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Poor Phil Demuth. Reporters sometimes put themselves in
danger to get a good story. But Demuth went far beyond
the call of duty. He decided to see just what kind of
news CNBC was giving its viewers. To find out, he had to
sit down and actually watch the tube for 24 hours.

When his brain finally revived, he wrote the
following headline in Barron's: "Only Happy Talk at CNBC." In the entire
24-hour period, hardly a discouraging word was heard
about stocks. "In good times and bad," said one deep-
thinking technical analyst, recommending shares of
Kellogg, "people have to eat food."

People may have to eat. But they don't have to buy
Kellogg shares at 28 times earnings. The company puts
out the same Disney Honey Bees and Marshmallow Blasted
Froot Loops (I'm not making this up… look on the
website), whether the stock sells for 8 times earnings
or 28 times. Kids get the same cavities, but investors
don't necessarily get the same rate of return.

Happy talk was all over the air waves and papers
yesterday. Greenspan said the recession was over; no
need for any further action on interest rates. Merrill
Lynch said it expected 5% GDP growth in the first
quarter. Goldman raised its bid too - guessing that 5%
is the right number.

"Home Sales at Scorching Pace" adds a headline in the LA
Times. Median prices rose 15% in the last twelve months
in LA county - up to $237,000. It's a 'mini-bubble,'
said a real estate consultant. In San Diego county the
average house sale rose by $40,000 last year - to nearly
$300,000.

Not for the last 20 years has the average household's
ratio of real estate wealth to total wealth been so
high, says the American Instituted for Economic
Research.

Could real estate prices ever top out… or actually go
down… once the happy talk stops? Nah.

So, let's return to stocks… Eric…



                                         ********



Eric Fry on Wall Street…



- According to legend, the oracle at Delphi drew much of
her inspiration from the intoxicating vapors that wafted
through the ancient Temple of Apollo. According to a
team of scientists, the mystical, mythical vapors might
have been ethylene gas escaping from seismic faults
directly beneath the temple.

- However, the scientists offered no explanation for the
nauseating effect caused by watching investors attach
Delphic significance to every pronouncement from Alan
Greenspan.

- With oracular confidence, the Greenspan Fed declared
yesterday, "The economy, bolstered by a marked swing in
inventory investment, is expanding at a significant
pace." Experienced Fed-watchers understand this cryptic
utterance to mean that the Fed has shifted its "policy
stance" to a "neutral bias." In other words, the
recession is over… The oracle hath spoken.

- Investors cheered the news by bidding stocks higher.
The Dow gained 57 points to 10,635, while the Nasdaq
climbed 3 points to 1,880.

- Way back in late February, when investors cared
(temporarily) about how companies calculate their
earnings, Prudential Securities analyst, Carol Coale,
downgraded Kinder Morgan Energy Partners, L.P. to "Hold"
from "Buy" due in part to "rising investor resistance
toward complex financial structures."

- Coale may owe Kinder an apology. When it comes to
complexity, Kinder Morgan is clearly in the minor
leagues. Nobody beats General Electric on this score.

- Somehow, this industrial-financial behemoth produces
remarkably consistent earnings growth through thick and
thin. How does it do it? Does GE's impeccably well-
groomed earnings growth simply fall out of the macro-
economic sky? Or, is GE's financial performance more the
result of fastidious manicuring - much like a British
garden?

- Whatever the reason, in good times and bad, up markets
and down, GE always seems to deliver precisely the
earnings everyone expects… or maybe a penny more. It
never misses. It never disappoints. How could this be?

- "GE all by itself accounts for 1.3% of the U.S. gross
national product," observed Apogee Research (formerly
known as Grant's Investor) nearly one year ago. "How, we
wonder, could a company this massive remain apparently
invulnerable to the adverse macroeconomic trends that
arise from time to time? To preview, it may not be."

- The Apogee story demonstrated that GE's cash flow was
somewhat less impressive (and much less reliable) than
its brain-surgeon-steady earnings growth. Specifically,
Apogee noted that GE's cash flow from operations had
been dropping, even while reported earnings had been
rising.

- In 2000, GE's cash flow fell $1.9 billion compared to
the prior year. However, reported net income jumped a
sparkling 19%.

- How does it work such financial magic? GE will be the
very last to tell you. As Jim Grant quipped, "GE does
not put out the welcome mat to enquiring minds." Nor has
the company become any more welcoming this year.

- "Annual report season is well underway," observes
Gretchen Morgenson of the New York Times, "But while
companies flaunt their new openness - General Electric
said 'having well-informed, confident investors is a
critical management objective,' it is not clear that
this year's disclosure is much better than last.

- "Perhaps most disappointing to some investors,"
Morgenson continues, "was General Electric's report,
which promised significantly greater disclosure but did
not deliver."

- Happily for GE, less-than-full disclosure about its
far-flung activities has been no impediment to a rising
share price. In other words, most GE shareholders are
content to look the other way and not ask any
uncomfortable questions. Like buying a car stereo out of
the back of a van, you don't ask where it came from.

- Unless and until that attitude changes, producing
cosmetically pleasing earnings results will remain a top
priority in the GE accounting department.

- GE's new CEO, Jeff Immelt, assures the faithful that
GE will continue to hit its earnings bogey quarter after
quarter with the precision of a Patek Philipe. According
to Fortune magazine, Immelt promises that GE will
achieve double-digit earnings growth in 2002 and 2003,
WEAK ECONOMY OR NOT.

- "We give investors a chance to sleep at night -
knowing that you're going to get consistency and
visibility, and over long periods of time and over every
economic cycle, performance that surpasses the S&P 500,"
Immelt said.

- How can the head of the world's largest public
corporation, whose sales represent more than 1% of US
GDP, make such a promise? How can he possibly assert
that adverse economic cycles will not prevent GE from
delivering double-digit earnings growth… unless, that
is, he knows he has 'levers to pull' to make it happen?

- Full disclosure is no friend to a GE stock that sells
for 28 times earnings.



                                         *******



Back in the land of wine and cheese…



*** You may recall the puzzling sign I noticed at an
airport security station a few weeks ago. It was
illegal, said the inscription, to make 'inappropriate'
remarks. What would be considered inappropriate, I
wondered.

Well, a US Airways pilot, Elwood Menear, found out. He
was charged with "terroristic threats and disorderly
conduct in Philadelphia on January 13" says the report,
"because he made 'inappropriate' comments at an airport
security checkpoint." Officials won't say exactly what
Mr. Menear is charged with saying, the report tells us
that sources present at the scene said he asked:
"Why are you worried about tweezers when I could crash
the plane?"

A reasonable question in our view. But completely
inappropriate… for it shows the security measures for
what they are - humbug. Whether it is the new bull
market or the WAT, Americans are supposed to go along
like beasts of burden, without asking any questions.

*** "Where are you," I asked Maria, as I looked through
the Italian Vogue that was supposed to have her pictures
in them.

"There… those are my legs… and that's me
too…" she replied.

"Oh, I see. Very nice," said her father.

Maria might have been disappointed that her face
didn't appear, but she has become accustomed to setbacks
in her short career as a fashion model.

Instead, it was my son, Jules, who was disappointed last night. The poor boy was thrown into the French school system, not speaking a word of French, at the age of 8. Given no choice, he endured and persevered. but French schools are tough, and Jules fears he will have to repeat the 9th grade.

I went to a parents/teachers meeting last night.
"You have to go," Elizabeth had insisted. "Otherwise,
they don't think you're serious." The French are very
serious about their schools. Not a single parent missed
the meeting… it was standing room only as the
headmistress lectured parents about what was expected of
them.

What is expected is a level of parental motivation
rarely seen in the U.S. Parents sign off on almost every
test… and push, prod and threaten their children to
levels of exertion that would seem like child abuse in
North America.

"I called Leonard on Saturday afternoon, to ask him if
he wanted to go to a movie with me," Jules told me, "but
he said he couldn't come out because his mother was
making him review his physics. We didn't even have any
homework in physics. I want to go back to Maryland."



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The Daily Reckoning PRESENTS: Doug Casey with some
cautious thoughts on War, Terror, The American
Culture… and your stocks.

STOCKS AND WAR

by Doug Casey

Back in the April 2001, I remember commenting that since
everyone, including myself, was getting pretty bearish,
we were likely due for a nice strong rally - which we
got. Then the events of 9/11 occurred.

After the initial plunge that resulted when the market
reopened, stocks have been up strongly. In fact, the
majority of commentators are calling for a resumption of
the late, great bull market. It's not an entirely
irrational sentiment. If you trace the history of
America's wars relative to its stock market, what stands
out is that betting against America has always been a
losing proposition. Since at least WWI, the market
usually gets quite weak at the start of a conflict, due
to a natural uncertainty about both the government's
response and the eventual outcome. But history tells us
that it's smart to buy stocks after the initial sell-
off.

For example, the Dow Jones Industrial Average fell 2.9%
on the first trading day after the Pearl Harbor attack,
and another 11% over the next four months. That's
surprisingly little, in view of the beating that
Americans - and all the allies - were taking on
virtually every front. But, despite a bad start, the Dow
not only went on to return 20% in 1942, but doubled over
the next three years as the war drew to a close.

War, at least in the past, has always seemed good for
the economy and the market for at least three reasons:
First, "winning" is Pyrrhic if you're left in the state
of Britain or France after either World War. However,
America has not only always triumphed, but it has done
so without taking serious damage. Second, war has helped
America to spread its culture around the globe, and
aided its businesses in gaining market share. I have
real reservations on how wise that methodology will
prove to be in the long run, but that's another subject.

Three, since the creation of the Fed in 1913, wars have
been financed largely through inflation. And,
notwithstanding all the damage inflation does, that new
purchasing media do find their way into shares, driving
them higher. So it's understandable that people are used
to thinking that not only is war "the health of the
State" (correct), but that it's the health of the
economy and the market as well (incorrect).

Another factor behind the post-9/11 strength lies in the
fact that we've had the biggest bull market in history
since the bottom in 1982. If there's one thing people
have learned over at least the last decade, it's to buy
on dips. And, although the stealth bear market of the
last three years (prominently including the wipeout of
high tech issues) has shaken that faith, the true
believers haven't yet been turned into agnostics, much
less apostates.

It's going to take years before the psychological
expectations that were built up over the last decade to
wash away. We're not likely to get the final bottom
until everyone is so utterly fed-up with the stock
market that nobody is looking for a bottom - and nobody
will care when it arrives.

The big difference between the market now and that of
1941, however, is simply value. After Pearl Harbor it
dropped so little because it was still at depression-era
levels. That's totally the opposite of today's
situation. And, after a while, it was fairly clear how
and when the Axis would be defeated. Whereas now it's
completely unclear not only how and when the enemy will
be defeated (notwithstanding the surprisingly quick
collapse of al Qaida in Afghanistan), but even exactly
who the enemy really is. I believe, therefore, that
we're still in the early stages of what is likely to
prove one of the worst bear markets of all time.

How long and deep will this bear market be? Nobody has a
crystal ball. But the stock market fluctuates around a
mean established by fundamental values, alternately
going above and below the trend line. Based on how high
it's run in recent years, I suspect we'll see something
a lot more ugly and traumatic than just a bear market in
stocks before it's over. Stocks, bonds, the dollar and
the economy itself are likely to get whacked in a way
you see only once in a lifetime. If you're lucky.
There's every chance we're looking at the Greater
Depression, and I suspect it's going to be worse than
even I think.

It occurs to me that the next few years may present a
true test of the Austrian school of economic thought, of
which I'm a proponent. One of its tenets is that a
credit-driven boom must, inevitably, be followed by a
roughly proportionate downturn. And we've certainly had
a gigantic, credit-driven boom.

One other thought that's occurred to me recently is the
utter intangibility of stocks. Unless you're getting
dividends (which are sparse today), all you've really
got is a piece of paper, for which there may not even be
a market.

That thought will cross the minds of millions over the
next few years.

Doug Casey,
for the Daily Reckoning

International Speculator Doug Casey has been seeking and
finding incredible opportunities around the world for 25
years.

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