The New Man
It is not necessarily a pleasure to see people lose money in the stock market. But at least it’s a comfort to see that, as times goes by, things still work the way they’re supposed to work.
A bubble is still a bubble. A kiss is still a kiss. Delusions are still self-correcting — one way or another.
The delusions of the new Internet era were that stocks could rise forever — on the hot air of ever-increasing productivity and GDP growth.
There were also the more ethereal, Gilderesque aspects to the myth…including the suggestion that the Internet era would give rise to a whole new way of doing business. Profits were not supposed to matter. Nor were interest rates or the business cycle. We were dealing — as preached in the pretentiously absurd “ClueTrain Manifesto” — with a whole new world…and a whole new race of men to populate it.
Good promises, like good film plots, never go out of style either. Easy money. Easy women. Cheap booze. Immortality.
I picked up Lucien Boia’s book, “The Scientific Mythology of Communism,” on the plane back to Baltimore. Once again, I couldn’t help draw a parallel between the hollow, preposterous promises of socialism and those of the new Internet era.
“On the night of the 30th of August, 1935, a sort of miracle occurred,” writes Boia. “The miner, Alexei Stakhanov, succeeded in extracting 102 tons of coal.” It was a miracle because it usually took 14 miners to bring out that much coal.
What sort of a guy can you get to work like that? Well, no ordinary man could do it. Stakhanov was no ordinary man. He was a New Soviet Man.
One of the lunacies of the Soviets was that they would create a new race of man. Like the new man of the Internet era, he would not be a slave to the profit motive. He would have no need to feel superior either — there would be no need for Rolex watches. He would work – – at a furious pace — not for himself, but for the collective, like an open source programmer for Linux…
This new man would not be the product of genetic mutation. He would be the product of applied science — educated in the collective, by the collective and for the collective.
He would not merely behave differently…he would be a different being. As Trotsky put it, he would be able to “master even the semi-conscious and unconscious systems of his own body: respiration, the circulatory system, digestion and reproduction.”
“Science,” wrote Alexis Carrel, who won the Nobel Prize for medicine, “which has transformed the material world, gives us the power to transform ourselves. [Science] has revealed to us the secret mechanisms of life.”
Soviet scientists put their secret knowledge to work. Giving massive doses of dangerous drugs…the Soviets managed to produce huge women athletes with mustaches. Their attentions, along with ignoring the rules against professionals, produced many gold medals for the Eastern Bloc nations. It also produced some grotesque human beings…with foreshortened life spans.
But the promises just got bigger. I visited a Soviet sanitarium near the end of the communist period. The place was so dreary it would probably make you sick if you weren’t already. And God forbid that you would actually submit to any medical treatment. Every corner of the place was outfitted with a different torture device. Each one was pure hokum…quackery that any fool could spot.
Lying was the key to Soviet science. Everybody lied. Alexandre Bogomoletz surveyed a mountainous region in the Caucausus. People routinely lied about their ages — claiming to be older than they actually were. One peasant supposedly lived to 155 years old. Another conceived a child at age 120. Heck, the entire area was full of people who claimed to be over 100 who looked and acted as though they were middle aged. Bogomoletz loved the lies and added to them.
Why did people live so long in the Soviet Union? Because socialism eliminated the causes of early death — exploitation, hunger, cold, crowding. The myth found surprising support in the Western world…while the reality was that the Soviet Union was becoming an ever- more ghastly place…with falling life expectancies. From 1964 to 1981 the average person’s life expectancy fell from 71 to 67.6 years.
Instead of actually studying natural systems to discover how they worked, Soviet scientists raced to improve it. Nature, in their minds, was something imposed upon them by the bourgeoisie. They had mixed feelings, for example, about Darwin. They didn’t want to deny completely what Darwin had discovered. But they weren’t satisfied with it.
Stalin himself, who had scarcely ever read a book, told scientists that they shouldn’t allow themselves to be limited by Western, bourgeois science. Rising to the mass-murderer’s challenge, they developed what they called “creative Darwinism.” By this, they meant they would put evolution into overdrive and create the mutations they really wanted…rather than wait for the glacial pace of evolution.
The Soviets could not wait for evolution. They needed revolutionary changes. Especially in agriculture — where they had made such a mess of things that millions were starving.
First Mendel’s law was rejected. Mendel had noticed that genetic variations were passed along from generation to generation. It took time and careful study to produce superior crop varieties. The Soviets had neither. So they developed Mitchourinism and Lyssenkism, named after two hopeless clowns who told Stalin what he wanted to hear.
Mitchourine, a demented Luther Burbank, claimed to have developed fruit trees that would flourish near the Arctic Circle. Americans were so intrigued that they sent a ship to collect the specimens. But Mitchourine refused to sell them samples.
One of their great ideas was to be able to get two harvests of wheat per year, by turning spring wheat into winter wheat. This they claimed to have done by spraying the seed with water and cooling it. Bernard Shaw, the British socialist humbug, was so impressed he said, “scientific agriculture has permitted a doubling and even a tripling of harvests.”
Pure myth, of course. The truth was, as biologist Denis Buican put it, “the method…was a disaster practically everywhere it was used. In many cases, the seed rotted…even spreading the seed by hand, as in primitive agriculture, the grain rots on the ground…and among some that reach maturity there are many abnormalities…and in the best cases, a laughably low harvest.”
More to come… Your correspondent…now in good, `ol Charm City… …that’s Bawl’mer, hon…
Baltimore, MD April 18, 2000
*** Here’s something to be happy about: It is a much more interesting market today than it was a few days ago. Fear is back…
*** No, not rampant, panicky fear. As yesterday’s market action showed, investors are still buying the dips. William Fleckenstein of siliconinvestor.com reports that the margin calls going out over the weekend — thousands of them — were usually met. That is, 70% of those receiving the calls ignored the old Wall Street wisdom — never meet a margin call.
*** In effect, they decided to get in more deeply. And it seemed to pay off yesterday. The Nasdaq came roaring back 6.56%.
*** So the light-headed brigade can still manage to mount a charge. But there are fewer of them then there were last week. And even among those still on their horses may be a slight soupcon that stock prices can go down as well as up.
*** Which is why they concentrated their buying yesterday on the big cap techs. CSCO, ORCL, QCOM, MU — the money flooded in…as the tech investors decided to play it safer.
*** What is really happening is that they’re getting killed on the periphery, so they’re crowding to the center. This has the effect of pushing up the Dow and Nasdaq indexes — while most stocks go down. It is the same action we’ve been watching for two years — but now it seems to have reached its terminal phase.
*** Yesterday, for example, even though the Dow and Nasdaq posted huge gains, more stocks went down then up — 1,728 to 1,280. And there were only 15 stocks that hit new highs on the NYSE…while 10 times that number hit new lows!
*** It is a bear market. A major bear market. It began in April 1998…and continues today. But while most stocks lost ground, investors had the “hooks” to fascinate them. The major indexes were still going up. The S&P and the Nasdaq seem to finally have crested only last month.
*** Richard Russell (http://www.dowtheoryletters.com) describes the process of this long, difficult, confusing bear market with his “Top Out Parade.”
Daily new highs topped out on Oct. 3, 1997 The Advance/Decline ratio topped out on April 3,1998 Transportation stocks topped out on May 12, 1999 The NYSE Financial Average hit its peak the next day Utilities topped out on the 16th of June 1999 NYSE Composite topped out a month later The Dow itself hit its all-time high on Jan. 14, 2000 at 11,722.98 The Nasdaq seems to have peaked on March 10 at 5,048.62 And the S&P topped out on the 24th of March at 1,527.46
Market after market, sector after sector, stock after stock — all seem to have hit their highs and are now in decline.
*** But what happens next? Ah…who knows? But if it is the major bear market it appears to be…and if the economy has been as bent and distorted by the “wealth effect” as I think it has been…you should expect lower and lower equity prices…to the point where they become screaming bargains. And recession.
*** Something has definitely changed. I had a meeting with a dot-com maven scheduled for this week. We were going to figure out how I could get rich by launching my own dot-com IPO. The guy canceled the meeting.
*** Paul Krugman writes that it is unlikely that the U.S. economy will repeat the 10-year slump that has gripped the Japanese. But, again, who knows?
*** I notice Jim Dines’ ad in “Barron’s” has switched from “Buy Internets on Every Dip” to “Buy Palladiums.”
*** And Dan Ferris reports that his hard money investments did just fine last week. While Cisco fell 19% and Dell lost 14%…Stillwater Mining rose 7%. So did another favorite of Dan’s — a company that makes one of the lowest tech products you can imagine, road fill. In the interest of full disclosure, Dan says some of his other selections — such as Anglogold and El Paso Energy — did not rise. But they didn’t fall either. http://www.realassetinvestor.com
*** Bill King suspects treachery. “Someone, or more,” he writes, “saved the U.S. market from further carnage on Monday.”” Bill refers to the Abominable Snowman of Wall Street, the oft-spotted, but never captured, Plunge Protection Team. Bill says that someone goosed up stocks over the weekend — working the leveraged futures on the Globex market.
*** If anyone wanted to blow up the commuter plane from Philadelphia to Baltimore yesterday, they would have found it tough going. The clerks at the security checkpoint were on the alert. They had turned their metal detectors up to such a high level of sensitivity that a person with normal iron levels in his blood would set them off. I had to keep emptying pockets and taking off garments to the point where it was getting embarrassing.
*** So the imaginary terrorists would have to content themselves with blowing up the Amtrak train, or maybe the Greyhound bus, that runs the same route. But the myth of terrorism provides an important source of employment for people who can’t collect tolls or serve hamburgers. At security stations, they don’t have to make change.
*** One of the chief challenges and interests for most people is trying to feel superior to others. I mean, why buy a Louis Vuitton bag when a bag from Walmart will do the same job? I suggest a cheaper alternative — spend time in an airport. Most Americans seem to have sacrificed style for comfort…not a very good bargain in my opinion. (I don’t mind giving you a gratuitous reflection from time to time…inasmuch as this is a free service I feel entitled to do so.)
*** Speaking of bags…Elizabeth was happy to recover the bag that was stolen at Omaha Beach. The money and credit cards…and even the guidebooks…were missing. But she got what she most wanted — her diary. The criminals must have begun reading it…perhaps they found it too racy.