Contributed by Bill
Publisher of: The
Fleet Street Letter
LONDON, ENGLAND RIOT
TUESDAY, MAY 1 2001
Day, May Day
*** Tech is back!?
*** But so is inflation...and the vigilantes don't
*** Investing in collectibles...Britney Spears on
new technology..."stupid cows"...and rebels without
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*** Since Jan. 3, the Fed has knocked 200 basis
points off the fed funds rate. "One of the most
aggressive credit-easing programs ever," says the LA
Times, adding that "all that money has to find
somewhere to go."
*** Where? "Consumers Watch as Inflation Nudges up
Prices," says a USA Today headline. The consumer
price index is rising at a 4% rate so far this year,
up from 3.4% last year. Ordinary consumer items -
such as milk, beef, and cigarettes - are rising
sharply. Existing home prices have risen 6.5% on
average over the last 12 months. Energy costs are up
too - with cooling bills expected to be 30% to 50%
higher this summer than last. And medical costs are
rising at a 5.9% annual rate.
*** And the bond vigilantes are taking notice. On
March 1st, 10-year Treasury notes yielded 4.87%. Now,
the yield is over 5.3%.
*** Moody's points out: "Benchmark Treasury yields
are actually higher today that they were immediately
before the onset of the latest series of Fed rate
*** In the real world, this phenomenon can create
unhelpful results. Margin loans are cheaper, but 30-
year mortgages are more expensive. In other words,
speculation is encouraged, but not long-term capital
*** As Jim Grant put it in a recent New York Times
story, "By intervening in the money market
aggressively and cunningly - thereby introducing new
speculative flows into equities - the Fed has given
its seal of approval to a stock market that many
investment professionals refused to touch even with
other people's money."
*** "There's been a lot of talk lately about the
stock market having bottomed out and prices being
made to start soaring all over again," writes
Christopher Byron. "But before we get too carried
away, let's stop for a minute to focus on the
implications of one financial trend that is
undeniably - and disturbingly - rising rapidly
already: long-term interest rates."
*** "It is, of course, entirely possible for the
stock market to put together a quite dramatic short-
term run-up in such a situation," he says, "and
there are many on Wall Street who believe a
sustainable advance has already begun. But the
current upward push in long-term rates makes pretty
clear that, so far as long-term investors are
concerned, the end of the rally can already be
*** "Tech: The Weakest Link?" muses the latest issue
of Welling@Weeden. Between the covers of this
engaging publication, High-Tech Strategist Editor
Fred Hickey warns that the current rally will fail
and that "tech industry fundamentals never looked
*** "Historically, big bull markets do not end
abruptly. You don't have people change from being
religious fanatics, certain of a new era or new
economy, to being agnostics overnight. It doesn't
happen...When we do get to the bottom, people will
hate tech stocks. It will be ugly."
*** Hickey continues: "The real money to be made
first will be by going against Intel at 60 times
earnings, going against Applied Materials at a $50
billion market cap, against Micron at $30 billion,
despite ever-deeper losses as far as the eye can
see. Those are the real opportunities out there.
It's too soon to bottom-fish here."
*** "What I do know, as a former accountant," he
continues, "is that when you're playing accounting
games, you not going to be able to hold it up
forever. Even the mighty Cisco couldn't. That's the
story of IBM. That's sort of the story with
Greenspan and the market. Play games. Hold it up as
long as you can. But it doesn't work forever. It
didn't for Lucent, it didn't for Cisco. It's not
going to work for Greenspan and it's not going to
work for IBM."
*** After opening the trading day with gains nearing
100 points each, the Nasdaq ended up 40 to 2116. The
Dow lost 75 points closing at 10734. The S&P 500
fell 3 and half to 1249.
*** "As stocks sink, investors turn to jewels, art,
collectibles," USA Today proclaims. "The yearlong
bear market has some disenchanted investors swapping
their shares in Cisco for prints by Picasso."
*** How many Cisco shareholders could still afford a
Picasso print? No matter. Classic cars, baseball
cards and stamps are also coming back into
investment fashion. Linn's U.S. Stamp Market index,
for example, rose 5% last year.
*** Since April 5th, the UK's 'footsie' has tacked on
a respectable 12%...but why?
*** "Profit warnings by UK quoted companies soared
by 77% in the first quarter of this year," reports
the FT, citing research by Ernst & Young.
*** On both sides of the Atlantic, earnings are
falling sharply and layoffs are rising. In the
dot.com sector alone, 'there were a record-breaking
17,544 dot.com jobs eliminated April - compared with
327 cuts made in the year earlier period," according
to Chicago Business. Given the layoff announcements
and the Conference Board's rising ratio of "jobs-
hard-to-get" versus "jobs-easy-to-get," can 5%
unemployment be far behind?
*** "About a quarter of the population will be
affected to some degree by a general downturn in the
rural economy," writes my friend William Rees-Mogg,
referring to the affect that Foot and Mouth disease
will have on the British economy. "Some high streets
of market towns already look like ghost sets; there
will be more empty shops; solicitors and
accountants, with other professionals, who serve the
farming and tourist businesses will suffer as well
as the small retailers.The real trouble is
dislocation has a knock-on effect..." (see: Counting
The Cost Of An Epizootic
*** This morning, the London papers are full of
*** We learn on page one of the Daily Telegraph that
the Prime Minister has gotten a pair of reading
glasses...and that Britney Spears' website, wherein
the teenage singer explains the mysteries of
semiconductors, is a big hit.
*** Back up...just a little bit more....a little
more...oops! "A British tourist fell 40 feet to her
death from the medieval walls of a French town as
her boyfriend was about to take her photograph,'"
the paper tells us - on page 4. The boyfriend was
unable to tell French police how the accident
happened. Maybe he didn't speak French.
*** And on page 7, we discover that Jane Andrews,
former aide to the Duchess of York, is accused of
murdering her boyfriend after he hit her and called
her a "stupid cow." Even intellectually challenged
bovines can be dangerous. The boyfriend died after
being hit with a cricket bat and then stabbed in the
*** Walking back from dinner last night we found
work crews boarding up the picture windows along
Oxford Street. What's this...preparing for a
hurricane? Nope...preparing for May Day riots...more
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MAY DAY, MAY DAY
"Don't wear a suit tomorrow," Dave advised me
"They're going to target anyone wearing a tie as a
capitalist. And they say they are going to target
Makes sense. The rebels without a clue are opposed
to globalization. My office is in the Centre Point
building - one of London's tallest and ugliest
edifices. It is the home of several multi-national
corporations (including my own mini-multinational)
and is located right on Oxford Street.
"Uh oh," I reply, "All I packed was business
clothes. Traveling light, I left my proletarian riot
clothes back at the chateau."
This morning, the work crews were still on the job -
putting up plywood on the storefronts. Rioters are
expected this afternoon - attempting to disrupt
traffic around Oxford Circus.
Of course, it doesn't take much to disrupt traffic
at Oxford Circus. If a drunk wanders into the street
- traffic backs up...within a few minutes the whole
city is in a state of gridlock.
"We're opposed to globablization and corporate
profits," explained one of the demonstration
organizers to the TV cameras. "We have a variety of
specific agendas [sic]...but the thousands of people
supporting tomorrow's May Day celebrations all want
to get back to a more natural, more healthy world."
A traffic jam on Oxford Street is certainly as
natural a state of affairs as you could ask for. But
then, so is it natural for women to murder their
boyfriends after being described as "stupid cows."
But that is the trouble with "natural," dear reader.
Like "fairness," it is a word you cannot trust.
Is it natural for GE to be priced at 29 times
earnings? Is it natural for the savings rate to be
negative...and the balance of trade to be running at
a $1 billion-per-day deficit? Is it natural for the
dollar to go up - even as the Fed undertakes "one of
the most aggressive credit-easing programs ever?"
"How do you know what is really essential?" I had
asked Mr. Deshais, probing the edges of my new
"Well..." the gardener's eyes narrowed. He eyed me
suspiciously. Was I a fool or was I just up to
mischief, he wondered. "What is essential is what
really works...what has been tested and found to
work over many, many years - the traditional."
"You know," he continued, smiling..."there is an
expression in French, maybe you've already heard it:
'Chase away the natural, and it returns at a
The dot.coms and techs have already returned to more
'natural' price levels - at a gallop. Eventually, GE
will find its stride and join them...
The pigsty I looked at with Mr. Deshais on Sunday
might be described as "natural." It was more natural
than what you'd find at a high-tech commercial pig
farm. And it was more natural, perhaps, than the one
at the grand Chateau in La Trimouille. Mr. Deshais
described it as "the most beautiful pigsty in the
region." It was a real 19th century capitalist
pigsty, owned by his friend, Charles, who drove off
the road after a drinking binge and died. Charles
had been a great landowner and the scion of an
The most natural pigsty is none at all. But no
pigsty, no pigs. No pigs, no ham. No ham, no ham &
eggs for breakfast. Deconstructing the modern world
may lead to a more natural one - but not necessarily
a better one.
"The natural condition of things is a world without
profits," said my friend Mark, as we walked along
Oxford Street. "Profits are unnatural. It takes real
effort to get them. You have to disturb people...you
have to make them do something they don't want to
do...otherwise, in a business as in the rest of
life, everything sinks down to nothing."
Capitalism is unnatural. But so are pigstys...and
the world is better off with both of them.
More to come...
Your correspondent, waiting for the rioters...
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