The Victorian Internet
(First aired February 18th, 2000)
A book by Tom Standage reminds us how little there is that is really new. On May 24, 1844, Samuel F. B. Morse, a portrait painter and inventor, succeeded in sending the first message on the telegraph between Washington and Baltimore. “What hath God wrought,” was the message — sent from the Supreme Court chamber to Morse’s partner in Baltimore.
What God had wrought was a communications revolution. Forty miles separate Baltimore from the nation’s capital. That was the extent of the telegraph system in America in 1844. Six years later there were 12,000 miles of telegraph line in the United States alone. In October 1861, the transcontinental telegraph was inaugurated, replacing the Pony Express. A few years later, a line was laid across the Atlantic.
By this time, telegraph mania was in full swing. Cyrus Field had no trouble raising the money to run the cable. The first one was a disaster; it stopped working only hours after it was connected. But on the second try, it worked, and cheap, rapid transatlantic communications have been a feature of modern life ever since.
The celebrations that accompanied the laying of the cable from Newfoundland to Ireland were far more exuberant than those that greeted the 10,000 Dow.
“Our whole country,” declared the “Scientific American,” “has been electrified by the successful laying of the Atlantic Telegraph.” President Buchanan said it was “a triumph more glorious, because far more useful to mankind, than was ever won by a conqueror on the field of battle.”
It was also believed that the telegraph would “make muskets into candlesticks.” That is, people thought wars were a consequence of bad communications. The telegraph had the power to change the world, by allowing people to talk to one another. “It is impossible,” opined a popular book of the time, “that old prejudices and hostilities should longer exist, while such an instrument has been created for the exchange of thought between all the nations of the earth.”
Cyrus Field’s brother, Henry, wrote that the telegraph cable was “a living, fleshy bond between severed portions of the human family, along which pulses of love and tenderness will run backward and forward forever.” The telegraph had defeated space. It had made communications cheap. Morse was feted at Delmonico’s in New York for having “annihilated both space and time in the transmission of intelligence. The breadth of the Atlantic, with all its waves, is as nothing.”
It was a New Era.
A few years later, the telegraph was such a success that it was swamped by traffic. Delays increased with congestion. Eventually trading houses in New York and London began using pneumatic tubes…and runners…to send message across town. But more wire and technological improvements eventually reduced the problems.
The telegraph did not eliminate war. The worst wars of human history were still in the future. In fact, the telegraphed message became the favored way to inform families when a soldier was killed. Mothers of young men in WWI and WWII dreaded more than anything the unexpected appearance of the Western Union delivery boy.
But the telegraph was only 33 years old when Alexander Graham Bell was granted a patent on the telephone on March 7, 1876. The telephone soon replaced the telegraph for most routine correspondence.
And the telephone, too, revolutionized communications. Because you didn’t need to know Morse’s code to use it. Soon, in the words of John Maynard Keynes:
“The inhabitant of London could order, sipping his morning tea in bed, the various products of the whole earth and reasonably expect their early delivery upon his doorstep. He could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter in the world, and share, without exertion or even trouble, in their prospective profits and advantages.”
That passage was written in 1900. It is now a century later. The more things change, as they French say, the more they remain the same.
Ouzilly, France August 21, 2000
*** Businesses all over the world are trying to figure out how to use the Internet. Even we analog folks have to take a stab at it. So, we called together a meeting of about 30 employees, partners and friends in the publishing business to exchange ideas. It’s taking place this week here at Ouzilly.
*** Addison and I get up before the program begins in order to get you the Daily Reckoning. But it will be in abbreviated form for the next three days. Maybe America’s GDP will get a tiny boost.
*** Yawn…stretch…even the chickens are still asleep. Gee…what happened that is worth reporting…?
*** Last week was probably the peak of the summer holiday season. Volume was low. And investors were holding their fire until they could see what the Fed would do this week. Tomorrow is the big day. Either the FOMC will raise rates or not.
*** Almost no one believes the Fed will raise rates. The economy is doing okay. Inflation doesn’t seem to be a big problem – even if prices are rising. Would you raise rates under these conditions? If a rate hike triggered a market sell-off, you’d be blamed for it. If Gore lost the election, you’d be blamed for that too. And if the rate hike did nothing…what would be the point? No one would come up to you and say: ‘Great rate hike, Alan.’
*** No… raising rates now would be a lose/lose proposition for the Fed. Forget it.
*** Remember it’s the f****** bond traders (I’m quoting our president) who are supposed to ‘discipline’ the currency. If the bond traders think the Fed is letting inflation get out of control, they’ll dump the dollar and bonds pronto.
*** But either the bond traders are asleep on a beach towel somewhere out on Long Island, or inflation is not a problem. In fact, according to bond investors, the expected rate of inflation over the next 10 years is just 1.7%. That’s the difference in yield between a bond that is adjusted for inflation and one of the same term that is not. A strange figure… it is only half of the current rate of inflation, as measured by the Bureau of Labor Statistics.
*** Trade figures for June appeared on Friday. These too might have been cause for alarm among bond investors. The figures showed no sign of any let up in the growing difference between what America sells to foreigners and what it buys from them. Sooner or later, one would expect that the balance would shift in the other direction… and that the dollar and dollar-denominated bonds would be crushed. But bond investors show no sign of concern. At least, not yet.
*** The dollar actually gained ground on Friday, following the trade deficit news. The euro, it’s main rival, closed down at 90.82 cents.
*** And it’s other rival – gold – also fell back, giving up about 90 cents an ounce.
*** As you know, the Dow and the Nasdaq did almost nothing on Friday. Each index was off about 8 points. Advance/Decline… High/Low… figures were mixed. Oil barely budged.
*** Looking at the whole week, the Nasdaq rose 141 points – or 3.7%. The Dow did nothing to speak of.
*** The Nasdaq 100 shot up from 1996 through to the last quarter of 1998. Then, the Asia currency and LTCM crisis caused central bankers to loosen up in a major way. The result: the Nasdaq zoomed at an even faster pace. Nasdaq stocks are now selling at an average of about 145 times earnings. But if the index just fell back to the trendline of ’96 – ’98, that is, still rising but not quite so sharply, the Nasdaq 100 would be only half what it is today.
*** “Tech is where it’s at,” says the Reuters headline. Thus, it’s standing room only in what Ray DeVoe calls “the mother of all crowded trades.” He’s referring to the Big Techs – where so much money and so many dreams are concentrated. Dreams for vacations…dreams for new houses…college for the kids…retirement. Only 39 stocks makes up half the entire capitalization of the Nasdaq. And Cisco and Dell alone account for 12%.
*** If we were all digital men, it would not be such a crowded trade… and you could buy a share of Cisco or Dell at a reasonable price. But the great herd of investors – dreaming, scheming, hoping – has decided to pick favorites. And as a consequence, these popular stocks are attracting more people than a free rock concert.
*** Speaking of free concerts, several of us at this meeting play guitar, so we’ve put together a little band. Practicing the other night, we drove everyone out of the room – and even Francois, who has lived across the road for more than half a century, moved out.
*** Bill Fleckenstein reports that the IMF has come up with its own Code of Conduct, which he summarizes as follows:
1. Always de-vein your shrimp 2. Leave the tail of the shell on for ease of handling 3. Only cocktail or remoulade sauce are permitted 4. Grant every loan request
*** That’s all for now…I’ll let you know what we come up with in our Internet Conference.