Three Days, Two Nights

Lacking imagination is sometimes a good thing. Not in

romance, of course. Nor in jail. In both cases, it is wise to reach into your soul and draw out as much poetry as you can.

But in matters of money, it is better to have the imagination of an actuary.

We arrived at the airport in Managua on Friday afternoon. Except for the loss of some luggage, we were ready to begin our adventure.

The five of us mounted into a Bell helicopter for the half-hour ride out to the Pacific coast. The wind was strong, but the ride was smooth. Helicopters don’t get blown around like fixed-wing planes.

And the view was spectacular. Nicaragua appeared idyllic from the air. Green fields and brown hills — it reminded me of areas in Northern California. Arriving at the coast did nothing to upset the comparison. There were white sand beaches, rocky outcroppings and Wagnerian cliffs towering over small coves.

Nicaragua is still very much a Third World country. Laborers earn $3 a day — and are happy to get the work. Many of the houses are nothing more than junky shacks — with a few reject boards nailed to posts and covered with rusty metal sheets. Even solid buildings often have an unfinished, ugly look — with bare earth where there should be grass and trash around the edges.

But the land itself is attractive. And it is rapidly being dressed with the ribbons and bows of the modern world. Roads are being built — especially near our property, since the president of Nicaragua owns a neighboring ranch. There are new gas stations that are indistinguishable from those being built north of the Rio Grande. And several new hotels seem to have gone up in Managua since my last visit. Ten years after the Sandinistas were voted out of office, the government seems to be no more of a parasite than our own. Doug Casey, who was with me on the trip, pointed out the irony of Third World politics in his latest issue. People who live in backwater countries with little history of democracy are often freer than those who live in the United States. It is easier, faster and cheaper, for example, to build a house on our land in Nicaragua than it is in the United States.

In many ways, both petty and important, you can do what you want in a place like Nicaragua more so than at home. For example, no one stops you and tells you to put on a helmet when you ride a motorcycle. And if our driver was representative, you can drive down the road as though you were chasing a bank robber — honking your horn to warn pedestrians off the road — without worrying about the police.

Poor nations cannot afford as much government as rich ones. The dog is skinny…and so are the ticks.

The horses are skinny, too. You see them wandering all over the country. They’re a small, indigenous breed descended from Spanish horses. They look rather pathetic pulling a cart or a carriage. The oxen — which also do a lot of pulling-look healthier. It is remarkable to see people using ox-drawn carts in the year 2000, more than 100 years after the invention of the internal combustion engine. And it reminds us that there is still a lot of service left in the industrial economy. Nicaraguans may be happy to get online — but they’ll be even happier to get in-gear and give the animals a break. GM and Ford will make far more of a difference to the average person’s life than Amazon and AOL.

I don’t know how much Nicaragua is worth, but I wouldn’t be too surprised if you couldn’t buy the whole country for the capital values that Amazon, AOL and other New Era stocks represent. This is because, in the curious logic of late fin de Bubble metaphors, the “real estate” on the Web is thought to be more valuable than the kind of real estate with dirt on it.

Internet bulls say Amazon’s price is justified — not by earnings or even by the hope of earnings — but because it holds such a prime piece of Web property. Jim Davidson elaborates this argument in his January issue. He notes that real estate sells at very high P/E ratios — for many decades — and no one thinks anything of it. Raw land might be thought of as an Internet stock…a valuable capital asset, but one with no earnings. If it is located in the right place, however, you can make a lot of money, even if you never receive a single rent check.

Maybe I lack the poetic gifts the idea requires. Or perhaps just the ability to swallow an enormous whopper. As Jim Davidson puts it, my “imagination balks.”

It takes a brazen imagination to compare the Internet to actual real estate. Land is the ultimate tangible. It is immoveable and indestructible. It is forever. You can fix its location with a sextant and know that it will be there tomorrow and the next day.

The Web, on the other hand, is the ultimate in intangibility. Where is it?

How did it get there? What is it? What and where will it be tomorrow? No one can say. And it is this very feature — its ability to expand and reshape itself without regard to tangible restrictions — that makes it so potentially important. But a fixed location on the Internet? One that you can control, defend and have dominion over?


It takes little imagination to see that the real estate metaphor, used to excuse high Internet stock prices, works much better for terra firma than for terra incognita weba. Unlike the Web, there is only so much land available on earth. As the population becomes bigger, richer and more mobile, it is at least a decent bet that people will seek out the best places — the prime real estate of the future — and bid up prices.

That is why we went to Nicaragua. For all the landmass on the watery planet, most of it is not strikingly attractive. There are vast plains, vast forests, mountains and deserts — but the available coastline is limited…and coast the quality of California and Latin America is even more limited. As Will Rogers put it, “they ain’t making any more of it.” He was not referring to the World Wide Web.

I’ll follow up on this tomorrow — and explain why I think Nicaraguan Pacific coast sites are more likely to appreciate than investments in prime web sites.

By the way, you can find out more about the property I visited by going directly to the website at [this is the right address, but the website was offline when I tried it — keep trying, though].


Bill Bonner

Paris, France February 7, 2000

P.S. Jim Davidson once had the good luck to be seated across the aisle from Princess Diana on a flight to New Zealand. Last night, I was not so lucky.

Unable to use frequent flyer miles to upgrade to business class, I took a seat in economy. I noticed a thick, squat, oafish-looking form with arms that practically reached the floor making his way towards me.

Uh-oh…sure enough, he hit the seat like a sack of cement and would be my seatmate for the next eight hours.

Even before the plane took off, he began to clear his throat, making a sound like the flush of a prison toilet. This went on until drinks were served. Then it got worse.

He downed six of those small bottles of wine followed by a can of beer. Having filled the tank, he then seemed to overflow. While I tried to sleep I heard an even more repulsive sound. His throat clearing had turned into retching in the aisle.

Meanwhile, every few minutes he would push the seat in front of him or spill over into mine. I elbowed him back into his place, but I was sure the man in front of him was going to turn around and slug him. I was sorry he didn’t. The creature didn’t know the meaning of the word courtesy. In fact, he didn’t know the meaning of a lot of other words either.

After vomiting, he decided he was uncomfortable in his seat and decided to lay down in the aisle and go to sleep. Not long after, a stewardess nearly tripped over him. She tried to talk to him politely, but he seemed unable to speak any known language. Somehow, she escorted him to the toilets. I did not see him for a while and entertained the vain hope that the crew had thrown him out of the plane. But he soon returned.

By this time I was annoyed, but I knew I had to maintain my sense of humor. Besides, my scientific curiosity was aroused. I was not so much wondering from which nation or even which race he hailed — but from which species. I thought I should take a hair sample and check the DNA…or maybe just look for a tail. Scientists had spent decades searching the fossil records…and here was their prize right in front of us, in the economy section of American Airlines’ flight to Paris — the missing link.

*** “All eyes on gold after $23 jump,” says the headline in the “Financial Times.” The gold price leaped dramatically on Friday…and took another jump this morning. It’s up to $320.

*** The proximate cause of the gold price increase was an announcement by Placer Dome that it was suspending hedging operations “in expectations of improving gold market sentiment.” Chris Thompson, Chairman of Gold Fields, said, “it is the beginning of a New Era for gold.”

*** Uh-oh…another New Era. You will recall I mentioned that shares and their derivatives — such as employee stock options — had become a new currency. You can use shares to buy almost anything now. Gresham’s Law applies — with bad money replacing the good stuff. People spend the cheapest currency — the Nasdaq stocks. And all is well — until people lose faith in the bad currency.

*** Inflation, for example, causes people to doubt that the currency will buy as much in the future as it does now. So they will not want to hold it…and maybe not even want to accept it. This is what I am now predicting for the new currency. Investors…suppliers…and employees will soon realize that there is an almost infinite supply of stock available. They will begin to get choosy about which stock “currency” they will accept…and then prefer dollars.

*** But Friday’s action in the gold market suggests that the dollar will come under pressure, too. Just as cheap shares replace dollars…so do dollars replace gold. But when people lose faith, they work their way back down towards the safer currency — from dot-com shares to GE and GM…and then to dollars…and then to gold.

*** Oil rose on Friday, too. So did silver and copper. And the economic data suggests rising inflation levels, too — manufacturers had their best year since `95 last year. Consumers continued to spend in January. And unemployment levels show no sign of rising.

*** The movement in the gold price is bad news for the Fed. It puts pressure on Greenspan to raise rates — which increases the odds of a stock collapse. Hmmm…this is getting interesting…

*** The Dow fell 49 points on Friday. Declining shares led advancing ones — but not spectacularly so.

*** The Rocket Chips, however, never look back. Nasdaq was up 33 on Friday…and 9% for the week. The Nasdaq 100 was up an incredible 12.43% for the week.

*** Rumor has it that one of the big bond dealers got squeezed a little too hard last week and is now in trouble. Stay tuned.

*** It is impossible to predict the future…but sometimes good students of history do get it right. Winston Churchill had seen the Boer War up close. “There is nothing quite so exhilarating,” he wrote, “as being shot at without effect.” In 1911 he had this to say about the prospect of war in Europe: “A European war can only end in the ruin of the vanquished and the scarcely less fatal commercial dislocation and exhaustion of the conquerors. Even in miniature [referring to the recent war in South Africa] it is bloody and appalling.”

*** More quirky news from England: The Women’s Institute, a social service organization based in the Yorkshire Dales, produced a calendar in which the photos were of the members — aged 45 to 66 — nude. The idea was to raise money for leukemia research. Matthew Freud, great-grandson of Sigmund, handled PR for the ladies. Not only did the project raise money, it also “helped older women feel better about their bodies.”

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*** This is going to be short, because I have to finish before the cab comes to take me to the airport.

*** There’s supposed to be a solar eclipse today. Steve Puetz warns that “market downturns have an unusually high probability of beginning within days of the first new moon before a solar eclipse.”

*** The last new moon was on Jan. 6. Hmmm…Puetz believes the “worst of the crash will be over by March 5.” Hmmm… Why not? My last lunatic hypothesis is holding up pretty well. Stocks have gone down since the moon reached its “brightest point in centuries” just before Christmas.

*** Bond traders got squeezed yesterday. Yields fell as bond prices rose — and short sellers were killed. Huh? Didn’t Greenspan raise rates on Tuesday? Interest rates are supposed to be going up, not down.

*** The stock market seemed surprised. The Dow was down as much as 100 points — and then reversed when traders realized what was happening in the bond market. At the end of the day, bonds were up…and so was the Dow, by 10 points.

*** Among the techs and Nets — the Rocket Chips — there was no sign of the “moment of truth” we’ve been looking for. Amazon rose $14. Investors don’t want to miss this once-in-a-lifetime opportunity to own a piece of prime real estate on the World Wide Web.

*** Of course, we won’t know what that property is worth until the dust settles and the Internet companies mature. But right now, the sky’s the limit.

*** There were twice as many stocks advancing as falling yesterday. We haven’t seen such healthy breadth in a long time. Still, the number of new lows exceeded the number of new highs, 71 to 69. As things stand, the gap between the rise of the major averages (the Dow, for example)…and the action of the average stock (breadth)…has never been greater.

*** Even the Nasdaq, launching pad for so many of the Rocket Chip stocks, has suffered from surprisingly bad breadth. More than 40% of the stocks on Nasdaq ended the year at lower prices than they began — while the Nasdaq average, which supposedly measures the market, soared.

*** What’s happening? Investors crowd to the few stocks everyone knows…those that get talked about on CNBC. Which makes you wonder why the Internets are spending so much money on advertising — to boost their business…or boost their stock price?

*** The Dow, now at 11,013, has a long way to go to get back to its high — at 11,722. But anything can happen.

*** I was reading the history of one of the mansions near our office in Baltimore. Believe it or not, there was once a real estate boom here, too. The beautiful old house, once used as a hotel, was sold for $100,000 in 1902. The new owner then spent (I’m guessing) about $30,000 on improvements, including paneling the first floor in rare Circassian walnut.

In 1936 the building was sold to the Episcopal Church for $22,500 — representing a loss of about 85%. We bought it 60 years later. If it were to keep up with inflation since 1900, the building should have been worth at least $2.6 million in 1996. But we paid less than a fifth of that amount. In other words, this prime real estate in the heart of what was then one of America’s most booming cities has declined in value by 80% over nearly a century.

*** The European Central Bank went along with the Fed by raising interest rates a quarter point. Stock markets were thrilled — rising to record levels all over Europe.

*** The euro rose against the dollar, too. My guess is that the central bankers would like to maintain a rough parity with between the dollar and the euro. Unofficially, Europe seems to have dollarized!

*** Gold got in the spirit of things and rose, too — up $2.20.

*** The World Wrestling Federation is now publicly traded. But it hit the mat recently, falling by 22%. Bill King reports WWF CEO Vince McMahon’s reply to analysts who downgraded the stock: “They can kiss my…”

*** Oops. I didn’t get finished before the cab came. But I notice that there’s a dataport on the phone in the seatback in front of me. I’m sardined in row 26, adjacent to the toilet, on the AA flight to Miami. If the space were any smaller I’d have to have my feet amputated and my kneecaps removed.

*** But what does it matter…airlines are Old Economy. I’m 13,000 feet over Norfolk and I’m online…so I’ll just keep writing.


The Daily Reckoning