More Perfect Unions


“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.”

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.

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,” 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.

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.

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 – 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 na?ve and sentimental enough to hope so.

Your correspondent,

Bill Bonner
Delray Beach, FL
April 3, 2001

*** Techs took another beating yesterday – led by Micron, down 13%. Our old favorite River-Of-No- Returns stock, Amazon, drifted down to, would you believe it, $8.50. Cisco – one of the “must own” stocks of the Information Age – fell to $15.

*** “They’re idiots,” said Dallas Mavericks owner Mark Cuban on CNBC. “They have no clue,” he continued, referring to people who expect a quick bounce back in Techs. “I’d rather collect my 3% to 5% in whatever investments and wait for it to turn around.” Cuban became a billionaire when he sold his company to Yahoo! near the peak of the mania. He then sold his Yahoo! shares for $90. Those shares are worth only $15.75 today.

*** “I dare you not to own my stock,” said Applied Micro Circuits CEO David Rickey a year ago. His stock was trading above $100 back then. Reminded of his dare by Maria Bartiromo when he appeared back
on CNBC on March 2nd of this year, Rickey repeated his dare – even though his stock has dropped 67% since the summer.

*** “What Mr. Rickey did not say,” the NY TIMES tells us, “was that he had come close to accepting his own dare.” Between July 2000 and March 2, 2001, he sold more than 90% of his shares – while the share price fell from $100 to $29. Since 1999, he has unloaded more than 99% of his holdings and realized about $170 million. He even exercised hundreds of thousands of options – and promptly dumped the shares.

*** Is it better to be a knave than a fool? Poor Julia Wainwright. By contrast, the CEO of failed to sell a single share. Now the company is bankrupt.

*** AMEX says its earnings for the first quarter of this year will fall 18% below those of a year ago.

*** Profits are falling…share prices collapsing. But a survey of America’s 200 top corporations shows that CEOs are doing okay. The average one earned $10.89 million last year – about 2/3rds of which came from options.

*** “13 months ago it took $25,000 to buy 100 shares of Yahoo,” writes the Oxford Club’s C.A.Green. “For the same $25,000 today, you can buy 100 shares of Cisco, 100 shares of Motorola, 100 shares of Lucent, 100 shares of JDS Uniphase, 100 shares of Ariba, 100 shares of Nokia, 100 shares of Intel, 100 shares of Sun Microsystems…oh yeah…and one thousand shares of Yahoo…When Yahoo shares burrow down into single digits…then stocks as a group may begin to look interesting again.”

*** This is the way ‘late, degenerate American capitalism’ seems to work. The employees look out for themselves first. The customers get taken care of. And if there’s anything left – it goes to the capitalists.

*** “Is Capitalism Flawed?” asks a silly headline in a silly paper, the Financial Times. Every natural thing is flawed…and slated for correction. It may be said of ‘late, degenerate American capitalism,’ as with all things natural, that ‘this too shall pass.’

*** Microsoft went up in price yesterday – plus 2%. The company has largely defied the collapse in Tech shares – and still trades at 31 times earnings. For how long? I don’t know, but not forever.

*** The Dow dropped 100 points yesterday. The Nasdaq fell 57. The Dow is above its March 22 low – but has not yet managed the kind of major rally one might expect.

*** You may recall our own Lynn Carpenter forecasts Nasdaq 1800 by early summer. Lynn: “Today’s fall in Nasdaq was strategically important. At 1800, the Nasdaq shows significant support. At 1750, that support is broken, giving a new sell signal and increasing the likelihood of a few more bearish weeks ahead. That number is really more important than today’s 29-month low.”

*** Two indicators of improved consumer sentiment came out yesterday. The Univ. of Michigan survey showed rising consumer spirits. So did the Conference Board Index.

*** Still, spending may not increase as hoped. The Houston Chronicle reports that a “Wait For Lower Price Syndrome” is developing. Consumers expect prices to fall. In deflation, people typically hold onto their money, rather than spend it. “If money no longer burns a hole in pockets,” says the paper, “if we are all persuaded that the price of everything but yogurt will be lower next month, we’re in a different economy.”

*** Yes, one that is beginning to resemble the Japanese economy – where consumers are reluctant to spend and where borrowers don’t want to take on extra debt, even if they can borrow at nearly zero interest.

*** The 10-year T-note is priced to yield 4.91%. A 10-year TIPS note (one indexed to protect the holder from inflation) yields 3.21%. The difference, only 1.64%, suggests that investors expect little inflation in the years ahead.

*** One thing that is deflating dramatically is Alan Greenspan’s reputation. “Once Unthinkable,” says a NY TIMES headline, “Criticism is Raised Against Greenspan.” The Fed chairman raised rates too high for too long, say the kvetchers.

*** Is there a ‘just perfect’ interest rate that assures investor happiness? I don’t think so. More below…on happiness and other things…

*** “The one best sector over the next 5 – 10 years will be the electricity-related stocks,” writes Dan Ferris. Ed Yardeni, Deutsche Bank’s Chief Financial Strategist, agrees: “In the past, the key to outperforming the S&P 500 has been to pick the one sector that was most likely to be the decade’s big winner. In the 1980s, it was the Consumer. In the 1990s, it was Technology. Now my pick is Power (i.e., energy resources, utilities, distribution, and capital spending). A reasonable estimate is that we will spend at least $200 billion between now and 2005 to expand electricity-generating capacity. (Energy & Utilities are still only 10% of the S&P 500 market capitalization versus 26% for Technology & Communication Services).”

*** It’s a different world down here in Florida. The cars are bright and new. And the people are old and banged up.