The Worst Is Over

“In the day of prosperity there is a forgetfulness of affliction: and in the day of affliction there is no more remembrance of prosperity.”

Ecclesiastes 11:25

“Memories are about to get jogged.”

Dan Ferris, 3:5 Thank God it is over.

The mania, that is. The Clinton boom…the credit and stock market bubbles…have not yet been corrected. But at least the frenzy over new technology, IPOs, dot.coms, the Internet, and the most preposterous excesses of the Gildered Age are behind us.

The worst is over.

From the Atlantic coast to the Pacific, the nation breathes a sigh of relief.

Not that it wasn’t fun for some people – the overnight billionaires…the day traders…the celebrity analysts and the techno-so-very-superiors…

But for most people, the tech mania was like a loud party to which they had not been invited. “The financial asset inflation of the last 20 years, with the proliferation of generous option packages for executives and the ‘new economy,'” explains Marc Faber, “has produced an unprecedented wealth and income inequity.”

In 1982, he points out, “it took a worker around 100 hours to buy one Dow Jones; it now takes more than 800 hours of work.” Real estate, too, has become less affordable. “In other words,” he continues, “today’s unskilled laborer has to work far longer than he did 20 years ago to afford a house, or to invest his savings in equities in order to secure his retirement nest egg.”

Much of what passes for progress, (I paraphrase a point made by my gardener), is made under false pretenses. I find that I live at least as well in Paris, without an automobile, as I did in Baltimore with several of them. I eat at least as well from the small table that Mr. Deshais ladens with his fresh vegetables and dead animals….as I could from all the bins and shelves at the super market.

And, often, a misunderstanding built up in an hour of email exchanges can be cleared up in a 15-minute conversation, in person, over a cup of coffee.

It is rare, though, that an innovation turns out to be such a complete and unadulterated imposter as the “New Era.”

But finally, the music has died down and we can go on with out lives free from the jealousy and resentment which always threatened to overshadow our nicer qualities.

Now the partyers are getting their comeuppance. Henry and Abby….Bezos and Ellison – they’ve all been humbled. The day traders have gone back to their day jobs. No one – other than the Fed chairman, whose birthday we celebrate today, and a few diehards – still believes in the transforming power of the new technology. And even the press has finally caught on: ‘It is a bear market’ after all, says the Washington Post.

“How could they have gone so wrong?” asks the Wall Street Journal.

“The 90s boom left me both financially battered and psychologically troubled, ” says David Callahan, writing in the International Herald Tribune, last month. “As the economy has slowed, I’ll confess that my main reaction has been relief.”

Mr. Callahan’s beef with the mania was that it drove up the cost of living in Manhattan, where “total wages and salaries for workers in the city increased by only 19% between 1989 and 1998” while the average price of a co-op or condo below 96th Street rose from $395,035 in 1990 to $787,708.

“To be sure,” says he, on a point of which the reader is less than sure, “I feel bad for the swelling ranks of people who had been laid off. But until Americans find a way to share the country’s wealth more equitably during boom times and make sure that income gains aren’t wiped out by rising costs in housing and health care, it’s hard to get too excited about surges in national prosperity.”

The boom, he continues, “inevitably brought out the worst in people. Materialistic values came to pervade U.S. culture. The ideal of working hard over many years to achieve wealth lost traction. The pressure to pursue wealth instead of other goals grew enormously as the media focused on those winning big in the new economy. It became easy to feel that missing the gold rush was plain stupid.”

From the other coast, much the same sentiment was voiced by David Coursey on ZDNetnews, last summer:

“In the past couple of weeks, community resentment of the ‘dot-commies’ or ‘e-holes,’ as we’re being referred to in some circles, has reached a new high. No, we’re not being assaulted on the way to our cars – quite yet – although in some San Francisco neighborhoods, emotion is running pretty high.

“Silicon Valley used to exist in the old fruit orchards down near San Jose, about 40 miles south of the Golden Gate. It had expanded over the years, but nothing like we’ve seen in the past half-decade. Now everything between San Francisco and San Jose is ripe for tech companies on the prowl. And the East Bay – Oakland and environs – is getting annexed as well.

“And this is pissing the hell out of local residents, who are beginning to root for a big economic downturn as a means of getting back some control of their communities. And giving the rich kids their comeuppance.

“Apartments that were $1,100 a month four years ago are now impossible to find at $1,750. And the low-income neighborhoods of East Palo Alto – and low-cost housing generally – are being gentrified right out of existence.

“Last week there was a story about two houses – three bedrooms, nice but not swank by Palo Alto standards – going on the rental market. They were priced at a bargain- basement $10,000 and $12,000 each – and that’s per month.

“Rather own than rent? $3.3 million is the opening bid. Oh, yes, for $12K-a-month you get a pool.

“Another story that caught my eye was about a neighborhood bakery not far from my office. The bakery is facing a quadrupling of its monthly rent – from $1,500 now to $6,000 come Jan. 1. The baker was talking about the likelihood of going out of business…”

But that was 6 months ago. Since then, the rich kids have been getting a least a little of what they’ve had coming. The fraud has been exposed. The worst is over. Prices are coming down. The gap between the techno-wunderkind and everyone else is narrowing.

“Sooner or later,” said Mr. Deshais this weekend (or words to that effect)…”they’re going to wish they planted gardens.”

Your correspondent,

Bill Bonner Paris, France March 6, 2001

*** Investors are still groping for the “Big Bottom.” They know it can’t be far away.

*** “The worst is over,” said several commentators yesterday. And Morgan Stanley opined that stocks are now 10% undervalued.

*** Few customers reached out to grab the bottoming stocks. Volume was light, which was blamed on an approaching blizzard. Still, there was enough activity to drive the Dow up 95 and the Nasdaq up 25.

*** Dell added $1.37 to its stock price. Amazon rose 26% after a report in the Sunday Times of London said the e- tailer was in talks with Wal-Mart. AMZN climbed all the way to $12.63…

*** GE rose too…plus 2%.

*** Gold got in the spirit of the day, up 40 cents. Gold mining stocks rose 2% on average.

*** But “beware of false starts, false bottoms, and false prophets,” wrote Fred Barbash in the Washington Post. He noted that there is “a tendency among experts and amateurs to prematurely interpret short-term movements as either the beginning or the end of bad news.”

*** “It’s time to call the bear market what it is,” suggests Mr. Barbash. He continues ominously: “Never before have Americans’ spending habits – personal and corporate – been so tied to stock-market performance.”

*** Taking $4.1 trillion out of stocks’ value has to leave a big hole somewhere. But so far, there has been no panic selling of stocks. People seem to have resigned themselves to the bear market. Have they any idea of how bad it might be? Probably not. Instead, they are still “looking across the valley” to the rich pastures and rising slopes on the far side.

*** In the meantime, they’re beginning to take revenge on the prophets whom they believe led them into this wilderness. The “holier-than-thou,” New York Times, says Bethany McLean of, “happily broadcasted [Henry] Blodget’s insane predictions to millions of readers (who would otherwise have remained blissfully ignorant).” But on Sunday, the NY Times criticized poor “King Henry” in a front page article.

*** Likewise, yesterday’s Wall Street Journal, which for the last several years has reported Abby Cohen’s predictions as if they mattered, took her to task in an article headlined “How Could They Have Gone So Wrong?”

*** The mighty fallen. Sic Transit Gloria Mundus.

*** “The US dollar is now undergoing a stealth decline,” writes the Oxford Club’s C.A. Green. “While the US experiences negligible GDP growth, European economies are expected to grow an average of 3.4% this year… which means, the euro and the dollar are headed for parity. Goldman Sachs is forecasting the euro will hit $1.20 in the next 12 months. If that happens, euro-denominated stocks would be worth 31% more – even if the stocks went nowhere.”

*** “The global demand for oil is 75.5 million barrels a day,” says John Myers, “China consumes over 6% of the total. Even today, as prices retreat amid a global slowdown, China’s demand for oil remains ‘the wild card, if not the trump card,’ in determining the direction of oil prices. What we’re seeing is… natural resources are being re-valued as demand from a progressive third world continues to grow.”

*** “By the way,” Dan Ferris reminds us, “longtime Daily Reckoning readers may remember we said that ‘before the lights go out around the world’ uranium was a good play. Well, since April 2000, just before the lights started going out in California, Cameco (CCJ), the largest uranium producer in the world, is up 190%. But the penny shares-the wildcatters-have gone nowhere.”

*** “The private sector hasn’t been too bad for Robert Rubin,” notes Chris Matthai of the Fleet Street Letter. Former member of the “Committee To Save The World” and now chairman of Citigroup’s executive committee, Rubin received $16.5 million in salary, bonus and “other compensation” in his first year at the company. By comparison… Mike Myers (no relation to our John) who, as special agent Austin Powers, saves the world in every film, signed a $25 million deal to star in the third installment of the movie series. Saving the world isn’t cheap…

*** I have to leave in a few minutes to go to London…so you will get a little holiday from the Daily Reckoning today. You will find it shorter than usual. Still…more below…