Fiat Justicia, Pereat Mundus

“I’ve never really tried investing,” said a stout man named Paul at last night’s dinner party.

“I was planning to put some of my money in tech stocks…and the rest in mutual funds.”

“Hmmmm,” I replied, “this might not be the best time to jump into stocks – especially techs.”

“Well,” came his answer, “I have to do something…I’m going to retire in a few years. I’ll need the money. And even if stocks go down a bit, don’t you think they’ll do well over, say, two years?”

“Who knows?” I shrugged and went back to my lamb with mint sauce. I did not want to get into a long discussion. And besides, I didn’t want to be a sourpuss. I wished him luck and changed the subject.

My guess is that stocks will be a lot lower two years from now than they are today. But that is just a guess. And what benefit is it to Paul to make this kind of guess?

Maybe stocks will be higher. Maybe the sun will shine everyday, the public fountains will run with Taitinger champagne, and there will be new and more appealing bottoms every day.

But we don’t know.

We don’t know whether the price of oil is going up or down. We don’t know whether a company’s profits are increasing or decreasing. We don’t know much at all.

Even when we are in the middle of something, with direct, personal experience – Nietzsche’s erfahrung – we still often don’t know what or why things happen as they do.

The ancient Greeks, fighting their primitive battles, often reported that an ‘epiphany’ – a ghost-like figure – appeared in the midst of the battle and was responsible for a decisive blow.

Life’s most important decisions are taken in almost complete ignorance. When we get married – we don’t know how our spouse will look, or act, 3 decades in the future. When we start a business, or make an investment, we really cannot know what will happen to it.

We don’t even know if we will be alive tomorrow. Existence itself, at least in the walking around, flesh and blood form, is always tentative.

In these letters, we’ve seen the limitations of reason and information. Hitler decided that the world would be a better place without Jews. He was sure he was right and took what seemed like reasonable measures in light of his insight.

He was such a good talker that he was able to get one of the world’s most powerful, most sophisticated and best- educated nations to march behind him. The nation kept marching long after it was apparent to everyone that it was a lost cause – and an imbecilic one, too.

Imagine if you were marooned forever on a desert island with one other person. Imagine that this person were as obnoxious as a democrat and as useless as a republican. Also imagine that there was only enough food on the island to feed one person. Wouldn’t your future be better if you killed this person? And… why not? The crime would never be discovered.

What’s more, he would probably be thinking along the same lines you were. If you didn’t kill him, he’d probably kill you. Based on all the available information and with no gaps in the Cartesian logic, you might come to the conclusion that you should kill the poor oaf before he kills you.

People have to decide what to do. Reason, experience, luck and observation guide many actions. Others – such as the German people’s support of Herr Hitler or the tech bubble on Wall Street – are driven by collective thought, which has a temper all its own and is almost always foolish and destructive.

So what do you do?

Fiat justicia, pereat mundus is the Latin legal expression. It means follow justice [the rules], even if the world should perish. Judges used to be guided by it. But it is as out-of-fashion in legal circles as it is in investment ones.

It is against the rules to kill people. Or steal. There may be occasions when it ‘makes sense’ to break the rules… but as soon as you allow yourself the flexibility, you become like an alcoholic who allows himself a drink on special occasions. Plenty of occasions present themselves. Soon you are toasting “National Hair Products Week” and raising a glass in honor of St. Xavier.

I will put it to you directly, dear reader: there are rules that govern investing, too. They are not quite as simple as ‘thou shalt not kill,’ but they are not as complex as the ‘rule against perpetuities’ either.

Follow the rules and you don’t have to worry about what you cannot know.

More tomorrow.

Your correspondent,

Bill Bonner Paris, France October 25, 2000

P.S. Paul returned to the subject of investing after dinner.

“If I put my money in the bank,” he reasoned, “I’ll only get about 5% interest. I’ve got to be able to do better than that in stocks.” He gave a small laugh…as if to say, everybody knows that stocks produce a lot more than 5% per year.

“Well,” trying to avoid being a party pooper, “5% may look pretty good 2 years from now.”

*** “We’ve seen the bottom,” said one analyst, whose silly comments were recorded by a Reuters’ reporter. Hope springs eternal. And the great hope of brokers, analysts and tech investors is that the bear’s bottom has not only been spotted, but that the beast has been shot dead, tagged and sent to the butchers.

*** “October’s low should mark the bottom for this cycle,” said another commentator. The thinking on Wall Street is that October is the month for bottoms. Investors expect a boost now from the post-election optimism and Christmas season spending.

*** All this talk of bottoms is making it hard to concentrate on investments. I have to get up from my desk, take a deep breath, and walk over to the window. Oh la la…that doesn’t help…

*** The Dow rose for the 4th session in a row yesterday. It went up 121 points. Advancing stocks beat declining ones, but not very convincingly for a major rally…1560 to 1229. Stocks hitting new lows on the NYSE outnumbered those hitting new highs, 92 to 54.

*** The Nasdaq fell 48 points. National Semiconductor lost 34% of its value. The Internet consulting firm, marchFIRST, fell 59%. Intel, meanwhile, lost a little more than a dollar, to close at $42. IBM was down about $1.50.

*** The weakness in the Nasdaq worried Asian markets this morning. Reuters reported the Asian market action as though it were a Godzilla movie: “Asian Investor Flee Chipmaker Shares,” said the headline.

*** “In a bear market,” goes the old Wall Street saying, “money goes back to its rightful owners.” Well, not exactly. Billions, perhaps trillions, of dollars have been invested in projects that will never be profitable. It is as if investors had put their money planting watermelons in the Gobi Desert or manufacturing electric pogo sticks for people who want to hop to work. The money that went into these projects doesn’t get returned to anyone – it just disappears.

*** Oil is still above $33 – after moving up and down in various markets. Crude oil inventories rose in the U.S. But inventories of heating oil fell – to 30% below what they were a year ago.

*** “Internet executives are four times more like to have ‘unsavoury’ backgrounds than executives from other industries,” said a report from the security firm, Kroll Associates. Crooks and schemers always follow the money. Kroll reported that one had had 2 investment offers – and both people making the offers were subsequently murdered. Who says investing in these companies isn’t risky?

*** You may remember that Lucent was the choice of an investment club I mentioned a few days ago, because “it’s a market leader.” Well, the market leader announced on Monday that not only would it not meet its original profit targets, it won’t meet the revised ones either. In fact, it won’t meet any profit targets. Lucent is merely hoping to break even. The stock fell another 2% yesterday to $21 and change. It was as high as $78 last December.

*** “Citibank announced last year that its 40,000 private banking clients,” said former Congressman Bob Bauman, “each of whom had to prove a personal net worth of $3 million in order to qualify for the bank’s services, are watched every minute of every day to see if they may be engaged in money laundering or other financial crimes.” His remarks concerning “the current state of the offshore financial world and the concerted attacks being made upon tax haven nations” were recently entered into the Congressional Record by Ron Paul, Rep. from Texas.

*** My friend Michel, philosopher and car buff, reports: “Ten years ago, European stock markets were flying… money was flowing and housing prices were going to the heavens. This also was the moment that auto manufacturers came out with a new group of “super cars” – high performance prototypes at extremely high prices. The MacLaren F1, for example. I remember people standing in line to pay $100,000 to reserve a new XJ220 and coming back the next week to make another $200,000 down payment. And you had to wait 2 years for a new Ferrari.

“Then, bam, the market collapsed. Only 6 Jaguar XJ220s were ever built. Bugatti went bankrupt after building 20 cars. Used Ferraris fell in price; a Testarossa, for example, dropped from 2 million francs to only 400,000 francs. And most of the other super cars disappeared.

“Ten years later…autumn 2000…the big auto companies are once again presenting super cars… only this time they’re even more powerful and even more expensive. Volkswagen is re-launching the Bugatti…and delays in delivering Ferraris are once again stretching out. Deja vu?”

*** Just a year ago, my farmer neighbor, Pierre, was complaining about British beef. The Brits did not take enough care with their animals, he said. That is why they were unable to stop the ‘mad cow’ disease. Well, now it is the French who are having trouble with the madness of cows. In the last few days, three supermarket chains have had to recall beef that may have been infected with the deadly disease.

*** Majoritarians have no sense of humor. A Chicago judge ordered the Internet site that was auctioning votes to shut down. “A spokesman for the Chicago Board of Elections,” Reuters reported, “called ‘its very existence’ a crime at federal, state and local levels.” Apparently, it is okay to promise the voters anything you want to win an election…as long as you don’t make good on the promises.

*** Today is the anniversary of Pablo Picasso’s birth in 1881. Picasso, widely acclaimed as “the most influential artist of the 20th century,” got his start in Parisian attics, a penniless bohemian artist. But he painted the stage sets for the Russian Ballet in London in 1918…and pretty soon Le Moderne was all the rage…and Picasso was lionized. In America, the popular sensation was taken up by the super-rich Euro-philes of New York, such as Rockefellers and Goodyears, who wanted desperately to be hip and modern. “By the mid-1930s,” wrote Tom Wolfe in The Painted Word, “Modern Art was already so chic that corporations held it aloft like a flag to show that they were both up-to-date and enlightened… The Dole Pineapple Company sent Georgia O’Keeffe and Isamu Noguchi to Hawaii to record their impressions, and the Container Corporation of America was commissioning abstract work by Fernand Leger, Henry Moore and others….”

*** It is rumored that, late in life, Picasso confessed to an Italian newspaper that he knew his art was all rubbish, but that it had made him rich. If he didn’t make this confession, he should have.