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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

TUESDAY, 30 MAY 2000 


Today:  Persistence of Memory

*** Luxury second home market -- soaring
*** What happened to the IPO Class of '99?
*** "Amazon is history..."

*** Wall Street was closed yesterday for Memorial Day. It 
was not actually Memorial Day yesterday, but our memories 
of the dead are not so inflexible that they can't be 
brought forward 24 hours for the convenience of the 
quick. That way, the masters of the universe got to spend 
an extra day at their beach homes in the Hamptons. 

*** We got no such holiday here in France. It was work as 
usual for me and my new assistant, Addison. But we will 
have the last two days of this week off -- in observance 
of Ascension Day. But not even the ascension of Christ 
will stop the "Daily Reckoning." It will appear as usual.

*** Beach houses are getting more expensive, according to 
"Barron's." Sales jumped 9.3% from two years earlier. 
Prices paid for luxury second homes -- say, those on Long 
Island or Lake Tahoe -- have made "mind-boggling" 
increases. GM's Jack Smith has a summer home in 
Osterville, Mass., where an oceanfront house that sold 
for $3.5 million in 1998 changed hands for $5.5 million 
in March 2000.

*** Floyd Norris reports in the "NY Times" on the 
progress of the Class of '99 IPOs. Representative of the 
group, he says, is a company called FreeMarkets Inc. The 
company provides a business-to-business auction site. It 
went public in December, at the height of Internet 
speculation, and its shares leaped 483% before the first 
day of trading was over. But by Friday, the same shares 
could be purchased at an 89% discount. "Anyone who bought 
on the first day of trading," says Norris, "is down 87%."

*** Meanwhile, the celebrated Internet Capital Group -- 
which rose an astounding 2,733% in '99 -- has fallen 85% 
this year. Is it now a value stock? Well, it's still 
trading at twice the price that it ended its first day of 
trading and more than four times the offer price.

*** "Amazon is history" proclaims a "Cool Post" on the site. The teenaged dot-com company -- 
awkward, self-absorbed, unprofitable, volatile, 
insufferable -- may never grow up. "My honest opinion," 
says the poster, "is that the most this stock can be 
valued at is $10/share and even that is generous. [It has 
an] absurd market cap...its Price-to-Sales...every ratio 
is obscene." 

*** Longtime "Daily Reckoning" sufferers will recall that 
I have been less than sympathetic towards Jeff Bezos' 
creation. This River of No Returns stock would be 
expensive at half the price. But Amazon was drifting 
happily on the tides of fashion. Dot-coms were in style 
and Amazon was one of the biggest. But now the above post 
seems to signal a shift in current. is 
struggling against the tide.

*** Another sign of the shift in investment fashions was 
reported in "Barron's." "For the latest period reported 
last week ended May 25," writes Alan Abelson "more money 
flowed out of [mutual] funds than flowed into them." The 
imbalance totaled $7.6 billion, according to the eagle-
eyed Bob Adler at AMG Data Services...What's more, the 
exodus was across the board, encompassing every type of 
mutual fund, conspicuously including the heretofore 
sacrosanct growth funds." 

*** Also registered in "Barron's" is an interview with a 
"tech-buying money manager," who once managed money from 
the Clintons. What's interesting about this is that the 
hero of the story -- Joseph McNay of Essex Investment 
Management in Boston -- sold off many of his tech 
holdings. He was once the second largest shareholder in, for example, after the Bezos family. Now he 
owns none of the stock.

*** I previously announced the end of the New Era -- on 
the occasion of the release of productivity numbers 
earlier in May. No big increase in productivity, no New 
Era. Another thing the New Era theorists predicted was 
larger corporate profits. Well, put another nail in the 
coffin. Because corporate profits declined, not rose, in 
the first quarter. They rose 7.6% year over year -- no 
more than profits have generally risen over the last 
century, and less than the fourth quarter of last year.

*** "A high-tech world is a metal-hungry world," says 
Real Asset Investor Dan Ferris ( "We 
just bought the largest zinc miner in the world and the 
largest publicly traded copper miner in the world." 

*** Seventeen of the 19 states in the suit against 
Microsoft have asked Judge Thomas Jackson to break the 
company up. In the one day of trading since the 
announcement, MSFT lost 6% of its value. Today it opens 
at $61.50, down from its Dec. 27 high of $119 and change. 

*** "Not too long ago I asked [Alan Greenspan] about the 
tremendous growth of the money supply as measured by M-
3," says Rep. Ron Paul in J Taylor's Gold and Technology 
Stocks. "[H]e said that he had no control over M-3 and 
that it was becoming increasingly difficult to define 
money." Then Dr. Paul asked, "if you can't define the 
money supply, how can you control it?" Greenspan: "Not 
only is it difficult, but it is impossible, to control 
something you cannot define." 

*** Has OPEC put a ceiling on the price of oil? "We 
already have [had] 10 continuous days above $28," said a 
Venezuelan oil official thought to be speaking for OPEC, 
"and if this is maintained...the market correction 
mechanism will be automatically triggered with an 
increase in production." If the oil price stays high, in 
other words, they'll pump more of it. 

*** Is Wall Street biased? "One timely lesson," we learn 
from Henry Kaufman's new book, "On Money and Markets," 
according to the "Financial Times" review, "is that there 
is a bias against gloomy forecasts. No one wants to be 
told that a market is overvalued; many have a vested 
interest in saying it is not."

*** I reported that RJR was selling at a P/E of 1. I knew 
there had to be more to this story. The number was 
correct but, as Dan Denning reports, only because of a 
fluky, one-time "income from discontinued operations" in 
the second quarter. A more accurate P/E for the cigarette 
company is 12.

*** And Gary North wrote to give me more information on 
Oskar Lange, whose quotation seemed so self-evidently 
right, I have used it twice in the last few days. "Lange 
was a Communist," writes Dr. North. "After WWII, he went 
back to Poland to serve as chief economist under the 
Communist government.

"It was Lange's articles in 1936 and 1937 that persuaded 
two generations of economists that Mises was wrong in 
saying that socialist planning is irrational because 
there can be no capital markets with free pricing. Mises 
in 1920 argued that without competitive prices and 
private ownership, the central planners cannot know what 
anything is worth. Lange said a government planning board 
could set prices and then lower or raise them if supply 
and demand did not match. In short, he wanted bureaucrats 
to allocate scarce resources...Finally, in 1990, Robert 
Heilbroner announced in THE NEW YORKER, `Mises was 

"It is not that entrepreneurs are fooled," Gary 
continued. "It is that all but the front-runners had been 
fooled. They had not seen the opportunity. Then they 
imitate the early comers. As this once-secret information 
spreads, its value falls because its pay-off to 
individual entrepreneurs falls. Returns approach the rate 
of interest on the lowest-risk debt certificate.

"Lange wanted salaried bureaucrats to perform this 
service. There is a Polish graduate school named after 

*** I have been traveling for the last couple of weeks. 
So yesterday was my first opportunity to walk home for a 
long time. The light has changed. During the winter 
months, I walked home in darkness -- lit up by the 
streetlights and the light that streams from bistro doors 
and filters through the fogged up windows. But now, at 
8:30 p.m., I walk home in full sunlight. What a delight. 
What a beautiful city. And with the dollar at a 10-year 
high against the French franc -- it is actually 
reasonably inexpensive.

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


"Fortune is rightly indignant at those who break with the 
customs of the past."
Winston Churchill, named Man of the Century 
by "Historia" magazine

My calendar says that today is the day traditionally set 
aside to remember those who fought in America's wars. Not 
one to trifle with tradition, I will do so. 

The contrarian insight is a traditionalist's one. Certain 
market relationships have endured for many years. The 
relationship of price to earnings, for example. There is 
no law that says P/Es can't be higher...or the 
future. But the person who bets that they will be 
substantially different for a very long time is taking a 
big risk. He is betting that something fundamental has 
changed...maybe in the value of capital, or perhaps in 
the nature of man. Perhaps capital will be worth more in 
the future than it has been in the last 100 years. And 
maybe there really will be a New Man with different 
attitudes towards time and money. 

But the odds of there being something really new are 
slim. Between phases of manic euphoria and manic 
depression, things tend to regress to the mean -- that 
is, where they traditionally have been. And the mean does 
not change often or quickly. 

I have compared the manic phases of market history to the 
manic phases of political history. Normally, people live 
with a bit of violence in their lives -- murders, assault 
and battery, riots. And occasionally, full-scale wars 
break out. Even then, they are usually contained within 
"normal" bounds.

The Yanomamo Indians practice a form of institutionalized 
savagery in which they beat each other over the head with 
clubs until one dies or passes out. 

The Greek city-states met one another periodically in an 
almost ritualized, and deadly, shoving match. If they had 
actually wanted to destroy the enemy town, they might 
have assaulted at night, burned the towns and slaughtered 
the inhabitants. Instead, they formed up neatly on a 
level field and marched towards each other. 

On some occasions, armies would wait patiently for their 
enemies to form up -- including a delay for a distant 
town to bring up its troops. It wasn't proper to go after 
an enemy before he was ready. Even if you won, it would 
not be a victory you could enjoy. Dishonor was, after 
all, worse than defeat. "Come back with your shields," 
said the Spartan mothers to their sons, "or upon them." 
Don't run away, in other words.

Today, we honor those who did not run away -- those who 
faced the mania of war...who did the right thing and had 
the right stuff when it was needed.

Flamm Dee Harper had to struggle to raise the American 
flag in the little field near Montmorillon where he had 
crash-landed 56 years ago. The mechanism was stiff and 
difficult. He struggled, too, to make sense of it. The 
war, that is. He proved he could fly. He could fight. He 
was courageous. 

But the "why" tripped him up. There, he couldn't quite 
turn the crank. What was the point? When the mania is 
past -- like a bubble that has popped -- you look 
back...and it is a puzzle. Why would he have ever done 
such a thing? What was going on? What did it mean? 

Russian soldiers at Stalingrad were urged to use their 
bodies as "concrete and stone" -- to sacrifice themselves 
to stop the Germans. Many did. But for what? So they 
could be ruled by Russian-speaking tyrants rather than 
German-speaking ones?

Col. Harper did not dwell on the subject. He merely said 
the war was "stupid." And then he fell back on the 
familiar cliches that seem to work for generations of 
Americans. It was a fight, said the old soldier, for 

"We are," said Adolph Hitler addressing Reichstag just 
before the Luftwaffe began dropping bombs on London, "in 
the middle of the tremendous struggle for the freedom and 
the future of the German nation..."

Everyone fights for freedom. While the Russians died in 
the millions to save Stalin's slave regime, Harper and 
millions of Americans, it turned out, fought for the 
freedom of Roosevelt and subsequent administrations to 
impose even greater restrictions and higher taxes. 

The American mainland has never really been seriously 
threatened by invasion. But every war for freedom has led 
to less liberty for Americans. Not necessarily 
immediately or even by consequence -- but that has been 
the drift of things.

No one wants to think that their dead relatives were on a 
fool's errand. And it is impossible to know what would 
have happened had not history unrolled as it did. But 
there is an element of stupidity in all America's wars -- 
maybe in all wars.

Reading the histories of World War I, it is not at all 
clear that some useful purpose was served by sending 
American troops. "Lafayette, we are here," announced 
Pershing on his arrival. But one could almost hear 
Lafayette replying from his grave: "Why?"

The combatants were nearly exhausted when the United 
States entered the war. Like a fresh flood of money into 
a tired bull market, American troops turned the 
tide...forced Germany to accept defeat...and helped 
create such an awkward peace that another war was almost 

When that inevitable war began, WWII, it began awkwardly, 
too. After the British had been routed from Europe and 
the French had surrendered, the British went on the 
attack. But they didn't attack the Germans; they attacked 
the French! In order to avoid letting the ships fall into 
German hands, the British fired on the French fleet in 
Oran, North Africa, and sent 1,200 French sailors to 
their deaths.

And then there was Korea and Vietnam. In each event, 
freedom was once again at issue. The soldiers did their 
duty. They avoided the "why." But they fought when they 
were asked...and died when it was required of them. Even 
in the stupid wars.

Pascal said, "we understand more than we know." The 
soldiers must have understood something we will never 
know. And they can't tell us.

Your ever more humble correspondent,

Bill Bonner

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

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Last modified: April 02, 2001

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