How To Get Rich Quick

There are lots of ways to earn a living. You could go out into the wilderness and hunt and fish…or grub up roots. Take along a copy of Euell Gibbon’s classic, “Stalking the Wild Asparagus”; you may find it useful — if not for the information, at least you’ll be able to use the pages to light fires.

You could live in a cave. Or maybe make your own rude habitation. Keep it simple; you won’t be doing much entertaining.

Or get a job. It’s safer and easier than trying to eke out a grudging living directly from Mother Nature. With today’s full employment, anyone who wants one can get a job. Criminal record…low intelligence…anti-social behavior…body odor…bad grammar? Don’t worry about it. Businesses are desperate. Even former Grateful Dead fans are offered employment.

If you go the employment route, be sure to ask for stock options as part of your contract. Most likely, your employer won’t give them to you, but posing the question marks you as an up-and-comer…or at least someone who has turned on a television set within the last five years.

But today’s letter is not about surviving — it is about prevailing. It is about getting rich quickly, not just earning a living.

Saving and investing can make you rich. But…even with the miracle of compound interest…it still takes a long time. Compounding modest bits of money still takes a lifetime to turn into anything even close to wealth.

So if you want to enjoy wealth anytime soon, you have only two choices: you have to steal it…or you have to persuade others to give it to you.

Stealing is probably the simplest way. It lends itself to people with short attention spans.

But theft is not without risk. There are the temporal risks — you may be caught and sent to jail…you may be disgraced…you may lose your license to practice law…or you may even run into an ornery victim, like the grandmother in Australia who took the law into her own hands and shot the two rapists who attacked her grand- daughter.

There is also the risk of going to hell, which I will leave to your imagination.

No, the better way is not force, but persuasion. In this, you are able to harness not only your own talents, but those of other people, too. People want to believe…almost desperately…that they too can get rich quick. And they will be all too happy to deceive themselves in the cause of easy money.

Investors want to think that they can get rich quick. They are too sophisticated to be attracted by the bald promise of “Easy Money — Fast.” But that is what the Internet stocks — and the Nasdaq, generally — offer. Investors in these stocks do not know what they are buying. They have not studied the business plans or income statements. They have not surveyed the industry and analyzed its prospects. Often they don’t even know what the company does. What attracts investors is not the business…but the siren song of Fast Cash.

A recent column in the “Financial Times” explains how scams (and manias) work: “The simplest route has always been to lie,” the article elaborates, “…but the likelihood of exposure and imprisonment deters most people…”

A better technique is to offer an explanation that lets people lie to themselves. In the typical pyramid scheme, you take in money from people and pay it out as interest or earnings or winnings. Those who get in first report the results to their friends. Soon, everyone wants a piece of the action.

Even bankers sometimes operate on the pyramid principle. They take in depositors’ money by promising higher rates of interest. They pay the interest from the savings of the new depositors. Unless something happens to save them…say, a bailout from the federal government…the banks are doomed. But the first depositors — and the bankers themselves — still prosper, assuming they get their own money out in time.

Most often, these schemes offer investors some plausible explanation for how they can provide returns considerably higher than the market rate. In the case of the Nasdaq, the current explanation is one that we have been discussing for many months — one which has brought us so much amusement — the idea of the New Era.

In the New Era, productivity will be enhanced by the nearly miraculous influence of computers and the Internet. The whole planet is getting wired. Profits are just over the horizon.

But except for some very suspicious pre-Y2K numbers last fall, we have seen no outsized increases in productivity. And business profits have been stagnant for the last three years.

A Ponzi-type scheme caused an economic collapse and nearly a revolution in Albania a couple of years ago. There the explanation was similar to the Nasdaq rationale: the age of communism was over in Albania; free enterprise and an opening to Western markets would provide the basis for extraordinary returns. Nearly everyone in Albania seemed to have been swept up by the promise of easy money. And when the pyramid collapsed, riots broke out all over the country.

So willing are people to believe in “Get Rich Quick” that you don’t even need an explanation. The article in the “FT” tells of one such pyramid in Britain: “a company called Titan Business Systems entered Britain with an entirely clean Ponzi scheme — it did not pretend that there was any source of revenue other than an ever- increasing number of new participants — it showed that no deception is needed to induce gullible people to take part. The very openness of the scam caused the Department of Trade and Industry difficulty in shutting it down.”

Even when it is obvious that the whole thing is only a “Get-Rich-Quick” scheme, people are still happy to participate. They know that many people will lose money but believe that they will be among the winners. People are naturally optimistic, especially about themselves.

“When people are asked to compare themselves to the norm — as drivers, lovers or executives of large corporations — less than half the population rate themselves below average,” says the “FT.” “There is also another psychological quirk at work, called `prospect theory.’ We focus on improbable outcomes to a degree that is not justified by their low probability.”

People buy lottery tickets — fully aware of the remote odds against winning. A rational calculation would show that the investment in the lottery ticket is a bad one. But neither lotteries, pyramid schemes nor the financial markets work on logic.

“There is one enduring and unvarying feature of all these schemes. It is better to run them than to participate,” concludes the “FT” piece. Sell Internet stocks; don’t buy them.

Bill Bonner, inexplicably cut off from the World Wide Web.

London, England May 16, 2000

*** I had a lot of trouble getting on the Internet today. New computer. New town. I don’t know what it was, but it cost me hours of time. So this is going to be very short.

*** “Half-point increase expected today,” says the headline in today’s “Financial Times.” U.S. industrial production surged in April at its fastest rate in 19 months. This bit of news is thought to guarantee a 50 bps increase by the Fed today.

*** Which is great news for those who are looking for great news. Once this rate increase is out of the way, goes the popular thinking, it will be clear sailing.

*** The Dow rose 198 points in greedy expectation of today’s news (and presumed rally). The Nasdaq was, uncharacteristically, more restrained. It rose only 78 points.

*** “Buy the rumor, sell the news” is the old adage. If it proves correct, the market will surprise the experts by falling today, rather than rising. *** Breadth was good yesterday — 1,757 advanced while 1,140 declined. There were 105 new highs; 57 lows.

*** Gold fell 50 cents.

*** Supplies of natural gas are tighter now than they have been in 30 years, and the squeeze has driven up the spot price 35% in the last year. Consequently, Dan Ferris’s gas producer has seen its shares rise more than 33% since Jan. 1 — with $1.11 in earnings per share. “But you ain’t seen nothing yet,” Dan says. He expects the demand for gas to keep rising by as much as 50% or more this decade. But Dan reports gas is just one in a rising tide of commodities.

*** Warren Buffett’s Berkshire Hathaway posted a 49% increase in first-quarter earnings. It’s now up to $531 a share (earnings).

*** Meanwhile, The Cisco Kids are at it again. This time they’ve purchased a Swedish “optical networking” firm for $800 million in paper.

*** And it looks like Bill Gates’ partner, Paul Allen, took some of his money off the table just in time. Allen sold $3.8 billion of his Microsoft holdings between October 1999 and March 31, 2000. As of May 5 those same shares would have been worth $2.8 billion, down 25%. But he’s not the only one. “Barron’s” reports top dogs at Dell, Gateway, Broadcom, E-Tek, Cisco and RealNetworks sold millions of their own stock before March 31.

**** “Wealthy Americans can cut income, capital gains and estate taxes to ZERO with a planned, long-term expatriation strategy,” says Marshal Langer in this month’s missive from the “Sovereign Society.” A rich Bahamian citizen, for example, pays NO estate taxes; rich Americans, anyone with an estate worth $3 million plus, can pay 55%. Which is why both Sir John Templeton and his right-hand man, Mark Mobius, have given up their U.S. citizenship.

*** Gary North reported the work of Alan Newman in a recent letter. Newman compared money supply, M2, to stock market capitalization. He discovered that the situation at the end of ’99 was the most extreme ever. The ratio of M2 compared to total market cap has never been lower. Sell equities. Hold cash.

*** “Family of 7 wiped out by crazed DJ…” Wow, I love these British tabloids. On the cover is the photo of a gap-toothed “firebug” who set a house ablaze and killed “four generations of a family.” Another one tells us that “Sophie [the countess of Wessex] To Sell Firm And Have Baby.”