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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Darwinism and Other Nonsense

*** Will Wall Street that we, almost, have a new 

*** Holiday shopping slow...but there's that last weekend...

*** Bankruptcies, junk bonds, recession, inventories, 
Darwinism, Lava lamps...and, can you believe it, more!

*** Well, it was nice as long as it lasted, but it looks as 
though America finally has a president-elect. Bush should 
demand a recount.

*** The news boosted futures in after-hours trading, but not 
spectacularly. After all this time, it is hard to believe 
that yesterday's Supreme Court decision would have much 
affect on the markets this morning.

*** Yet that is what commentators are predicting. And 
overnight, the dollar rose along with Asian stock prices.

*** And Mr. Bear is probably ready for a little holiday 
anyway. The Dow rose 42 points yesterday. 

*** But the news was generally bad. Retailers are 
worried...and reporting weak results. The latest was Best 
Buy yesterday, after Wal-Mart, Home Depot and Lowes last 
week. Consumers just aren't spending like they used to. 

*** Holiday shopping has gotten off to a slow start. Still, 
there is that one big weekend before Christmas -- maybe the 
customers are planning to show up then.

*** Meanwhile, in the tech sector, Compaq became the latest 
company to admit it was having trouble selling PCs. The 
Nasdaq fell 83 points. 

*** The Anderson School at UCLA has been making economic 
forecasts since the Eisenhower administration. Its latest 
forecast sees an end to the 38 quarters of economic growth 
in the United States. By the middle of next year, say the 
forecasters, the United States will be in recession.

*** As if to get a head start, the Financial Times reports 
that "private hedge funds and investment banks are setting 
up funds to buy distressed debt, and law firms specialising 
in bankruptcy and creditors' rights are staffing up."

*** "The number of business bankruptcy filings has hovered 
between 9,000 and 10,000 a quarter since the beginning of 
1999," continues the FT article, "But bankruptcy and 
creditors' rights lawyers point out that some recent filings 
have been large -- ICG Communications, the once high-flying 
telecoms group -- and that their own internal evidence 
suggests a wave of business failures to come...and worldwide 
defaults on speculative-grade, or junk, bonds will rise from 
6 per cent to 9 per cent 12 months from now, with the 
majority concentrated in North America. 

"'The last time there was such an increase in defaults, in 
the late 1980s, the result was recession,' says David 
Hamilton, an analyst in Moody's risk management department. 
'When you have a boom that has been going on for as long as 
it has in the United States, the longer the boom continues, 
the weaker the credit quality for the marginal borrower 
becomes. When you get into the late phase, you get a lot of 
what turns out to be questionable lending.'" 

*** Remember how the Information Age was supposed to 
eliminate wasted time and resources? Well...again, the FT: 
"Slowing growth is also putting to the test the theory that 
improved technology would allow companies to manage their 
inventory better, almost eliminating the build-up of stocks 
when demand levels off. 

"'That's turning out not to be the case: inventories are 
turning up in a number of industries,' says Jeanne Terrile, 
director of strategic research at Merrill Lynch... 
'[Inventory] is still behaving in a sort of old-fashioned 
way,' she says."

*** "For companies that only a year ago were running 
production lines at full capacity, boasting about Internet-
enabled inventory management and struggling to meet demand," 
adds the FT reporter, "the challenges of overcapacity, 
overgearing and overstocking have arrived with frightening 

*** And more on the Greenspan Put: "History shows," writes Charles 
Peabody, "that, when the authorities try to arrest the deflation of an 
asset class (such as that which has been occurring in the TMT sector) 
through the infusion of liquidity, that liquidity usually does not flow 
into the deflating asset (although it does help, temporarily, to arrest 
the de-leveraging process). Instead, that liquidity tends to seek out an 
asset class that has already been inflating and where confidence remains 

*** Peabody thinks he sees another bubble in the making -- guessing that 
the next shot of juice from the Fed will find its way into real estate, 
and real estate lenders, rather than TMT stocks: "And as reflected in 
[yesterday's] Wall Street Journal article (see page C1) entitled 'Small 
Banking Stocks Vault Over Their Bigger Brethren,' analysts can't shout 
loud enough about the attractiveness of the thrifts and community banks 
-- which are essentially residential mortgage lenders. When the Fed 
tries to arrest a de-leveraging process by injecting liquidity into the 
system, that liquidity tends to seek out the asset class that is already 
inflating and creates an even bigger asset bubble. As can be seen in the 
chart in this WSJ article, stocks in the Keefe Thrift Index have 
experienced triple digit percentage increases this year, far 
outperforming (by almost 60 percentage points) most other financial 
stocks. And yet, some analysts are predicting another '40% climb in 
thrift shares' from here."

*** Power failures cost the U.S. economy $50 billion last 
year. And new technology is particularly vulnerable. Peter 
Huber estimates that Internet-related equipment uses 13% of 
the nation's electrical energy. And some high-tech equipment 
is so sensitive that it can only tolerate 31 seconds of 
outages a year.

*** The L.A. Times blames information technology for 
California's electrical shortages: "Consider the college 
dormitory," suggests an article in yesterday's paper. 
"Thirty years ago, a typical student room might contain a 
couple of desk lamps, an overhead light, a stereo system and 
maybe a hot plate. Now check out Claire Steggall's room at 
the University of Rhode Island. The freshman engineering 
student and her roommate have two computers with printers 
and monitors, two mini-refrigerators, a microwave oven, a 
television-VCR with cable service, desk lamps, a stereo with 
a big subwoofer for boosting bass tones, a telephone, hair 
dryers, a Lava Lamp--you get the idea." 

Asked if she ever switches her computer off, Steggall 
thought for a moment and said, "I do if I leave for the 

*** I flew into Washington's Dulles airport yesterday 
afternoon. The corridor leading from the airport to 
Washington is home to many tech and dot-com companies. As we 
passed PSInet and I half expected to see 
flags at half-mast...and lights off. Instead, they were lit 
up for the holidays. And the whole area seemed to be 
booming. All went well until my taxi arrived at the 
Washington Beltway. What a mess! It took more than two hours 
to get around to the other side of the city.

*** It's very cold this morning. Skies are clear...but snow 
is predicted in Baltimore for this afternoon. 

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Looking out my office window at Mount Vernon Square in 
Baltimore, I again pose the question -- why do I choose to 
live in France rather than the United States?

And since there is no one else in the office at 5 o'clock in 
the morning, I will have to answer the question myself, as 
well as pose it. 

The answer, as I hinted yesterday, has to do -- in a very 
roundabout way, of course -- with Darwinism. 

But first, let me introduce a distinction to which I refer 
often in these letters. There are two forms of knowledge, 
said Nietzsche before he went mad. There is the knowledge 
you get from personal experience...which he called 
"erfahrung"...and there is "wissen" -- which is the 
knowledge you get from the newspapers and from the abstract 
ideas you learn in school.

Darwinism is an example of "wissen," confirmed, or at least 
not contradicted, by much of what we can observe personally. 
People who understand Darwin's theory believe they know 

Darwin noticed that there were similarities between living 
things. He wondered if all might not have developed, or 
evolved, from the same source. This led to a theory about 
the way nature works.

The popular expression of the theory has two main elements: 
that random mutations are the source of change...and that 
these mutations either confer an advantage or a disadvantage 
in the competitive environment, and are thus selected in or 
out as the case may be.

In answer to the question, why does a giraffe have a long 
neck, the reply -- "in order to eat the leaves of trees" -- 
is incorrect. That response would suggest a hidden order or 
even design to the natural world. Darwinists don't believe 
in design...they believe life is, in the poet and insurance 
agent Wallace Stevens' words, "an old chaos of the sun." The 
giraffe, according to Darwinists, has a long neck because 
the short-necked giraffes did not survive.

My argument with Elizabeth concerned the meaning of 

"Either things are random or they are not," I told her, 
following up with the logical flourish worthy of William 
Jennings Bryan:

"And if man evolved from monkey by random mutation, favored 
by natural selection, then God had no role in man's 
creation. And if God had no role in man's creation, then 
Nietzsche is right...he may as well not exist."

"But how could Darwin or anyone possibly know whether the 
mutation is random or not?" asked Elizabeth. "Maybe it just 
looks random."

There is something about the concept of randomness that 
always seems to provoke an argument in our household. 
Longtime Daily Reckoning sufferers may recall another 
argument that we had -- concerning the Random Walk Theory of 
stock price movement. 

There, too, Elizabeth resisted the idea that stock price 
movements could be entirely random. 

As it turned out, she was right.

By way of further introduction, we practice a division of 
labor in our household. Elizabeth decides where we live, 
what we eat, where our (six!) children go to school, how we 
spend our money and so forth. 

I take on the big, important issues -- such as the family's 
position on the Efficient Market Hypothesis (EMH)...or what 
we think of the Strategic Air Power (SAP)...or whether we 
favor the Designated Hitter Rule (DHR). If it cannot be 
reduced to three capital letters, in other words, it is out 
of my sphere of influence.

But the randomness of stock price movements, the Random Walk 
Theory, or RWT, is clearly something I should know something 

Still, Elizabeth's instincts were right. As Smithers and 
Wright put it in their book, "Valuing Wall Street," "It is 
now widely agreed among economists that the random walk 
version of the Efficient Market Hypothesis is very nearly, 
but crucially not quite, supported by the data."

People took the Random Walk Theory very seriously, just as 
they took Darwin's Theory of Evolution (TOE) very seriously. 
Both appear to describe the way things work. But neither 
gives the reader any clue as to why they work the way they things got to be the way they are...or what they 
will be like in the future.

Smithers and Wright do explain that the failure of the 
Random Walk Theory does suggest a useful insight -- one that 
could save you a lot of money...but I will get to that 
later. Let me first return to Darwinism...and why I like 
living in France.

France is a country with many things that I deeply dislike.

It has a strong, well-padded central bureaucracy. Everything 
requires paperwork and approvals. Since I do not like anyone 
telling me what to do...the bureaucracy is annoying.

It has high taxes -- with a maximum income tax rate nearly 
50% higher than in the United States and a "wealth tax" 
which eats away not merely at what you earn in the current 
year, but what you earned, and managed to save, from 
previous years.

It is also a culture that delights in "solidarite" -- where 
group-thinking and mass action are cultivated. Strikes are 
common...with the trains and highways often blocked. Still, 
the French not only tolerate these disruptions -- they 
invariably seem to sympathize with the disruptors.

France is more of a socialist country than the United 
States. Perhaps it is a genetic flaw...or a weakness of my 
character...but I find myself completely unable to get in 
the spirit of "isms." Crowd behavior and group-thinking 
always seem imbecilic...and even dangerous. I do not even 
like watching sporting events.

Darwinism is an amusing, stimulating idea...but it is also 
easily vulgarized into a mob-slogan. Thus, the Theory of 
Evolution devolved into "the survival of the fitness" and 
the "law of the jungle"...which further devolved into the 
socialist apologia: "you can't make an omelet without 
breaking some eggs." And by the mid-20th century, the 
socialists were using this vulgarized abstraction to run not 
merely their own lives, but those of millions of others. 

All things being equal, I would prefer not to be one of the 
ingredients in the socialists' omelet. 

But just as no sensible man would take Darwinism seriously, 
neither should he take socialism seriously...or any 'ism' 
for that matter. In fact, big, abstract ideas are often 
entertaining...but they are certainly no basis for 
organizing your life. I distrust them all -- even, or 
perhaps especially, my own.

But when I look out my office window in Paris, I do not see 
socialism. I see a very romantic street scene - with the 
Paradis Cafe on the corner...cobblestone streets...and 
attractive people wandering around. Every quarter hour the 
bells of St. Merry's toll...and in almost any direction I 
choose to set out at lunchtime, I will find dozens of 
appealing restaurants within a 10 minutes' walk.

Also, I like the way the French windows you can 
look out without the double-hung bars interrupting your 
view. And I like the way French drivers stay in the right 
hand lanes...and the way you can drive 100 mph down the 
highway without getting thrown in jail.

Taxes are higher in France, but where else can you buy a 
decent bottle of wine for $5? And where else can you see 
practically pornographic pictures -- such as the current ad 
campaign for Yves St. Laurent perfume -- without paying for 

What I really care about is not the "isms" -- but the 
everyday experiences of my life. Are my children safe? Are 
they being well-educated? Is the food good? Is what I have 
to look at appealing to my eye? 

What I actually care about is the erfahrung, not the wissen. 
And the erfahrung isn't my concern, in any case. I only deal 
with the big issues.

So, if you really want to know why I live in France, you'll 
have to ask Elizabeth.

Your correspondent, back in Baltimore...

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
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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
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Last modified: April 01, 2001

Published By Tulips and Bears LLC