 Under the
top
Bill Bonner
The
Daily Reckoning
January 12, 2005
The Daily Reckoning PRESENTS:
The Daily Reckoning has recently been accused of being too "over
the top." That doesn't bother us because, as Bill Bonner
illustrates, life is just a series of exaggerations. Read on...
Kiplinger magazine aimed a
soft glove at us. Here, we pause to see what else is between
the covers of the January issue... and look for some brass knuckles.
Kiplinger's complaint was that
some of the things we say are "over the top." We do
not deny it. Rather, we protest that we can never seem to get
over the top enough. Nature, the markets, and the world itself
are simply too... too... over the top themselves. Life is full
of surprises, absurdities, and humbuggeries. We have only words
to describe them. Our words never seem to be enough. Catastrophe,
disaster, horror... where is the word that measures up to the
"Death Wave" in the Indian Ocean, for example?
Kiplinger, on the other hand,
lives in a different world. It is a world, as near as we can
tell, where every thought is commonplace... every idea is convenient...
and every stock always goes up. We say that not as a calumny.
There is no shame in it. But neither is there any glory. Instead,
Kiplinger must live day to day in the dreary dust of following
the crowd... painting smiley faces on public buildings.
We stand still in awe and wonder.
What beautiful minds construct such a happy, unclouded world?
A dear friend of ours believes different areas of the brain control
optimism and pessismism. A stroke many years ago changed his
personality, he says. Before, he had been evenly balanced between
lightness and dark. After the stroke, the windows were always
open and the sun always shone. What has happened to the staff
at Kiplinger, we ask? Someone should check the water in their
Washington, DC headquarters. Maybe it could be bottled.
We look on the masthead, expecting
to find Abby Joseph Cohen as Editor-in-Chief. But no. Instead,
there is a Mr. Fred W. Frailey, who begins his opening letter
with these intriguing words: "You hate me."
In truth, it had never occurred
to us to hate Mr. Frailey. We never even met the man. We read
on with interest to find out what the source of our animosity
was meant to be.
"Just six months ago,
I declared on this page that I would not buy Google's initial
public offering because I didn't have the stomach for the risk
that would come with paying so much for the Internet stock,"
he writes. So far, so good. But he figures readers are pretty
mad, since Google went straight up afterwards.
Mr. Frailey's mea culpa included
an admission that Google's P/E of 118 "freaked me out."
There is nothing particularly astonishing about this. It should
have freaked him out, in our opinion. Unless you really understood
the business, which neither he nor we did, buying Google shares
was pure gambling - hoping that they would go up for reasons
that you could neither fathom nor control. Not buying a stock
that would take 118 years' of earnings to pay you back... about
whose business model you don't have a clue... whose managers
you've never met and whose product you barely comprehend... does
not sound dumb to us.
But not buying Google had a
strange effect on the Kiplinger editor. It made him feel "stupid,"
he says. Why? Because the shares went up! How would he feel if
the shares had gone down - smart? As far as we know no actual
connection has ever been discovered between financial publishers'
intelligence and stock market movements, but Mr. Frailey seems
to think there is some link. He is so disturbed by it that it
leads him to a breathtaking turnaround. In "atonement,"
he tells us that he is buying the shares now - at $181!
What kind of investment method
is this, we wonder? Wait 'til shares go up in price - and then
buy them? We have no Googles in our portfolio to prove we are
smart. And we certainly have no idea where Google shares will
go from here. But we offer this free advice to Mr. Frailey: Think
again. Chasing tech shares up to extraordinary levels does not
sound to us like a winning formula. Crowd following rarely is
rewarding - especially when you're at the tail end of the group.
Mr. Frailey's photo suggests
a man with the normal cares of middle age. But on the cover is
a young couple without a care in the world. Man and wife smile
broadly. They're "looking to buy great stocks at good prices."
That certainly sets them apart, doesn't it?
"Where to put your money
now," the headline promises. It's a question loaded with
traps and troubles; but it seems so innocent... so easy... so
risk-free in the pages of Kiplinger. For there on page 21, we
learn that all is well in the economy. "Back into balance,"
says the headline. "Steady growth - more jobs, low inflation
and slightly higher interest rates in 2005." How Kiplinger
knows these things, we cannot tell you. But they report them
in such a matter-of-fact style, you almost believe they are true,
rather than mere wild guesses. Of course, they are not. Kiplinger
editors are merely reporting a consensus view - one which is
likely to be right, wrong, or somewhere in the middle. One thing
it is not likely to be is profitable for investors, since everyone
and his half-wit brother reads forecasts like this and invests
accordingly.
But we push on... why not?
It is all in good fun.
"The lackluster market
for most of 2004 has set the stage for superb returns in 2005,"
says old Kip. "Confidence in the economy will grow... gains
of 10% are achievable in the coming year."
Then, the magazine brings out
its cover stars for the month - a doctor from Rockville, Maryland,
and his wife, Jessica.
"This is a moment of opportunity,"
says the sawbones-cum-market-seer, who "sees opportunity
in technology and biotechnology... "
"Given today's interest
rates, stocks are, at worst, fairly priced and perhaps even undervalued,"
the magazine continues.
Nowhere do the editors admit
that they have no more idea than anyone else. Nowhere do they
say... well... at least that's one guess. Nowhere do they have
the modest grace to warn readers that the exact opposite of what
they forecast could also come to pass... and that readers ought
to at least take a few precautions. Instead, they've got the
poor schmucks chasing "great stocks at good prices"
at the beginning of what could turn out to be a 15-year bear
market!
But what the heck, it's just
money.
And over on page 40, they do
acknowledge that things might not go entirely as planned. "Some
professionals believe corporate profits could actually decline
in 2006(!)," they allow. Then, they turn to their handy
rolodex to call up some Wall Street shill pretending to be a
pessimist. Stocks, says David Durst of Morgan Stanley in New
York City, may return "half of what many people think,"
- or 6%! Wow... what a bear! Won't someone please stop that man
before he cuts his wrists?
We searched all 108 pages of
Kiplinger's January issue; we could find no clouds bigger or
darker than Mr. Durst's pathetic little wisp.
Au contraire, the sun is shining
everywhere. On page 32, James K. Glassman tells us it is time
to reconsider technology. Growth funds, too, are "ripe for
a comeback" on page 54. Meanwhile, real estate will have
"no bubble trouble," it says on page 67. Instead, "look
for another year of strong home prices." And here we have
another insight into Kiplinger's strange world; it is a world
with only buyers. People never sell. "The youngest baby-boomers
are buying up," says the magazine, "and the oldest
are buying up or buying second homes."
What happens when the oldest
of the oldest die? What happens when the sun goes down?
What happens when they switch
water companies at the Kiplinger's headquarters?
Bill Bonner
 The Daily Reckoning
Editor's Note:
Bill Bonner is the founder and editor of The Daily Reckoning.
He is also the author, with Addison Wiggin, of The Wall Street
Journal best seller Financial
Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley &
Sons).
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