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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Fool's God

In Today's Daily Reckoning:
*** The Fed did nothing...neither did Wall Street
*** But gold shot up...
*** Amazon as a 'concept stock'...Better than Kaufman & 
Broad...GM food...and more!

*** As predicted, the Fed did nothing...and Wall Street 
followed its lead. The Dow rose a piddling 23 points. The 
Nasdaq, where irrationality tends to be more exuberant, 
rose 81 points.

*** The market looked healthy, though. There were 1785 
stocks advancing on the NYSE, while only 1113 fell back. 77 
stocks hit new highs; 58 hit new lows.

*** So, it was a nice 'summer of love' day. Even gold, 
seemed to arise from its crypt and buff itself up a bit. 
The metal rose a healthy $6.80.

*** Ultimately, the Nasdaq and gold are not likely to go in 
the same direction for very long. Gold varies inversely 
with the dollar. And the Big Event of the future will most 
likely be a crashing dollar and rising gold. 

*** Gold, by the way, is cheap. It is down 65% in nominal 
terms from its high in 1980. Of course, the high occurred 
in an atmosphere of lunacy little different from the recent 
Nasdaq peak - though I may have forgotten to mention it at 
the time.

*** In those heady days, it looked like the dollar was 
doomed and gold would soon rise to $1,000 an ounce. One 
prediction was that gold would hit $5,000 an ounce before 
the end of the century. 

*** But here we are at the end of the century. Gold is 
hardly $5,000/oz. And the dollar is not-quite worthless. 
You can buy an ounce of gold, in real 1980 terms, for about 
$150. The number of dollars, meanwhile, as counted by the 
Fed's Adjusted Monetary Base, has nearly tripled. Or as 
Rick Lombardi of Citadel Research put it in Barron's, gold 
"is as inexpensive relative to the Monetary Base in the 
year 2000 as it was at $35 an ounce in 1970."

*** "In the United States," says economist Paul Krugman, 
writing in the NY Times, comparing our 'summer of love' to 
Japan's nuclear winter financial situation, "we have come 
to rely on Alan Greenspan's knack for doing the right thing 
in an emergency." The right thing, according to Krugman, is 
flooding the world with money after the crash of '87 and 
the panic of '98. 

*** But the Japanese tried to do the right thing too. 
Interest rates were reduced to zero and the government 
provided enough fiscal stimulus to awaken a corpse. Japan 
now has the world's largest government debt - and an 
economy that is still comatose. (See: The Austrian Case 
Against American Moneterism

*** What is it about Greenspan's little trick that it works 
only in America? I don't know, but I think we are going to 
find out.

*** Down, down, down, down...a Washington Post story quotes 
Amazon critic Eric Von der Porten: "Amazon is looking more 
and more like other concept stocks such as Boston Chicken, 
Discovery Zone and Planet Hollywood - all of which took on 
a lot of debt and ultimately had to file for bankruptcy." 

*** But raising money seems to immunize companies from 
criticism. "No analyst wanted to tell the truth [about 
Amazon]," said the president of Gramercy Capital, "because 
their firm would lose out on the prospect of vast 
underwriting fees." AMZN carries $72 worth of debt for 
every active customer - which must be some kind of a 

*** Jeff Bezos, AMZN's founder, was Time Magazine's 'Person 
of the Year' in December and applauded for "one of the 
smartest strategies in business history." His stock was $87 
at the time. Now, it is below $40...with much farther to 

*** "Kaufman & Broad is a great co.," Lynn Carpenter 
corrected me, "but it's not #1. Centex is the largest. 
Plus, it's our FSL pick for a couple of reasons.
Valuations are almost the same on both these good 
companies, except for debt levels. KBH's debt is very high, 
1.8 X total equity. Centex's is much lower,
0.8 of total equity. This is an interest rate sensitive 
business, and high debt isn't helpful. Plus, Centex 
maintains a higher profit margin, which allows it to take a 
hit somewhat better. And if you look back over the
numbers to 1996, a bad year for construction, you'll see 
negative earnings for KBH, but only a slight drop for 
Centex. Both are good companies, but I'd go with wise and 
steady Centex for the long run." (See: or the 
advertisement below)

**** "The undeveloped Costa Maya region in Mexico" writes 
International Living's Ken Layne "is following the same 
route to development as Belize: eco-tourism and $50,000 
dive-tours marketed to yuppies." Real estate on the 
beach will skyrocket... but right now, you can still get 
quality beachfront property there for $39,000... (see: 
Paradiso Costa Maya: 80 Miles of Virgin Coast

*** Today's headline in the Financial Times: "World Needs 
GM (genetically modified) Crops, says UN Food Chief." But a 
lot of people in rich countries take a "let them eat 
granola' attitude. So, while Celera is worth billions, 
companies that tinker with the genes of plants are scorned. 
James Passin, former employee of mine and now manager of a 
small cap fund in New York (, provides a 
little history...and a recommendation. I've had Addison add 
it to the daily reckoning website:

*** Elizabeth and I had dinner last night with friends - 
people who had recently moved from London to Boston. "I'm a 
bit disappointed," said David. "The Americans we meet are 
obsessed with working day and night in order to make as 
much money as quickly as possible. People are the same in 
London - but at least they're not proud of it."

* * * * * * * * * * Advertisement * * * * * * * * * * * *
Last Christmas Pier One predicted turn-around profits. No 
one listened. Retail looked dead. Most analysts focused on 
year-old weaknesses. 

In early March, Lynn Carpenter's F-O-X charts confirmed the 
action. Her readers bought $10 calls for just � each-and 
watched them go up 100%, 175%, 300% in only two weeks. They 
took their quick profits. Then Barron's announced retail 
was hot. Too late. They missed it. Find out how to get in 
on her next trade.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *


"What is done by what is called myself is, I feel, done by 
something greater than myself in me."

James Clerk Maxwell
On his deathbed, 1879

I labored through a very interesting book last night: "The 
User Illusion," by a Danish physicist named Tor 
Norretranders. The book is not easy. Too much science.

Science books are often difficult to understand. Perhaps 
the authors do not really know what they are writing about. 
Or, maybe I am an imbecile. I lean to the former 
explanation, but who knows?

It was Norretranders' book that started me puzzling about 
the role of reason in stock market bubbles - and the rest 
of life. The Dane provides a history of the science of the 
Internet intertwined with the philosophy behind it. That, 
or the saucisse montbeliard, troubled my sleep.

But this morning, I awoke with the illusion of profundity, 
to which I am particularly susceptible. Like Newton, who 
united Heaven and Earth, I felt that I was on the verge of 
connecting some important dots. 

Isn't it amazing how the best ideas arise, unbidden? Even 
the greatest achievements of the greatest scientists seem 
to come not from directly conscious effort - but from 
intuition, chance and inspiration. Einstein, standing on 
the train platform in Fribourg, had the odd sensation that 
the plaform was moving while the train in front of him was 
still. From this momentary insight, his notion of 
relativity was elaborated.

The mathematician Henri Poincare maintained that his best 
work was not done by his conscious mind, but his 
unconscious one. He would work on a problem, go to sleep, 
and often, have the answer when he woke up.

If this sounds a little too good to be true, remember that 
Poincare and Einstein worked hard during their waking 
moments too. Nothing comes from nothing, after all.

Nor does everything come from power of reason alone. The 
rational mind is worshipped as though it were mankind's 
salvation. But in many cases, reason is a trap...and those 
people most gifted at it are often the most easily snared.

The conceit of the Internet Age is that everything of 
cutting edge importance to mankind can be reduced to simple 
binary signals, yes or no, plus or minus, black or white. 
This data is then communicated, reassembled into 
information and rationally processed. Even remote sex, so 
realistic that it cannot be distinguished from the real 
thing, will soon be available, according to a recent Time 
Magazine, courtesy of the Internet revolution.

But let us go back a few steps...

Every fool has a reason for what he does. There is always 
an explanation. The power to reason is supposed to be what 
separates man from the lower beasts. This is pure nonsense, 
of course. Many four legged animals seem smarter that the 
average game show host. And dogs are infinitely more 
dependable than Congressmen. 

Nevertheless, people think that if they just had enough 
information and enough time to reason it out, they could 
have anything and everything they wanted. But there's the 
rub - Norretranders explains scientifically what is 
intuitively obvious. "Knowledge costs," he says. It costs 
time and effort. Like the difference between real profits 
and virtual ones, it requires the investment of time and 
effort to transform data, or information, into knowledge. 

Which brings me back to my friend Michel's observation: the 
more information you have, the dumber you become. Michel, 
too, arrived at his conclusion intuitively, or perhaps by 
observation. Norretranders confirms it by reference to the 
curious 2nd Law of Thermodynamics. As energy is used up, it 
produces a condition of 'entropy' - in which the energy, 
though still somewhere in the universe, is unavailable. It 
takes energy to turn data into knowledge. Thus, "in reality 
the 'information society' is an 'entropy society' - a 
society of ignorance and disorder."

If it took no energy, that is to say, no investment, to 
turn data into knowledge, the Internet would be not only a 
first order would be promethean. Gain could 
be had without pain. A perpetual motion machine - which 
requires no energy inputs - would be possible. Finally, 
there really would be a new era, a new world. 

But the actual world we live in, rather than the virtual 
world of the New Era imagination, is a world in which 
knowledge and wisdom come only at great cost. For every 
tiny bit of it, as Mencken points out, some poor soul lies 
on an ash heap in Hell. 

You can get knowledge by reason, experience, insight, or 
maybe even divine inspiration. Reason is only one route - 
and probably not the most important one.

In the 1800s, August Comte, founded a na‹ve school of 
philosophy known as positivism. The idea is that you begin 
with known facts and provable assertions and build, 
rationally. Anything that cannot be proven from experience 
or logic should be rejected - just as my son rejects going 
to church. "What's the point," he says.

Positivism has been wildly popular, as people like to think 
they can reason things out for themselves. It underlies the 
whole Internet pretension - that reality can be broken down 
into binary impulses, transmitted, stored and sorted out 

If only life were so simple! If only everything could be 
reduced to true or false, black or white! Man's faculties 
of reason are so snaky that he can prove everything he 
wants to prove - and nothing. Eminent scholars have 
'proven' that Jews are inferior to Aryans, and that the 
world would run out of oil by the year 2000. Experts have 
'proven' that the price of gold would rise to $5,000 and 
that the dollar would disappear. 

Meanwhile, even simple statements, such as "I am a liar" 
confound us all. If it is a true statement, it disproves 
itself. If it is untrue,'ll have to figure it 

Mathematics, the most rational of all pursuits, stumbles 
too. Bertrand Russell's Principia Mathematica tried to 
establish the logical foundations of all mathematics. Kurt 
Godel, a brilliant mathematician, however, pointed out the 
inescapable contradiction in Russell's work in 1931. Years 
later, Russell, who had moved from one dubious proposition 
to another over the years, recalled, "I realized, of 
course, that Godel's work is of fundamental importance, but 
I was puzzled by it. It made me glad that I was no longer 
working at mathematical logic."

Kurt Godel, one of the world's most gifted mathematicians, 
died in 1978. He starved himself to death, crouched in a 
fetal position, refusing to allow nurses to enter his 
room...fearful that they were trying to poison him. 

All he had left were his powers of reason.

Your very positive correspondent,

Bill Bonner

P.S. Tomorrow...if not reason, what? 
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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Last modified: April 02, 2001

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