Essential Matters

“We celebrate the beginning of Holy Week, with all its mysteries. But do not forget the essentials of Christ’s mission and his teachings. We don’t have to search high and low for them. He told us: Love God…and Love thy neighbor. That is what really matters.”

Pere Marchand

Sunday’s sermon

“What really matters?” I asked our gardener on Saturday.

Mr. Deshais spends most of his time alone – working in the garden by himself. He has no computer screen in front of him – nor any CNBC or CNN to shape his thoughts. He has only himself – and the forces of nature: the clouds overhead, the soil, the plants. Mr. Deshais has time to think and not much more than his own thoughts to occupy his brain.

So, I decided to try out my new philosophy on him.

The Daily Reckoning sneaked into philosophical discussion over the last two weeks, dear reader – like a teenager who takes up smoking. We sputtered and coughed out existentialism, relativism and descriptivism. But just talking about them made us feel cool.

And so, without meaning to do so, we discovered a new side to ourselves – a new image…we became philosophers.

I am still out in the countryside – while the children enjoy a two-week vacation from school. No one south of the Loire nor west of the Hudson has any use for philosophy, but I can hardly wait to get back to Paris. Perhaps I will rub a little burnt umber on my fingers and cough occasionally…or even hold a hand-wrapped cigarette in my fingers…and jab at the surrounding air with it from time to time to make my point. Paris loves philosophers – the more obscure and ridiculous, the better.

I will make Le Paradis cafe my regular hangout, like Sartre at Le Dome. How perfect! People will know that I can be found there at almost any time of the day or night – a glass of wine in one hand…an unlit cigarette in the other. Besides, it’s close to the office so I can sneak away from time to time and do some work.

Oh, the philosophy itself…oh yes…that. Well, there’s the weak spot of this plan. My philosophy – which I share with you before releasing it to the public – has evolved from our insights about the stock market and how it works. Yes, this is probably the first major philosophy to sprout from financial advice – and probably the last!

Over the last year and a half, we have noticed:

1. Limitations of rational thought. We think we consider everything rationally and make decisions based on reason and available information – as the existentialists claim. But in fact, it is the heart, not the head, that is in command. The heart distorts logic and information to its own purposes. In short, we believe what we want to believe. “The head is merely the heart’s dupe,” said La Rouchefoucauld.

2. An inability to look into the future. When you put a gun to your head and pull the trigger, the results are predictable. But in complex systems – such as an economy, a stock market, or an individual life – the future is unknowable.

I quote the celebrated economist, John Maynard Keynes, on this point (the Daily Reckoning is still a financial service, after all):

“The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory…amount to little and sometimes to nothing…”
– from The General Theory of Employment, Interest, and Money

3. Even the present and the past are largely unknowable. The world is awash with ‘information’ – so much that it is impossible to master it all. Instead, people pick and choose bits and pieces of information that suit their purposes. The new “Information Age” does nothing to change this. It merely increases the costs of getting rid of unwanted information.

4. The perversity of markets. Not only can you not know what the future holds, but attempting to figure it out actually distorts it! People searching for a Big Bottom in the stock market, for example, are unlikely to find it. Why? Because the Big Bottom only comes when people are so fed up with stocks that they stop looking for it.

5. The paradoxical and surprising nature of life itself: as I have said many times, investors don’t get what they expect, but what they deserve. This is true in the rest of life as well. Patience, modesty, hard work, greed, fear, hubris and other virtues & vices pay off. People get what they’ve got coming – usually. Even love comes not to those who seek it, or horde it, but to those who give it away freely. Life is full of surprises.

Many philosophies are founded on a ‘theory of knowledge.’ I take as my starting point a ‘theory of ignorance’: it is everywhere and in everything.

You know neither how your stocks nor how your marriage will work out. Most of what you hear is nonsense. Most of what you read is moronic. And most of the people you meet are fools. And most important: the people who meet you think the same of you as you do of them. And you’re both right! We’re all fools – and all completely ignorant of the things that matter most.

“The key thing,” said Mr. Deshais, “is to get into sync with the phases of the moon. That’s the essential. If you ignore the moon when you plant your garden, you will not get a very good harvest. And if you graft your fruit trees on a new moon – you will get very good growth, but very little fruit.”

The key to the new philosophy of Essentialism: whatever you are doing, find the key principles, the rules, the essentials – and stick with them. More on Essentialism on another slow news day.

Your essential essentialist,

Bill Bonner
Paris, France
April 9, 2001

P.S. Alas, my new philosophy is too sensible. It
will never catch on.

*** Did anything happen on Friday? I guess not. There’s not much financial news.

*** The big rally fizzled. The Dow fell 125. The Nasdaq fell 63. The financial media went silent.

*** The Dow ended the week about where it began. The Nasdaq ended down 6.5%. The Wilshire 5000 – the broadest measure of the market’s performance – dropped 3%.

*** Consumer debt rose more than expected last month. So did unemployment and hourly earnings.

*** Lipper reports that stock funds had their worst quarter in 14 years in the first three months of this year. The average equity fund fell 13%. Large cap growth stock funds fell 37.6% in the 12 months since March 2000. And the average tech fund dropped 62.2% in that period.

*** The gold miners rose 2% on Friday.

*** First quarter earnings reports will begin this week. If they are as bad as they might be – the news will probably drag stocks down further.

*** One way or another, stocks will eventually work their way down to a more solid footing. But it would be unusual for this to happen without a big, long, sustained rally to mislead investors and draw more money into stocks before the final bottom. That rally is probably still ahead.

*** “Certainly the market is undergoing a very serious reversal,” writes our man on the scene in Calgary’s oil fields, John Myers. “One indicator is the television ads for brokerage firms. A couple of years ago they were smug, with the underlying message, ‘You too can be rich.’ Now they focus on how smart they are and how safe your money is. The message would resonate stronger if they hadn’t been so stupid with your money in the first place.”

*** “The good news,” John continues, “is that we’ve been on the right side of this coin. Over the past year Toronto’s Oil & Gas Index – home to several picks in the Outstanding Investments stable – is up 35%…while the NASDAQ is down 55%.”

*** Most observers expect the Fed to cut rates – perhaps as early as today. Would that trigger a rally? Maybe.

*** But “the view seems to be taking hold among professional investors on Wall Street,” writes Christopher Byron on MSNBC, “that another cut in short-term interest rates by the Fed will not make much difference one way or another, and thus that stocks probably have further to fall whether or not the Fed cuts rates again before the next regularly scheduled meeting of the Federal Open Market Committee on May 15.”

*** “The Fed chairman is in something of a no-win situation,” Byron continues, “He, more than any other individual in America, remains linked in the public’s mind with the prosperity of the 1990s – even to the point of being cited by name by both Al Gore and George W. Bush in last autumn’s presidential debates as the one individual they’d turn to first for counsel in a global financial crisis.”

*** “Now the worm has turned. The economy is weakening, consumer confidence is sliding, corporate earnings are collapsing and Greenspan has become the natural lightning rod for everyone’s frustrations. Having created an investment bubble that financed at least a half decade of illusory prosperity through wildly inflated financial assets, he is now being blamed for failing to keep the bubble swelling.”

*** Byron also explains why Lucent may be headed for bankruptcy: “If you a) remove that inventory from the balance sheet, as well as b) delete $9.5 billion of worthless goodwill created by acquiring rival businesses with appreciated stocks, and c) give a prudent 50-percent haircut to the company’s uncollected receivables, Lucent today looks to have a tangible net worth of no more than roughly $1.50 per share. Considering the fact that the company has maybe as much as $5 billion of short-term debt coming due later this year, it is not surprising that rumors were everywhere [last week] that the company is preparing to file for bankruptcy.”

*** The bear market is now being taken seriously by the financial press. Investors have begun to suffer more than mere disappointment: “This sucker is for real,” notes Mark Rostenko. “And guess what else? It’s REAL money that’s going down the pipes, not just ‘paper losses’ or ‘inconvenient tax liabilities’.”

*** “Today,” said the old priest on Sunday, his voice quaking, “we celebrate Christ’s triumphal return to Jerusalem.” It was Palm Sunday, an occasion for the choir, of which your editor is part, to strut its stuff. The church was overflowing, each parishioner carrying a sprig of boxwood to symbolize the palms with which Jesus was greeted. Later in the service, Pere Marchand made a tour of the church – accompanied by the two altar boys, Nathaniel and my son, Henry. Dipping his bouquet of boxwood, he sprinkled water over the heads of the assembled.

*** Opening line at the World Economic Forum last week: “What do you call someone who was the president of a dot-com company last year?”

“A Waiter!”

Budump, bump…

Along those lines, href=”″>here’s a look at a special 1040
tax form designed for laid off dot-com employees:

(…it’s a joke.)