| A VISIT FROM THE GHOST OF CHRISTMAS PAST OUZILLY, FRANCE WEDNESDAY, 22 DECEMBER 1999 In Today's Daily Reckoning: *** Romance is not dead -- look at the moon tonight ***
Nasdaq stocks rise on a full moon...investors are
moonstruck *** But the figures are all moonshine --
potent, but dangerous
*** Yesterday's non-prediction has not been proven
incorrect -- yet -- so I'm sticking with it. *** Elizabeth and I returned from a dinner party at
about 2:30 a.m. These things last until the wee hours --
it's impolite to leave early. The main requirement for
social success in France is stamina. *** But what struck us upon returning home was the
biggest moon in 133 years. Look at it tonight. It is 14%
bigger, 20% brighter than usual. And showing up on the
occasion of a winter solstice is a coincidence that
hasn't occurred in...well...a millennium! *** Is it any wonder that Net investors went into a
lunatic frenzy yesterday? The Nasdaq posted its biggest
one-day gain ever, rising 127 points. One stock, CMGI, a
kind of Berkshire Hathaway of Internet companies, rose
$47 -- nearly 25%. Nasdaq is up 77% for the year. The
Internet average rose a big 24 points, too. *** The S&P also hit a new record. Almost a billion
shares changed hands on the NYSE. *** Yesterday I reported something so curious, and so
irrational, that I couldn't believe it was true. But one
DR reader confirmed that she got a monthly check for
running an "advertising toolbar" on her computer...and
clicking on certain websites. Small wonder that someone
would figure out how to do the clicking automatically. *** So the whole thing is moonshine. The Internet
companies raise money...spend it on advertising. Since
they have no profits, they measure success in eyeballs.
But they don't even get eyeballs. What they get are
computers deceiving one another...and everybody
deceiving the investors, who have learned that the best
way to make money in this market is not to ask
questions. *** Goldman Sachs isn't asking any questions -- the
company is making $756 million this year. *** The Dow was up 56 points in all the excitement
yesterday. Small potatoes. *** Gold was up, too -- to $288. Nobody notices or
cares. *** Analysts and talking heads ignored my lunacy
hypothesis and focussed instead on the down-to-earth
effects of the Fed's decision to leave rates...and its
bias -- unchanged. *** Bonds weren't too happy, though. Bond buyers are
worried that all this money sloshing around is
eventually going to undermine the value of the dollar --
and the return on fixed income investments. Municipal
issues are now yielding the after-tax equivalent of 12%. *** Most people I talk to seem to accept the fact that
the Internet stocks won't hold up. "Every party comes to
an end sometime," one bull told me. "Is that any reason
not to enjoy it?" *** Well...not necessarily. But investors seem to be
betting on an outcome that is extremely unlikely. They
concede that nine out of 10 Internet stocks will go out
of business...but believe the other one will be a big
hit. Since the odds are only 1-to-9 of getting a winner,
the rational thing to do would be to pay only one-tenth
what the stock might otherwise be worth. But these
stocks are selling at ridiculous premiums -- not at
discounts. *** This is no market for a reasonable person. This is a
market for a true romantic...a believer in fairy tales
and Santa Claus. It is not a Cartesian market, but a
Dionysian one. Maybe a debauched Saturnalian market...or
Dadaian, even. *** Reason doesn't pay. But anti-reason does. So go out
and howl at the moon tonight. Hold hands and take a
walk. Get in the spirit of the Fin de Bubble. This may
be its biggest night ever. *** And put on an Edith Piaf CD. She's been named the
Singer of the Century by the French. And sit down in
front of the fire with a "History of America," by Al
Gore. Al, the inventor of fire, tells the story of
America's greatest presidents, from Ben Franklin to
Hubert Humphrey.
* * * * * * * * * * * * * * * * * * * * * * * * *
THE GHOST OF CHRISTMAS PAST Old Volcker was not dead. Not dead as a doornail, nor
dead as a doorknocker. Not even as dead as a laptop
computer after the power goes out -- not even John
Maynard Keynes is that dead. Not even God himself, but
that is another story. Nothing is as dead as a computer without power. For even
a nail continues to provide good service after the spark
of life has gone out of it. But Volcker? The former Fed chief was still alive. And
Ebenezer knew it. He had seen him on television not long
ago. The old inflation-fighter worried about the bubble
on Wall Street and mused openly about the whole market
resting on a few stocks without earnings. "Bah," said Ebenezer to himself, "humbug." "What reason is there to worry?" he asked, to no one in
particular. "If I could work my will, I would have every
idiot who goes about with `bubble' on his breath forced
to watch `Wall Street Week' and read the editorial pages
of the `International Herald Tribune.'" His musing to himself was interrupted by the entrance of
two gentlemen who introduced themselves quickly and
proceeded to divulge the purpose of their visit. "We thought that, perhaps, given the spirit of the
Christmas season," said the leader of the two, "and
noticing the good fortune that you have surely enjoyed
this year, perhaps you could spare a farthing for the
poor, the destitute and the needy." "Not everyone," added the second, "was able to take
advantage of the bull market. Some even bought gold
stocks, gold coins. These poor unfortunates need our
help." "Could not benefit?" questioned Ebenezer. "Are there no
mutual funds?" "Well, yes," the first replied. "And do they not accept small amounts?" demanded
Ebenezer. "Yes...but..." replied the second before being
interrupted. "And has not the bull market been a fact of life for
nearly two decades?" "Of course..." "And has it not been shouted from every newspaper
headline...every news report...every Internet chat
line...and every conversation between even the most
casual passersby at even the most ill-informed and
downmarket drinking establishment in the most remote and
out-of-touch region of the country?" "Yes, we are aware..." "Oh! Good. I was afraid that something might have
happened... Then, misinterpreting the ensuing silence for approval,
the second gentleman ventured, "Well, in this great time
of abundance, how much would you like us to put you down
for?" "My only wish is to be left alone so that I may continue
to enjoy the fruits of the greatest episode of wealth
creation in history," replied Ebenezer, "and I suggest
that others do the same. Good day, gentlemen." And Ebenezer turned and walked away, muttering, "A poor
excuse for picking a man's pocket..." That evening, Ebenezer slept poorly, under the fullest
moon in more than a century. He had seen Paul Volcker's
face in his doorknocker. An odd sensation, for Volcker's
face was hardly one that he expected or hoped for. But
there it was...for a fleeting moment, at least. And now, after finally achieving the sleep he longed
for, his sleep was suddenly interrupted by the sound of
ringing bells. Yes, bells. The kind of bells they fail
to ring at the top of a bull market. But why
now...clanging like chains in the middle of the night? The door to his bedroom blew open...and the clanging
sounds seemed to mount the stairs. "Humbug," he thought, "I won't believe it. The bears
have been hearing ringing in their ears for years. The
poor fools. And now they are begging for their Christmas
puddings...while I am rich." His color changed though, when, without a pause, it came
on through the heavy door and passed into the room
before his eyes. The face: it was the same face he had seen on the
doorknocker earlier in the evening. And on the
television a few weeks ago. It was the face of Paul
Volcker, the former Fed chief. His body was transparent,
ghostly, but there was the source of the clanging. For
the spectral figure was wrapped up in chains, to which
were attached various metals -- gold, copper,
silver...both coins and nuggets, all clattering and
banging against one another. Ebenezer had heard it said that Volcker had guts. In
this ghostly form he could see that it was true. His
bowels looked as stiff and tough as the metal he wore
around him. Cast iron? Stainless steel? "Who are you?" asked Ebenezer, his voice cold and
caustic. "Ask me who I could be," replied the phantom. "Okay...who might you be?" "That is a different question," said the spectre, "but I
will answer it anyway. I have no time for word games. I
am the spirit of Paul Volcker..." "I thought so..." whispered Ebenezer. "...and it is required of every man that he walk among
men... "What are these chains you wear?" "They are the chains you forge for yourself. But instead
of gold and silver, yours are laden with computer
terminals, stock certificates, the New Era, Amazon.com.
You will be fettered not just for your life, but for
eternity. And they grow heavier with each passing month.
Unless, that is, you heed the ringing of these
chains..." "I am here tonight to warn you," the ghost went on,
"that you may have a chance of escaping your fate. Rise
and walk with me." "I am mortal..." "Barely," said the ghost. "Here, look...Christmas Past:
1979" Ebenezer could see for himself. There was Paul Volcker himself. Twenty years younger.
And there, what was that? A crowd of people were burning
him in effigy. But why? Then Ebenezer began to recall what that
Christmas was really like: Inflation, measured by the CPI, rose at 13% that year.
Volcker's job was to reduce that figure. He did so. But
it was not fun for anyone -- except shortsellers. The Dow fell 24% after Volcker held his famous Saturday
press conference and announced a change of direction. It
took people a while to realize that Volcker, unlike
previous Fed chiefs, meant what he said. Volcker threw out the WIN buttons and targeted reserve
requirements. Interest rates soared. Twenty-year
Treasury bonds yielded 15%. The prime rate hit 21.5%
percent. Homebuilders and farmers -- and perhaps some
Wall Street brokerage houses -- threatened his life. The Dow fell to 776. Adjusted for inflation, a
generation of capital growth was wiped out. But not everyone was hurt. Investors who bet heavily on
gold stocks, oil and collectibles did well -- at least,
until Volcker's purposes began to be realized. Ebenezer recalled the predictions of 20 years ago: ** Oil would go to $100 a barrel
** Inflation would be at least 6% -- forever
** Gold would rise through the end of the century
** Bonds were "certificates of guaranteed confiscation"
** Stocks were dead (a death that was confirmed by
`Business Week' on Aug. 13, 1980 -- the very bottom)
** The whole key to investing was to avoid risk "Let us look a little further," said the ghost. And with
that, Ebenezer saw a new scene. In this one, he saw
himself. But it was not himself as he was...but as he
had been. There was the young Ebenezer. Full of enthusiasm and
eagerness to make his fortune. He had plenty of hair,
too. And, look, you could see the muscles bulging
beneath his polyester shirt. "These are but shadows of the things that have been,"
said the Ghost. And there he was, the young Ebenezer. Standing alone and
neglected at a Christmas party several years after Paul
Volcker had taken charge of the Fed. He looked quite sad...but Ebenezer knew why at once. "I won't make that mistake again," said the young
investor to himself. "What mistake had he made?" asked the ghost of his
guest. "Why does he reproach himself?" Ebenezer made no reply.
Tomorrow: The Ghost of Christmas Present.
Bill Bonner
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