La Bourse ou La Vie?

The Daily Reckoning
Weekend Edition
October 19-20, 2002
Paris, France
By Addison Wiggin

“The bear is dead,” reads the subject line from CNN/Money and Fortune.com’s daily e-mail called the Street Life. “Everyone’s hoping the rally has killed the beast,” reads the opening line. Everyone’s hoping… but no one really knows.

The old timers – those who’ve actually seen one – say the bottom of a bear market arrives when, let alone belie their disgust, no one even turns their head at the mention of stocks. Yet today, even toothless aparatchiks of the 5th arrondisement communist party have their eye on the stock market.

You may recall my toothless friend; he of the wine- scented breath. The last time I spoke of him he was berating market-goers on the corner of rue Monge and rue Lecepede for France’s implicit support of “Bush’s War” – the one that hasn’t happened yet. Even as the leaves turn and begin to fall on the sidewalks of Paris… even as the crisp air draws out the smell of fires burning in (illegal) fireplaces about the city… even the city empties of tourists and begins to brace itself for the darker days of winter…there stands our local party representative faithfully handing out pamphlets and haranguing Sunday shoppers at the open air market in the square.

Don’t worry, you’re not about to read a long anti-war diatribe. I’ve learned my lesson. Not only is it as futile writing anti-war tracts as arguing against glaciers, but by having written anything on politics in the Weekend Edition, I have only proved one thing: The staff here at the Daily Reckoning HQ knows even less about politics than we do about economics… and sadly that ain’t much.

Still economics is our beat. And at times the line between economics and politics gets blurry. This morning, our toothless friend’s greasy pamphlet reads: La Bourse ou La Vie? (The Stock Market or Life?)… as if one could extricate one from the other these days.

I have taken to reading his pamphlets with the same morbid curiosity one might read the obituary pages. But today, after having seen the headline, I grabbed the paper with a bit more eagerness than usual. “What kind of ‘bottom’ is this,” I wonder aloud to no one, “if even this guy is whining about losses in the stock market…” we must be a long, long way from the bottom. And headed off to the office to write another nonsensical essay.

As we reported this week, France’s CAC 40 has plummeted 49% since 1999… the German DAX a whopping 56%. “The ruin of a few speculators is not going to make us cry,” says the toothless man’s propaganda, “but sadly, this crash has critical implications for unemployment, the future stability of your career and the buying power of your money.”

The communists in my neighborhood have rediscovered what Marx originally suggested… what Hy Minksy refined during his work in the 60s… and what we here at the Daily Reckoning have often noted, too: the capitalist system with its booms and busts is inherently unstable.

But unlike the staff of the Daily Reckoning, these communists hope to use the “Krach” to call for world- wide reforms in the care and feeding of homeless people; stop globalization; save the planet from environmental disaster; create safe working conditions and educate equally all citizens of the world; and stop the decay of civilization with a major overhaul of social security programs managed by the state. (I know, I know… tall order for a toothless man with a 2-euro a day wine habit. But you can’t blame a guy for trying can you?)

On the other hand, we Daily Reckoners just look toward the crash for entertainment… and hope to get through this mess in one piece.

All things in good time, we recall, will revert to the mean… and if you’ve just lived through a period of wild speculation in the markets that encouraged even the average street-corner political activist to develop unrealistic designs on the future… you’re likely to experience an equally spectacular bust. Yet, if the CNN/Money, Fortune.com e-mail is any indication, far from turning their heads in disgust, investors are still willing to jump back into stocks at a moments notice.

This illusive bottom we’ve all been searching for? We’re tempted to suggest it’s still a long way down from here.

In fact, we’re even willing to go on record suggesting that if history provides any clue, we may not see “the big bottom” this year, or even next. Investors who got into the market in 1928 and 1929, not only had to wait four long and painful years to reach the bottom… but they had to wait another 26 for their investments to get back to par… that is, if they could stomach the market for that long.

Most sold in disgust by 1932… and by 1934 didn’t even turn their heads at the mention of the stock market… leaving all future speculation in the markets to their grandchildren.

Hope you’re enjoying your weekend,

Addison Wiggin,
The Daily Reckoning
October 19, 2002

p.s. The number of people willing to throw common sense out the window and subscribe to Federal government solutions for the unstable capitalist system, not to mention those proposed by crackpot alternative movements, reached an apex in the 1930s. If we’re right about the bear market, you can bet more shenanigans of this type are on the way.

Those investors – once the most aggressive advocates of “American capitalism” with its cult of shareholder value – that have now been burned by the “system” will turn to coercion to get what they want. Then, the line between economics and politics will get even more blurry, and I’m afraid, a little less entertaining…

– Daily Reckoning’s Book Of The Week –

Freedom In Chains: The Rise of the State and the Demise of the Citizen
by James Bovard

“James Bovard has become the roving inspector general of the modern State… dramatically reveals how this secular theology (of government) inflicts on us an ever spiraling loss of liberty… Never has so much theoretical error and concrete folly been collected and juxtaposed so well under a single cover. Mr. Bovard consistently illuminates the connection between faulty political ideals and specific policy disasters.”

– The Wall Street Journal

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THIS WEEK in THE DAILY RECKONING

A WORLD OF HURT (10/18/02)
by John Mauldin

“…If the dollar is not dropping, it is because there are large inflows of dollars into the US. On a relative basis, the US markets are not that bad, and foreign investors are looking for safe havens. But lower interest rates will eventually act to push the dollar down. I maintain the American economy may continue its slow growth dance for a year ormore…”

PANAMA(10/17/02)
by Kathie Peddicord

“…As a retiree in Panama, you’re due 50% off in-country transportation; on buses, boats, and trains; 25% off in- country airfares; up to 50% off hotel stays; 25% off restaurant meals: 15% off hospital bills; 20% off doctor’s visits; 50% off movie, theater, concert, and sporting event tickets…even 50% off the cost of closing on the purchase of real estate in this country. All this, and you can “retire” in Panama – at age 18…”

VALE OF TEARS (10/16/02)
by Bill Bonner

“…Instead of coming up with innovative new ways to make people rich, America’s financial intermediaries – notably Wall Street and Fannie Mae – came up with ways to make thempoor…”

SOME FEAR, LITTLE LOATHING (10/15/02)
by David Tice

“…Today’s malaise was caused by too much capacity created during the easy-money ’90s. With the profits of so many companies so uncertain, it’s difficult to believe earnings will march indefinitely higher and take stock prices with them…”

IMPERIAL OVER-STRETCH MARKS (CONT.) (10/14/02)
by Bill Bonner

“…In Mayol de Lupe’s eyes, the Soviet Union was the Iraq of the hour…and Nazi Germany the world’s super power. Many in Europe – including many in France and England – felt that the dynamic new Germany represented the force of the future, that it was ‘the only surviving model of human progress.’ And so the poor old coot stretched on the Nazi uniform and went towar…”