Waiting For Capitulation

You either stand for something, or you fall for everything.

An old saying

“It was very liberating” said my mother-in-law.

She remembers seeing the play, “Waiting for Godot,” when it was first staged in New York.

The intellectual world was already running loose in many different directions. Artists were throwing paint on canvases. Writers were jotting down their most obscene and nonsensical pensees – as if they mattered. Philosophy teachers were putting forth the most absurd ideas to innocent students – and getting paid for it.

Yesterday, I said I was writing about nothing special. Today, I write to you about a special kind of nothing.

The intellectuals of the late 19th century and the early-to- mid 20th century rejected the ideas, beliefs, and traditions of the past. Gone were the plots, the dialogue, the melodies, the rules, the values, the shapes – almost everything. In architecture, for example, the corbelling, moldings, medallions, capitals, plinths and just about every other detail that added grace and beauty were stripped away – to leave buildings of supposedly surpassing practicality and undeniable ugliness. Melodies were taken out of avant-garde music. Recognizable forms were removed from ‘modern’ art. Literature gave up the stories and narratives that had sustained it for 4,000 years.

This left the intellectuals with plenty of nothing to work with. “Waiting for Godot” is required reading in English literature departments. It illustrates what nothing looks like in drama. With neither plot nor dialogue – the play is as empty as a modern artist’s head.

But that doesn’t mean it is boring. I read it last night, fascinated. I wondered what Vladimir and Estragon would not do next:

Estragon: Let’s hang ourselves immediately!

Vladimir: From a bough? (They go towards a tree.) I wouldn’t trust it.

Estragon: We can always try.

Vladimir: Go ahead.

Estragon: After you.

Vladimir: No, no, you first.

Estragon: Why me?

Vladimir: You’re lighter than I am.

It must be liberating to write like this. You don’t have to have any talent. Nor do you need much training.

Democrats and social meddlers loved it. All of a sudden, the world was a new brick wall – and they had a can of spray paint.

Still, to really succeed, even as a no-talent artist, you have to understand how the game is played…

This was true in the financial world too, in the last half of the 1990s. The craft of investing was cut off from its customary rules and values. The real ‘things’ in which a business’s worth was traditionally measured were upstaged by various forms of nothing – ‘technology’…’information’ … ‘intellectual capital’…hits, eyeballs…and so on.

Our own Porter Stansberry feels this liberation most keenly: “The critical point is this,” writes Porter, “I don’t believe that the real fundamentals of any business can be found on its income statement or its balance sheet. Instead you have to look further into the business and the technology that provides the framework for commerce. You have to understand the forces that will produce the spontaneous order of the market and you have to project how they are likely to change in the future.”

But existentialism as applied to investment analysis has a spotty record:

“Among the harsh realities, one stands out,” writes Gretchen Morgenson. “Of all the hot air generated during the great bull market of the late 90s, none propelled stock prices further than the notion that new economy stocks were a breed apart and should not be held to stringent, old economy investing standards. Internet companies and cutting edge telecommunications concerns, after all, were revolutionizing the world.”

On January 10, 2000, Henry Blodget – celebrity Internet analyst for Merrill Lynch – explained that “valuation is often not a helpful tool for determining when to sell hyper-growth stocks.” Blodget was discussing the price of Internet Capital Group – a company whose stock price, then $173, seemed to rest on nothing.

Today, $173 will buy you 57 shares of ICG. Not-so- astonishingly, investors decided they would prefer something for their money rather than nothing.

Samuel Beckett was an odd character. Born near Dublin, he lived much of his life here in Paris. He would visit with James Joyce here – the two of them sitting together, often with nothing to say.

What was there to say? Conversation, said Beckett, was “an unnecessary stain on silence and on nothingness.” Why ruin a perfectly good nothing?

But now it is the 21st century…and the 3rd millennium. Beckett died in the same year the Japanese Bubble popped – 1989. The nothing movement in art, architecture, music and literature continues – but it is feeble, propped up like an old outhouse with money from taxpayer with little money and private foundations with little sense.

And, of course, the bubble on Wall Street has burst – though investors have not yet capitulated.

Estragon: What do we do now?

Vladimir: I don’t know.

Estragon: Let’s go.

Vladimir: We can’t.

Estragon: Why not?

Vladimir: We’re waiting for Godot.

Estragon: Ah…

Your correspondent…

Just wondering about the meaning of it all…

Bill Bonner Paris, France March 20, 2001

*** Aggh! For the second time in the last two weeks, I lost hours of work on this #%$@ computer! Information Technology is having its revenge on me.

*** But you, dear reader, are the beneficiary – short notes today.

*** As you already know – both the Dow and the Nasdaq rallied yesterday.

*** “All Eyes on Alan” said both the NY Post and the Economist. The FOMC committee meets today and is expected to give the market another rate cut – either 50 basis points or 100 basis points – or something in between.

*** Investors don’t know what to do. They don’t want to sell, because they haven’t yet given up on stocks. And they don’t really want to buy either – because they’ve been taking losses for the last year and they’re not sure how far this bear market could go on.

*** So, they mostly sit tight – and worry.

*** “Will the Fed go 50 basis points or 75?” asks Kevin Klombies. “We have no idea. Will it even matter? Maybe for a day or two.”

*** “If the cut is 100, the market will jump,” says John Mauldin. “You will hear this big sigh of relief from the Talking Heads and many declarations that the Bear Market is over if we get the Big Cut. Please remember these are the same people who have been telling you to buy the dips and markets only go one way. They know less than you do, trust me. Wait until the market seems to settle for a day or two, and then use the run-up as a selling opportunity.”

*** Maybe a rate cut won’t get turn the market around, after all. Maybe stocks will fall for another 6 months…or, horrors, another year!

*** David Tice, a Daily Reckoning contributor and manager of the Prudent Bear Fund, was interviewed by the International Herald Tribune: “We expect the Dow will fall to 3,000 and the Nasdaq to below 1,000,” said he. “It could take another 12 to 18 months.”

*** And even if the market turns around…how long will it take to ‘get even?’ Gretchen Morgenson takes up the question in a NY Times article. Suppose, for example, that Cisco increases at 15% per year – about twice the market’s historical average. Even at this rate, it would take 10 years for the stock to return to its high of last March. And they’re the lucky ones. Yahoo shareholders would have to wait 20 years.

*** A Reuter’s report says that investors have lost $4.8 trillion since last March 24th. They lost $900 billion last week alone.

*** Sooner or later, these losses have to change people’s plans, attitudes – even their philosophies. The wealth effect turned people into high-tech existentialists. Will the poverty effect turn them into value-oriented fundamentalists? More below…

*** But for now…”calm and quiet prevails,” writes Ms. Morgenson, “at least on the surface of the market.” “America is still living in a boom time fantasy” says a headline on the Prudent Bear website. “Looking Beyond the Bear…The worse could be behind us,” is TIME magazine’s cover theme this week.

*** But TIME’s cover will not be talking about a turnaround when the big bottom finally arrives. Instead, TIME will tell us that Wall Street is history…and that investors should put their retirement money into collectibles, gold or Japanese stocks!

*** Japan’s central bank is way ahead of the Fed. Yesterday, it announced it was cutting rates all the way to zero and will leave them there until the economy improves.

*** The St. Louis Fed reports that cash (MSM) increased at an amazing 27.5% rate, annualized, over the last 3 months. No one can accuse this Fed of being unwilling to destroy the currency in the name of economic growth.

*** “It’s a complete Godot capitulation,” said James Cramer of last week’s market. ‘Waiting for Godot,’ by Samuel Beckett, was a big hit among intellectuals of the 50s and 60s. Nothing happens in the play. Godot never even shows up. But sooner or later, Godot will keep his appointment and capitulate. More below.

*** I wonder what will happen to the neon sign on the Baltimore Raven’s stadium? PSINet plummeted another 53 cents yesterday – after the company announced that it would have to restructure its debts. The stock once traded at $50…but you can buy it today for only 19 cents. And in a few days – you might be about to get it for nothing.

*** But the day’s “big loser” according to Money.com’s Bethany Maclean was Intel. The stock “dropped 81 cents to $27.06 on some nasty language from Piper’s Ashok Kumar.” Kumar apparently doesn’t expect the PCs to recover until late in 2002.

The Daily Reckoning