*** 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
SiliconInvestor.com 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
*** 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. Amazon.com 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
Amazon.com, 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 (http://www.realasset.com). "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
"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.
*** 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
"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 lower...in 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
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
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
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
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.
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Last modified: April 02, 2001
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