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Co-brand
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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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OUZILLY, FRANCE
MONDAY, 16 APRIL 2001 |
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Today:
A
Blue World
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*** 1,000 companies report first quarterly earnings this
week. Will they 'zip up?'
*** Get even? Or get out? That is the question...if the big
rally continues.
*** Consumers feeling pinched...sex and the French...and
more...
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*** There is not much new financial news today...the
markets were closed on Good Friday. But the financial press
seems to be looking for a resurrection of prices this week.
"A record number of earnings warnings have cleared the
way," says the Reuters report from Sunday evening, "for
stocks to gain this week as investors look past the bad
news toward sunnier days ahead."
*** "Buyers are swooping in" continues the article. Then,
quoting Louis Navellier, "I feel confident that the market
is putting in a bottom and most stocks are oversold."
*** The Nasdaq rose 14% last week - its second best week
ever. But it is still down 21% for the year. Investors are
hoping that this rally is big enough to push the stone
aside and allow their stocks to come back to life.
*** The crash of '29 was followed by such an impressive 6-
month rally that investors were lulled into believing that
"the worst was over." But stocks soon began falling again
and continued falling until 1931.
*** Stocks approached the 1,000 mark in 1966...fell, and
then rallied until '68...fell again...rallied again and
actually moved above the 1,000 mark in 1971...and then - in
1973 - began their worst slide since '29. Throughout the
entire 20-year period, from 1966 to 1986, adjusted for
inflation, investors got nothing but dividends.
*** A big rally, it is hoped, will give investors another
chance to "get even." But if they're smart, they'll take it
as an opportunity to get out. It is too late for investors
who bought tech and Internet shares near their peaks.
Amazon, for example, would have to rally about 700% to get
back to its high. A Reuters report explains that if you had
bought JDS Uniphase on March 6, 2000, when it was trading
for $146 you'd have to wait 21 years to make up the 87%
loss you've suffered - if the S&P grows at its average rate
since '26, that is, about 11% annually.
*** The waiting period for many stocks would be even longer
- 40 years for Inktomi...41 years for CMGI, a stock that
once traded for $163, but you can buy today for about two
and a half bucks.
*** Of course, these companies will probably go out of
business long before the share prices recover. Most likely,
they've had their 15 minutes of fame. Now they can be
forgotten.
*** "Analysts are expecting earnings growth to zip up" in
the 2nd half, said one item on the Reuters line.
*** But "astute corporate insiders have been selling their
companies' stock at a very high rate," writes Ned Davis.
"With the market down so much, this is very unusual and I
take it to mean that profits are even worse than the hard
landing that I had expected." Why? Davis explains: "The
long up-trend...of productivity growth since around 1980
has been broken to the downside. Sales, income and
production per employee have plummeted."
*** Sales figures for March suggest that consumers are
feeling a little pinched. "March," says Kurt Barnard, who
tracks retail spending, "turned out to be one of the
weakest months in 25 years of tracking this. It really was
a very, very poor performance on the part of most
retailers."
*** And this from the WSJ: "The U.S. economy appears to be
worsening, according to several reports. Jobless claims hit
a 5-year high last week and consumer confidence fell to its
lowest level since 1993."
*** A second half recovery? Probably not. The U.S. may be
doomed to endure a particularly long and frustrating slump
simply because it has avoided a slowdown for so long.
"Recessions have a parallel with earthquakes," suggests
Andrew Smithers. "Frequent small ones may be essential to
avoid truly damaging large ones."
*** Smithers notes that Alan Greenspan has very
successfully avoided recessions - until now, perhaps. But
he is not the first to enjoy a long period of expansion.
Andrew Mellon was re-appointed by Herbert Hoover in 1929 -
after presiding over the boom of the '20s. At the time he
was hailed as "the greatest secretary of the Treasury since
Alexander Hamilton." Two years later, he resigned - widely
regarded as a failure.
*** Addison reports from Paris that the city is dead.
Easter Monday is an important holiday in France. Only we
Americans are at work. Are we smart, or what?
*** I'm becoming a connoisseur of French attitudes towards
illicit sex. Not by intention, of course. It is just that
it is such prominent feature of the culture I can't avoid
it. On Friday, for example, I took a bus down from Poitiers
(the train was not running for some reason). On the radio
was a remarkable program wherein the host would ask a woman
to phone her husband and tell him that she was having an
affair. The host would then come on the phone and pretend
to be the lover. The cuckolded husbands threatened and
insulted while their wives' pretend lovers parried with
jokes and ribald humor. Then, when the ruse was announced,
everyone had a good laugh.
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A BLUE WORLD
"You just never know," said Mr. Deshais. "It usually
doesn't get this cold. You see what it did."
The gardener pointed to the blackened potatoes leaves,
newly sprouted from the ground.
"It killed some of them. But I think they'll be all right."
"Why do you plant them so early," I asked. "If you waited a
few weeks you'd probably avoid these late frosts."
Mr. Deshais looked mortified.
"Ahhh, but if you did that, you would never get good
potatoes. You have to plant them early. And if you miss the
full moon, you have to wait a month - and then, it's too
late. You have to stick to the moon. Don't worry. They'll
be all right."
The potatoes don't look good. But Mr. Deshais knows what
he's doing. And even if he is completely wrong, there is no
hope of getting him to change his ways.
Besides, since his approach to gardening agrees with my new
theory of Essentialism, who am I to criticize? Mr. Deshais
thinks he knows what is important to a good garden - and he
sticks with it. What's more, he has the cabbages to prove
it.
While Mr. Deshais has spent decades studying the ways of
nature, I spent my time studying the nature of markets. In
either case, probably the best lessons are learned in the
old-fashioned way - by error.
Years ago, I teamed up with Mark Hulbert to try to figure
out who made money by investing - and how. The idea was
simple enough - just study various investment newsletters,
track their advice over time and see who comes out ahead.
If only it were that easy!
We began in the late-70s. At the time, the financial future
seemed clear: the dollar was going the way of Italian lire
and Polish zloty, inflation was getting worse and worse,
and gold was becoming ever-more valuable. This was not
merely a trend - it was an unstoppable, irreversible fact
of life...since government could be counted on to inflate
the dollar away to nothing.
This led me to publish a number of financial services whose
main advice was to buy gold and gold mining shares. Alas,
the debut of these services coincided with the beginning of
a bear market in gold that has lasted for 20 years already,
and seems destined to last forever.
The more certain you are about a financial trend, the less
likely it is to come to pass. And past performance - thank
God - is no guarantee of future performance.
But surviving a quarter century bear market in your
favorite commodity is bound to have an effect. I emerged
poorer in investment cash but immensely richer in modesty.
"Mr. Bonner," the gardener continued, "you wouldn't want to
eat that stuff in the super-market, would you? Who knows
what they put in it? It tastes like nothing natural. They
can plant their potatoes whenever they want. But we have to
stick to what we know works."
Pere Marchand seemed to have the same idea in mind for his
sermon on Easter Sunday. "We have to recognize," he said,
"that we cannot know why God does what he does. Why would
he let his only son suffer upon the cross? Why would
innocent little infants die? It seems incomprehensible to
us. And yet, it happens. And it is hard for the parents to
live with. But we stick with our faith. What else is
there."
"There is one characteristic," writes Mark Hulbert,
summarizing the conclusions of two decades of work, "that I
have discovered that does distinguish the top performers:
discipline. They were willing to stick to their strategies
during the discouraging interludes in which they were
lagging the market or even losing money. In fact, I think
the importance of discipline may be the most important
lesson to emerge from my 20 years of tracking investment
newsletters. It is what keeps us from dumping a good long-
term strategy because of short-term underperformance."
The good long-term strategy is to find good investments at
low prices and stick with them until they are no longer at
low prices. Then sell them.
Another way to look at it: find the fool in the market and
do the opposite. When fools are buying tech stocks; sell
them. When fools are no longer interested in stocks: buy
them.
I like to think that this approach is easier for me and
other former gold-bulls than it is for other investors. We
can spot the fool in the market, since we have been on such
close terms with him.
Today's fools believe they can buy stocks at 23 times
earnings and then simply hold them 'for the long term' and
get rich.
But as Hulbert puts it (in a NY TIMES article):
"Latter-day converts to the buy-and-hold strategy assure me
that they won't be foolish and throw in the towel in a bear
market. But I don't believe them. The only investors who
could persuade me otherwise are those who were fully
invested in late 1974, at the bottom of the last severe
bear market. And there are precious few of them. All the
other buy-and-holders either aren't telling the truth or
are too young to have anything more than hope about how
they will behave in the next bear market."
"At the top of every bull market, everybody talks about
buy-and-hold," Hulbert writes. "At the bottom of a bear
market, you can't find anybody talking about buy-and-hold."
At investment conferences in 1980, some people seriously
thought the price of gold (then flirting with its all-time
highs of over $800 an ounce) was on its way to $4,000.
(Gold subsequently sank to less than $300.) And at those
1980 investment conferences, nobody was talking about
buying and holding stocks. Back then, that was regarded as
a fools game."
What else is there, dear reader, but to look for the
essentials, find the principles that are really important,
and stick with them?
Even when we recognize that we can't predict the
future...nor even understand the present...we still have to
do something. We have to get up in the morning...and get to
work.
We still have to make decisions about what to do and what
not to do.
And now, dear reader, I confess an ulterior motive to
today's letter. We have put together a new investment
service...which we call the "blue" site. Its goal is
simple. And modest. To provide you with a systematic, clear
way to invest in the kind of insights you find here in the
Daily Reckoning.
I've already sent you some information about it. And
Addison has provided more details. Will it make you rich?
Who knows. Will it beat the market averages? I don't know
that either.
As in life itself, there are no sure things. And no one can
tell what will happen.
But I don't ask much of you. The Daily Reckoning is free.
And since it is free I feel I have the right to pass along
my little reflections on things that have nothing to do
with investing. This new "blue" service is not free. Maybe
that is reason enough to subscribe: you won't have to read
my views on the arts, on history or philosophy. The blue
site is all investments.
And, if it helps you improve your investment performance -
even just a little - it should be worth far more to you
than it costs.
So all I ask is this: just take a look at it. If it is not
useful to you, your money will be refunded. So don't worry
about that part of it. And with a little luck, it will
actually help you make some money...or help you keep the
money you've already made. Please follow this link
The Daily Reckoning "Blue Service"
http://www.agora-inc.com/reports/STRT/KeyInvestment/
And thank you.
Your humble, grateful editor,
Bill Bonner
The Daily Reckoning Blue Service
http://www.agora-inc.com/reports/STRT/KeyInvestment/
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| About
The Daily Reckoning: |
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Daily Reckoning
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoning—his take on the financial markets and what’s going
on in the world—and sends it off by e-mail before most Americans’
alarm clocks have buzzed. Many readers say it's the first thing they want
to read when they get up—not only because it's informative and thought
provoking, but also it's inspiring, in its own quirky and provocative way.
Of course, there's
much more to Bill than his daily market commentary. He's also the founder
and president of Agora Publishing, one of the world's most successful
consumer newsletter publishing companies. Bill's passion for international
travel and big ideas are reflected in the company he's successfully built.
In 1979, he began publishing International Living and Hulbert's
Financial Digest . Since then, the company has grown to include
dozens of newsletters focusing on health, travel, and finance. Bill has
vigorously expanded from Agora's home base in Baltimore, Maryland since
the early ’90s—opening offices in Florida, London, Paris, Ireland, and
Germany.
Agora's publication
subsidiaries include Pickering
& Chatto, a prestigious academic press in London and Les
Belles Lettres in Paris, best known as a publisher of classical
literature in bilingual editions.
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