In 1917, two million Frenchmen went crazy for Russian bonds.

Russia was the “New Economy” of its day. In a 1997 article in the International Herald Tribune, Mary Blume tells us Russia had a powerful central government, huge natural resource wealth, and lots of cheap labor. What it didn’t have was capital. Enter France.

France issued over 3,000 types of Russian bonds in 1917 alone. French investors scooped the bonds up in a wave of Gallic enthusiasm. Even the bed-ridden Marcel Proust was roused enough to buy bonds in the North Caucasian Oil Field.

And then, at the peak of the mania, Lenin and his communist thugs came along…and refused to make good the debts ran up by the Czar. French bondholders were left high and dry.

Antique Bonds: Honoring old Bonds

But in 1997, a strange thing happened. After some high-level political wrangling, the Russians began honoring the Czar’s bonds. The French bondholders didn’t get paid face value or interest on the bonds. But the bonds actually traded on the Paris exchange for a while. There were stories of investors scavenging Paris flea markets, or making backroom deals with compliant French bankers to “secure” the old bonds.

Of course, the moral of the story here is NOT to go buying financial instruments at the top of the market. Or to buy them and then wait 80 years for them to pay off. You might, however, consider buying some antique bonds.

That’s just what an eccentric friend of mine, a gentleman by the name of Sven, talked about last week in London over an Italian dinner in Soho. Sven is an unusual character. Quite the traveler – he spends time in a different country each month of the year – Sven’s reddish beard and ubiquitous fedora have been spotted in many-an-odd corner of the globe. He’s willing to entertain almost any investment possibility…as long as the chance for a big return is there.

For example, over a steaming plate of lasagna, Sven wondered aloud whether now would be a good time to go to Afghanistan and buy stocks. I thought the market might be a little illiquid.

“But it might be mobile,” he said.

“How’s that?”

“Well, say the market is the back of somebody’s car. Trunk open, market open. Trunk closed, market closed.”

Antique Bonds: Collectibles and Antiques

Finding alternatives to conventional stock market investing is a real problem for investors today. Sven is currently looking at a bond issue similar to the Russian one. And although he’s not willing to go into more detail until he’s closed the deal, he promises to let us know all about them when the deal is put to bed.

Another, safer route for ‘alternative investments’ is in collectibles and antiques…and even antique stocks and bonds. If you enjoy irony, and have a fancy for late 19th century or early 20th century stock and bond certificates, this is perfect. You can profit by collecting the certificates of failed businesses and bond issues. The business might not be worth anything anymore. But the paper could be.

Collecting old physical stock and bond certificates has even got a name. It’s called “scripophily.”

For example, there’s an 1886 bond for the New Jersey Junction Railroad Company on the market. The story goes that the bond was issued after J.P. Morgan settled a dispute between the Rockefeller and Vanderbilt railroads to take over the entire line.

Ever the dealmaker – and since he had stakes in both sides – Morgan proposed linking the railroads and boosting prices for both parties. The stock certificate for the company depicts Morgan’s yacht, the Corsair, where the deal was struck. According to Cigar Aficionado, it’s also the origin of one of Morgan’s famous remarks. Someone asked him how much the yacht cost. Morgan replied, “If you have to ask, you can’t afford it.”

Call this the adult version of collecting baseball cards, mingled with the aesthetics of stamp collecting and art. It’s also a way for you to own a piece of American history. Or as collector Bill Hogan said: “It’s a souvenir of the American capitalist market, which we’ll never see again.”

“Never see again” may be more accurate than an antique collector’s insight. Today we wouldn’t even be discussing “alternative investments” at all if J.P. Morgan’s firm – along with the rest of the Wall Street – had not participated in the most enormous financial asset bubble of all time.

A recent Bloomberg article suggested that the stock market today is so confusing, you’ve got to hit the history books to make sense of it. By history they meant you had to delve all the way back to the bear market of 1973-1974.

Antique Bonds: 1836-1839

We suspect the folks at Bloomberg haven’t gone back far enough. The world today may be a lot more like 1932 – or even 1837 – than we suspect. We know from our fathers and grandfathers about the Great Depression and then the War in Europe that soon followed. But the only other time in history the U.S. stock markets fell four years in a row was from 1836 to 1839…

That panic of 1837 started with the collapse of the central bank of its day: the Second Bank of the United States. Andrew Jackson fought against extending the Bank’s charter. And in 1836, it ceased to function. Financial crisis ensued. Then in 1841, and in the first months of 1842, eight separate states and the “territory” of Florida defaulted on their sovereign debt. It wasn’t long after that the Union’s economic problems mutated into the Civil War; the most violent and destructive war in history to date.

Today, I believe we are on the edge of another seismic shift in the world markets. And may be a prime time to be looking for investment opportunities outside of the mainstream.

So what else can you do? My adventurous investment friend suggested buying houses.

“Here in the U.K.?” I asked.

“Oh no…of course not. The U.K. housing bubble is even worse than the American one. In fact one of my acquaintances was able to secure a mortgage based on her income as an escort. I’m talking about Eastern Europe. You can get a great apartment in Prague for less than 5,000 pounds.”

“Hmmm,” I said. “Apartments in Prague?”

You’ll recall U.S. Secretary of Defense Donald Rumsfeld lambasted France and Germany for not supporting their war effort last week, calling them “old Europe”. Perhaps he’s right. The Franco-German-Russian resistance to the U.S. war plans could be a high water mark for “Old Europe.”

If so, real estate in Prague could start looking – and selling – like their counterparts in “Old Paris”…making the £5,000 entry price a real bargain.

Stranger things have happened.


Dan Denning
for The Daily Reckoning
February 13, 2003


As you’ll remember, your Paris editors are still lost to the world for the moment. So without further ado, here’s our man on Wall Street, Eric Fry:



Eric Fry, reporting from New York…

– The market just keeps sliding lower and lower. We are referring, of course, to the market for seats on the New York Stock Exchange. One of these coveted “seats,” which permits the owner to conduct trades on the floor of the exchange, recently changed hands for $1.75 million. Until recently, prices for NYSE seats had been holding up remarkably well, considering how drearily the stock market has been performing.

– But seat prices are now starting to drop more swiftly. The latest transaction is down 24% from the end of October, when one of these precious perches sold for $2.3 million. Even $1.75 million seems like a lot of money to spend, just for a place to watch stocks fall every day.

– Meanwhile, the share prices within view of these expensive seats continue their rapid descent. Yesterday, the Dow slipped another 85 points to reach 7,758, while the Nasdaq retreated 16 to 1,279. Both indices are rapidly approaching their lows of early October.

– Investment capital is finding almost nowhere to hide these days. The stock market is certainly no refuge, and hiding places are becoming increasingly scarce in most other financial markets as well. Even traditional bomb shelters like the gold market are becoming susceptible to the occasional stray hand grenade of panic selling.

– Yesterday, a wave of selling blasted $10 off the gold price, taking the precious metal down to $353 an ounce – more than $30 below the levels it reached last week. Rumors swirled throughout the gold market trying to explain the seemingly inexplicable sell-off. One rumor, passed along to your co-editor via email, theorized, “Barrick and JP Morgan are facing large losses in gold derivatives and the NYMEX, as directed by the Fed, is rumored to be announcing soon another margin requirement increase to HALF the value of a gold contract, or about $17,000 from the current $2,000, as a direct effort to get the gold price down, to help bail out Morgan in particular.”

– We don’t put much credence in such rumors, but we do find them entertaining. Our personal theory is that prices sometimes rise and sometimes fall…Yesterday, they fell.

– All those investors hoping – and praying – for a rebound in the semiconductor industry might want to avert their eyes from Applied Materials’ latest earnings report. As one of the largest suppliers to the semiconductor industry, AMAT’s results don’t bode well for the chip sector.

– The company reported a loss on sales that fell 27% from the prior quarter. New orders plummeted 35% from the prior quarter. Addressing the dismal results, AMAT’s CEO James C. Morgan, told investors, “The extended downturn continues to create a challenging environment for businesses around the world. Weakness in the global economy and in the demand for chips used in consumer and business technologies has caused a number of our customers to postpone capital expenditures. In the near term, we do not expect to see a significant upturn in capital spending and will continue to implement cost-cutting measures, as necessary, to better align our operations with business conditions.”

– As AMAT’s results attest, capital spending on information technology (IT) isn’t rebounding as hoped. American corporations, on the whole, are far more eager to conserve cash and fortify their balance sheets than they are to invest in IT projects of dubious necessity.

– “Two reports issued Tuesday paint a dire picture for capital spending,” Dow Jones News reports. “Outlays for technology products won’t pick up until the middle of the decade, and virtually all industries will keep their purse strings tight this year, according to separate studies by Merrill Lynch & Co. and Goldman Sachs & Co.”

– The Merrill team does not foresee a recovery in the tech sector until well into 2004 or even 2005. By comparison, Goldman’s outlook seems almost cheery. The Goldman team expects capital spending in general to drop by at least 10% this year after a 15% fall in 2002.

– Interestingly, as Dow Jones notes, “schisms still exist at some Wall Street investment firms, where one team takes a bearish view and another feels that investors should be buying stocks aggressively. That’s the case at Goldman, whose downbeat capital-spending outlook appears to butt heads with uber-bull Abby Joseph Cohen, the firm’s chief investment officer, who…sees the Dow Jones Industrial Average rising to 10,800 this year, or 36% from current levels.”

– Hmmm…What does Abby know that the CEO of AMAT doesn’t?


Back in Paris…

*** Though the snow in New Hampshire is unabated, Addison managed to send us the following note:

“I got off the phone with Bill yesterday and shivered. He told me the weather is ‘always perfect’ at Rancho Santana. Seventy degrees, or thereabouts. A westerly breeze blowing off the Pacific pushes the clouds inward, so it’s sunny every day – except during the rainy season.

“Meanwhile, as I type here in New Hampshire, the thermometer reads -9 degrees Fahrenheit…”

Addison Wiggin

The Daily Reckoning