More Perfect Unions

A DR Classique, originally aired April 3, 2001 – a musing on love, marriage, and, of
course, the stock market, to get you in the mood for Valentine’s Day…

"Do you love him?"
"Was it better with him?"
"Then why did you do it?"
"Who knows?"

from "Don’t Wake Mother," by Jean Anouilh

The subject was not roses. The subject was thorns: adultery, a staple of French literature… and perhaps French life.

"You seem shocked," said Sylvie last week. "Don’t women in America cheat on their husbands?" We were reading a novel by Maupassant. I read out loud. Sylvie, a young woman who teaches yoga as well as French, corrects my pronunciation.

In the passage we were reading, a woman takes up with another man when her husband is out of town. In fact, she
rents an apartment so they can conduct their liaison without being disturbed.

"I am not so much shocked by what they are doing," I replied, "as by the deliberate way they are doing it."

"I suspect that people in America are not so different," was her response.

"No, American women would agonize and feel more guilt. They would need to talk to psychologists and counselors."

"We French," answered Sylvie, "prefer to save our suffering for Hell."

Finding the Bottom of the Stock Market: Three Secrets for the Price of One

Long-time Daily Reckoning sufferers know that we range far and wide – looking for the rare mushroom of insight that
might have grown up overnight… But new readers may be surprised. This is a financial service, isn’t it?

Yesterday, I promised to tell you how to tell when the stock market bottoms out. And, oh yes, I also promised more
– including how to find love… and how to have a happy marriage. Would it surprise you to learn that the secret is
the same for all three?

The paradox of all three things is that you cannot get to them by a direct route. No road sign on life’s highway
offers "Love – Exit Here!" Nor will you find a "Last Exit Before Bear Market" signposted on your way to work. And
don’t bother to look for "Happy Marriage" on a map. Even with GPS, you will not find it.

If only it weren’t so, I thought to myself as Jack and Mimi exchanged wedding vows on Saturday. I take some tiny
portion of the credit for bringing them together. Both worked for my company… at least until one was fired. But
by then it was too late – the gravity that was to bring them into mutual orbit had already captured them.

And now, what would happen to them? I feel towards them as I do to my own children: If only I could protect them from
the mistakes I’ve made. If only I could protect myself from the mistakes I am about to make!

That is the problem with age and wisdom – it merely shows you how helpless you are. The wiser you become, the more you learn to keep your mouth shut, until eventually the grave silences you forever.

What a pity there is no Federal Reserve system of the heart – a group of wise old graybeards who could protect the
currency of love… and keep Jack and Mimi’s union in perpetual expansion, like the U.S. economy, with only an
occasional, mild correction. If only there were some way to help them keep their stock rising!

Alas, gentle reader, some things are beyond our comprehension. Others are simply beyond our control.

Finding the Bottom of the Stock Market: The Big Bottom of Their Dreams

All across America, investors, TV presenters, and analysts are watching, waiting, and wishing for that Big Bottom of
their dreams.

"As stock prices have gone down [in 2000-2001]," reports USA today, "36-year-old Greg Reinhard has looked for
opportunities to buy good companies at cheap prices."

"I’m happy with this type of market," he says. "This is when you have to step up to the plate."

Meanwhile, Lisa Jiminez and Jay Maxwell, who share a home if not a name, have "sold nothing during the downturn. As a result, their losses are only on paper."

Roger Pyle, who plans to retire in 6 years, says "I still have a substantial amount in technology, because I believe
it’s going to come back."

And Simon Richardson "plans to resume investing in stocks when the market recovers."

How will we know when the market finally finds its big bottom? It will not even be reported in the newspaper. USA
Today will not ask people what they are doing with their stock portfolios. And no one will care. [DR Hint: Even during the slump before last year’s ‘turnaround’ rally, we never did see a time when the lumpen lost faith in stocks… and so, we opine, the ‘Big Bottom’ has yet to be reached.]

The bottom will come when people stop looking for it… when investors have given up, and turned their attention away
from stocks – maybe even away from their financial lives.

"Get Rich and Stay Rich Forever… " says the headline on WORTH magazine. "The Next Big Money Maker" promises
another. (Worth once called me a ‘genius,’ so I am suspicious of anything I read in the magazine.) Those are
the not the sort of headlines you find at the bottom of a financial cycle. They are more likely signs of a top – when
everyone is obsessed with making money.

Bear markets correct not only stock prices, but attitudes and philosophies. People turn away from the existential
pleasures of getting rich NOW! in favor of other things. They turn to gardening. They begin to think about history
or read mystery stories. They begin to think about what real value really is.

In financial matters, their eyes drift from the credit side of their personal ledgers to the debit side. They look for
costs they can cut… and worry less about getting rich than about avoiding becoming poor.

Finding the Bottom of the Stock Market: Passing Unnoticed

The Big Bottom, when it finally comes, sneaks up on them… and passes unnoticed.

What should a prudent investor do? He cannot know when the market will go up or down. Should he take advantage of
whatever hot opportunity comes along – like a faithless wife when her husband is out of town? Will an investor’s
performance be improving by chasing every big bottom that crosses his path… and hopping from one investment liaison
to another?

It sounds like fun. But it is not likely to be rewarding.

"Come now. Think about it," urges Mark Rostenko. "Do you really believe that the majority of folks are going to
identify the bottom when it shows up? How many times have you picked a stock’s top or bottom successfully? How many people do you think are good at it? Do you have any idea what the statistics are for market timers? I’ll give you a
clue: they are aren’t so good."

But if you can’t find a big bottom by looking for it, how can you find it?

By not looking for it, of course.

Warren Buffett, the most successful investor who ever lived, wastes no time looking for bottoms or tops. Instead,
he explains that he just wants "great companies at a fair price." But, as prices go up and down, they are not always
‘fair.’ In the late 1960s, for example, Buffett found prices had gotten too high. He explained to his clients
that he could find nothing worth buying at the time – and returned their money. Coincidentally, Buffett had found the
top. Stock prices peaked out soon after and didn’t begin to recover until 12 years later – at which point, Buffett
found many good companies at prices that were more than fair. Without looking for it, Buffett had found the bottom
too, as a by-product of sticking to his tried-and-true principles.

Is that the way to find love and happiness, too – as a by-product of simply sticking to the basics, the rules, and
the important principles? I don’t know, dear reader, but I am naive and sentimental enough to hope so.

Your editor,

Bill Bonner
The Daily Reckoning
February 13, 2004

Editor’s Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison
Wiggin, of the NY Times, Wall Street Journal and international bestseller: "Financial Reckoning Day: Surviving The Soft Depression of The 21st Century" (John Wiley & Sons).

And another DR Hint: Once again, Warren Buffett can’t find anything worth investing in in the U.S. – and for the first
time in his life, he is moving his assets outside the dollar. Perhaps you should, too…

Watch this space next week for our long-awaited report on how to protect yourself in the midst of the dollar’s
decline: "Bonfire of the Currencies: 7 Ways to Sell the Dollar."

It’s Friday the 13th… and we are feeling rather unlucky.

Looking outside, the sun is shining. We’re about to take a week’s vacation… the markets have been rallying for almost
a year… what could possibly go wrong?

It’s not necessarily a specific ‘what’ that is worrying, but rather a panoply of potential ‘whats’ that have
conspired to drive the price of lunch in our favorite Parisian bistro to worrying levels.

Bill is in London today, trying dutifully to solve some business problems… forthwith a few uncollated
thoughts… and an informal inquiry into the wildness we are sure lies in wait.

*** "We have been reading that virtually every sentiment indicator," Dr. Kurt Richebächer points out, "for the U.S.
economy and its stock market is showing optimism far in excess of what happened in early 2000, at the height of the
stock market bubble. This euphoria, by the way, is unique to the United States."

As we say, dear reader, we see sunny weather everywhere we look. All over the Dollar Standard domain, investors still
line up to buy stocks… secure in their faith that the U.S. growth machine is up and humming… and with it, the
world economy. What could go wrong?

"There was an economic upturn, for sure," continues the good doctor, "but a very weak one in comparison to the
postwar cyclical norm.

"Yet has the huge combined monetary and fiscal stimulus injected into the economy over the last three years
achieved sufficient traction to unleash a solid, self-sustaining and self-accelerating recovery?"

*** Yesterday, traders were still trying to digest Greenspan’s  recent speech on Capitol Hill. In his address,
he joined top Fed cheerleader, Ben Bernanke, in avowing that job creation was just months away. Jobless claims,
meanwhile, rose by 6,000 to 363,000 last week.

But fundamentally, nothing has changed. "Greenspan’s comments are still reverberating," a currency trader from
the Halifax in London told Reuters this morning. "But the underlying idea still is that U.S. rates will be on hold
and the fiscal position is worrisome."

Lumpen-enthusiasm for Greenspan’s remarks lasted barely 24 hours. Thursday, the Dow lost 43 points to close the day at 10,694. We wait, of course… but note for those keeping track that the Dow failed to reclaim its intra-day 52-week
high of 10,748 set on January 27th. The S&P 500 lost 5 points to 1,152, while the Nasdaq dropped 16 to 2,073.

Gold went vertical in the hours following Greenspan’s remarks, climbing from $405 to $412… and has stayed there.
As we write, it is trading a $411.90 in London.

*** Meanwhile, the dollar traded dangerously close to its lifetime low against the euro yesterday, and now rests
uneasily at a buck twenty-eight.

In London, the situation is even more dire than in Paris. At $1.89, the pound sterling is trading at 11-year highs
against the greenback. Taking the Eurostar or buying a pint at the pub, as we are wont to do from time to time, is a
disturbing activity for the American expat.

After last weekend’s events, this news comes as no surprise to William Rees-Mogg, former editor of the Times of London. "The G7 meeting at Boca Raton was a failure," writes the Lord; its communiqué "did nothing but piously observe, ‘excess volatility and disorderly movements in exchange rates are undesirable for economic growth.’ In response, the markets have already given the G7 a massive snub. Some dealers had hoped that the G7 would at least take the pressure off the dollar for a few days. What it actually did was make the world’s central banks look completely
impotent. As their authority is essential to their effectiveness, they have lost their most powerful weapon.

"The world’s exchange system should be regarded as completely out of control.

"One view is that the dollar is a problem for everyone else except the United States. So long as the Asian countries
lend billions of dollars to the United States, it is conceivable that the U.S. Government could continue to run
its enormous fiscal and trade deficits, financing them through borrowing. It is also possible for American
consumers to continue to buy on borrowed money.

"At some point," Rees-Mogg warns, "the American economy will have to be brought back into balance. That point is
probably closer than most of us think. Given this impending event, the risk of a ‘disorderly movement’ in the dollar –
or even an all-out rout – is uncomfortably high." For more, see Lord Rees-Mogg’s article

*** "Our analysis," wrote the economist Josef Schumpeter, "leads us to believe that recovery is sound only if it does
come from itself. For any revival which is merely due to artificial stimulus leaves part of the work of depression
undone and adds, to an undigested remnant of maladjustments, new maladjustments of its own."

Schumpeter was talking, of course, about the 1930s… but he may as well have been describing the recession that didn’t take place some 70 years in the future. No one, except perhaps we die-hards at the Daily Reckoning, have even used the term ‘depression.’ And even we have dampened its blow by adding the word ‘soft.’

But, as in Schumpeter’s time, the work of depressing the excesses of the 1990s bubble in credit remains undone… and a government determined to "do something" about it – has merely prolonged the day of reckoning.

*** Today may be Friday the 13th… but tomorrow is Valentine’s Day. We leave you with a suitably light-hearted
reflection: how to find love and happiness, the secret to a good marriage… and a smattering of stock market advice to
boot. More below…


Addison Wiggin
The Daily Reckoning

The Daily Reckoning