| …THE GHOST OF CHRISTMAS PRESENT… OUZILLY, FRANCE THURSDAY, 23 December 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning: *** Another lunatic day
for the Nasdaq *** Life in the real world *** Russian Mafia in America * * * * * * * * * * * * * * * * * * * * * * * * * * * * *** How about that market! The Nasdaq 100 rose another
33 points yesterday. The Nasdaq itself hit a new record.
So did the S&P. *** I didn't even notice what the Dow did -- who's
watching that anymore? *** But the bear market that has 75% of stocks in its
grip continues. There were 1419 advances yesterday on
the NYSE; 1689 declines. 81 new highs. 344 new lows. *** If my lunatic hypothesis is correct -- and why
shouldn't it be? -- the hysteria should begin to wane,
along with the moon itself. *** Did you see the moon last night? It was bright in
France. And it has brought Internet hallucinations with
it. A friend tells me that a young girl he knows went
to work for Yahoo in France as a secretary or
something… but along with her modest salary, she got
options. Those options are now worth about $3.5
million. "Why would anyone want to work anywhere else?"
he asked. *** Meanwhile, in England the Footsie hit a new high --
driven by high tech stocks. One, JellyWorks, rose to a
1,000% premium over the offer price. *** The gap between the lunatic economy and the earthly
one gets greater all the time. Hourly wages were
growing at only 4.3% a year ago. Now they're growing at
only 2.3%. Annual wage increases were 5.2% in '90. Now
they're 4.2%. But US workers are putting in more hours
than any workers in the industrialized world. "In the
real world, people are still living from paycheck to
pay check," says a Princeton economist recorded by
Business Week. *** Bonds were down a bit…gold too. What happened to
all those gold short positions that we worried so much
about when the price soared in September? Many were
probably liquidated at modest losses when the price of
gold fell a couple of weeks ago. But many are probably
still there… extended, and perhaps increased. *** Curiously, the Internet average was down a little
yesterday too -- it did not follow the tech frenzy. *** The mania has reached into other areas. Fortune
reports that biotech stocks are now acting a lot like
the Internets. Idec Pharmaceuticals was selling for $2
in '95. It's $125 now. A question: if the new wealth
explosion is based on the Internet… why would biotech
stocks be rising just as much? Answer: it's a mania…
not a rational response to rising productivity. *** Supposedly, the biotech frenzy is being driven by
hopes of a cancer cure. Was no one looking for a cancer
cure in '95? *** The Moscow Times reports that the Russian Mafia is
infiltrating US politics. Infiltrating? They're
getting engraved invitations. Two Russian businessmen
affiliated with the Mafia, and thus denied visas, were
photographed with Bill Clinton and Al Gore at a
Democratic fundraiser. *** The US economy is growing even faster than expected
-- at 5.7%. Of course, these figures are suspect,
however, because of the phony way computer sales figures
are calculated. *** Addison von Lunz reports from Baltimore that the
city breathed a sigh of relief yesterday. It hit the
big "300" -- someone shot a guy in the back of the head
last night to put the murder toll for the year over the
300 mark. It is an annual ritual for 10 years now -- to
beat the 300 number. If the end of the year approaches,
and the city is a little shy of the magic number, the
mayor goes on TV to ask citizens to get out their guns
and get to work. *** Meanwhile, Thom tells me that jurors in Pittsburgh
were asked to show up for duty on Jan. 16, 1900. In an
other Y2k incident, people were sent water bills with
100 years' of interest. And Saturday, the power went
out in our office. *** Most people have Y2k fatigue -- they're tired of
worrying about it. But the dangers are still real. And
no one has done a better job of explicating them than
our own Dr. Gary North. No one knows what will happen,
of course. The damage could be light -- or more
horrible than anyone expects. We'll know soon. * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * The Ghost of Christmas Present
"Fezziwig, not Scrooge."
This was my mother's advice when I began my business
career. Hard to imagine, but that was already more than 2
decades ago. We celebrated our 21st annual Christmas
party on Friday evening. It seemed as though everyone had the same idea for
Friday night. On Mt. Vernon square, people dressed in
gowns and tuxedos, suits and jeans, often carrying
shiny, wrapped presents under their arms, made their way
to parties. The Engineers Club was lit up with holiday
lights… so was the women's club next door. We outdid
them -- hiring a Scottish bagpipe player, dressed in
traditional plaid skirt, and protected by two off-duty
police officers (it is after all, Baltimore, a city with
its own traditions to uphold). He piped away, as he
does every year, welcoming our employees, friends and
significant others to the party… and drawing the usual
complaint to the police department from an irritable
Scrooge of a neighbor.
Twenty-one years ago the bubble de jour was in the gold
market, where the price of the yellow metal had just hit
its zenith -- reaching above $850 an ounce. Just as we
recall Lenin's prediction of using gold for the floors
of public lavatories today, back then we spoke of using
stock certificates to paper the walls of our storage
closets. Stocks were beneath contempt.
People were less interested in getting rich than they
were in avoiding poverty. They did not dream of becoming
millionaires so much as they had nightmares about dying
paupers. In the 2nd year of Jimmy Carter's presidency, America's
perch on top of the world seemed much more precarious.
It was not at all obvious that the greatest bull market
of all time was about to begin. At that time, stocks yielded as much as bonds yield
today -- more than 6%. But investors wanted neither
stocks nor bonds. They wanted hard assets and natural
resources. Oil seemed like the investment of the future.
Buying Exxon seemed like the "sure thing." Buying gold
seemed like an even greater "sure thing" for even if the
economy collapsed, as was widely predicted, the price of
gold would rise as the dollar became worthless. Stocks generally, were viewed as a dying asset class in
1978… one that was given last rites by the classic
Business Week cover of a few years later… the very
bottom of the market… "The Death of Equities." It was hard not to recall these things as I saw many of
my old friends at the party, many of whom you may know,
if not in person, by reputation. Jim Davidson was there. So was Lynn Carpenter. I have
known both of them from childhood. We all failed to grow
up together. Jim has grown a little more distinguished
looking, and a lot richer. But otherwise, I wondered how
much had really changed since Jim and I got together with Mark Hulbert to launch the
Hulbert Financial Digest, back in 1978. That was the
beginning of our publishing business. We were curious
about what kind of investment advice really paid off.
We thought investors would be too. Mark Hulbert, a
student of philosophy who Jim had met at Oxford, took up
the project with enthusiasm and continues to do it even
now. In 1979, our contrarian instincts told us that gold and
natural resources were probably overbought. Doug Casey
predicted a bull market in stocks in the early 80s. Gary
North even recommended buying Microsoft in 1986 -- an
investment that turned out to be the call of the decade. But even our contrarian instincts were no match for the
profound changes of the next twenty years. Gold did not
rise. It fell. The dollar did not move into Weimar-style
hyperinflation. Inflation declined. The federal budget
deficit did not fly out of control. It turned into a
surplus. Stocks did not die. They went on Viagra. And here we are -- Christmas, Anno Domini, 1999. I love the Christmas party. Everything and everyone is
so pretty. And I find out things I never would have
learned otherwise: "Mister Bonner," said one young woman, in a red velvet
dress, late in the evening, slurring her syllables a
bit, "I've wanted to say this to you for a long time. I
love this company. I mean it's great." She was standing near the fireplace in the front room,
with the Christmas lights adding a glow to her cheeks.
We had just finished singing Christmas carols. Thom led
the singing, playing a 12-string guitar for
accompaniment, while I hacked away on the six-string in
the background. Holding a drink in her hand, she looked like someone I
had seen in a liquor ad. Who was she? I didn't know.
Someone's wife? Someone's girlfriend? An employee in the
accounting department? "But y'know something… there's just one problem…"
she went on. "Oh?" I replied, Fezziwigishly. "C'mon…" she continued, "I mean, no offense, but this
business sucks. Newsletters are gonna be out of business
soon. Everybody's getting on the Internet. But we're not
even close… our websites are a joke." "Tell me more…" I replied, honestly. I wanted her to
go on talking. A man never tires of being set upon by a
beautiful woman. *** While this was happening, Ebenezer was being set upon
too. But his was no earthly beauty. No beauty at all…
in fact. "Come with me," said the spirit. "I am the ghost of
Christmas Present. Look upon me. Touch my garment." Ebenezer did so and instantly found himself flying
through the streets of Baltimore. There on Mt. Vernon
Square was a bagpiper, of all things, and people walking
in groups, singing, laughing. Christmas lights were run up the tower of the monument
to George Washington and caused the whole square to
glisten festively. But the ghost did not pause. He continued his flight
across Charles Street and over to East Baltimore.
Finally, he stopped in front of a modest row house. "What is this?" asked Ebenezer of his guide. "This is a house." "Yes, I can see that," Ebenezer pursued the issue, "but
why are we here?" "That is for you to answer," replied the phantom. Ebenezer looked in the window. It was a very modest
house, of the sort you could buy with a couple of shares
of Yahoo on a good week. And there was a family… and yes… he recognized now
where they were. This was the house of his old trading
partner, Bob. He had not seen Bob in 15 years -- not
since the two of them split up after their hedge fund
went belly up. Poor Bob, he had given up investing altogether and
gotten a job at a mining company. Silly bugger, thought
Ebenezer, he saved his few pennies and bought gold
coins. He probably has hundreds of them buried in the
yard. Not worth the trouble of digging them up. And he
could have bought Internet companies. Bob's wife and three daughters were talking in the front
room. How pretty the girls were. And so full of life. "Martha," said Bob's wife, "Dad will be so glad to see
you. We have so much to do to get ready for Christmas.
But sit down in front of the fire. It will be so nice…
now that you're here." "Oh… there's Dad's car," said another of the girls,
with red, curly hair like that of a doll, "Hide, Martha!
Let's surprise him." So Martha hid herself, and in came Bob. And there upon
his shoulder was Tiny Tim. Alas, he bore a little
crutch, and had limbs supported by an iron frame. "Now, where's our Martha," asked Bob, looking round. "Not coming," said his wife. "Not coming," said Bob, with a sudden declension in his
high spirits; not coming for Christmas?" Martha didn't like to see him disappointed, if only in
jest; so she came out from behind the closet door and
ran into his open arms. "And how did little Tim behave in church," asked Bob's
wife. "As good as gold," said Bob, "and better. Somehow he
gets thoughtful, sitting by himself so much, and thinks
the strangest things you ever heard. He told me, coming
home, that he hoped the people saw him in the church,
because he was a cripple, and it might be pleasant to
them to remember upon Christmas Day, who make lame
beggars walk, and blind men see." Ebenezer could barely suppress a "humbug." For he knew
there were advances coming in the biotech and
microtechnical sectors that would cure cripples and
blind people. He had seen the IPOs go up by 10 times.
It was just a matter of time until all of life's
inconveniences were done away with. And anyone who cared
to could be rich too -- they just had to stop being so
stupid and stubborn, like Bob. Get with the program, for
Pete's sake. The evening dinner progressed, with Ebenezer and the
ghost watching. The table was set, the whole family
seemed in motion. Everybody had something to do… and
something to say, well, about everything! And such merriment! "A wonderful dinner," said Bob to his wife. "And the
pudding was sensational." His wife confessed that she had doubts about the
pudding. Even in a low-inflation world, Christmas
puddings can be expensive. And, in truth, it was a
rather humble pudding, Ebenezer thought, for such a
large family. He had seen that much left on the used
plates at the Deutchebank/Alex Brown party the day
before. But no one said a word to suggest that it was a small
pudding. Any member of the family would have blushed to
hint at such a thing. And when it was over, the cider was brought out and
passed around. Bob proposed a toast: "A merry Christmas
to us all, my dears. God bless us." Close by his side sat his son, Tim. Bob held the
withered hand in his, as if he feared the boy might be
taken from him. "Spirit," said Ebenezer, with an interest he had never
before felt, "tell me if the boy will live." Even with
all the advances of medical science, Ebenezer somehow
sensed the answer was by no means certain. "I see a vacant seat," replied the Ghost, "in the poor
chimney-corner, and a crutch without an owner. If these
shadows remain unaltered by the Future, the child will
die." *** By the time the ghost of Christmas Present left
Ebenezer our own Christmas party was coming to a close.
The guests were leaving, one by one, and in small
groups. Arm in arm, many of them made their way up to
the top floor of the nearby Belvedere Hotel where they
continued to enjoy a night of good cheer -- until the
night was over. But I was worn out and retired to my small apartment
around midnight. In less than 10 minutes, I was asleep
in my bed, with visions, perhaps not of sugar plums but
maybe of some kind of plums, sugar free, dancing in my
head. Around about 4 AM -- I looked at the clock -- my sleep
was disturbed. There was a tremendous racket on the
steps. What ghosts were these I wondered? Tomorrow: The Ghost of Christmas Future Bill Bonner
* * * * * * * * * * * * * * * * * * * * * * * * * * *
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