*** Great expectations...
*** Family of 7 wiped out...
*** Running out of buying power?
*** I had a lot of trouble getting on the Internet today.
New computer. New town. I don't know what it was, but it
cost me hours of time. So this is going to be very short.
*** "Half-point increase expected today," says the
headline in today's "Financial Times." U.S. industrial
production surged in April at its fastest rate in 19
months. This bit of news is thought to guarantee a 50 bps
increase by the Fed today.
*** Which is great news for those who are looking for
great news. Once this rate increase is out of the way,
goes the popular thinking, it will be clear sailing.
*** The Dow rose 198 points in greedy expectation of
today's news (and presumed rally). The Nasdaq was,
uncharacteristically, more restrained. It rose only 78
points.
*** "Buy the rumor, sell the news" is the old adage. If
it proves correct, the market will surprise the experts
by falling today, rather than rising.
*** Breadth was good yesterday -- 1,757 advanced while
1,140 declined. There were 105 new highs; 57 lows.
*** Gold fell 50 cents.
*** Supplies of natural gas are tighter now than they
have been in 30 years, and the squeeze has driven up the
spot price 35% in the last year. Consequently, Dan
Ferris's gas producer has seen its shares rise more than
33% since Jan. 1 -- with $1.11 in earnings per share.
"But you ain't seen nothing yet," Dan says. He expects
the demand for gas to keep rising by as much as 50% or
more this decade. But Dan reports gas is just one in a
rising tide of commodities. http://www.dailyreckoning.com
*** Warren Buffett's Berkshire Hathaway posted a 49%
increase in first-quarter earnings. It's now up to $531 a
share (earnings).
*** Meanwhile, The Cisco Kids are at it again. This time
they've purchased a Swedish "optical networking" firm for
$800 million in paper.
*** And it looks like Bill Gates' partner, Paul Allen,
took some of his money off the table just in time. Allen
sold $3.8 billion of his Microsoft holdings between
October 1999 and March 31, 2000. As of May 5 those same
shares would have been worth $2.8 billion, down 25%. But
he's not the only one. "Barron's" reports top dogs at
Dell, Gateway, Broadcom, E-Tek, Cisco and RealNetworks
sold millions of their own stock before March 31.
**** "Wealthy Americans can cut income, capital gains and
estate taxes to ZERO with a planned, long-term
expatriation strategy," says Marshal Langer in this
month's missive from the "Sovereign
Society." A rich
Bahamian citizen, for example, pays NO estate taxes; rich
Americans, anyone with an estate worth $3 million plus,
can pay 55%. Which is why both Sir John Templeton and his
right-hand man, Mark Mobius, have given up their U.S.
citizenship.
*** Gary North reported the work of Alan Newman in a
recent letter. Newman compared money supply, M2, to stock
market capitalization. He discovered that the situation
at the end of '99 was the most extreme ever. The ratio of
M2 compared to total market cap has never been lower.
Sell equities. Hold cash.
*** "Family of 7 wiped out by crazed DJ..." Wow, I love
these British tabloids. On the cover is the photo of a
gap-toothed "firebug" who set a house ablaze and killed
"four generations of a family." Another one tells us that
"Sophie [the countess of Wessex] To Sell Firm And Have
Baby."
+ + + + + +
advertisement
What do the government economic releases really say? Are
the numbers being cooked? How has the stock market
reacted historically to similar events as what is
happening today? Do you know how you can profit? In
what ways will the New Economy shape the future, and how
can you benefit?
FIND OUT BY READING http://www.MoneyNews.com
+ + + + + +
There are lots of ways to earn a living. You could go out
into the wilderness and hunt and fish...or grub up roots.
Take along a copy of Euell Gibbon's classic, "Stalking
the Wild Asparagus"; you may find it useful -- if not for
the information, at least you'll be able to use the pages
to light fires.
You could live in a cave. Or maybe make your own rude
habitation. Keep it simple; you won't be doing much
entertaining.
Or get a job. It's safer and easier than trying to eke
out a grudging living directly from Mother Nature. With
today's full employment, anyone who wants one can get a
job. Criminal record...low intelligence...anti-social
behavior...body odor...bad grammar? Don't worry about it.
Businesses are desperate. Even former Grateful Dead fans
are offered employment.
If you go the employment route, be sure to ask for stock
options as part of your contract. Most likely, your
employer won't give them to you, but posing the question
marks you as an up-and-comer...or at least someone who
has turned on a television set within the last five
years.
But today's letter is not about surviving -- it is about
prevailing. It is about getting rich quickly, not just
earning a living.
Saving and investing can make you rich. But...even with
the miracle of compound interest...it still takes a long
time. Compounding modest bits of money still takes a
lifetime to turn into anything even close to wealth.
So if you want to enjoy wealth anytime soon, you have
only two choices: you have to steal it...or you have to
persuade others to give it to you.
Stealing is probably the simplest way. It lends itself to
people with short attention spans.
But theft is not without risk. There are the temporal
risks -- you may be caught and sent to jail...you may be
disgraced...you may lose your license to practice
law...or you may even run into an ornery victim, like the
grandmother in Australia who took the law into her own
hands and shot the two rapists who attacked her grand-
daughter.
There is also the risk of going to hell, which I will
leave to your imagination.
No, the better way is not force, but persuasion. In this,
you are able to harness not only your own talents, but
those of other people, too. People want to
believe...almost desperately...that they too can get rich
quick. And they will be all too happy to deceive
themselves in the cause of easy money.
Investors want to think that they can get rich quick.
They are too sophisticated to be attracted by the bald
promise of "Easy Money -- Fast." But that is what the
Internet stocks -- and the Nasdaq, generally -- offer.
Investors in these stocks do not know what they are
buying. They have not studied the business plans or
income statements. They have not surveyed the industry
and analyzed its prospects. Often they don't even know
what the company does. What attracts investors is not the
business...but the siren song of Fast Cash.
A recent column in the "Financial Times" explains how
scams (and manias) work: "The simplest route has always
been to lie," the article elaborates, "...but the
likelihood of exposure and imprisonment deters most
people..."
A better technique is to offer an explanation that lets
people lie to themselves. In the typical pyramid scheme,
you take in money from people and pay it out as interest
or earnings or winnings. Those who get in first report
the results to their friends. Soon, everyone wants a
piece of the action.
Even bankers sometimes operate on the pyramid principle.
They take in depositors' money by promising higher rates
of interest. They pay the interest from the savings of
the new depositors. Unless something happens to save
them...say, a bailout from the federal government...the
banks are doomed. But the first depositors -- and the
bankers themselves -- still prosper, assuming they get
their own money out in time.
Most often, these schemes offer investors some plausible
explanation for how they can provide returns considerably
higher than the market rate. In the case of the Nasdaq,
the current explanation is one that we have been
discussing for many months -- one which has brought us so
much amusement -- the idea of the New Era.
In the New Era, productivity will be enhanced by the
nearly miraculous influence of computers and the
Internet. The whole planet is getting wired. Profits are
just over the horizon.
But except for some very suspicious pre-Y2K numbers last
fall, we have seen no outsized increases in productivity.
And business profits have been stagnant for the last
three years.
A Ponzi-type scheme caused an economic collapse and
nearly a revolution in Albania a couple of years ago.
There the explanation was similar to the Nasdaq
rationale: the age of communism was over in Albania; free
enterprise and an opening to Western markets would
provide the basis for extraordinary returns. Nearly
everyone in Albania seemed to have been swept up by the
promise of easy money. And when the pyramid collapsed,
riots broke out all over the country.
So willing are people to believe in "Get Rich Quick" that
you don't even need an explanation. The article in the
"FT" tells of one such pyramid in Britain: "a company
called Titan Business Systems entered Britain with an
entirely clean Ponzi scheme -- it did not pretend that
there was any source of revenue other than an ever-
increasing number of new participants -- it showed that
no deception is needed to induce gullible people to take
part. The very openness of the scam caused the Department
of Trade and Industry difficulty in shutting it down."
Even when it is obvious that the whole thing is only a
"Get-Rich-Quick" scheme, people are still happy to
participate. They know that many people will lose money
but believe that they will be among the winners. People
are naturally optimistic, especially about themselves.
"When people are asked to compare themselves to the norm
-- as drivers, lovers or executives of large corporations
-- less than half the population rate themselves below
average," says the "FT." "There is also another
psychological quirk at work, called `prospect theory.' We
focus on improbable outcomes to a degree that is not
justified by their low probability."
People buy lottery tickets -- fully aware of the remote
odds against winning. A rational calculation would show
that the investment in the lottery ticket is a bad one.
But neither lotteries, pyramid schemes nor the financial
markets work on logic.
"There is one enduring and unvarying feature of all these
schemes. It is better to run them than to participate,"
concludes the "FT" piece. Sell Internet stocks; don't buy
them.
Bill Bonner, inexplicably cut off from the World Wide
Web.
Rock singer Alanis Morissette is selling $1 million worth
of stock in MP3.com. She joins Paul Allen and a long list
of others who are quietly trading stock for cash. Why are
insiders suddenly selling? And what do they know about
the Real Internet Economy that you don't? Find out by
visiting www.dailyreckoning.com/getwealthy4
+ + + + + +
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Last modified: April 02, 2001
Published By Tulips and Bears
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