Vandals of the Internet

It seems as though media is taking over the world. But how far does a barrage of headlines get us? We’ve seen what became of the New Era. Whither, then, the Information Age? This DR Classique was first published almost exactly five years ago today.

"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.

Information: Graffiti’s Digital Cousin

"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.

Information: Free Information Worth Less Than It Costs

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 the 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.

The very same "investors" who are thought to be too sophisticated to allow a bear market to occur 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. 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….

Regards,

Bill Bonner
The Daily Reckoning

April 1, 2005 — Paris, France

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

The stock market is holding. Gold is going nowhere. The dollar remains at $1.29 per euro.

With no decisive action in the markets to discuss, we take up a perfect subject for the first of April: Why are people such arrogant blockheads? We do not want to give away the plot, but we will answer the question directly – because men who were not fools were evolutionary dead ends; like short-necked giraffes. As you will see, dear reader, fools make the world go ’round.

Buying stocks at 20 times earnings and more is foolish. It is contrary to the lessons of history and logic. Stocks ought to be bought when they are cheap, not when they are expensive. But when they are most expensive is precisely when most people are most excited about buying them.

Likewise, houses now sell at an implied P/E of 34. That is, annual rental income for the average house would equal only 1/34 of the purchase price. Another way of saying this is that you get a lot less house for your money than you did a few years ago. You would need a lunatic confidence to buy a house now. But never have so many people wanted to buy one!

And what sort of people would allow themselves to go deeper and deeper into debt at the very moment when their assets reach historic highs? At such high prices – their stocks and houses are much more likely to go down than up. And their earnings, too, are in jeopardy; for the first time in history they are facing competition from 3 billion Asians who will work at 1/10th to 1/20th of the U.S. labor rate. Only a reckless madman would borrow money under such circumstances, but the country must be full of them.

Why so many? The explanation comes to us from people who speculate about the evolution of mating strategies and genetic selection. It is very simple, they say. Our modest, clear-headed monkey ancestors got less sex than their overconfident, blockheaded rivals.

We pointed out yesterday that a man with a confident manner about him could find his way to the top spot of a major corporation …or even the nation itself. He may be completely incompetent. In fact, he usually is. For such a man grossly miscalculates the challenges he faces and totally over-estimates his ability to deal with them. The man is a fool, in other words.

But now we turn to a matter of greater importance:

"Women prefer men who are sure of themselves, even if they have no real reason to be…" said friend, a man of vast experience on the subject, yesterday. "A man comes into a room. He looks around. He looks at the women. If he sees one that catches his eye, he wants to have her. If he is with a dorky man, he is even more interested…because he thinks it increases his chances. There’s nothing subtle about it. And he’ll take even the slightest nod or smile as encouragement. A super-confident man won’t even need that.

"But a when a woman comes into the room, she looks at the women too. She doesn’t know which of the men would be a good partner, because she can’t tell by looking. The man she wants is the one who is strong and capable…and the one who knows what he is doing. But these aren’t obvious characteristics. So she has to look for clues elsewhere. Clothes. Jewelry. Tans…anything that signals social status. That is why men are so vain; genetically speaking, it pays. But most of all, she looks to see which men are surrounded by attractive females. Those are the men she is interested in. The presence of other attractive females confirms that the man must be attractive.

"The woman has to be conscious of the subtle clues. But for the man, it’s better to be an aggressive, self-confident blockhead. The woman may signal, for example, that she’s not interested. But he just pushes ahead…he might overcome her reluctance. At the margin, this is the guy who gets the girl…and who leaves the most offspring. And it’s his genes – passed along and spread out over hundreds and hundreds of generations – that make us what we are today."

Fools, one and all.

[Correction: Yesterday, we said, "Carly Simon got $42 million from Hewlett-Packard…" Now, you were probably asking yourself, "Really? The ‘You’re So Vain’ lady? Why would HP give her money? Did she write them a song?"

Of course, the Carly to which we were referring was Carly Fiorina, HP’s ex-CEO.

Let’s chalk it up to spring fever.]

More news, from our friends at The Rude Awakening:

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Eric Fry, reporting from New York City…

"Warren Buffett can no longer find any decent stocks to buy and is sitting on an enormous pile of cash. We scrutinize this decision and decide Warren Buffett is both FOOLISH and LAZY!"

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Bill Bonner, with more views:

*** Goldman Sachs says oil could go to $100 a barrel in the next tightening cycle.

Kevin Kerr gave us his thoughts on that statement:

"Well, yesterday’s hysteria may begin to calm down after the run up to these levels. The reason for the move higher is clear, the Goldman Sachs analyst report signaling $105 crude jolted the market. Clearly, the oil market is bullish in the long term. However, to suggest that it will happen in some mythical ‘superspike’ right around the corner is pure fantasy.

"Could oil spike to $100? Sure, if we had a major attack on an oil terminal in Saudi Arabia, or a nuclear war. After reviewing the Goldman Sachs statement, there is really nothing new in the report, unless they have some crystal ball over there or something. It’s well known that Goldman has significant energy derivatives holdings and that may be the motivation of this story, and account for the timing of it, as the oil prices were correcting a bit.

"The fundamental facts are clear: Crude oil stockpiles are at record highs right now, and while demand is climbing, the next several months on the calendar should see crude oil prices ease back down toward $50. The Goldman report may have shaken some investors and moved the market, but as the inventory picture becomes clearer the prices will come down, regardless of what Goldman and other analysts hope for. This kind of action is indicative of how huge Wall Street banks are now involved in the energy sector and are able to briefly move the market, but this usually fails unless they have the fundamentals on their side, and in this case they do not. Traders can see through the thinly veiled purpose of releasing this report and they may just decide to grab their profits here and then get short for the summer sell-off.

"We still believe, however, that a major even could spike prices certainly, but we’ve always known that…and even so, a $100+ oil price would not be sustained now, but in three to five years it may be a very different story."