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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
MONDAY, 5 JUNE 2000 

 

Today:  The Sushi Economy

*** "A real big day" on Wall Street...
*** But what happened to the dollar?
*** And gold! Glorious gold! Still alive... 

*** You may recall, Friday morning I quoted an analyst 
who said, in effect: 'If we get a good employment report 
today we will have a real big day.' Well, he got a 
'good' employment report, and the market had a 'real big 
day.'


*** In fact the day was so big that you have no doubt 
already heard all about it. The news on Thursday and 
Friday was great -- less pressure on prices, less 
pressure on the labor market. The economy is slowing 
down, in other words. The news "blew away the cloud of 
fear" hanging over the market, said one analyst quoted by 
Reuters.


*** The teenaged tech and net stocks were especially 
favored -- they seemed to enjoy a growth spurt just as 
the news was announced.


*** On Friday morning, just after the market opened, the 
Nasdaq 100 futures shot up 8%. Taking the week as a 
whole, the Nasdaq grew more than any week in history -- 
up 19%. 


*** By the way, the fad du jour in the TNT (tech, net and 
telecom) set is for stocks that are "Internet 
infrastructure" plays. These are companies that make the 
picks and shovels for the Internet miners. Maybe the e-
tailers will fail. Maybe the B2B sector won't be as 
great as we thought. Maybe AOL and MSFT have stopped 
growing. But someone's going to make some money on the 
Internet and these infrastructure companies are going 
sell them the tools! 


*** So Broadcom was up 42% by the end of the week. JDS 
Uniphase rose 50%. And Network Solutions rose 52%. 


*** And now that school is letting out...the teenaged 
stocks are expected to enjoy a perfect summer: complete 
with a huge stock market rally, the beginnings of which 
we have just witnessed. We'll see.


*** Of course, 'Easy Al' Greenspan said he wasn't 
targeting the stock market. He was just trying to head 
off the inflation he saw forming up like an enemy armada 
out beyond the harbor. So, he fired six volleys from his 
rate hike cannon. And what happened? Well, some 
inflation indicators may be sinking. But the results 
have been mixed. 


*** Bonds, for example, are rising -- on the evidence of 
a slowing economy. Yields are falling. But most 
disturbing...the speculative euphoria of Wall Street 
seems to be running a few paces ahead of the Fed. Last 
week's irrational exuberance alone added about $1.5 
trillion to the nation's potential purchasing power. Of 
course, easy come...easy go. That which the market has 
given last week, may be taken back the next.


*** It was a very good week, of course, for stocks and 
bonds. The Internet, newspapers, TV, radio, and even tin 
cans linked by baler twine are reporting the news -- the 
bear market is over. We've seen the bottom. Let the 
good times roll -- again. More on that below...


*** What is really going on? Well, I don't know...but 
bear markets are often marked by explosive 
rallies...followed by long periods of grinding, 
frustrating action, in which stocks give back all the 
gains, and then some. 


*** And while the media focus on the explosive rally, 
there is very disturbing news about the dollar -- which 
fell, both against the yen and the euro. The euro seems 
to be staging a comeback. It is rising against a wall of 
worry -- as I feared (because I pay my bills in French 
francs, linked to the euro...I'd prefer a low euro and a 
high dollar). 


*** What's more, gold finally roused itself, got up and 
advanced $8.90! (This is by the way, the anniversary of 
the day the US went off the gold standard in 1933.) When 
the dollar goes down...and gold goes up -- watch out. 
Both the American economy...and its stock market...rest 
on the willingness of foreigners to price the dollar at 
more than it is really worth. When that goes -- it all 
goes. And it could be a long time before it comes back.


*** Richard Russell reports that Patricia Dunn, CEO of 
Barclay Global Investors, with $780 billion in assets 
(bigger than Fidelity or Vanguard) was asked what she did 
with her own money. "California munis are plenty 
exciting for me," she replied.


*** Archeologists believe they have discovered the long 
lost cities of Herakleion and Menouthis. The cities are 
mentioned in the ancient records, often, but have never 
been located. Now, divers in the Bay of Aboukir, off the 
coast of Egypt, believe they have found ruins of the 
submerged cities, dating from the 5th to 9th centuries 
before Christ.


*** And here's something interesting -- reported with 
perhaps a little too much smug pleasure by the French 
press: The U.S., ranked 24th worldwide, has the lowest 
life expectancy at birth of any industrialized nation. 
France has the third highest ranking...after Japan and 
Australia. A Japanese citizen, assuming he does not 
throw himself in front of a moving train, can expect to 
live 74 years and 6 months.


*** Speaking of Japan, during the heyday of the 80s, few 
sectors of the hot economy were as hot as the golf course 
industry. 2,400 courses were built, charging membership 
fees as high as $200,000. But according to the report in 
the NY TIMES, 1,700 of those golf courses are now in 
financial trouble or bankrupt. Ten years after its bear 
market began, the nation faces an estimated $1.2 trillion 
in bad loans -- of which 20% are thought to be related to 
the golf-course crisis.

*** Today is also the anniversary of Adam Smith's 
birth... 


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STUBBORN OPTIMISM


"From a psychological point of view, stubborn optimism is 
more a sign of a market top than a market bottom."


Mark Hulbert


Jerry Garcia's pulse stopped many years ago. Even in 
Minnesota, where the labor market is so tight almost 
anyone could get a job, Jerry is unemployable. There 
have been, at least to my knowledge, no sightings of him 
entertaining in Minnesota bars. He has not been reported 
living incognito in another country or on another planet. 
He is stone, cold dead...as dead as a defunct laptop 
computer. 


And yet, the Deadheads -- fans of Garcia's band, the 
Grateful Dead -- still turn out by the thousands to see 
the band play...and many still follow the group on 
concert tours. Stubbornly optimistic, the 'Deadheads,' 
seem to hope that one night, Garcia will be raised from 
the dead and walk on the stage, maybe in a tie-dyed, 
angelic robe.


I have this on good authority. My new assistant, 
Addison, admits to having been a 'Dead' fan himself. 
Perhaps he was not actually a 'Deadhead' -- but for a 
time he followed the band more or less faithfully, 
selling beer for $2 a can out of an old VW bus, with 
neither a liquor license nor a W-2 form. 


Finally, Addison tired of the 'Dead." He determined to 
get a real life...to enter the real world, of real 
employment, for real wages.


Failing that, he joined me in Paris.


It was a pleasure having Addison visit over the holiday 
weekend. We did our work, and in the evening, pulled out 
guitars. Addison knows the Grateful Dead songs...


But what is astonishing is the tenacity with which the 
'Deadheads' stick to their dreams. Not unlike tech, net, 
and telecom investors. 


"I have no idea whether a major bear market is on its 
way," wrote my old friend Mark Hulbert in his recent 
newsletter. But Hulbert is sure that "what we witnessed 
in late March and early April wasn't one." At least, not 
the bottom of one.


"I say this with such confidence," he continues, because 
a bear market is, above all else, a psychological 
phenomenon -- and none of the psychological 
characteristics of a bear market have even begun to 
appear."


"At the bottom of a bear market," Hulbert clarifies, 
"virtually no one is willing to buy. Yet in mid April, 
at which time the Nasdaq Composite was more than 30% off 
its high, many investors eagerly were declaring that it 
was a buying opportunity."


Garcia lives. Well, maybe not...but the bull market has 
yet to be pronounced dead. And judging from last week's 
action -- it may be a long time before it is officially 
laid to rest. The fans still believe. 


Mark Hulbert tracks the performance of newsletter 
advisory services, including some of ours. He watches, 
among other things, how many of the services are bullish 
or bearish. As the market collapsed in March and April, 
you might have expected that the number of advisors that 
were bullish would have collapsed too. Well, it did go 
down. But not much. And currently, sentiment remains 
bullish.


In fact, so far for this year, the advisors in this group 
were considerably more bullish than they were in 1999. 
This, of course, is in line with our contrarian analysis. 
The more bullish the advisors, the more of their money 
(and their followers' money) is likely to be already 
invested. As money pours into a market, prices rise -- 
obviously. Higher prices mean that each stock is more 
expensive...so a given amount of investment capital will 
buy proportionately fewer shares. As prices go 
higher...it takes more and more money to drive prices 
higher, since each share costs more. You reach a point 
where there is not enough buying pressure to push shares 
higher -- and they begin to fall.


At market extremes, you want to be invested against the 
prevailing sentiment. Because that is where the 
potential for gains is. A market that cannot go higher -
- will not.


Hulbert explains: "Contrarians know that, because bull 
and bear markets are psychological phenomena, the market 
often confounds the majority. Bull markets like to climb 
a wall of worry, just as bear markets descend a wall of 
hope."


Investors today face a monumental wall of hope. Every 
fantasy of the New Era, New Technology, The Internet and 
the New Economy is cause for hope. It will take a lot of 
losses until these dreams are exhausted.


In the bear market of '73-'74 we have an example of how 
stubborn investors' optimism can be. After a long period 
-- from '66 in fact -- of up and down, trading range 
prices...a bear market finally began in '73. It cut the 
NYSE in half and the AMEX by 90%. 


But all along the way, investors -- remembering the go-go 
years of the '60s -- kept thinking that 'the worst is 
over.' "By the summer of 1974," Hulbert reports, "the 
average stock's P/E ratio had dropped to around 
7...[investors thought it] surely couldn't drop any 
further, the market must already have bottomed -- and 
that therefore it was time to buy."


But the market continued to drop. It fell to an average 
P/E of 6 and then to an unbelievable 5. "The low didn't 
finally occur,' Hulbert writes, "until late in 1974 when, 
according to the Value Line Investment Survey, the median 
P/E of all stocks they followed fell to 4.8."


Today, we are a long way from a bottom. Investors are 
still cyclically bullish. They follow the news -- and 
buy every dip that looks promising. Investment advisors 
are tellingly bullish. The media is amateurishly 
bullish. And the financial community is always 
professionally bullish. 


There is a wall of hope so high, with so many 
indentations and footholds -- it may take years to 
descend.


Then again, investors might suddenly lose their grip.


Best regards,


Bill Bonner




P.S. Mark Hulbert also has a piece in today's Herald 
Tribune -- reporting on new research on the long term 
returns from stocks. More on that tomorrow.


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


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. To subscribe or get more information 
easily call 1-800-433-1528 and ask for code 3472. Or 
visit 
https://www.agora-inc.com/secure/form1.cfm?pubcode=fsus

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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...

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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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