Nowhere Man

NOWHERE MAN

THE DAILY RECKONING

ON BOARD THE EUROSTAR

WEDNESDAY, 8 DECEMBER 1999

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In Today's Daily Reckoning:

*** Dow down again…

*** But the Nasdaq keeps booming and…zooming…off the
charts…into the land of the Mars Polar Lander.

*** And Much, Much More…including comments about
personalities…and some middle-of-the-night agitations,
too

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*** I'm on the Eurostar on my way to London. In fact, as
I write this, I'm deep under the English Channel. Nice
train. The 6:37 out of Paris is practically empty. But
the seats must have been designed by a chiropractor
hoping to develop business. They're terrible.

*** They've painted the cars in a Beatles motif. I'm in
the "Nowhere Man" car. I won't take it personally. But I
note that today is the 19th anniversary of John Lennon's
murder.

*** The Dow fell again yesterday…more than 100 points.
Most other indices fell, too. But not the Nasdaq…up as
usual.

*** The impossible happened yesterday, too, the Labor
Department announced that the best economy in 20 years
is getting better. Labor productivity is said to be
increasing at 4.8% annually, while labor costs are going
down.

*** Don't put too much faith in those numbers,
though…additional computing power is now factored
in…whether it leads to additional wealth or not…

*** AOL is trying to sabotage me. They probably read my
comments on Internet stocks. Strange things keep
happening to the letter.

*** Gun control didn't help the teens in the
Netherlands…who were shot yesterday by a fellow
student. Not did it stop Eden Strang from bursting into
a church last week, stark naked…wielding a terrible,
swift sword. A very strange Eden.

*** Barbra Streisand was so eager to get in on the
theStreet.com's IPO that she reportedly sent four
tickets for one of her concerts to the company's CEO. No
word on whether the performance helped or hurt her
chances.

*** I reported Alan Abelson's, "Barron's" editor,
comments about Louis Rukeyser. Mr. R responded that he
should watch the show, "Wall Street Week," "and begin to
learn what's actually been going on in the world of
finance all these years." Abelson shot back that he
programmed his VCR to "summarily reject anything that's
pontifical, sophomoric and dull." All good fun.

*** Hey…we're not afraid of high tech…here's a
comment from Fleet Street editor Chris Weber: "To
counter the melancholy of [Monday's] DR there is good
news from our newest choice in the portfolio. Broadcom
today closed at $221.50. which means a rise of 26.7%
from our recommended price of $174.81 last month…it is
important for investors to always invest something that
will do well just in case they are wrong about the broad
course of the market. Most of my portfolio is in cash
and bonds and notes -- deflation hedges. But my tech
picks, even though they total a relatively small part of
my portfolio, are causing me glee and banishing
melancholy. In other words, the good that they are doing
for my portfolio is dwarfed by the good that they are
doing for me psychologically."
http://209.70.9.80/secure/form2.cfm?pubcode=fsus

*** To each his own, I guess. I enjoy being melancholy
once in a while. Personally, I'll save the tech stocks
until I really need them. When I'm suicidal.

*** But Dan Denning's anti-computer virus company is
looking better and better. Last week…a new computer
virus ripped into dozens of major companies. It's the
"MiniZip" strand…it attacks the mail system, causing
your computer to automatically respond to
messages…replicating itself in the recipient's
machine…Don't open files from sources you don't
know…

*** I'm writing too much…for an e-mail message. So I'm
going to put my additional notes, thoughts, this and
that, on the website's discussion board (go to
http://www.dailyreckoning.com and click "Discussion
Board). I think it is working properly. And you can use
the website to subscribe, de-subscribe, change your
address…tell me what I can do with the "Daily
Reckoning"…or whatever you like.

*** I'm on my own now. Nadiege had to leave. I'm a
single parent with five children at home…until
Elizabeth returns. This is no picnic. Why anyone would
deliberately become a single parent beats me.

*** And Edward seems to have caught a cold. I had to ask
Sophia to play hooky from school today so she could take
care of the boys while I went to London.

*** Our view is catching on…Charles Minter of Comstock
Partners: "Money flows into the market have declined so
much that only a small minority of stocks are continuing
to climb. When combined with rising interest rates,
signs of inflation, high valuation, complacent sentiment
and excessive speculation, it is highly likely an
important bear market has begun."

*** Jimi Hendrix was named the "guitarist of the
century" by "Guitar Magazine" in the United Kingdom.

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NOWHERE MAN

There are some incredible investment opportunities
available. They are still available as of this writing
because no one wants to buy them.

It is as if they didn't exist…so unfashionable are
they. I have mentioned a couple in these letters.
Octel…a company that makes additives for leaded
gasoline. It is a bargain. If it had a dot-com following
its name, and a plausible Internet story to tell, it
might be worth billions. Instead, it is selling for less
than one times annual earnings.

Another great bargain, I believe, is the mobile home
industry…again selling for very low prices relative to
earnings. But who wants to be associated with "trailer
trash?"

Then…there are stocks in the former Soviet Union. I
just got a report from James Passin's employers at the
Firebird Fund that tells of some of the values
available. How about a company with 1 billion barrels of
oil…high-quality oil reserves…valued at a level that
prices the oil at just 2.5 cents per barrel? You could
buy the whole company for the price of a few 60-minute
TV ads on Superbowl Sunday. Heck, you could probably buy
it with the loose change under the seat cushions in the
Amazon.com boardroom.

The leading commercial bank in Kazakhstan should earn
$20 million in 1999. It has an investment portfolio
worth $50 million. And you can buy the whole company for
$75 million.

The leading bank of Lithuania trades at 3.5 times
earnings. Lithuania's oil industry trades at a 90%
discount to Western companies. The largest retailer in
Estonia sells for three times earnings…and "probably
only a little more than the value of the company's
building and real estate in Tallinn, the capital."

You get the idea. But while celebrity investors bribe
CEOs to get in on the latest fad in the United
States…these sorts of investments -- and more…as
stocks fall -- are nowhere, man, in the public eye.

Last night…the point I was reaching for returned to
me, like a ghost. It agitated me until I had to get out
of bed and sit down, pen in hand, to do its bidding. The
great mathematician, Henri Poincare, said he solved the
most difficult mathematical problems in his sleep. I
feel that I am getting close to something important,
too…but maybe not…

There is a common thread that runs through market manias
and politics…a thread that helps us understand the
century of which we are about to take leave…as well as
George Soro's comment about "detecting and punishing"
the folly of government.

The rise of politics is the story of the 20th century.
It begins with lies…and ends in bloodshed, "at the
barrel of a gun," said Mao.

This phenomenon also describes what happens in market
booms and busts…though usually with little violence.
The boom-bust cycle in politics is tragic. It is only
comic in the marketplace.

In both cases, it begins with a big lie…a mass
delusion. The lie of all politics is that it can give
people something for nothing. Every councilman, activist
and presidential hopeful, except for the occasional
maverick or incompetent, promises to deliver stolen
goods.

Jim Davidson has shown many times how the rich are
exploited by a show of hands. There being fewer rich
hands…they always lose -- and end up carrying the
burden of the politician's larceny.

The big lie in a market mania is similar…that
investors can get something for nothing. The real growth
in the economy is the upward limit on what investors, as
a whole, can expect to earn. Yet, once the mania gets
rolling, these limits disappear…it's like All You Can
Eat Night at a fat farm. Investors currently expect to
earn approximately four times GDP growth -- investing in
index funds.

In manias as in politics, group thinking replaces
individual decision making. Individuals…and unique
situations…are stripped of their rich details and
turned into cliches, caricatures and empty slogans.

Mob courage replaces sober reflection. The crowd begins
to believe that it is invincible -- which leads it to do
the most irresponsible and disastrous things…such as
attacking Pearl Harbor.

Scapegoats are called in when needed. Lenin, seeing the
appalling failure of his silly plans, identified the
Kulaks, the bourgeoisie…and other class enemies. He
said, "they must be liquidated." And so they were.

In the liberal democracies we see no bridge connecting
the Soviet and Nazi misdeeds to our own public policies.
We draw the line on the far side of robbery…stopping
short of murder, usually.

But the technique of Marxist mob-think is the same.
Hillary Clinton went on national TV to defend her
husband during the Lewinsky scandal. Instead of
addressing the unique and richly nuanced questions at
hand, she chose Lenin's approach…accusing a "vast
right-wing conspiracy" of being behind her husband's
troubles.

William Pfaff is saddened by election reform…or the
lack of it. He should get a life. Real life is different
from politics. It is not reported in the newspapers nor
discussed on the editorial pages…but it involves
genuine sadness and happiness. It is not make-believe.

Election reform is little more than changing the hours
of operation at a Las Vegas whorehouse. It may suit the
customers better, but it doesn't change the nature of
the business…What goes on upstairs is still the same -
- roughly the same thing that happens to anyone who
dares defy the mob or sell short in a bull market.

The key to making money is to separate the
genuine…from the political. Mass delusions…group
thinking…cliches…mob psychology -- they are the
follies we need to "detect and punish."