Turning The Page

I’ve been lovin’ you…

A way too long…

Can’t stop now.

Otis Reading “Francois is having trouble turning the page,” said Pierre. “His retirement is not going well.”

Francois Debenest retired last month. He had come to the farm with his father in 1943. Francois was just 3 years old at the time. Except for a brief period in the Army, he spent his entire life working at Ouzilly, beginning at age 14. He even met his wife on the farm, Louisette, who worked as a maid in the chateau. And his son died there too – in an accident with a tractor.

Francois looks young for his age. He is in very good shape. He could probably continue to work for another 10 years. But a feud with Pierre, dating back at least 20 years, together with the French employment rules, made retirement seem like the best option.

Still, turning the page is hard. Last week, Francois came back, got out his scythe and began cutting down the weeds near the chicken house. He wasn’t asked to do it. Nor was he paid for it. Or even thanked for it. The new farmhand actually seemed to resent the intrusion.

But Francois must have needed to feel the tool in his hand. For forty-five years, he worked the land, full time – with scarcely an interruption. How could he suddenly stop now?

A cold wind blew through Ouzilly on Saturday. After months of warm, sunny weather…everything seemed to be taken by surprise. I had barely finished painting the windows of the woodworking shop when the trees shivered and the rain began. Sophia and I retreated to the interior and began ripping the old, stained fabric from the living rooms walls. That, too, needed to be changed.

Mr. DesHais continues his gardening, in good weather or bad.

“It’s time to get the cold frames ready,” he said, reminding me of a job I promised to do.

“Your wife wants to have salad in the winter…” he continued, spreading the blame, “and you can’t grow it out in the open. There will be frost in a few weeks. You never know this time of year. We could have a frost almost anytime.”

Mr. DesHais hates change – except for the regular change of seasons and weather, which he welcomes like the visit of a kissing cousin. He is on intimate terms with nature. He understands it. And he despises people who ignore it.

“People in the city,” he said, turning away from the jars of celery he was canning and cocking his head from side to side with an air of superiority, “don’t even know where salad comes from. They buy it all year round as if it were a newspaper.”

“But that salad, Mr. Bonner,” his eyes narrowing confidentially and raising his index finger to make his point, “is not good salad!”

I cannot tell the difference between Mr. DesHais’s salads and those you buy in the grocery store, but I didn’t want to contradict the gardener. I had neither the time nor the vocabulary. So, I returned to my own work.

No one wants to turn the page. Francois won’t go gently into the good night of retirement. Mr. DesHais refuses to advance into the last century. And investors have been loving 17% per year stock gains for too long to give them up now.

The NY TIMES piece mentioned above tells of an investment club trying to decide whether to turn the page or not. The biggest position the club held was in Lucent – on which they had lost almost a third of their money. One member thought it was time to sell.

“But despite their losses,” reports the NY TIMES, “the club’s member quickly decided not to sell Lucent – or any of the other stocks in their $67,000 portfolio.” Instead, they decided to buy. Among the stocks purchased was Intel, because “it’s a leader in its field.”

You have heard the expression “a fool and his money are soon parted.” What puzzles me, as Doug Casey once asked, is how these people got together with their money in the first place. But having made good money on the Big Techs, at least they are loyal to them.

The TIMES: “If the Nasdaq’s plunge has eased last winter’s fever, it has hardly eroded the underlying confidence in stocks that two decades of rising share prices and a decade of strong economic growth have instilled in America.”

Investors believe in stocks, in general, and tech stocks in particular. The Nasdaq is down 18.5% so far this year. And many stocks have lost more than 90% of their value. Still, most investors remember the good times.

The TIMES piece features comments that are typical of the early stages of a bear market, from a man who bought Yahoo in 1996. “My whole portfolio has 2,000 something percent return over the past five years,” he said. “This was a down year rather than an up year, but I think if you’re a long-term investor, you’ve got to take the downs with the ups.”

“I’m a big believer in tech,” he continued. “I don’t have any of those old-economy stocks…” and “I hope to keep pumping money into the market.”

Investors have seen what happens when the market falls dramatically. The big dips of 1987 and 1998 were major buying opportunities. They think this one is too.

“Everybody, including myself,” said Charles Geisst, a professor of finance at Manhattan College and author of ‘Wall Street: A History,’ views this as a short-term blip.”

I don’t know what will happen in the stock market, but the cold weather is not just a blip. There will be some warm days before winter. But it will get much colder before we have another summer. Francois’ retirement is not a blip either. He will find other things to do, but his regular work at Ouzilly is over. Forever.

And so is, I would bet, the Great Bull Market of 1982- 2000.

Watching the weather, hoping for sunny skies…

Your servant,

Bill Bonner Paris, France October 16, 2000

P.S. I felt sorry for Francois, and miss having him around. I’m going to ask him to come back a couple of hours a day to cut up the dead trees along the driveway.

*** The Bear respected Jehovah’s commandment. For six consecutive days he labored – dragging down stock after stock and mauling them. But on the 7th day, he rested.

*** Abby Joseph Cohen appeared on Friday morning with the usual rah-rah act for the New Economy. The S&P will end the year 20% higher, she said.

*** Maybe it will, and maybe it won’t. But it ended Friday higher. The Dow rose 157 points. The Nasdaq shot up 241 points, to close almost 8% higher than on Thursday. Even so, both the Dow and the Nasdaq ended the week lower. The Nasdaq finished off 1.32%. The Dow suffered a 3.82% loss.

*** A number of cynical commentators thought they saw something underhanded in Friday’s market action. John Crudele, writing in the NY Post, said on Thursday that the Fed would intervene on Friday to prevent panic selling. Bill King noted what looked to him like “impact trading” on Friday morning – in which large players intentionally try to run up prices by buying highly leveraged derivatives. He reported strangely “aggressive buying…serious buyers do not act this way,” he said.

*** Meanwhile, Abby says the market is still 15% under- valued. And the lumpeninvestoriat seems to agree with her. “Individual investors,” says the report from the New York Times this morning, citing information from AMG Data, “continue to pour money into mutual funds at a pace even higher than last year’s…especially those buying aggressive growth companies.” More below…

*** Asian markets seemed relieved this morning. Tokyo rose 2%. Hong Kong was up 5%. And Ms. Wu, in South Korea, must be feeling a bit better; stocks in Seoul rose 7%.

*** The big question, of course, is whether Friday’s rebound marks a major turnaround…or just another bear market bounce. That is the story this week’s market will tell. But I wouldn’t get too excited about a new bull phase. Declining stocks have outpaced advancing ones in 17 of the last 21 sessions. Friday’s figures showed a little recovery in the A/D ratio…with 1625 stocks advancing against 1254 declining…but the numbers are hardly overwhelming. And even on Friday the number of new highs, 21 – was dwarfed by the number of issues hitting new lows, 161.

*** And remember, markets float on a sea of human emotion. A great swell of optimism, confidence and complacency,… must be followed by a trough of trouble and despair. My guess is that we are slipping down into the gully now – a trip that could take months, or even years, to complete.

*** It is dark, rainy and windy in Paris this morning. Throughout the Northern Hemisphere the weather, and perhaps the public mood, seems to be darkening. Stock markets are falling. Oil is rising. Central banks are tightening. Technology is disappointing. And the weather is turning cold.

*** Oil fell back by a little more than $1 on Friday… closing a penny short of $35/bl.

*** Gold gave back $4 – coming to rest at $274.80.

*** And the dollar went up. The dollar index rose 115.71 points. Dec. contracts had the euro at 85.64 cents.

*** 15 IPOs were scheduled for last week. But only 5 came out. So far this year, 180 IPOs have been postponed or cancelled.

*** “The Utilities Average is up 42% since last December,” Dan Ferris reminds us. “{But] some Dow Utility components are still excellent values,” he continues. “Unicom is trading at a p/e of 14 and yielding 9%. TXU is yielding 6.4% at a p/e of less than 10 as of yesterday’s close.”

*** “…the market is going a lot lower,” says our own contributing editor David Tice, quoted in the NY TIMES. “We could see a bump, but I don’t think that will last more than two or three days. The Nasdaq 100 could fall by another two-thirds. Cisco is still selling at 19 times sales and 97 times earnings. We are focusing [our short selling] on four areas in technology: PC’s, the Internet, telecom handsets and telecom infrastructure. Stocks in those industries cannot justify their current valuations.”

*** “When these stocks fall,” Gretchen Motgensen points out in her column in the NY TIMES, speaking of tech stocks, “the throngs that bought them simply because they were going up have no idea what they’re worth.”

*** What are they worth? Ed Yardeni: “The successful and profitable [tech companies] are innovators. They sell innovations with high profit margins. But they have to sell them fast, before they too become commodities and are destroyed by the next round of innovation. The risk is that this process of creative destruction moves so fast that even innovators can’t make any money because they can’t recoup the cost of development quickly enough to achieve a positive return on their investment. This may already be a serious problem for the telecommunications industry.”

*** A professor at Bowling Green University is retiring in protest after 25 years in the sociology department. His beef?The department wouldn’t let him teach a course on political correctness. Kathleen Dixon, the director of the women’s studies department, told a local newspaper “We forbid any course that says we restrict free speech.”

*** On this day in 1793, Marie Antoinette lost her head. Well, she didn’t actually lose it; the problem wasn’t that she was forgetful. Her problem was that she was out of style. Democratic, majority rule had come into fashion in France. Poor Marie was guillotined.

*** DR reader JRH sends the following item:

“A freshman at Eagle Rock Junior High Won first prize at the Greater Idaho Falls Science Fair, April 26, 2000. He was attempting to show how conditioned we have become to the alarmists practicing junk science and spreading fear of everything in our environment.

“In his project, he urged people to sign a petition demanding strict control, or total elimination of the chemical “DIHYDROGEN MONOXIDE”. And, for plenty of good reasons, since…

1. It can cause excessive sweating and vomiting; 2. It is a major component of acid rain; 3. It can cause severe burns in its gaseous state; 4. Accidental inhalation can kill you; 5. It contributes to erosion; 6. It decreases the effectiveness of automobile brakes; 7. It has been found in tumors of terminal cancer patients.

“The student asked 50 people if they supported a ban of the chemical? 43 said, “YES”; 6 were undecided; and, only one knew that the chemical was H2O…..water!

“The title of his prize-winning project was: “HOW GULLIBLE ARE WE?” The conclusion is pretty obvious!” end WP import block

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