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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Palm Beach Story

*** Nasdaq below 3,000. But investors are calm. It's the 
election, stupid.

*** What's the matter with the euro? It should be going the dollar invincible?

*** World economic slowdown... "imposter" financial 
analysts...Death Watch for dot.coms...and more...

* * * * * * * * * Advertisement * * * * * * * * * * * * * * 

A Collective Manic Euphoria Swept the Land... 

At the beginning of the decade, the tech stocks of the 
day... radio... automobiles...electric utilities... 
airplanes... were driving the market up wildly. It truly 
was a New Era... If you had invested $10,000 in General 
Motors in 1919, it would have been worth $1.5 million in 
the summer of '29. But by 1933 unemployment had reached 
nearly 24%... 

What happened? Is it happening again? Yes. Says a respected 
Austrian economist - and you'd better be prepared. Falling 
technology shares are only the beginning. Here's what you 
need to do - right now - to prepare yourself for the 
collapse of the credit bubble: 
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*** The Nasdaq opened below 3,000 yesterday. Then, it fell, 
at one time dropping nearly 5%. But it bounced in the 
afternoon and ended down 62 points, that is, about 2%, at 

*** The Dow dropped too - 85 points.

*** The day's losses were blamed on two things: an 
announcement from Hewlett Packard that profits fell nearly 
20% short of expectations...and the continuing uncertainty 
of the U.S. presidential elections.

*** HP stock lost 13% yesterday. It is down 50% over the 
last 3 months. 

*** There were 1202 stocks advancing on the NYSE yesterday; 
1653 declined. 42 issues hit new highs; 104 hit new lows.

*** The U.S. presidential election is still headline news 
all over the world, though a few papers have suggested they 
would move it to the comics page if the story remains 
unresolved. In the meantime, the Election provides Mr. Bear 
with a camouflage the world over. "This sort of market can 
reverse very quickly if things clear up in the US," 
Francois Xavier Chauchat, an economist with the Paris firm 
Chevreaux de Virieu, is quoted as saying in the IHT. 
Meaning, Mr. Bear can take stocks down without panicking 
investors - who are sure that everything will come right as 
soon as the final results are announced. The post-election 
rally, on hold since last Wednesday, is now scheduled for 
next Monday - following the last day for tallying overseas 
ballots on the 17th. 

*** Though the markets rarely stick to such neat programs, 
Mr. Bear is a cagey fellow. What better way to keep 
investors pumping money into stocks than to allow them to 
think that only an event as rare as this closely-contested 
presidential election might knock them down?

*** Oil rose 45 cents yesterday. Expected cold weather 
before Thanksgiving and very tight U.S. heating old stocks 
seem to be about to drive the price of oil over $35/bl. 
Even in this Information Age, news that the weather turns 
colder in winter seems to have come as a surprise. And no 
one seems to have checked the nation's oil tanks until 
winter was practically upon us. (see: Hostage To A Rogue's 

*** "The world oil market is very different from what it 
was 30 years ago," writes Lord Rees-Mogg. "Still prices 
have risen, both on normal market grounds and because of 
OPEC restraints. Even apart from events in Israel, the 
prospect for this winter is worrying. The global oil system 
is 'strained and running hard just to keep even'. Look for 
oil to rise in the next six months." (see: Fight May Be In 
Someone Else's Backyard
... )

*** But the most peculiar bit of news from the financial 
markets yesterday was that the euro did not rise. Despite 
falling U.S. equity prices, disappointing earnings, record 
debt, negligible savings rates, the largest current account 
deficit in history, and a presidential election that is a 
joke in the eyes of much of the world...the euro fails to 
rise against the dollar.

*** "The fact that the euro is not rising in the midst of 
all this," said Kit Juckes of the Royal Bank of Scotland, 
"speaks volumes for it."

*** It may speak volumes, but what does it say? That the 
euro is going to disappear? That the dollar is invincible? 
I don't know. But I guess we'll find out eventually.

*** While stock prices are falling, so are many commodity 
prices. Lumber and copper both fell yesterday...with copper 
down from 94 cents/lb. in September to 81 cents/lb. today. 
The Dow Jones Basic Materials Index was 143 in April; it's 
below 120 today. Meanwhile, bonds are rising. 

*** What would make commodities go down and bonds go up? 
Approaching recession. More on that below...

*** In "bubble economies," writes Doug Noland in the Credit 
Bubble Bulletin, "the great inflation is not in consumer 
goods prices, but instead in stocks, bonds, homes, office 
buildings, sports franchises, media properties, vintage 
automobiles, yachts, collectables, and a myriad of other 
assets. Tangible wealth for the average individual is not 
created." But, "asset inflation begets only more 
inflation," Noland continues, "...and provides for even 
greater borrowing and spending - creating a self-feeding 
bubble. (see: A Rather Simple Maxim)

*** Also, the decline in stock prices has not been confined 
to the U.S. markets. Stocks are going down almost 
everywhere. South Korea's over-the-counter market, for 
example, is down nearly 70% for the year. Taiwan is nearly 
50% below last February's peak. Hong Kong's answer to the 
Nasdaq, the Growth Enterprise Market (GEM), has also fallen 
nearly 70% since it opened on March 20th.

*** Europe, Asia, America - the story is little different. 
A worldwide slowdown is underway. "The Dow Jones World 
Stock Index," writes Richard Russell, "has formed a huge 
top... This suggests to me that a world economic slowdown 
is on the horizon...The next US president is not going to 
have a picnic." How much will things slow down? To be 

*** Even the most successful new technology companies offer 
little shelter form a major bear market. "It took Radio 
Corporation of America (RCA) 40 years," Ray DeVoe reminded 
readers recently, "to match its price in 1928."

*** Harry Dent made a name for himself in the investment 
world with a series of books of almost unbounded optimism. 
"Dow 35,000" made the case that Baby Boomers would pile 
into the stock market and drive prices to previously 
unimaginable levels. Of course, that has already 
happened...though few Baby Boomers could match Dent's 

*** Interviewed in Barron's recently, Dent says the Nasdaq 
could fall to 2300. But not to worry. Because "that would 
end up creating a tremendous buying opportunity and give 
the market momentum of the last two years a tremendous 

*** What that last phrase means is anyone's guess, but 
Richard Russell describes analysts such as Dent as 
"imposters." "Since the public doesn't know the difference 
between sincere, authentic market analysis and utter 
nonsense, this kind of 'analyst' writes nonsense books or 
lands on some TV or radio program, and presto, we have the 
professional fakir, the great 'stock market soothsayer'."

*** Fortune Magazine says 77 dot.coms have died since 
January. "At this rate," says Fortune, "the Death Watch 
will clear 100 by the end of the year."

*** The rapper, Run, from Run DMC, turns 36 today. Addison 
says Run is a "seminal" performer in the hip-hop world. 

*** Paris has turned cold and wintry. The skies are gray 
and the streets are wet with mist. It happens every year. 
But like a bear market, 3 months ago it was almost 

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Six years ago, an old friend of mine, Grover Norquist 
worked with Newt Gingrich and other Republicans to fashion 
a new strategy for the GOP. The idea was to commit the 
party to make real changes in the way America was governed. 
They called it "the Contract with America," a specific list 
of actions that Republicans pledged to take to reduce the 
size and scope of the federal government. Like sinners at a 
tent revival, Republican politicians stood up and took the 
pledge. Largely on the strength and specificity of the 
contract, the GOP won control of Congress in that election 

Since then, reports Ed Crane of the Cato Institute, "the 
Republican-controlled Congress has approved discretionary 
spending that exceeded Bill Clinton's request by more than 
$30 billion. The party that in 1994 would abolish the 
Department of Education now brags in response to Clinton's 
2000 State of the Union address that it is outspending the 
White House when it comes to education." 

The contract called for the abolition of 95 major federal 
programs. But Cato found that "the combined budgets of the 
programs that the Contract with America promised to 
eliminate have increased by 13%."

If politics were not a farce - that is, if politicians were 
forced to keep promises the way everyone else must - voters 
could hold Republican office holders responsible for breach 
of contract. The politicians would be thrown out of office 
for non-performance and dereliction of duty. The contract 
itself would be terminated - with prejudice.

Instead, nearly half of those voting last week seem to have 
cast their ballots for Republican candidates - knowing full 
well that they can't be trusted to keep a promise. Thus 
they voted for people who just cheated them 6 years ago and 
to whom they would be reluctant to lend $20. 

In a real fight, these Republican politicians are the sort 
of men and women whom you might have serving soup...or 
maybe starching the general's tunic. You could never count 
on them to protect your flanks. 

The Romans...or even Marshal Zhukov, in charge of Soviet 
defenses at Stalingrad...had a way of dealing with such 
men: They were lined up...and every tenth man was put to 

Admittedly, that seems a bit extreme. But politics is a 
brutal and nasty business. That is what separates it from 
the rest of life - the readiness to use force when it is 
called for.

Republicans are protected from the fate they so richly 
deserve by their opponents. By tacit collusion, in all the 
gabbing and calumniating prior to the vote, the Contract 
was scarcely mentioned. For Democrats have their own frauds 
and broken promises to forget...and are probably at least 
as untrustworthy as Republicans. About the only thing that 
can be said for them is that they are not Republicans, they 
tend to drink more and their daughters are more liberal 
with their kisses.

(I make that later observation based on a very small sample 
a very long time ago...)

And yet, one of these parties will soon celebrate the 
election of its main man as president. Champagne, aged 
longer than expected, will finally be uncorked on the one 
side...and tears will flow on the other. The quadrennial 
farce will be over.

Ah, but who will be the winner? There's the hitch. Because 
the paradox of this election is likely to be that the real 
winner will be the loser. It is the economy, stupid. Voters 
expect politicians to disappoint them. But not the economy. 
They will put up with lies and larceny...until there is a 
cyclical downturn.

"George W. Hoover vs. Al Carter," is how Gary North 
describes the presidential contest. "The party of whichever 
man wins the Presidency," he continues, " will suffer 
Congressional and Senate losses in 2002, and will probably 
lose the Presidency in 2004." 


"The inverted yield curve has reappeared," explains Dr. 
North. "It's a good forecasting tool of recession. The 
[new] president will get blamed."

William Rees-Mogg recently described the business cycle, 
quoting Dr. Hyde-Clarke from 1847: "We have just gone 
through a time of busy industry, and are come upon sorrow 
and ill-fortune; but the same things have befallen upon us 
often within the knowledge of those now living... A period 
of bustle, or of gambling, cut short in a trice and turned 
into a period of suffering and loss, is a phenomenon so 
often recorded, that what is most to be noticed is that it 
should excite any wonder."

Cycles of prosperity and poverty have been around since 
civilization began. In the Old Testament, Joseph 
interpreted pharoah's dream as economic cycle of 'seven fat 
years followed by seven lean years.'

But the lean years still excite wonder and surprise. At the 
height of the bustle, people refuse to believe that there 
will be a downturn. And when it finally does occur, they 
don't know what to make of it. 

Thus, instead of tracing the recession of 2001 and the bear 
market to its source - the excessive credit, spending, and 
bullishness during the Clinton years - voters will blame 
whoever is president at the time, as they blamed Hoover for 
the Great Depression and Carter for the recession of the 
early 70s. 

Recessions and bear markets are cyclical. They are 
unpredictable in terms both of magnitude and timing. And 
yet, continues Lord Rees-Mogg, "in the last century, we 
have seen an approximate 10-year business cycle...[with 
recessions in] 1921, 1931, 1951, 1960, 1973, 1982, 
1992...The evidence for this sequence extends back to the 
early 18th century."

Some downturns are mild. Some are severe. "Every once in a 
while," writes Lord Rees-Mogg, "perhaps every fourth, fifth 
or sixth time, the burden of speculation has to be purged 
in a bigger way."

Dr. Kurt Richebacher believes this downturn has already 
begun...and that it will be a big one. "In past letters," 
he writes, "we have repeatedly warned that people will be 
shocked at how quickly the U.S. economy's strength will 
simply disappear once the bull market ends. If it had not 
been for a burst both in government spending and inventory 
building, U.S. real GDP growth in the 2nd quarter would have 
been just 2.8% at an annual rate, and if not for another 
burst in inventory accumulation, it would have been barely 
1% in the 3rd quarter. Automobile promotions and other 
temporary factors boosted consumer spending from its sharp 
downturn in the 2nd quarter. Growth in business capital 
spending has drastically slowed to 2.9% and 16% in the 1st 
quarter and 11% in the 2nd quarter. Residential building 
shows an abrupt decline. All signs point to deepening 
weakness in the economy..."

"The man who gets elected president," concludes Gary North, 
"will get a nice, fat recession for his trouble...The 
treausury's surplus will do a disappearing act reminiscent 
of Walter Mondale's. If Bush gets elected, he will face the 
normal mid-term fall-off of a newly elected president's 
party in Congress, coupled with well-orchestrated "we told 
you so" responses from Gephardt and other Old Econony 
Democrats. I can hear it now: 'Elect a Bush and get a 

Advice to George W. Bush: If the final vote leaves you in 
charge, demand a recount.

Your political reporter...watching the Palm Beach Story 
with amusement...

Bill Bonner

P.S. Tomorrow - Value Investing vs. Trend Following...and 
some more Darned Cheap Stocks.
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Last modified: April 01, 2001

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