Vandals of the Internet

“Art” is what Jack Lang called it. He was referring to graffiti – of the sort you now see all over Paris and other major cities.

As minister of culture, Lang actually used taxpayers’ money to promote graffiti. The idea was planted. Grants were given. Money was spread around. Sure enough, a crop of graffiti “artists” was raised.

Lang held expositions where the graffiti artists were given a chance to show off their work. A subway car was hauled up out of the ground for the artists to work on…and then put on display.

Since then, the “artists” have attacked almost every building in Paris. Even the most ancient buildings have been defaced. Even the most beautiful facades have been vandalized.

And now Jack Lang has moved to the ministry of education, and the taxpayers’ money is used to get rid of graffiti. Squads of public workers, armed with various solvents and grinders, battle the new art form. Graffiti, though, is easier to apply than remove.

“Graffiti” may have a digital cousin.

I have been trying to understand the essence of the Information Age. What’s it all really about? What is information really worth? How can it make us rich? And how come, given that the Information Age has been upon us for many years, companies have been unable to convert this abundance of information into profits?

Is it possible that information has no value? And that it is only given value by the circumstances in which it is used?

In the middle of WWII, a dead man was dressed in a British officer’s uniform and given a set of plans for the invasion of Europe. The plans were, of course, intended to mislead Hitler about Allied intentions. The body was then dumped into the sea, so it would wash ashore where the Germans could find it.

Hitler also believed that he had a network of spies in England who would be able to fill him in on the coming landings. But these spies had almost all been discovered and “turned,” so they were feeding false information to the German high command.

Thus the information that Hitler was receiving was worse than no information at all. It not only lacked quality…it lacked integrity. Of course, there are many examples from military history in which the integrity of information was decisive. Solzhenitsyn tells us how the Russian army in WWI was commanded by German-speaking officers from Prussia. They would transmit their orders and battle plans in German.

Curiously, they were often intercepted and read by the enemy – whereas their own troops found them incomprehensible. In our own War Between the States, Lee’s plans at Gettysburg had been betrayed to the Yankees when a Southern officer used them to wrap a cigar – and left them by mistake to be discovered by Union troops.

Most recently, the nature and value of information has been called into question by the Internet. Information is free on the Internet – as is, I hesitate to remind you, this letter. But free information sometimes turns out to be worth a lot less than you pay for it.

In the last few weeks, quite a few people have been charged with manipulating stocks via Internet. The typical scheme, such as the one perpetrated by a student at Georgetown Law school, involves buying the shares of some marginal company and then going on the Internet to ramp up the price. This is easier to do than misleading the Wehrmacht. You only have to announce some new breakthrough…some new contract…a rumored buyout…new technology…whatever. The whole idea is to create the kind of buzz that gets people talking about it – like the salesmen I overhead on the train to London.

The very same “investors” who are thought to be too sophisticated to allow a bear market, seem to jump at the chance to buy a stock they know nothing about, on the basis of a recommendation from someone they do not know…founded on information whose accuracy cannot be affirmed and whose source cannot be traced.

A lawyer defending one of the alleged manipulators has responded, though, that you can’t mislead people on the Internet. He says that Internet postings are nothing more than “graffiti,” with no more informational content than graffiti has artistic content.

The lawyer’s argument is that his client just used the Internet as a graffiti artist uses the wall of a public building…or perhaps a dog uses a tree. He pollutes it, perhaps vandalizes it…but no serious person would mistake it for useful information. But junk life imitates junk art. Pumping and dumping stocks on the Internet works. [Rather, used to work…in April 2000] In just a few hours, the graffiti artists of the Internet have been able to sell their shares at a profit.

In the military, the units charged with gathering information and separating fact from fiction are called “Intelligence” units. Mr. Cassady, with whom I stayed in Normandy, has spent time in U.S. Army Intelligence. He had even been stationed at Fort Holabird, Maryland.

Separating fact from fiction is tough work. And it gets tougher – the more facts and fictions you have to work with. The Internet is ultimately just a means of communication – delivering an almost infinite number of facts and fictions. The tough part is still sorting them out.

Which, of course, is what I try to do every day….

Bill Bonner
Paris, France
April 13, 2001

*** The Dow rose 113 points yesterday. The markets are closed today for Good Friday, so that gives it a 3% gain for the week.

*** But the real action is in the techs – Morgan Stanley’s High Tech index shot up 15% this week. And the Nasdaq 100 – home to so many of the big techs – rose a stunning 18%.

*** I’ve been trying to put myself in Mr. Bear’s mind. After being ignored and discounted for many years, Mr. Bear is finally finding his name in the paper. People are beginning to take him seriously.

*** Even the NY TIMES noticed that the idea of buying stocks for the long term only works some of the time – not all the time: “In truth, stock prices over the last century were sometimes flat for 10 or 15 years and occasionally even longer…If you had your investments in the S&P 500 in 1969, it took 23 years to earn a positive real return from the movement of stocks. The long run can be very long indeed.”

*** If you’d bought stocks at the top in ’29 you would have had to wait until ’54 to get even.

*** And the financial press also seems to be catching on to the idea that rate cuts are no guarantee of recovery. The Financial Times: “The Bank of Japan’s decision to loosen monetary policy has had little impact on Japan’s real economy – even though it has boosted stock market sentiment.

*** “It is often assumed,” continues the FT, “that a looser monetary policy boosts the pace of growth because it encourages banks to make more loans to companies and consumers.” But, “companies and consumers do not want to borrow more money at present.”

*** What are we going to do with those Japanese? They just do not seem able, so far, to destroy their currency. Consumer prices fell in March – 0.9%, with the core consumer price index off 1.11% year over year. Residential property is down 49% from its peak. Stocks are down 65%. Even giving away money is not enough to induce the Japanese to spend. Or invest.

*** “Extremely bullish news from Japan,” writes Steve Sjuggerud. “Legislators in Japan agreed to cut the capital gains from 26% to 10% for long-term gains and from 26% to 20% on short-term gains. Furthermore, taxpayers can carry losses five years forward further still, the first 2 million yen in any year is ENTIRELY TAX EXEMPT. On the 20th of this month, we will know if these proposals will be adopted by the Tax Commission. I’m buying some EWJ on AMEX (basically a Japan index fund) now, and more after the 20th if [the measure is] adopted.”

*** Gold stocks rose yesterday – by about 7%. Gold itself went up $1.30. The dollar meanwhile, was off – allowing the euro to rise back above 89 cents.

*** Which brings me back to Mr. Bear. He likes the new-found respect he’s getting, but if people take him too seriously, they will pack up their picnics and leave the park. Mr. Bear is no fool. The smart thing to do would be to pretend to go away…to back off and watch from a distance until the campers settle down, relax, and get careless.

*** That is what appears to be happening. An analyst quoted on said that investors are beginning to believe “the worst is over.” Richard Russell reports: “I note that a number of analysts on CNBC are now saying the bear market ended on March 22nd with the Dow at 9389.48.” If that was the bottom, he writes, it was “above any TOP in history.”

*** The stock market topped out in ’29 and ’73 at a P/E of about 21. Today, the S&P 500 trades at about 22 times earnings. Between 1947 and 1990, the average P/E was just 14.

*** Mr. Bear might also try an attack from an unexpected direction. For example: a raid on the dollar. (Mr. Bear doesn’t like to be told what to do, so I only put this forward as a suggestion.)

*** Looking at the essentials (which is what we always do here at the Daily Reckoning), the dollar should be going down against the euro. Compared to Europe, America has a far looser monetary policy, a huge trade deficit, higher inflation rates, lower real interest rates, far more debt and much less in savings. What’s more, Europe’s economy is growing faster.

*** Few investors are following the dollar. And those who are think it will be strong forever. “The dollar is the bond market’s secret weapon,” writes William Pesek, “and the dollar isn’t likely to collapse anytime soon.”

*** But this secret weapon can be turned against stocks and bonds too. This week, bonds went down. It was the “worst week in 3 mo. for the U.S. credit market,” writes Dough Noland. 2-yr. Treasury yields fell 18 basis points. What are the bonds telling us? That the dollar is headed for trouble? Could be.

*** Meanwhile, U.S. consumers seem to be going deeper and deeper into debt. From Doug Noland: “Countrywide [Credit] seized the opportunity presented by the current refinance boom, achieving three new milestones,” said Stanford L. Kurland, chief operating officer. “March was a landmark month for Countrywide, as we set new company records in fundings, average daily applications and pipeline. Fundings were $9.6 billion in March, the highest monthly total in the company’s 32-year history. The previous mark was $9.4 billion set in December 1998. Average daily applications reached $734 million, surpassing the record set last month by 10 percent. This enormous surge of applications pushed our pipeline of loans in process to $18.3 billion which is also a new record and a 104 percent increase over the same date last year. March fundings were up almost 90% year over year.”

*** Let’s see…suppose stocks recover until the summer…and suppose Mr. Bear begins to quietly take down the dollar (which raises the cost of imported goods)…Meanwhile, jobs get scarcer…the cost of utilities goes up…and consumers find themselves with more debt and bigger bills to pay. Hmmm…

… “At what point is the consumer stretched so thin that he breaks?” asks Dan Denning in an email yesterday. “If you get higher gas prices this summer like everyone is expecting…it might be just enough to push already borrowed-to-the-hilt consumers over the edge.”

*** Go “Blue”… Dan, by the way, is a leading member of the Daily Reckoning “Blue Team”…which I mentioned yesterday… and about which, I will tell you more. Watch this space.

*** The University of Michigan released its consumer confidence numbers for the month of March. They are the lowest they’ve been in over 7 years.

*** Daily Reckoning contributor John Mauldin’s proprietary Sentiment Percentage “Uptrends” Index, has dropped from over 29 to 22 in just a few months. “That is a quick – and disturbing – drop,” says John. “This Index is screaming bear market! Further, the ‘Big Boys’ – institutional players – now account for less than 14% of the market activity, down from over 20% average. That, too, is a huge drop. One day last week, they were less than 11%!” (see: href=”″>Investor Sentiment Says “Sell!”)

*** We went to see a play last night at the Palais Royale, Feydeau’s ‘Monsieur Chasse.’ A vaudevillian farce with a typically French plot – husbands and wives cheat on one another to the amusement of paying audiences. The play made adultery look like fun.

*** Jules, 13, got back from Canada this morning. The exchange program was designed to place French kids with Canadian families so they could each improve their language skills. So the Canadians were expecting a French kid – and Jules was looking forward to staying in an English-speaking family. Neither got what they expected. Jules’ host family spoke Chinese at home.