May Day, May Day
“Don’t wear a suit tomorrow,” Dave advised me yesterday.
“They’re going to target anyone wearing a tie as a capitalist. And they say they are going to target our building.”
Makes sense. The rebels without a clue are opposed to globalization. My office is in the Centre Point building – one of London’s tallest and ugliest edifices. It is the home of several multi-national corporations (including my own mini-multinational) and is located right on Oxford Street.
“Uh oh,” I reply, “All I packed was business clothes. Traveling light, I left my proletarian riot clothes back at the chateau.”
This morning, the work crews were still on the job – putting up plywood on the storefronts. Rioters are expected this afternoon – attempting to disrupt traffic around Oxford Circus.
Of course, it doesn’t take much to disrupt traffic at Oxford Circus. If a drunk wanders into the street – traffic backs up…within a few minutes the whole city is in a state of gridlock.
“We’re opposed to globalization and corporate profits,” explained one of the demonstration organizers to the TV cameras. “We have a variety of specific agendas [sic]…but the thousands of people supporting tomorrow’s May Day celebrations all want to get back to a more natural, more healthy world.”
A traffic jam on Oxford Street is certainly as natural a state of affairs as you could ask for. But then, so is it natural for women to murder their boyfriends after being described as “stupid cows.”
But that is the trouble with “natural,” dear reader. Like “fairness,” it is a word you cannot trust.
Is it natural for GE to be priced at 29 times earnings? Is it natural for the savings rate to be negative…and the balance of trade to be running at a $1 billion-per-day deficit? Is it natural for the dollar to go up – even as the Fed undertakes “one of the most aggressive credit-easing programs ever?”
“How do you know what is really essential?” I had asked Mr. Deshais, probing the edges of my new philosophy.
“Well…” the gardener’s eyes narrowed. He eyed me suspiciously. Was I a fool or was I just up to mischief, he wondered. “What is essential is what really works…what has been tested and found to work over many, many years – the traditional.”
“You know,” he continued, smiling…”there is an expression in French, maybe you’ve already heard it: ‘Chase away the natural, and it returns at a gallop.'”
The dot.coms and techs have already returned to more ‘natural’ price levels – at a gallop. Eventually, GE will find its stride and join them…
The pigsty I looked at with Mr. Deshais on Sunday might be described as “natural.” It was more natural than what you’d find at a high-tech commercial pig farm. And it was more natural, perhaps, than the one at the grand Chateau in La Trimouille. Mr. Deshais described it as “the most beautiful pigsty in the region.” It was a real 19th century capitalist pigsty, owned by his friend, Charles, who drove off the road after a drinking binge and died. Charles had been a great landowner and the scion of an aristocratic family.
The most natural pigsty is none at all. But no pigsty, no pigs. No pigs, no ham. No ham, no ham & eggs for breakfast. Deconstructing the modern world may lead to a more natural one – but not necessarily a better one.
“The natural condition of things is a world without profits,” said my friend Mark, as we walked along Oxford Street. “Profits are unnatural. It takes real effort to get them. You have to disturb people…you have to make them do something they don’t want to do…otherwise, in a business as in the rest of life, everything sinks down to nothing.”
Capitalism is unnatural. But so are pigstys…and the world is better off with both of them.
More to come…
Your correspondent, waiting for the rioters…
May 1, 2001
*** Since Jan. 3, the Fed has knocked 200 basis points off the fed funds rate. “One of the most aggressive credit-easing programs ever,” says the LA Times, adding that “all that money has to find somewhere to go.”
*** Where? “Consumers Watch as Inflation Nudges up Prices,” says a USA Today headline. The consumer price index is rising at a 4% rate so far this year, up from 3.4% last year. Ordinary consumer items – such as milk, beef, and cigarettes – are rising sharply. Existing home prices have risen 6.5% on average over the last 12 months. Energy costs are up too – with cooling bills expected to be 30% to 50% higher this summer than last. And medical costs are rising at a 5.9% annual rate.
*** And the bond vigilantes are taking notice. On March 1st, 10-year Treasury notes yielded 4.87%. Now, the yield is over 5.3%.
*** Moody’s points out: “Benchmark Treasury yields are actually higher today that they were immediately before the onset of the latest series of Fed rate cuts.”
*** In the real world, this phenomenon can create unhelpful results. Margin loans are cheaper, but 30- year mortgages are more expensive. In other words, speculation is encouraged, but not long-term capital investment.
*** As Jim Grant put it in a recent New York Times story, “By intervening in the money market aggressively and cunningly – thereby introducing new speculative flows into equities – the Fed has given its seal of approval to a stock market that many investment professionals refused to touch even with other people’s money.”
*** “There’s been a lot of talk lately about the stock market having bottomed out and prices being made to start soaring all over again,” writes Christopher Byron. “But before we get too carried away, let’s stop for a minute to focus on the implications of one financial trend that is undeniably – and disturbingly – rising rapidly already: long-term interest rates.”
*** “It is, of course, entirely possible for the stock market to put together a quite dramatic short- term run-up in such a situation,” he says, “and there are many on Wall Street who believe a sustainable advance has already begun. But the current upward push in long-term rates makes pretty clear that, so far as long-term investors are concerned, the end of the rally can already be glimpsed.”
*** “Tech: The Weakest Link?” muses the latest issue of Welling@Weeden. Between the covers of this engaging publication, High-Tech Strategist Editor Fred Hickey warns that the current rally will fail and that “tech industry fundamentals never looked worse.
*** “Historically, big bull markets do not end abruptly. You don’t have people change from being religious fanatics, certain of a new era or new economy, to being agnostics overnight. It doesn’t happen…When we do get to the bottom, people will hate tech stocks. It will be ugly.”
*** Hickey continues: “The real money to be made first will be by going against Intel at 60 times earnings, going against Applied Materials at a $50 billion market cap, against Micron at $30 billion, despite ever-deeper losses as far as the eye can see. Those are the real opportunities out there. It’s too soon to bottom-fish here.”
*** “What I do know, as a former accountant,” he continues, “is that when you’re playing accounting games, you not going to be able to hold it up forever. Even the mighty Cisco couldn’t. That’s the story of IBM. That’s sort of the story with Greenspan and the market. Play games. Hold it up as long as you can. But it doesn’t work forever. It didn’t for Lucent, it didn’t for Cisco. It’s not going to work for Greenspan and it’s not going to work for IBM.”
*** After opening the trading day with gains nearing 100 points each, the Nasdaq ended up 40 to 2116. The Dow lost 75 points closing at 10734. The S&P 500 fell 3 and half to 1249.
*** “As stocks sink, investors turn to jewels, art, collectibles,” USA Today proclaims. “The yearlong bear market has some disenchanted investors swapping their shares in Cisco for prints by Picasso.”
*** How many Cisco shareholders could still afford a Picasso print? No matter. Classic cars, baseball cards and stamps are also coming back into investment fashion. Linn’s U.S. Stamp Market index, for example, rose 5% last year.
*** Since April 5th, the UK’s ‘footsie’ has tacked on a respectable 12%…but why?
*** “Profit warnings by UK quoted companies soared by 77% in the first quarter of this year,” reports the FT, citing research by Ernst & Young.
*** On both sides of the Atlantic, earnings are falling sharply and layoffs are rising. In the dot.com sector alone, ‘there were a record-breaking 17,544 dot.com jobs eliminated April – compared with 327 cuts made in the year earlier period,” according to Chicago Business. Given the layoff announcements and the Conference Board’s rising ratio of “jobs- hard-to-get” versus “jobs-easy-to-get,” can 5% unemployment be far behind?
*** “About a quarter of the population will be affected to some degree by a general downturn in the rural economy,” writes my friend William Rees-Mogg, referring to the affect that Foot and Mouth disease will have on the British economy. “Some high streets of market towns already look like ghost sets; there will be more empty shops; solicitors and accountants, with other professionals, who serve the farming and tourist businesses will suffer as well as the small retailers.The real trouble is dislocation has a knock-on effect…”
*** This morning, the London papers are full of entertaining items:
*** We learn on page one of the Daily Telegraph that the Prime Minister has gotten a pair of reading glasses…and that Britney Spears’ website, wherein the teenage singer explains the mysteries of semiconductors, is a big hit.
*** Back up…just a little bit more….a little more…oops! “A British tourist fell 40 feet to her death from the medieval walls of a French town as her boyfriend was about to take her photograph,'” the paper tells us – on page 4. The boyfriend was unable to tell French police how the accident happened. Maybe he didn’t speak French.
*** And on page 7, we discover that Jane Andrews, former aide to the Duchess of York, is accused of murdering her boyfriend after he hit her and called her a “stupid cow.” Even intellectually challenged bovines can be dangerous. The boyfriend died after being hit with a cricket bat and then stabbed in the chest.
*** Walking back from dinner last night we found work crews boarding up the picture windows along Oxford Street. What’s this…preparing for a hurricane? Nope…preparing for May Day riots…more below….