Nerves Steady Your Money

The Daily Reckoning Presents: A DR Classique originally broadcast on October 21, 1999.


“I don’t care about money,” said “Smokin’ Joe” Frazier. “It just steadies my nerves.” The former champ, after having been hammered by Ali and numerous others in his career, seems to have suffered less brain damage than the president of Indonesia.

I was thinking about that last night on my long walk home from the office. It came to me just as my attention was distracted by a beautiful woman entering the church at St. Sulpice. She was tall with swept-back blond hair. And there was something about her expression. She was at ease in some personal way…not vacant like a Hare Krishna at an airport terminal…her nerves were steady, not deadened.

Yesterday’s comments contained a provocative idea: that virtue can improve your financial performance [see: “The Sacred and the Profane”, a DR essay dated October 20, 1999]. As I mulled that idea over, I realized how absurd it was.

Think about the very rich people you know. The boneheads, the morally-challenged, the perverts and the profane. Ted Turner, Donald Trump…the corporate raiders…the stock market mavens…

I mean…if the battle for wealth is won with weapons of virtue…a lot of these guys are, well, unarmed.

The subject of morality has certain parallels…and intersections…with investing. Both can be dull. And both can be perplexing and paradoxical. So, fortify yourself with a cup of coffee. Today’s reflection has no practical application. But it could be interesting.

I am coming more and more to the belief – first announced by Jim Grant – that markets work on the principle of irony. More and more, I find irony to be the driving force…as well as the secret key to understanding market movements. The very moment when the public comes to believe that stocks will go up forever…stocks begin to decline. When a technology is certain to be a big success, you can almost be sure that an investment in the company’s stock will be a big loser. When gold is pronounced dead…that is the moment to hold a mirror to the nostrils and recheck the pulse.

The same may be true for the way morality affects your investments.

We are dealing here with cause and effect relationships. Primitive peoples, lacking a sophisticated view of cause and effect, partake of a primitive one. They see spirits hiding behind every bush. And the spirits are dangerous. The spirit of a tree may get mad because you chop off a branch. The sun spirit may decide to hide himself if he doesn’t like the way you dress. A volcano may hunger for a maiden or two.

In the Old Testament days, it was still thought that God would punish sin in this life rather than the next. Sodom and Gomorrah did not prosper…they were obliterated. If a person fell ill…or a drought ruined crops…the elders would ask, “who sinned?” This sentiment is still a strong part of our emotional programming. We feel we will be punished, in some way, for sin. What better way, in this materialistic age, than in the stock market? And from yesterday’s example, it is obvious how certain sins (avarice) at certain times (a bull market top) may produce negative returns. Wouldn’t it be ironic, and perhaps poetic, for a jealous God to punish the mammon worshippers in such a way? By putting their mammons through the wringer of a bear market?

Wouldn’t it be fun to watch the yuppies and masters of the universe get what they deserve? Uh-oh…taking pleasure in their loss…that delightful sensation of “schadenfreude,” as the Germans say, that is probably a sin too! Maybe not a capital sin…maybe a sin of the lower case…or sub-prefecture variety. But still a sin. And if God is going to punish the big ones…he’s bound to punish the little ones, too. Those who delight in irony will have irony done unto them, too.

But, if God is to punish sin…will he really reward virtue? Think about the virtuous people you know. Are they rich? All major religions have a similar vision of a virtuous person. And in none is he long the Internet stocks or filthy rich. The virtuous soul cares not for material things. I learned yesterday that the philosopher Wittgenstein, born into one of Europe’s wealthiest families, gave away all his money. One of Julius Nyerere’s virtues was that he didn’t seem interested in money.

Virtuous people are beyond caring…and not just about money. They are satisfied if not happy…people who can walk by a Paris pastry shop in their bare feet, with no desire to stop in have an eclair. They can get a tip on an IPO and have no urge to call their broker. They can watch a beautiful blonde pass on the street and not lust after her…neither in their hearts nor other anatomical parts.

Shakespeare was not describing a virtuous man… translated into Swahili by Nyerere… when he spoke of Cassius as having “a lean and hungry look.” Virtuous people do not have a hungry look. They lust not. Neither do they sin. And neither do they make a lot of money. They don’t care about money.

I don’t care about money either. But as “Smokin’ Joe” put it, it steadies my nerves. I am not a virtuous man. I lust after profit, pulchritudinous company and profiterolles just like everyone else. Besides, I need to lust after money. I have six children to put through college. Six times $20,000 per year…times four years…after tax…well, you can do the math.

I don’t know if God will punish me by sending me to the poorhouse. But, like Blaise Pascal, I’d rather not find out. And I’m not desperate for money, anyway. Or pastries. Or blondes, for that matter. And maybe that’s the real key. Desperate gamblers are bad gamblers. Starving people will eat anything…even Dinty Moore stew. A man who hasn’t had sex in 12 years…well…you fill in the rest.

I am not desperate. So, I can tolerate a little virtue in my life, from time to time…within reason. And a little virtue is probably not a bad thing in investing, just as it is not necessarily a bad thing in the rest of life… It helps prevent you from doing something really dumb.

Bill Bonner
August 8, 2001

*** Says the BLS…the unemployment rate in July held steady at 4.5%, but businesses slashed another 42,000 jobs during the month.

*** So what? Why do we watch these BLS numbers anyway?

*** Purportedly, as our friend John Mauldin points out, “unemployment is The Final Answer connection to consumer spending. Consumer spending is what is holding up the economy. As high consumer debt and unemployment problems wreak havoc on consumer spending, we will see the economy continue to weaken. This in turn is going to produce another round of negative earnings warnings and more heartburn for investors.”

*** And “in the past 50 years,” writes analyst Tony Glennon, “the US economy has never experienced a full 1% increase in unemployment without a full-scale recession…” As jobs go, so goes the economy. Easyenough, right?

*** Well, maybe not. Here’s an interesting little observation from Bill King, a trader in Chicago: “In 1985, the Reagan BLS understood that white collar workers jettisoned by Fortune 500 companies were being assimilated into start-up enterprises – tech firms – or forming their own companies. The government could not count that type of job creation, so they had the BLS computer add 35,000 jobs/month to employment. This is the ‘plug’ or ‘bias’ factor – jobs the government can’t count, but believe are being created.”

*** Under Bush, The Elder, the ‘bias’ was increased to 55,000 jobs per month…and again under Clinton the bias was boosted to 155-165k. Where it remains today…

*** “We now have an environment where high tech jobs are being destroyed, not created, and the BLS computer still assumes 155k+ jobs are being created that they can’t count,” says King. “If job creation during a decade and a half boom couldn’t be counted, how can BLS count job destruction in small entities?”

*** Hmmmnn… as Eric reports below, the BLS numbers had a negative effect on Friday’s markets. What would happen, in this post-bubble era, if the BLS computers should delete X amount of jobs per month rather than tack on 150k?

*** Let’s check in with Eric:


Eric Fry reports from Wall Street:

– To dispel any notions that we here at the Daily Reckoning are a bunch of doomsday-prophesying crepe- hangers, allow me to offer the following prediction: the economy will recover. Of course, it may head lower first.

– As Addison mentioned, the stock market did not take kindly to the employment report. The Dow declined 38 points Friday to close the session at 10,513, while the Nasdaq fell about 1% to 2,066.

– Despite the Friday fade, stocks chalked up small gains on the week. The Dow climbed 96 points and the Nasdaq tacked on 36.

– Cisco Systems, which will assail us with its latest earnings tomorrow, is grabbing the spotlight once again. According to Sanford Bernstein analyst Paul Sagawa: “To justify current valuations, Cisco would need to deliver more than 20% growth and sustain more than 20% operating margins over the next decade, performance that is unprecedented for a company of Cisco’s size in the history of modern public companies… Investors have high expectations that are ripe for disappointment.”

– Even if Cisco “makes the numbers,”’s Igor Greenwald points out, “[I]t has yet to write off billions in soured investments and high-priced acquisitions, as Microsoft, JDS Uniphase and a host of other tech firms have done already… The company investors used to love and once rewarded with the largest market cap in America is, these days, only about three-fourths as valuable as a boring and vastly more profitable insurer like American International Group.”

– When it comes to declining revenues, Cisco has plenty of company in corporate America. “Business sales,” observes Moody’s John Lonski, “are down minus 0.7% in the second quarter of 2001 from the second quarter of 2000. This is the sum of retail sales, manufacturing and wholesale sales…The last time business sales were down year-over-year was the three quarters from the first quarter of 1991 to the third quarter of 1991.”

– For months, we’ve been reading about how the patriotic consumer continues to buy houses and cars, no matter how little money he makes. The stories usually include accolades for these stalwart consumers whose spendthrift ways are rescuing our economy from recession.

– It’s true, auto sales have held up over the last few months, but mostly because manufacturers have enticed car shoppers with lavish incentives. That game may have played its final inning for this cycle. “Even with generous incentives costing U.S. automakers most of the new vehicle profits,” USA Today observes, “auto sales slipped in July.”

– Now that the stock market waffles and business sales slow down, the U.S. dollar has started to struggle just a bit. That’s good news for gold, says Greg Weldon: “As the USD teeters at key long-term support levels, gold teeters, on the verge of a MAJOR upside breakout…” We will certainly see…

– “What would happen if the dollar bubble actually bursts?” we wonder from time to time. According to, you could stand to make some money: “If the bubble takes 3 years to deflate, which is not unreasonable since that’s how long it took the dollar’s previous bubble to unwind… [t]he following annualized rates of return would be realized for G7 assets from the perspective of U.S. investors:

Italy: 14.7%
Canada: 14.4%
France: 9.1%
Germany: 9.1%
United Kingdom: 7.1%
United States: 5.8%
Japan: -5.4%

– “It’s a good time to be global,” says the peripatetic Mark Mobius in a recent interview with Delta’s Sky Magazine. The long-time manager of the Templeton Emerging Markets Fund predicts, “This is a good time to be in emerging markets…these markets have been beaten down pretty low, and there’s a good opportunity to get cheap stocks.” Mobius’ favorite emerging market? South Africa, where he has invested about 14% of the funds under his stewardship.


Back to Addison in Paris…

*** “Investing in the U.S. miracle will, in retrospect, be seen as a sick joke,” predicted Dresdner Kleinwort Wasserstein Global Equity Strategist Albert Edwards in a note to his clients on Friday. Nooo… say it ain’t so.

*** “The markets will be forced to confront this harsh reality on August 7. Make a date in your diary! The U.S. ‘new paradigm’ will then be officially revised away! Therisks of an equity crash are high.”

*** August 7th… wait, isn’t that tomorrow? Oh man. Note to self: “don’t invest in stocks. Tomorrow the markets will crash.” Damn… I just wish we were on to this productivity story sooner.

The Daily Reckoning