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Co-brand
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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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SANTA FE, NEW MEXICO
FRIDAY, 18 MAY 2001 |
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Today:
A Great and
Sublime Fool
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*** Rally continues...weakly...has the thunderstorm
passed? Clear skies from here to eternity?
*** Or just another "sucker's rally"?
*** Gold moving up...Quantifying the 'Maria
Factor'...who pays for government's losing
wars...on the road to Taos...and more...
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*** The stock market continued its winning ways on
Thursday with the Dow advancing 32 points and the
NASDAQ tacking on 27 points.
*** Investors seem now to think of the bear market
as though it was a passing thunderstorm on an
otherwise lovely day. It made a little noise,
scared a few folks and then moved along... . It is
a nice story, if only it were believable.
*** "The largest bear market in U.S. history was
punctuated by seven very significant rallies on the
way to the final conclusion," cautions
contraryinvestor.com. "Are we trying to imply its
1929 all over again? Of course not. We are merely
pointing out that short-lived rallies are part of
what defines overall bear markets. And nine of the
10 top percentage up-moves in the Dow occurred
during the worst bear market in financial history.
*** The Fed has countered this bear market more
aggressively than any central bank in history -
with 5 rate cuts in 5 months...knocking 2.5% off
the fed funds rate. MZM, a measure of cash in
circulation, has jumped 26% in the last 3 months.
Is it any wonder stock prices react - if only
temporarily?
*** Up until now, at least, the sharp rallies have
always been 'sucker's rallies,'" writes Fred Hickey
of The High-Tech Strategist. "This rally is also a
sucker's rally...because the bear market has not
eliminated the excesses that the market built up
during the mania."
*** Overcapacity, bad investments, excess
inventories and debt...they must all be corrected
sooner or later. As stocks move higher, the
situation for investors only becomes more
dangerous...
*** It is not just stocks that are rising on the
Fed's new liquidity.. The metals were higher once
again, with silver up $0.03 to $4.50. Gold was up
$1.60 to $274. "Newmont has outperformed Cisco over
the last two year," observes grantsinvestor.com.
Newmont managed a 16% gain over the period. Cisco
registered a 26% loss.
*** While most tech company CEOs grouse about
current conditions in the industry, IBM's CEO Louis
V. Gerstner Jr. told an investor conference last
week that the fear and trembling in the technology
sector is way overdone. "We should not allow this
bubble-bursting to mask the long-term perspective,"
he said.
*** One part quantitative analysis, 10 parts
Hollywood, sums up yesterday's Financial Times
story, "Quantifying the Maria factor." The "Maria"
under examination is, of course, CNBC's Maria
Bartiromo, otherwise known as the "Money Honey."
*** Ms. Bartiromo is all that and more, it seems.
She moves markets...big time. "When Ms. Bartiromo
makes a favorable comments about a company during
her regular 'Midday Call' spot, its share price
jumps an average of 43 points within a minute -11
points in the first 15 seconds, 20 in the next 15
seconds and 12 points in remaining 30 seconds."
*** Clearly, this study is not a scientific
quantitative analysis. (No "quant" would express
results in terms of absolute points rather than
percentage move). But the essential point is
unmistakable. "Research" bull market style is a
fives-step process: 1) Sit in comfy chair; 2) Turn
on TV; 3) Tune to CNBC; 4) Listen carefully to
Maria Baartiromo; 5) Buy any stock she mentions.
*** "The top 1% of taxpayers pay about one-third of
all income taxes," write Doug Bandow of the Cato
Institute. " The top 5% pay more than half. The top
10% pay nearly two-thirds. The top 25% pay more
than $4 of every $5 in taxes." This is why most
people approve of government spending...they don't
have to pay for it.
*** Yesterday afternoon, my son and I drove up to
Taos. The drive, up the Rio Grande valley, is
stunning. It must have been even more stunning when
the Conquistadores visited in the 16th century.
There were no mobile homes and no junked cars to
clutter the valley. Also stunning was the price of
lunch - $15 for the two of us. I'm not used to such
low prices. Maybe the dollar is not overvalued
after all.
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A GREAT AND SUBLIME FOOL
"The Lack of Money Is The Root of All Evil: Mark
Twain's Timeless Wisdom on Money & Wealth for
Today's Investor." The title caught my eye as I was
passing through the Denver airport. So, I picked up
a copy. And now I will tell you how to save $22 -
don't buy the book.
Andrew Leckey, the book's author, is a syndicated
columnist and regular TV commentator. I don't
recall any of his columns. Now I know why. The man
is painfully humorless. That would not be so bad,
but he has attempted to team himself up with one of
the most polished wits in history. Mr. Leckey's
limitations are exaggerated by the comparison He
drags along as if he were restocking shelves.
Twain, for example, makes our point - that
investors get not what they expect, but what they
deserve - in a different way. "Providence always
makes a point to find out what you are after," he
writes, "so as to see that you don't get it."
Leckey, completely deaf to the idea, follows with
this: "The marked differences in the returns of
seemingly similar investments are a big reason why
asset allocation remains crucial."
How does asset allocation reach Twain's point?
Mightn't Dame Providence, in her infinite wisdom,
also discover what you expect from a diversified
portfolio as well as a concentrated one?
The problem is that Leckey doesn't even seem able
to understand Twain's ironic humor. Twain typically
takes common platitudes and turns them inside out,
reaching for a deeper truth in the entrails. But
Leckey keeps his hands in his pockets.. Even the
book's title Leckey seems to take a statement of
plain truth. Instead of treating it as an
invitation for more nuanced reflection, he takes up
the challenge of helping the reader improve his
financial position with the dull earnestness of a
scoutmaster teaching boys to make a fire.
"There is a charm about getting rich - and yachting
- which is unspeakable," wrote Twain. "Make money
and the whole world will conspire to call you a
gentleman."
Again, Leckey misses the subtle self-mockery:
"Following the wisdom and common sense contained in
this volume," he writes seriously, "will help you
earn the money you need for a comfortable future,
and "gentleman" - or "lady" - you will be called."
But watch out. It's not easy.
"October. This is one of the peculiarly dangerous
months to speculate in stocks," Twain elaborated.
"The others are July, January, September, April,
November, May, March June, December, August and
February."
Leckey: "Twain was making a timeless point," that
investing is dangerous. Not only that but he gave
us "an eerily accurate prophesy. For he began the
list with October, the month of two of America's
greatest stock market crashes." Eerie.
"Twain never took himself too seriously," Leckey
notices. But the plodding scoutmaster seems unable
to take himself anything but seriously. The reader,
meanwhile, is so shocked and alarmed by Leckey's
inability to react to Twain's wit that he begins to
regard the author as a bit of freak - like a man
who has had brain surgery and is now unable to
laugh.
One can only imagine what went through Leckey's
brain-damaged cranium when he decided to use Twain
as his partner. Twain was famously bad at
investing. Some investors fall for gold mines. Some
fall for new technology. Twain came down hard on
both. So bad was his financial management that he
was bankrupt by the age of 60 - despite earning a
fortune from his writing. He then had to embark on
an exhausting speaking tour to rebuild his fortune.
Addressing the issue, Leckey remarks that we can
learn from Twain's "common sense." And yet, the
great writer's sense was anything but common. Twain
made a point of looking beyond the common vision of
things...in order to spot the paradoxes,
inconsistencies and hyped up, empty clich‚s in the
world around him.
Leckey does the opposite - he give offers his band
of investment scouts unexamined platitudes, useless
advice and every hollow slogan Wall Street has to
offer.
"Don't take financial tips from know-nothings or
crooks," he warns.
"Whenever you fail, always get up again, and do so
with honor," he tells us.
"Beware of scams."
"Have plenty of stable investments, but also
embrace technology. It is, after all, the future."
(And don't forget the gold mines - ed.) Recognizing
that tech stocks can be dangerous, he tells how to
protect yourself:
"Carefully differentiate among companies within a
hot industry or industry segment and decide how
much they're really worth."
Leckey helpfully provides readers with a list
mutual funds that focus on the Internet sector
[this book seems to have been written early last
year]. Plus, he gives readers a list of some of the
"best performing" tech stocks. Here, the
scoutmaster seems to have given his innocents a
revolver and neglected to tell them it was loaded.
The list - including CMGI, Veritas, Qlogic and JDS
Uniphase - was an invitation to disaster. CMGI has
fallen more than ___ %. Qlogic is down ___%
[Addison...can you fill in numbers or scratch those
sentences] But what the heck, technology is the
future!
Twain loved new technology and lost a lot of money
in it..
"Every time I hear of some new wonder," he wrote,
"I postpone my death right off." He invested a
fortune in a typesetting innovation called the
Paige Compositor, for example, which never worked.
But Leckey seems able to learn neither from Twain's
words nor his example. "Technology was a risky
taboo," he writes, but "times have changed...with
people of all ages choosing technology stocks for
at least a part of their portfolios. You can't get
that kind of growth anywhere else."
"The best way to get started in technology..." he
elaborates, "is to build a foundation of quality
technology companies by buying them on any price
dips. From these core holdings - that emphasize
popular names such as... Cisco... Nokia... and...
Intel - you can move on to developing companies
that carry much greater risk and potential reward."
Leckey's readers, like Twain, were destined for
great losses...as these Big Techs collapsed over
the last 12 months.
Twain himself knew that he was a terrible investor
and cautioned others not to follow his example. "To
succeed in business,' he remarked, "don't follow my
example." But at least he was self-aware:
"Ah well," he said, "I am a great and sublime
fool."
Leckey remarks of Twain that "he knew exactly what
he was doing." If so, he was a bigger fool than he
thought. But one suspects that on this book, at
least, Twain's co-author has him beat.
Your editor, a fool in his own right...
Bill Bonner
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| About
The Daily Reckoning: |
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Daily Reckoning
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoning—his take on the financial markets and what’s going
on in the world—and sends it off by e-mail before most Americans’
alarm clocks have buzzed. Many readers say it's the first thing they want
to read when they get up—not only because it's informative and thought
provoking, but also it's inspiring, in its own quirky and provocative way.
Of course, there's
much more to Bill than his daily market commentary. He's also the founder
and president of Agora Publishing, one of the world's most successful
consumer newsletter publishing companies. Bill's passion for international
travel and big ideas are reflected in the company he's successfully built.
In 1979, he began publishing International Living and Hulbert's
Financial Digest . Since then, the company has grown to include
dozens of newsletters focusing on health, travel, and finance. Bill has
vigorously expanded from Agora's home base in Baltimore, Maryland since
the early ’90s—opening offices in Florida, London, Paris, Ireland, and
Germany.
Agora's publication
subsidiaries include Pickering
& Chatto, a prestigious academic press in London and Les
Belles Lettres in Paris, best known as a publisher of classical
literature in bilingual editions.
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