
time low. 


*** And Energy, too, is still raising some eyebrows as the 
autumn days begin to darken early, and the nights get 
colder. "Are we still facing a heating oil crunch?" asks 
Ray Devoe. "The 800,000 barrels a day promised by OPEC 
started flowing October 1st, and should be arriving right 
about now. Thus, 'if it can be refined' it will show up as 
heating oil in late November, early December. That's the 
crux of the problem, but we also have to contend with the 
"wild cards": 1) winter weather, 2) Saddam Hussein and 3) 
Hugo Chavez. In a crisis, panic follows immediately - 
reason comes later." (see: Hostage To A Rogue's Gallery)


*** But the U.S. economy no longer appears so miraculous. 
For one thing, foreigners have caught on to hocus pocus of 
hedonics. And they can see the American economy slowing 
down in any case. Plus, the U.S. political system - once 
the envy of the world - has recently been a cause for 
ridicule. Every taxi driver and bar tender outside of the 
50 states seems to get a chuckle out of asking Americans 
who their president-elect is.


*** Americans take elections too seriously. They lack the 
cynicism and sophistication of, say, Italians. When an 
Italian presidential candidate was asked what would be the 
first thing he would do if he won the election he 
responded: "Demand a recount." American candidates do it 
the other way around.


*** A huge flag was hung from the Arc de Triomphe on 
Friday, in preparation for Armistice Day on Saturday. Every 
small town has its own monument to those who died in WWI 
and WWII - sometimes with more names chiseled in the 
granite pillar than there are inhabitants of the town. More 
below.


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Note: I wrote this letter a year ago, but like it so much I 
am sending it to you again with edits to reflect current 
events. - Bill


ALL QUIET ON THE WESTERN FRONT 


"Like a wet, furry ball they plucked me up..." Rupert 
Brooke 


In August 1914, millions of young men began putting on 
uniforms. These wet, furry balls were plucked from towns 
all over Europe...put on trains and sent towards the 
fighting. Back home, mothers, fathers and bar owners 
unrolled maps so they could follow the progress of the men 
and boys they loved...and trace, with their fingers, the 
glory and gravity of war. 


I found one of those maps...with the front lines indicated 
- as they were in 1916. It was rolled up in the attic of 
our house in France, along with farm ledgers from the war 
years. All had been put in wooden boxes, placed in the 
attic and never looked at again.


The 20th century that began with such earnest optimism was 
only 14 years old when the Archduke Ferdinand's driver took 
a wrong turn in Sarajevo. The world didn't really care 
about Ferdinand in 1914, just as few people really cared 
much about the American election in 2000, but events have a 
way of going off in unexpected directions. Within months, 
Europe was at war. 


Then, German general von Kluck took a wrong turn too - and 
instead of a quick, decisive campaign - like a stock market 
panic - it became a war unlike any other the world had 
seen. The world had entered a New Era. 


People were already very familiar with the promise of the 
machine age. They had seen it coming, developing, building 
for a long time. They had even changed the language they 
used to reflect this new understanding of how things 
worked. In his book, "Devil Take the Hindmost," Edward 
Chancellor recalls how the railway investment mania had 
caused people to talk about "getting up steam" or "heading 
down the track" or "being on the right track" or "getting 
rolling." All of these new metaphors would have been 
mysteriously nonsensical prior to the Industrial Age. The 
new technology had changed the way people thought...and the 
way they spoke. 


World War I showed the world that the new paradigm had a 
deadly power beyond what anyone expected. 


At the outbreak of the war, German forces followed von 
Schlieffen's plan. They wheeled from the north and drove 
the French army before them. Soon the French were 
retreating down the Marne Valley near Paris. And it looked 
as though the Germans would soon be victorious. 


General von Kluck believed the French were broken. But 
there was an odd detail; there were relatively few 
prisoners. An army that is breaking up usually throws off 
lots of prisoners. Ignoring the evidence, and von 
Schlieffen's strategic plan, von Kluck decided to follow 
the French army, retreating adjacent to Paris, in the hopes 
of destroying it completely. 


As it turned out, the French army had not been beaten. It 
was retreating in good order. And when the old French 
general, Galieni, saw von Kluck's error - a 30-mile gap had 
opened in the German line only a few miles from Paris - he 
uttered the famous remark, "Gentlemen, they offer us their 
flank." 


Galieni attacked, using Paris taxi cabs to ferry soldiers 
to the front. The Germans were caught by surprise and 
beaten back. Trenches were dug, and war became a new era 
nightmare of machine guns, mustard gas, barbed wire and 
artillery - for which, the military leaders on both sides 
were completely unprepared. 


For more than 2,000 years, European armies attacked each 
other with massed units on horse or on foot. In the U.S. 
War Between the States - notably at Gettysburg - it had 
become apparent that such tactics were a ticket to the 
grave for the attacker. But WWI generals did not seem to 
notice. They sent millions of wet furry balls of flesh 
against the steel of machine guns and artillery. And the 
furry balls fell to earth.


Every day, "The (London) Times" printed a list of 
casualties. When the generals in London issued their orders 
for an advance...the list grew. During the battle of the 
Somme, this list got longer and longer. Soon there were 
pages and pages of names. 


By the time the United States entered the war, the poet 
Rupert Brooke was already dead, and the life expectancy for 
a soldier on the front lines was just 21 days. A German 
male born in 1896 had only a 50/50 chance of surviving 
until 1921.


In towns and villages all over Europe - the tide of young 
men to the front lines soon turned into an ebb tide of 
letters....telegrams...and very bad news coming back home. 
The church bells rang. The black cloth came out. And, 
gradually, one by one, the maps were rolled up. The fingers 
that had once eagerly traced the battle lines carried the 
maps up to attics and clutched nervously at crosses and 
cigarettes. There was no glory left...just tears. 


In our small town, south of the Loire Valley, hardly a 
family was spared. The names on the monument in the center 
of town...to "Nos Heros...Mort Pour La France" record 
almost every family name we know - Bremeau, Brule, Lardeau, 
Moreau, Morliere, Demazeau, Thollet...the list goes on and 
on. There was a bull market in death that did not end until 
November 11, 1918...at 11 a.m. 


For years after...at 11 a.m., even in America, people stood 
silently...recalling the terrible toll of four years of 
war. Now it is almost forgotten. 


We have a new paradigm now. It, too, is full of promise. It 
has already changed the language we use...and is changing, 
like the railroads, the world we live in. We think 
differently, too...using the metaphor of free-wheeling, 
fast-moving, networked technology to understand how the 
world works. 


We are fascinated and encouraged by the new technology...as 
our grandparents were once impressed by electricity and the 
internal combustion engine. We believe the new era will 
help us create vast new wealth...and a quality of life 
never before possible. 


And yet, we are still wet, furry balls, too. I will observe 
a moment of silence at 11 a.m. 


Bill Bonner 


P.S. The effects of WWI lasted a long, long time. In the 
1980s, my father got a small inheritance from his Uncle 
Albert. "Uncle Albert?" I remember my father saying. "Who's 
Uncle Albert?" The man in question was indeed an 
uncle...but he had been forgotten for many years. A soldier 
in WWI, Albert had suffered a brain injury from an 
exploding bomb...and never recovered. He spent his entire 
adult life in a military hospital. 


What happened to Uncle Albert also happened to much of the 
rest of the world. WWI was fought so badly and ended so 
badly that people began to despise the culture and politics 
that they believed had caused it.


"How could 1,000 years of culture have produced this?" asks 
the lead character in Erich Maria Remarque's 'All Quiet on 
the Western Front,' speaking for an entire generation. 


Bourgeois culture became the enemy. In art, people won fame 
and fortune with grotesque, lurid, and farcical painting 
styles. In architecture, Corbusier led architects towards 
new designs - completely lacking in any bourgeois charm or 
adornment. The Germans felt betrayed - and rallied around 
an Austrian housepainter named Adolf Hitler, with his own 
vision of anti-bourgeois politics. And in Russia, the 
Bolsheviks staged a coup d'etat that seemed to offer the 
whole world an alternative. Like Uncle Albert, these brain 
damaged, pathetic curiosities survived into the 1980s.
 
 
 
 
About The Daily Reckoning:
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Last modified: April 01, 2001

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