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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

NEW YORK, NEW YORK 
THURSDAY, 25 MAY 2000 

 

Today:  THE WRONG STUFF

*** Finally -- a rally...
*** It wouldn't be that hard to "paint the tape"
*** "THE VOLUME SELLING LIES AHEAD"...

*** Turnaround Tuesday came a day late. "We finally got 
the rally," said one trader, quoted by Reuters. The Dow 
rose 113 points. The Nasdaq rose 106 points. And again, 
the bulls are on TV claiming that the worst is over.


*** Almost every day, the market opens up. Sentiment is 
still bullish -- or at least, not bearish. And when the 
market seems to be melting down, there is often an 
impressive rally in the last hour.


*** Could someone be "painting the tape" -- deliberately 
trying to manipulate not merely the price of a single 
stock, but the entire market? Moving the whole market 
would be a Herculean task, but Richard Russell 
(http://www.dowtheoryletters.com) points out how easy it 
would be for a large institution to drive up the Dow 
index. The purchase of 10,000 shares of IBM might take 
the price up $6, for example, which would move the Dow up 
32.8 points.


*** The whole market, though, is another story. 
Yesterday, for example, while the Dow was up 113 points, 
more stocks fell than rose on the NYSE -- 1,485 to 1,410. 
And the number of stocks hitting new highs was less than 
a third of those hitting new lows -- 39 to 127.


*** So the turnaround was not very impressive. The Nasdaq 
is still 35% below its high. The Dow is still down 10% 
and the S&P is down 9%. So, unless something happens to 
change our minds, we should expect further declines as 
this bear market continues.


*** Richard Russell also points out that the real selling 
has not even begun. So far, says Russell, "this market 
has been sinking on the phenomena of No Bids. ... 
[T]here's been no real selling, just a process of hitting 
the bids. THE VOLUME SELLING LIES AHEAD."


*** The low volume is hurting the brokerage houses. The 
online brokers, especially, are taking a beating. Thin 
profit margins (or non-existent ones) really start to 
hurt when volume falls. Ameritrade is just a little over 
$11. And e-trade is below $14.


*** But the e-brokers are not the only ones in danger. A 
consultant for Ernst and Young, quoted by Richard 
Russell, says "there are 30,000 e-tailers out there, and 
probably 25,000 will have to go away."


*** The bubble itself is still as big as when the Fed 
first began tightening. It got bigger after the Fed first 
began its niggling rate hikes...and then deflated 
slightly. 


*** "Why can't it just stay as it is," you might ask...a 
question I put to myself on major birthdays. I've had 
enough birthdays: "I am old enough. Couldn't I stay right 
here?" But "every day, all this earth ages, drooping unto 
death," as it says in the ancient poem, The Earthstepper. 
The bubble must be destroyed to make way for what comes 
after it. 


*** But when? And how? The Clinton Administration would, 
no doubt, like to see the bubble persist at least until 
after the November elections. "USA Today" reports that 
three out of four likely voters own stock. Greenspan 
would probably like to accommodate the Democrats. Any 
significant crack in the economy or the market will 
probably give him a rationale for not continuing the rate 
increases.


*** Speaking of Democrats, I am in a hotel room in the 
N.Y. Hilton and I turned on the TV last night. I do not 
own a working TV and have missed much of what passes for 
popular entertainment. Maybe that's why I am always 
appalled when I see what people actually watch on the 
tube. Last night there was some sort of Democratic 
lovefest featuring Hillary, Bill, Tipper and Al -- none 
with the slightest sense of charm or dignity. I guess 
that is no surprise, but why was such a spectacle...with 
no redeeming social value...broadcast to the nation?


*** I shared a cab with a woman who almost immediately 
began telling me about her marriage...and how she would 
stay with her husband for six months and then live by 
herself for six months...and how her husband had a 
girlfriend... 


"This is New York," I thought to myself...unaccustomed to 
the openness. A French woman would never tell you such 
things -- not even if you had known her all your life.


*** My fame precedes me. A young woman came up to me in 
the lobby of the Hilton and began speaking to me in 
French. She called me by name -- but I could place 
neither her face nor her name. My center of gravity had 
been shaken by the woman in the cab. 


"What next?" I wondered. I thought she might be a 
DailyReckoning.com fan. Maybe I could develop some 
groupies who follow me around...ah... But it turned out 
she worked for a friend's company in Paris. 


*** I'm here to give a speech to the NY Direct Marketing 
Association. The program describes me as perhaps "the 
world's best copywriter." You have to take what you can 
get in life...no matter how undeserved or inaccurate. 
Actually, what I am supposed to talk about is the "Daily 
Reckoning." How does it work? Why do you do it? Does it 
make money? It's probably time I asked myself those 
questions, too.


*** The trip up to New York from Baltimore was also 
appalling -- in its own way. More below...


*** Oil rose $1.19 yesterday. Oil is now over $30...and 
natural gas is over $4 -- for the first time in history. 


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* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 

EVEN THE RATS HAVE LEFT

Contrarian instincts, like crowd-following ones, are no 
guarantee of success. The contrarian insight is merely 
the realization that people are swayed by emotion as much 
as by logic -- and that they frequently become either too 
bearish or too bullish. Prices eventually tend to regress 
to the mean, so you can make money by buying what is 
unusually cheap and selling what is dear -- assuming they 
return to more normal levels.

But sometimes the trends that lie beneath cycles of 
despair and euphoria are extremely long. In many of 
America's East Coast cities, for example, real estate 
prices peaked out, in real terms, early in the 20th 
century. Since then, almost every investment -- even at 
very low prices -- has been a losing one.

I have to give my speech in a few minutes. So I only have 
time to tell you about my train trip from Baltimore to 
New York. As the hippies used to say, it was a trip.

The trains pull out of Baltimore's station. You pass 
through the  slums of East Baltimore...and then the 
white slums -- peering over fences and into backyards 
onto scenes of such dilapidation and depravity that you 
believe yourself transported -- either in space or in 
time. 

Either you are visiting some Third World hellhole, such 
as Lagos, Nigeria, or a 19th century Dickensian one. 
Whichever direction you look, right or left, it is the 
wrong side of the track. Mattresses lying on the ground 
in backyards, rusted out cars and factories, boarded up 
or broken out window -- garbage everywhere...in piles, in 
ditches, even in the trees. The scenes are hard to 
reconcile with the vision of a New Era -- and everyone 
getting rich. These people certainly are not rich. They 
are not even poor. They would have to work for years and 
save their money to reach poverty. 

Caen, Dresden, Hiroshima -- many European and Asian 
cities were bombed to smithereens just a half century 
ago. And yet every one of them is a model of prosperity 
compared to these East Coast dumps. In fact, they 
probably looked better even in 1946 than East Baltimore 
does today. 

In 1983, I bought a beautiful house in a "bombed out" 
section of Baltimore for $27,000. I spent several times 
that amount fixing it up. Seventeen years later I felt 
glad to be able to sell it for less than I had spent on 
it.

But at least that house -- built for wealthy Jewish 
merchants in the late 19th century -- was attractive to 
look at. Most of the places you see from the train seem 
to have been put up by people completely ignorant of the 
architectural improvements of the last three millennia. 
Glasgow's industrial slums are attractive in comparison.

In fact, it is hard to find anything that is not 
appealing in comparison. Few areas of the world are so 
misbegotten, forlorn and unmitigatedly depressing. 

It is hard to turn your eyes away. The scenes are so 
preposterously abject -- so unrelentingly ugly, trashy 
and revolting -- it is like watching MTV...you are almost 
hypnotized by the sublime wretchedness of it all. There 
are hospital waste dumps that are more attractive and 
healthier places to live. In fact, some of the buildings 
are in such a condition that you can't tell if they are 
dwellings -- or just heaps of discarded building 
materials. And some of the neighborhoods are so bleak and 
forbidding even the rats must have decamped.

If you believe there is an explosion of wealth creation 
going on in America, I invite you to take the train and 
open your eyes. Whatever explosions are occurring, no 
shock waves of wealth have reached this corridor. No 
houses -- visible from anywhere along the route -- are 
being bid up to ridiculous levels. I would bet that not a 
single one has sold above the offer price in the last 50 
years. 

Not all the houses are abandoned -- or even in bad 
repair. Some are well-maintained. With their aluminum 
siding, formstone and Depression-era designs, however, 
one wonders why anyone would bother to keep them up. It 
would be better to walk away and call in a bomb strike. 
They were a disgrace the day they were built. Today they 
are an embarrassment. They are houses that bombs and 
termites would improve.

I did not see a single building I would want to live in. 
I say that not out of snobbery, but simply the instinct 
for self-preservation. These places look lethal -- if not 
to the body, certainly to the spirit.

Even nature seems to have turned malignant. The typical 
bucolic scene along the NJ tracks is misshapen catalpa 
trees with plastic bags hanging from the branches. 
Somehow, the catalpa tree seems to have mutated so it 
grows in concrete. And plastic bags are ubiquitous. Many 
of the commercial buildings still in service seem to use 
them to decorate the razor wire they run along the roofs 
-- putting a blue or white plastic bag at intervals of 
every three feet or so.

The most attractive thing I saw along the entire trip -- 
through Wilmington, Philadelphia, Trenton and Newark --
was a huge pile of smoking metal -- a place that looked 
like it had been hit by a squadron of bombers about 3 
hours before. At least the rubbish had been burned. 

Bill Bonner


* * * * * * * * * * * * * * * * * * * * * * * * * * * * *


The Daily Reckoning is a FREE e-mail service of The Fleet 
Street Letter -- If you'd like practical advice about 
profiting based on the ideas in this e-mail, then simply 
subscribe to my monthly financial communique, "The Fleet 
Street Letter." Right now you can save up to 50% off the 
regular price. Visit 
https://www.agora-inc.com/secure/form1.cfm?pubcode=fsus&pcode=dtg761



* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
 
 
 
 
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)

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"
(Makram)

"It is actually better than some of the newsletters that I pay to
get"
(Joe)

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

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 02, 2001

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