Luck in the Sky with Diamonds

On this day in 1640, Hugh Bewitt was banished from the Massachussetts colony. His crime? He had declared himself to be free from Original Sin…He believed that he was born tabula rasa…a blank slate upon which life’s story would be written as he went along.

I do not know how original Mr. Bewitt’s sins were. But his mistake was commonplace…if not for his time, at least for ours.

Mr. Bewitt shared the rationalist self-delusion of his contemporary, Descartes…and anticipated the "free- thinking" movement that dominated the world three centuries later. I have put "free-thinking" in quotations because those who believe themselves to be free-thinking are often shackled to the heaviest iron balls. They are unaware of their own prejudices.

Three hundred fifty years later, Mr. Bewitt might have been a fund manager…or maybe a college professor. Untarnished by any pre-womb influences…or non-rational decision rules…Mr. Bewitt could shine. He could go with the flow on Wall Street, for example, embracing the logic of "Dow 36,000" without qualm. He could get rich.

The idea that has been disturbing my sleep this week has been the difference between the personal and the political…and their parallels in the markets.

I notice that when I see people from a distance, I often do not like them. I don’t like the way they look…or the way they dress…or what they represent to me. But, like Will Rogers, when I get to know them…I invariably like them. In fact, I can’t think of anyone I actually dislike. Some people make me uncomfortable. I enjoy some more than others. I recognize some people as selfish, stupid, ignorant or humorless…but taken as individuals, people rarely displease me.

Politics is anti-personal. And a lie. It ignores the truth about people — the specific, unique and infinitely complex details — and treats them as a member of a category.

Political thinking is the twin of wishful thinking…and only a chromosome away from not thinking at all. It is what happens to free thinkers who are free from thought. It is a substitute for real thinking…

Save the Planet…Kill the Jews…Tippecanoe and Tyler, Too. And who can forget this popular bumper strip from the Middle Ages: "No More Diaper Heads in the Holy Lands"?

Ike and Dick, Sure to Click. Save the Bay. The best of the slogans invite counterattack…such as the popular anti-environmental bumper sticker in Maryland: Pave the Bay.

Mr. Bewitt didn’t understand it…but when he popped into this world, he came with a disk operating system and a lot of software already programmed — by millions of years (and divine intervention?) of natural selection. It is no secret that twins, separated from birth, usually dress…shop…vote…and think in similar ways. One study showed that they shared a similar degree of altruism, too.

One of the hallucinations of political thinking is that no such inbred prejudices exist…that a person can think things out for himself, tabula rasa. "I think," said Rene Descartes…and everything else comes after.

But sublime stupidity and malign arrogance lead people to think that they can understand and direct things that are infinitely complicated and inherently unpredictable.

Lenin’s economic team had no idea how economies actually worked. The planners themselves had never run a successful business. They detested the whole bourgeois class and were contemptuous of the role played by entrepreneurs and merchants. But that didn’t stop them from creating detailed Five Year Plans…pretending to direct every economic activity in the world’s largest country.

Naturally…the plans were disasters.

Today, investors believe they can spend a few hours…or maybe a few weeks…and learn how a business…or a technology will do in the market place. They think they can also divine the direction of interest rates, the movement of stock prices generally…you name it.

But I began my own business and have worked in it for more than 20 years. If you asked me whether the business will do well in the next year…or five years…I wouldn’t know how to reply. I just don’t know.

I do my best. So does everyone in the business. I think we will succeed…but how do I know? There are too many variables. Too many unknowns. It is far too personal, in other words. Maybe we’ll make the right decisions. Maybe we won’t. Maybe we’ll run out of energy. Maybe the market will change.

If I can’t tell you how well my own business will do…how can an investor expect to figure it out? Wall Street analysts don’t really have a clue. All they are doing is extrapolating current trends into the future…as if nothing ever changes. It is all Lucy in the Sky with Diamonds to them.

And why not? They tell the public what it wants to hear…what frees it from the burden of thinking — that most stocks are BUYS. That the market is going UP. That all will be well…

And it is…for now.

That’s all folks…for now.

Bill Bonner,
Your sleep-deprived, back-aching correspondent
December 9, 1999

In Today’s Daily Reckoning:

*** Nasdaq stalled…

*** The Car of the Century…

*** Forgive and forget…

*** All the arrows pointed down on the financial page of the "Financial Times" today. The Dow was off just 38 points.

*** Nasdaq — the white-hot center of the speculative melt-up — fired up to 3,600…and then cooled off, ending the day down. A lot of shares changing hands…1.65 billion of them.

*** Richard Babson calculates that just 10 big Nasdaq stocks account for nearly half the index’s capitalization…and most of its profits.

*** Forgive and forget — that’s the new Festivus spirit. Forget the decades of hate…and join the rest of the world getting rich. Israelis and Palestinians…Mandela and de Klerk…Russians and Americans…And now the Irish. But there are speed bumps on the highway to peace. Gerry Adams, wearing a tie with teddy bears on it, held up an electronic bugging device found in his car…and wondered aloud how deep the new friendship really was.

*** The French have named the quirky little "deux chevaux" as the Car of the Century. That’s the funny bug-eyed car with the roll-up cloth top you see all over France.

*** Red Hat, a company that distributes products based on the Linux operating system, is now thought to be worth more than the entire stock market of Russia.

*** Continuing the bear market trend, there were 96 new highs yesterday…and 398 new lows. There were 1,138 advances yesterday…1,937 declines. The decline in the A/D ratio has been breathtaking.

*** The Department of Energy must have checked its gas gauge. It announced that it had more oil than it thought. The price of oil dropped below $25.

*** And the dollar bounced back a bit. It is just a couple pennies below the euro. And there are 103 yen per dollar.

*** "FT" reports that Baby Boomers expect to make 12% per year on their stocks for the next 5-10 years. The average return on stocks since 1926, however, has been only 4.2% after taxes and inflation.

*** Gold rose $7.20 on Tuesday…Monday’s sharp decline is beginning to look like a fluke, not a trend. Then it gave back a little of the gain yesterday.

*** I don’t know what is going on with the Japanese market…but I like what is going on with "Fleet Street’s" Japanese pick. It is now up 209% since recommended a year ago! Which is another good opening for me to remind you to subscribe to the "Fleet Street Letter"…if you have not done so already. https://www.agora-inc.com/secure!/form1.cfm?pubcode=fsus

*** I attended two board meetings in London yesterday. One of the companies is Pickering & Chatto…a fusty, old Bloomsbury Square book publisher. Nothing could be farther from the digital age than P&C. But it made its first Internet sale last month — the "Works of Robert Boyle."

*** Norman Rentrop, our German partner, joined me for lunch at the Gay Hussar, a small restaurant off Soho Square, on Greek Street, favored by the Labor Party and featuring Hungarian cuisine. A nice restaurant.

*** Norman built a substantial publishing business in Germany…where stock values are nearly as high as they are in the United States. He’s only 42 years old, but he’s been at it for more than two decades and is wondering what to do next. Sell? Go public? Will we see these prices again in our lifetimes?