For Better or for Worse

"Go down to your deep old heart, and lose sight of yourself. And lose sight of the other whom you turbulently love. Let us all lose sight of ourselves, and break the mirrors, for the fierce curve of our lives is moving again to The depths out of sight, in the deep living heart."

– D.H. Lawrence

"The two most bee-yootiful words in the English language," said the rabbi, in his strong New Jersey Jewish accent, "are husband and wife."

Rabbi May was co-officiating, along with Father Dever, at a marriage ceremony in Philadelphia last night. Your editor was among the witnesses, his eyes moistening as the bride and groom recited their vows. Maybe it was the pollen of the maple trees.

Your sentimental editor began to recall the chain of accidents and happenstance that brought him together with his own wife. Was it the unexpected passenger…the wrong turn he took on route 95 south – missing the exit for Atlanta…or the flat tire that brought them together?

Or was there a kind of gravity between them from the very first time they met – a tug so strong and irresistible that it was destined to bring them into a tight orbit, one around the other – no matter what happened? He didn’t know. But he knew that he was locked into a tight orbit – and he liked the light and warmth he got from his planetary companion.

But even in nature’s most perfect union, there are times when gravity fails, times when negativity, faithlessness and celestial accidents take over. Half of all marriages end in divorce. And why bother to get married at all? Today people live together, have children, argue, fall out, and sue one another – all without the benefit of clergy.

A friend of mine discovered – after years of marriage – that neither of his children were actually his.

"I don’t know what happened to me either," said another friend a few years ago. "We were happily married. We had 4 good kids. I always thought that if anything went wrong I would be the one to mess things up. But she just seemed to go crazy. She started drinking. She used drugs. And when she finally pulled herself together – she blamed me for everything…even things that happened to her before we ever met!"

My friend, after nearly a decade of wandering through the empty space of the human firmament, still longs for the familiar embrace…the cycles of sunrise and sunset that he once enjoyed at home.

Amid the tall buildings of downtown Philadelphia, the Union League building crouches like a toad between two storks. It is built of brick and brownstone in the fashion of the 2nd half of the 19th century – with an incongruous mansard roof that it wears like a lampshade on its head. It is not an attractive building from the outside – as lacking in grace and charm as the cause to which it was dedicated. The league was founded, says the official history, "in 1862 as a patriotic society to support the policies of President Abraham Lincoln."

Inside it is richly furnished and embellished in wood, leather and cigar smoke. It is a men’s club – very much like the Maryland Club in Baltimore or the old ‘In and Out’ Club in London – a refuge of old money, tradition and manners.

At least, that is what it used to be. Last night, at the bar, there were several men sitting around who wore neither ties nor jackets. One was dressed in slacks and a black sweatshirt. Next to him sat a burly man in a white shirt. Both had dark curly hair and spoke with accents you’d never hear in the Maryland Club. These men were more like Jersey Sopranos than Maryland tenors.

I report that to you with neither disapproval nor regret. For even if the venerable old club has fallen into the hands of mobsters, it is moving up in the world.

Putting the southern states together with the northern ones was not a perfect union. Less than a century after the deal was made, the southerners wanted out. But the Yankees – forgetting the truths that seemed so self-evident to their ancestors – would have none of it. Like a jealous, enraged husband, they would rather kill the rebels than see them go free.

The Yankees, winners on the battlefield, then claimed their prize: history. Hardly a night had gone by and they had their way with her – labeling the conflict a ‘civil war.’ But a civil war is a fight for control of a government. The southerners were not fighting to gain power in Washington. They were fighting for independence, to which they thought they had a right. From the Southern point of view, it was the North that was the faithless partner – failing to respect the terms of the union. Calling the resulting war a ‘Civil War’ makes no more sense than calling the O.J. Simpson trial a ‘child custody’ case.

"How do you feel about having all these war criminals looking down at you?" I asked my old assistant, Beirne.

On the wall of the Lincoln Room hangs a portrait of Ulysses S. Grant, looking surprisingly youthful and sober. There were many other portraits too – other officers who tried to kill Beirne’s forebears. Down the hall is George G. Meade and William T. Sherman, the man whose army did to Georgia roughly what the Roman legions did to Carthage. Sherman attacked civilian targets as well as military ones as he burned his way across Georgia. And one out of every 4 white men in the South died before the war was over.

"I harbor no grudge," said Beirne gracefully, "but all these pictures of armed Yankees make me nervous."

The Lincoln Room sports two beautiful paintings of naval engagements of the Civil War. One shows the U.S.S. Kearsage sinking the C.S.S. Alabama. Another shows the first encounter between ironclad vessels – the Monitor and the Merrimack – which ended in a draw.

There are also three busts of Lincoln in the room – and a display case of yankee military paraphernalia. One bust of Lincoln may be excused as history – three are a form of idolatry.

Before I go on with these idle reflections, I feel I must warn you: today’s letter includes little practical investment advice or insight.

And yet, useful insights – like love and market bottoms – tend to come to those who are not actively looking for them.

"Naturally, most folks in the popular press and mainstream financial media are using the word ‘bottom’ quite frequently these days," writes Mark Rostenko of the Sovereign Strategist. "It’s funny, however, to notice that they’ve been using that word ever since this decline started – a telling sign if you think about it. It demonstrates quite clearly that this market has not yet seen the major seas-change in sentiment that accompanies TRUE market bottoms. All the way down, everyone was calling the bottom and now that we’ve had a three- session rally, most of those same folks are convinced we’ve seen the bottom. It appears that sentiment hasn’t changed all that much during the plunge.

"It’s not the bottom if everyone is still looking for the bottom."

How do you find the bottom…if you can’t find it by looking for it? How do you find love if it escapes when you try to catch it? How can you have a happy marriage when so much of it depends on things out of your control?

To be continued…

Your editor, misty eyed…

Bill Bonner
April 2, 2001

P.S. In the center hall of the Union League are the framed remnants of a battle flag with a shamrock on it. Why would the Irish – who complained about British rule for 3 centuries – fight for the North? People can be whipped up to serve any cause, gentle reader, no matter how much it challenges their sense of irony.

*** The first quarter ended on Friday. The Dow and Nasdaq rose. And investors seemed to face the future with growing confidence that the worst is over.

*** Tuning into CNBC from my hotel room, the talk is all "bottoms." The word was on every pair of lips on the show; the presenters coax it out, if necessary.

*** Once the context was established – the bottom is in – the air-wave heads could go on with their business, talking up individual stocks. It is hard to believe that anyone would take this vapid blabbering seriously, but people seem to do so.

*** The Dow rose 79 points on Friday – barely avoiding what might have been the worst quarterly performance in 40 years. The Nasdaq rose too – but not enough to offset the rest of the week’s losses, nor enough to escape turning in the worst quarterly performance on record.

*** Taking the week as a whole, the Dow was up 3.5% and the Nasdaq down 4.5%. The Dow ended the quarter down 18% from its high of January 2000. The Nasdaq is down 63% from its high of March 2000.

*** Where to from here? Stocks are still far too expensive. Even on the Nasdaq, the average P/E is above 100. On the Dow, the average P/E is over 20. This is down from a high hit in May of ’99 of 28.7. But it’s the kind of P/E you’re more likely to find at the top of a market rather than the bottom.

*** Stocks are destined to trade at lower prices. But Mr. Bear is not in the habit of making it easy for anybody – especially those who think they have the market ‘figured out.’ Stocks could go nowhere for a few years, or even hit a new high – as they did following the peak in ’66. It wasn’t until ’73 that the bear market fully expressed itself, with stocks dropping sharply. Or, we could see a massive rally – such as the one that followed the crash of ’29. That rally was so strong that almost everyone thought that the good times were back to stay. But then, the bear took over again and drove prices down until the average stock had lost nearly 90% of its value. If stocks were to drop to a low equivalent to the low registered in 1932 – the Dow would have to fall below 2500.

*** "The first quarter experienced one of the strongest periods of debt issuance in history," writes Doug Noland of the Prudent Bear, "with a staggering $223 billion of new debt coming to the market." The bubble in Nasdaq stocks may have popped, but the credit bubble continues to expand. M3 rose $10 billion last week, Doug reports, up $680 billion in the last 12 months – a rate of increase of about 10%, or ten times the GDP increase of the last quarter. Money market funds added $40 billion last week; they are growing at a 53% annualized rate.

*** Where is all this money going? "Liquidity moves to the rising market," is the economic dictum. Doug reports that total mortgage debt has jumped from $2.5 trillion at the beginning of the 1990s to about $5 trillion today.

*** Standard & Poors is expecting 20-25% growth in home equity borrowing. And Angelo Mozila, CEO of Countrywide Credit Industries, predicts as much as 70% increase in home refinancing this year.

*** Home prices hit new records in San Francisco and Florida recently. And New Yorker magazine quotes a developer who says he has seen no downturn in demand for "McMansions" – million dollar-plus tract homes.

*** "Nearly 1/5th of all homes [in California] sold above the asking price," reports the LA Times. Sellers are walking away with around $100,000, on average, after escrow and closing costs – almost 3 times as much as in 1997.

*** "Housing prices may never drop in Michigan," says a headline in the Detroit Free Press. Housing prices "have never dropped since records started being kept in 1975," reports the paper. "We don’t see any indication of a decline in house prices," said Frank Nothaft, economist with Freddie Mac. "Certainly, not at the national level, probably not at a regional level."

*** So, there you are, dear reader, you can’t lose in real estate – just as you could never lose in high-quality tech stocks. The boom in real estate is on!

*** In Rome, the cab drivers speak Italian, but they seem to understand a little English. In Paris, they speak French, but you can usually get where you are going. But in Philadelphia, they speak no known language and act as if they have never been in the city before in their lives. I was only able to get downtown by pointing to the tall buildings.

*** Philadelphia is supposed to be the fattest city in America. While I cannot confirm that reputation, I found no evidence to dispute it. Down at Pete’s on Walnut Avenue, next to a place where you can have your future foretold from your "Palm Vibrations," the waitresses were easily the size of the small cars you see in Paris.

*** I am in town celebrating a wedding. The marriage between an Irish Catholic and an Eastern European Jew was held in a bastion of Protestantism and yankee bullyism – The Union League. More below…