RULE MAKER PORTFOLIO

<THE RULE MAKER PORTFOLIO>

No Such Thing as Money

By Rob Landley (TMF Oak)

AUSTIN, TX (July 19, 1999) -- Money is quite possibly the most amazing and useful invention of the past 3,000 years. The really clever bit is that it doesn't actually exist.

Before money, all trade was done through barter. If you'll milk my cow for me, I'll give you half the milk. You can trade that bowl of milk for a chicken, and maybe a small sack of grain. How much milk does it take to buy a chicken? Who knows -- haggle about it when you get there and determine a new price each time. What people needed was a standard way to measure wealth that they could all agree on. They also needed a way to store wealth, so it wouldn't go bad. And preferably, the stuff would be something small and easy to carry, so you could take it with you wherever you went.

Eventually, people settled on small, durable, valuable commodities like lumps of gold or silver. They were valuable enough that a small amount could buy a lot of grain, and they didn't break or spoil. Additionally, once a trusted authority weighs the gold and stamps a mark on it, you shouldn't have to weigh it again each time. The introduction of gold coins was a great economic advance that prompted an explosion of trade in ancient Greece and Rome.

But gold coins are still a commodity. There's only a certain amount of gold around. It's valuable because it's rare. And what if people shaved a little off the edge of those standard coins until they had enough to make a new coin? Coins did beat bartering, but they weren't an ideal solution.

Modern money didn't start until the power of the Catholic church was broken by the Protestant Reformation. Until that time, the church forbid "usury," or loaning money and charging interest. Without the ability to borrow money, people who didn't already have some couldn't get any, and most people returned to barter until the invention of paper money.

Paper money is what you get when you're on the receiving end of someone else's loan. It's like a negotiable IOU, which can be traded from person to person and redeemed by whoever winds up with it. The best paper money is an IOU from someone whom everyone agrees is able to pay off their debts with goods and services, so that everyone readily accepts their IOU. Thus, the role of issuing money usually falls to the government.

In the United States, our unit of money is the "dollar," named after an old Spanish gold coin, of which we had quite a bit when the country was founded. Modern dollars aren't coins anymore; instead, we use green bills called "Federal Reserve Notes."

A Federal Reserve Note is a special type of government IOU. They started out as a bunch of little claim tickets for silver or gold held in federal vaults like Fort Knox. The government would give out the gold on demand, but the paper was easier to carry and trade, and nobody had to worry about shaved coins if the actual gold was stored safely in Fort Knox. The feds would measure it for you if you ever went to pick it up.

These days, the government doesn't give out gold; we've switched from the "gold standard" entirely to paper money. Instead, the government accepts its own IOU's (dollar bills) in payment for taxes. So in a sense, the U.S. Dollar is strong because it's backed by the full faith and credit of the Internal Revenue Service.

Since paper money starts life as debt, it shouldn't be surprising that debt can create even more money out of thin air. Later this week I'll talk about debt, recessions, and what exactly makes Alan Greenspan so important.

After market close today, two of our companies reported earnings. Pfizer (NYSE: PFE) turned in diluted earnings per share of $0.18 -- a penny better than estimates. Microsoft (Nasdaq: MSFT) also beat estimates with its results of $0.40 per diluted share -- 4 cents ahead of estimates. Tune in to a replay of Microsoft's conference at this link. More on those earnings in the days ahead.

- Oak

07/19/99 Close
Stock Change    Bid
AXP   +3 5/16   139.19
CHV   -  1/2     95.13
CSCO  -1 1/16    64.94
EK    +1         73.13
GM    -  3/4     68.31
GPS   -  3/8     49.69
INTC  +  7/16    67.56
KO    -1 13/16   63.19
MSFT  -1 1/16    98.38
PFE   -  13/16   37.00
SGP   -  13/16   54.06
TROW  -  1/16    35.00
XON   -  1/2     78.81
YHOO  -  3/4    149.50


                  Day     Month  Year    History
        R-MAKER  -0.67%   2.38%  16.45%  47.35%
        S&P:     -0.78%   2.54%  15.09%  42.32%
        NASDAQ:  -1.19%   5.39%  29.08%  71.23%

Rule Maker Stocks

    Rec'd    #  Security     In At       Now    Change
    2/3/98   48 Microsoft     39.13     98.38   151.38%
   6/23/98   68 Cisco Syst    29.21     64.94   122.35%
    5/1/98 82.5 Gap Inc.      22.91     49.69   116.85%
   2/13/98   44 Intel         42.34     67.56    59.58%
    2/3/98   66 Pfizer        27.43     37.00    34.87%
   5/26/98   18 AmExpress    104.07    139.19    33.75%
   2/17/99   16 Yahoo Inc.   126.31    149.50    18.36%
   8/21/98   44 Schering-P    47.99     54.06    12.65%
    2/6/98   56 T. Rowe Pr    33.67     35.00     3.94%
   2/27/98   27 Coca-Cola     69.11     63.19    -8.57%

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon         64.34     78.81    22.50%
   3/12/98   20 Eastman Ko    63.15     73.13    15.80%
   3/12/98   15 Chevron       83.34     95.13    14.14%
   3/12/98   17 General Mo    72.41     68.31    -5.65%

Rule Maker Stocks

    Rec'd    #  Security     In At     Value    Change
    2/3/98   48 Microsoft   1878.45   4722.00  $2843.55
   6/23/98   68 Cisco Syst  1985.95   4415.75  $2429.80
    5/1/98 82.5 Gap Inc.    1890.33   4099.22  $2208.89
   2/13/98   44 Intel       1862.83   2972.75  $1109.92
   5/26/98   18 AmExpress   1873.20   2505.38   $632.18
    2/3/98   66 Pfizer      1810.58   2442.00   $631.42
   2/17/99   16 Yahoo Inc.  2020.95   2392.00   $371.05
   8/21/98   44 Schering-P   2111.7   2378.75   $267.05
    2/6/98   56 T. Rowe Pr  1885.70   1960.00    $74.30
   2/27/98   27 Coca-Cola   1865.89   1706.06  -$159.83

Foolish Four Stocks

    Rec'd    #  Security     In At     Value    Change
   3/12/98   20 Exxon       1286.70   1576.25   $289.55
   3/12/98   20 Eastman Ko  1262.95   1462.50   $199.55
   3/12/98   15 Chevron     1250.14   1426.88   $176.74
   3/12/98   17 General Mo  1230.89   1161.31   -$69.58

                              CASH    $232.29
                             TOTAL  $35453.13


Note: The Rule Maker Portfolio began with $20,000 on February 2, 1998, and it added $2,000 in August 1998 and February 1999. Beginning in July 1999, $500 in cash (which is soon invested in stocks) is added every month.

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