| Cyclical Virtue? PARIS, FRANCE
TUESDAY, 16 NOVEMBER 1999 * * * * * * * * * * * * * * * * * * * * * * * * In Today's Daily Reckoning: *** Big day for Greenspan…will he raise rates today?
*** Beef War in Europe
*** Oil rising…Y2K on St. Helena…divorce via Internet… * * * * * * * * * * * * * * * * * * * * * * * * *** Nothing much happened yesterday on Wall Street. Stocks moved down a little.
Gold moved up slightly. The dollar fell a bit. *** But oil rose to $25 during the day…on forecasts of colder-than-expected
weather. This was the reason cited for a big drop in Transportation stocks. *** Microsoft is down to $87. Richard Russell says it will break down if it
closes below $85. http://www.dowtheoryletters.com *** As usual…new highs were far fewer than new lows…70 as opposed to 120. *** What will Greenspan do today? There's a meeting of the Federal Open Market
Committee. They surely won't like seeing oil at $25 -- it is a signal that the
inflation they've pumped into the financial markets is leaking into the consumer
economy. The smart money is betting that the Fed will raise rates by 25 basis
points. This small increase will be greeted by a dip in stock prices…and then a
relief rally. Then, following the old Wall Street maxim of "three hikes and a
tumble," the market may fall off with greater conviction. *** I read my correspondence with interest and, usually, amusement. But something
is not working on my computer…so I haven't been able to reply for about a week.
So don't take it personally if you haven't heard from me. *** A Goldman analyst, Anthony Nota, says not to worry about Amazon. They'll turn
a profit, he says…by 2002! Maybe if AMZN were a toll road or a theme park…it
would be a good investment. But on the Internet…? *** The Big Beef War between Britain and France is heating up. The United
Kingdom's meat has been declared safe by scientists…but the French won't let it
in the country. So the English are retaliating. A British tabloid has proclaimed
a "Just say Non" campaign against French food. *** Also in Britain, you can now get a divorce via Internet. You just sign up
online…pay $100…and the lawyers on the other end of the line do the work for
you. *** The island of St. Helena, where Napoleon spent his last days, is getting a
taste of Y2K-style deprivation. The only ship that serves the island has broken
down. The three little stores on the island are running out of food. *** Speaking of Napoleon, this week marks the anniversary of the Coup d'etat of
18 Brumaire, in which Napoleon seized power from the Republican revolutionaries.
France has very mixed feelings about the little Corsican…but he was largely
responsible for making the country what it is today. *** I am leaving this afternoon to visit our partners in Germany. I intend to
write…but you never know… *** "If one had bought shares in Mar'90, when Cisco went public at 0.16, split
adjusted," writes a DR reader and insider at the hottest company in Silicon
Valley, "one would have a gain by a factor of 507 at the current price in less
than a decade." Cisco has achieved the third highest market cap in the world …
after it was started in the garage 15 years ago!" Our informant warned us,
however, "that something fishy is going on." He refers to the use of inflated
stock for employee compensation and acquisitions…and infers that, sooner or
later, there will be hell to pay. *** Nicaragua has changed a lot in the last eight years, reports Steve Sjuggerud.
Steve is just back from the ribbon-cutting ceremonies at the Oxford Club's
Pacific Clubhouse at Rancho Santana, Nicaragua. Steve had been surfing at the
adjoining beach in 1991…His comments, below… *** Uh-oh…the headmaster at Edward's school has asked to meet his parents.
Edward is not doing well. But he's only turned 6 years old…And Sophia, 17, is
still ranting about the strict controls we place on her. She wants to hang out
with her friends on weekends. Instead, we drag her off to the country…so she
won't be able to hang out with them. Hmmm… * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * CYCLICAL VIRTUE "Knowledge in science is cumulative," said Jim Grant…or words to that
effect…"while knowledge in the financial markets is cyclical." My daughter, Sophia, could almost pass for an adult. For most of the time that
humans have been on the planet, she -- at age 17 -- would have been treated as an
adult and would already be so deep into life's work…surviving and
reproducing…that she would have little time to worry about "hanging out" with
her friends. Culture would guide her and constrain her. But Western Culture…at
the end of the 20th century…in the city of Paris…among the deracinated, rich
and footloose polyglot kids with whom Sophia associates at the Ecole Bilingue on
Avenue Victor Hugo…offers little guidance and practically no constraint. She
will have to learn on her own. There is little steady accretion of learning in the financial markets either.
Hypotheses are not tested out, proven true and added like building blocks to the
sum of human knowledge. Instead, each investor gains wisdom on his own, through
hard, personal experience. Then the lessons are usually forgotten…and
relearned. The generation of Americans who lived through the Depression, for
example, were very much afraid of debt. They were cautious, careful, prudent to
the point of missing opportunities rather than taking chances. Likewise, in Germany, the Helmut Kohl generation lived through both of what
Hemingway described as the "panaceas of mismanaged government" -- inflation and
war. Both were catastrophic. Learning from their mistakes, they set up a
government which is the least bellicose in Europe…and has the hardest currency.
(But in both the United States and German, a new generation has come along…and
it is off to the races!) Growing up…and investing…are similar. You can't just climb into the driver's
seat, turn on the key and benefit from hundreds of years of accumulated
knowledge. Instead, you have to learn from experience…the hard way. You have to
reinvent the wheel. William J. Bennett provides us with an "Index of Leading Cultural Indicators,"
which demonstrate the cyclical nature of virtue and a narrow window on the
current state of our culture. Though murder rates, for example, mostly fell for
the last thousand years (these are long cycles we're talking about)…they've
been going in the opposite direction for the last 40 years. Violent crime is up 467% in America since 1960, while the population increased
only 48%. The number of people in prison increased by 463%, so at first glance
you might think the perpetrators were getting tossed in prison. But the prisons
are actually stuffed with people whose crimes are of the nonviolent sort -- drug
offenses, mostly.
Since 1990, however, the cycle of violence seems to have turned down. The murder
rate in NYC is down 66%…and 36% in Washington, D.C. Baltimore is more
dependable…its murder rate is still going up. Meanwhile, the number of births out of wedlock rose 461% in the last 40 years. In
America today, one of every three newborns is a bastard. The rate in Washington,
D.C., however, a city dominated by lawyers and politicians, is twice as high. America spends twice as much per student as France. This is not virtue, of
course, just stupidity. Students in France do better than Americans on comparable
tests and sit in classrooms with twice as many kids. On the other hand, they
watch a lot less TV. Curiously, Americans still get married at twice the rate of Europeans. Whether
this reflects wisdom or stupidity…I don't know. The French, for example, are
very family oriented. But they do not seem to believe in marriage. So many people
in France are living together, and raising families, that the government was
recently moved to create a special new legal classification to deal with them. On
the other hand, when Europeans do get married, they are only about half as likely
to get a divorce. Americans can take some comfort from the fact that we are not alone. Francis
Fukayama points out in his book, "The Great Disruption," that all of the Western
world has suffered more or less a proportionate rise in crime and family
breakdown. Guess which country has the highest rate of violent crime? New
Zealand!? I almost don't believe it. Here in Paris, the children of international
businessmen…diplomats…artists…and assorted Euro-trash who attend Sophia's
English-speaking school…are given credit cards and cell phones. They are
allowed to hang out at all hours of the day and night. This culture offers little
protection for the children…and little help to parents. In that respect, it is
like the culture of Wall Street or Silicon Valley. From Sophia's point of view,
there are no risks…only opportunities. She might as well be an Internet
investor. But then…it would be only money at stake. I'll write tomorrow from Germany… Bill Bonner
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * A DR READER EXPLAINS THE WORLD WIDE WEB I think a distinction should be made between the Internet and the World Wide Web. The Internet is a communication channel clearly defined and specifically
engineered for a definite purpose; the exchange of digital data. There are
specific protocols (or "rules") used for data exchange, and to violate them is to
be "spitting into the wind." So, all users must obey the rules. The Web includes
both the Internet link and the impromptu set of servers and clients for which
there is no centralized planning authority. Hence, the Web is "not designed." The
Web includes the Internet and all devices connected to it -- and the many uses to
which the entire network are put. -- Mark Adamo * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
NICARAGUA EIGHT YEARS LATER Back then you arrived into Managua like this: you climbed out onto the runway and
hustled into the sweltering, open-air airport. Once you made it out of the
airport, you were mobbed by dozens of beggars pulling at your bags and shouting
for handouts in Spanish as you stumbled your way to your rusty rental car. Once
out of the airport parking lot, you saw a 15-year-old with a semi-automatic
weapon in front of every store and on every street corner… Today, you enter the cozy air-conditioned jetway, breeze through customs, and
you're ushered with a smile to your rental car, a brand new four-wheel-drive
sport-utility, without a beggar in sight. On this trip, I didn't see a single gun, but I did see many more attentive smiles
and "can-do" attitudes. What I saw on this trip was the Costa Rica of a dozen
years ago -- about the time the Ticos figured out that American tourist dollars
were the easiest money they'd ever seen. The boom over the last dozen years in
Costa Rican real estate is now legendary. Nicaragua borders Costa Rica and shares
the same attractions -- rainforests, volcanoes, sportfishing, etc. But it hasn't
shared one bit of the boom. Rancho Santana is the only private residential development on the entire Pacific
coast of Nicaragua. Driving through the arched guard gate and then up the hill,
you get a phenomenal 360 degree view of a few different beaches in front of you
and a lush valley and mountain range behind. At the water level, the community
beach club is in complete with bar, showers and restrooms. The community pool is
almost complete. They're perfectly nestled on a small beach between two cliffs,
no more than 10-15 yards from the surf. Though development has really just
started, about 80 lots have been sold and two nice beach homes are nearly
complete. But Rancho Santana isn't the only opportunity in Nicaragua -- the group of
[Oxford Club] members visited properties for sale all over the country. And
Oxford Club members aren't the only ones buying Nicaraguan property on the cheap. On the plane I sat next to Tony, a large, sweaty, wealthy, fast-talking property
developer from South Florida. He told me that he bought a 3-bedroom, 2-bath house
on Lake Nicaragua for $16,000. Now that's not on the ocean, but his backyard has
a panorama view of the lake, with a massive volcano maybe 20 miles away. He
brought his wife and kids (ages 9 and 13) down in March, and they liked it so
much, they're staying. His kids are in the local schools. He's expanding his
house, adding on another 500 square feet -- for a mere $1,500. Nicaraguan labor
is dirt-cheap. I also met Bill, a lawyer from Nevada, who came down a year ago. He and his wife
have settled in a beautiful home in San Juan del Sur, right on the ocean. They're
debating whether or not to hire a live-in cook/housekeeper -- at a cost of $100 a
month. I'm not suggesting you do like Tony and Bill, and move your family to a third-
world country (before I left, my wife made it perfectly clear that she won't go).
But buying dirt-cheap, beautiful oceanfront property as an investment is a
different story. You can learn more about Rancho Santana at www.ranchosantana.com.ni The best
place to learn about Nicaragua on the web is:
http://library.advanced.org/17749/index.html
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