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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter




*** Stocks up...Internets up...breadth up...junk bonds 
up...the dollar applications supply 

*** "a major refinancing boom..." Is Greenspan creating a 
new credit bubble? How wrong could I be? Well, it's too 
early to tell. 

*** Household net worths plummet...Americans are less 
optimistic... "gas furnaces...go off" ...Maria's so-called 
career...and more!

*** What's this? Cisco's CEO took the microphone yesterday 
and admitted that the last quarter was "more challenging" 
than expected. He also quoted a customer who had described 
the sudden slowdown in sales as "like they turned off a 
light switch."

*** But that didn't stop tech investors - who labor in 
constant darkness anyway. The Internets were once again the 
top performers in yesterday's market. The INX rose 6%.'s index shot up 9%. Even rose in 
price as investors rushed back into the most speculative 
parts of the market.

*** "Part of what appeared to spark the rally late in the 
day was yet another rumor that the Fed was going to cut," 
says William Fleckenstien. "It seems pretty silly to 
believe on a day when the market is screaming, and oil is 
at $30, that the Fed would come in again, but it just goes 
to show that bubbleonians think that Easy Al, The Put-
Writers' Pal, is going to jump in to save the day any time 
they get in trouble." (see: Might As Well Face It...

*** You may recall my quotations of Michael Murphy during 
the last year. As techs fell, Murphy urged his readers to 
buy the 'must own' tech stocks on dips, thus providing a 
foil for my bearish comments. How well did Murphy's 
subscribers do? Well, Forbes and my old friend Mark Hulbert 
report that Michael Murphy's Technology Investing letter 
lost 32% last year.

*** But now...just when the tech show seemed over...the 
curtain opens and they're back! Another act? A grand 
finale? Or are they just going to hold hands, bow, get a 
round of applause and retreat backstage? We will see.

*** But let's look at what else is going on in the Greatest 
Show on Earth: The main averages are holding up - the Dow 
rose 31 points yesterday; the Nasdaq rose 82. Just like old 

*** And the market's breadth was, once again, surprisingly 
strong. There were 1862 stocks advancing while only 1058 
were going the other way on the NYSE. 169 hit new highs and 
only 20 hit new lows. 

*** So far this week, the Dow is down 1%. But the Russell 
2000 (a small cap index) is up 3%. 

*** The dollar seems to have stopped falling. Yesterday, 
the euro dropped back a little - to 94 cents. The dollar 
has actually gained ground - though modestly - this 
week...up about 1% against the European currency.

*** And the junk bond market seems to have come back to 
life, too. $7 billion of new debt came into the market 

*** And what's this? Contrary to what I told you to expect, 
people are still borrowing money...and spending it. We'll 
know more tomorrow, but it looks as though sales are not as 
bad as you would expect. And mortgage applications - for 
both refinancing and new mortgages - are increasing. 

*** "We are in the midst of a major refinancing boom," 
reports the Prudent Bear's mid-week analysis. "The 
refinancing index is 257% above year ago levels." (see:

*** Could it be that I am wrong? Stock prices are holding 
up, speculation is increasing, there seems to be a new boom 
in debt...could Greenspan's effort to pump up the credit 
bubble succeed? The answer to both questions, dear reader, 
is, well, yes. I could be wrong. And there could be another 
credit bubble inflating now. The chief problem with market 
soothsayers is that they are unreliable. Just when you come 
to think they are always right...or always wrong...they 
surprise you. 

*** The St. Louis Fed reports that MZM - cash - is still 
increasing at more than twice the rate of the GDP. 
Liquidity, like water on a flat roof, has to leak 
somewhere. But where? How? No sign of gold going up - in 
fact, it fell nearly $3 yesterday. 

*** But what's this? A chart of mortgage applications shows 
a big spike in the last 2 weeks of December - before the 
rate cut. Why would that be? Why would people refinance 
before rates went down?

*** Maybe it is 'adverse selection.' Maybe they had to. 
Goldman Sachs Economics estimated that household net worth 
fell $875 billion in the last quarter. The Goldman report 
noted that the last 3 quarters saw the "sharpest reduction 
in the ratio of net worth to disposable income on record 
(since 1952)..." Hmmm...there are about 100 million 
families in America. Each one lost an average of $8,750 in 
the 4th quarter alone. Goldman economists expect tomorrow's 
sales figures for the 4th quarter of 2000 will show 
"significant decline."

*** An Associated Press poll found that only a third of 
respondents thought their finances would be in better shape 
a year from now - down from 50% who thought so last spring. 
Less than a half thought the stock market would be a good 
place to put money, with women more risk-averse than men. 
"No way," said one woman when asked if she would put an 
extra $1,000 into stocks, "things are too shaky."

*** "If we don't cut production," said OPEC's secretary 
general Wednesday, "there will be an uncontrollable plunge 
in prices." Oil rose $2. 

*** "Jeremy Siegel, professor at the Wharton School of 
Business and author of "Stocks for the Long Run," reports 
the Oxford Club Wire, "wrote a column for the Wall Street 
Journal on which we commented last March. It was titled 
'Big Cap Tech Stocks are a Sucker Bet.' He specifically 
pointed out companies like JDS Uniphase, Yahoo, Qualcomm 
and their ilk that were outrageously overpriced. Why? 
Because no big-cap stock company in the entire history of 
the stock market has been able to sustain a P/E ratio of 
over 100. Not one big-cap stock - ever. Plenty have reached 
that plateau, from Polaroid, to Xerox, to IBM. Every one of 
them crashed and burned before beginning a sustained rise 

*** Excerpt from a letter sent to CA Gov. Gray Davis by 
Pacific Gas & Electric: "Without the gas supplies currently 
under contract, gas available to serve high-priority 
customers will be depleted within several weeks, and 
possibly sooner if temperatures fall below normal. At that 
point, home gas furnaces, stoves and water heaters would go 

*** Addison and I retired to Le Paradis bar after work 
yesterday - joined by two of my children, Maria and Will. 
Maria, who turns 15 on Monday, brought us up to date on her 

"Mommy and I went to the Madison Agency, on Avenue know, it's the agency that represents Laetitia 
Casta...very posh...well, I was supposed to get some photos 
taken to see if I would be a good model, but we walked in 
and the woman said, "There's no need for a photo shoot...I 
can just look at your face. I love your face! It's 

After the gushing stopped the woman told Maria that she 
might get a couple of gigs...but that she should not 
consider working seriously until she was at least 16.

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There is a spectre haunting the world's markets. It is the 
ghost of the Big Techs...the Internets...and the 
speculative excesses of the last years of the last 

"The market may be right about a lot of these companies," 
said a bullish friend recently, "but certainly not all of 
them. Many will turn out to be good companies. The market 
can destroy their financial capital...but not their 
intellectual capital."

This recalled a high school teacher who would point to his 
wrinkled brow and say, "They can take away what you have in 
your bank account...but never what you have up here." This 
little gem of wisdom lost a little of it luster as we 
students wondered if he had much in either location.

But the notion of indestructible capital - whether it is in 
the form of gold bars...or brain attractive 
enough to be hazardous, like an unexploded hand grenade in 
a playground. Leaving the yellow metal out of this 
discussion in order to maintain a dignified tone, we can't 
help but wonder what became of the intellectual capital 
behind, say, PSInet. 

The stock, $50 a year ago, is now a penny share. You can 
buy all you want for just 78 cents a share. Did the 
intellectual capital walk off the job? Did it disappear? Is 
it hiding somewhere?

'PSInet' scrawled in flowing blue neon on the side of the 
new Ravens' stadium, greets visitors to Baltimore each time 
they drive in from the airport. Last I heard, the Ravens 
still had a chance of bringing the super-bowl to Baltimore. 
But it won't be the same super-bowl it was last year, when 
companies expended their financial capital on ads at the 
rate of $2.2 million for 30 seconds of ad time.

That is what happens to dead presidents in the hands of 
what Congressman Paul Kanjorski called "high flying 
dude billionaires." It is spent. Wasted. Gone forever. If 
you had gone to the bathroom during the ads - you would 
have missed millions of dollar worth of it. Don't worry 
about it disturbing your sleep. Except for chemical 
traces...such as the blue neon on the Ravens' stadium...not 
even a ghost of it remains.

But what about the intellectual capital? Is there no way to 
destroy it? Buried by the market, is it destined to wander 
among mortals, giving them a vampire's kiss and spooking 
them to acts of wanton absurdity - like buying a Picasso 
painting for $55 million, as someone did recently? The blue 
period painting was once owned by Gertrude Stein, whose 
famous comment, 'there's no there there,' might apply to 
the idea of intellectual capital better than to bourgeois 

Could it be, dear reader, that 'intellectual capital' is 
really nothing more than 'intellectuals' capital' - another 
big, dumb multi-syllabic idea used as a tool by hustlers to 
construct a world that is both preposterous and dangerous?

Feeling the wind of a major credit inflation in their hair, 
investors were susceptible to what John Kenneth Galbraith 
called, "the bezzle." When times are good, he said, people 
are "relaxed, trusting, and money is plentiful... Under these 
circumstances, the rate of embezzlement grows, the rate of 
discovery falls off, and the bezzle increases rapidly." 

'Intellectual capital' is a kind of bezzle - used by stock 
promoters, analysts, and management to separate capitalists 
from their money.

Grant's Interest Rate Observer Robert Tracey, who recently 
gazed upon Oracle's income statement with the romantic eye 
of an IRS auditor, discovered a bezzle...or at least a new 
twist, so to speak, in the history of capitalism. Lenin had 
predicted that capitalists would sell the rope with which 
they were to be hanged. But, capitalists who gave their 
money to Larry Ellison's Oracle went one step further - they 
bought the rope themselves!

Like so many other companies rich in intellectual capital, 
Oracle is generous with employee stock options. Though a 
form of employee compensation - and often the principle 
form - the cost of these options do not appear on the 
income statement as a business expense. Instead, they show 
up as a capital transaction. In effect, the firm's cash is 
used to reward those who provide the intellectual capital 
at the expense of those who provide capital in its more 
traditional form.

"In the three latest fiscal years (ended May)" says the 
Grant's' report, "a total of $3.3 billion in real cash left 
the company for the purpose of managing the dilution from 
employee options, stock warrants and the stock-repurchase 
plan. This expense never registered on the income 

"$2.7 billion was laid out," continues Tracy " suppress 
the dilutive effects of the employee compensations plans. 
...Last fiscal year, it amounted to 43.2% of net income. 
In the fiscal quarter ended August, expenditures to manage 
share dilution probably represented more than 200% of net 

But intellectual capital can have a sweet side, too - like 
a kiss - utterly useless in the abstract...but powerful 
when put to good service. 

"One of the shortcomings of GAAP accounting," observed Tracy 
"is its inability to reflect the true value of intangible 
assets...[especially an asset as gaseous as intellectual 
capital]... Nevertheless, one would expect that the value 
of these 'intangible' assets would some day be transformed 
into a more tangible asset, like cash."

Of course, when this happens - capitalists appreciate it. 
Companies with high earnings compared to book value have no 
trouble gaining respect. They have no reason to call 
attention to the intellectual capital hidden in the balance 
sheet - it is obvious on the income statement. They have 
felt the warm, moist smooch of profits.

Hoping you too, dear reader, have enjoyed the kiss of 
profits, or at least a bit of the other kind...

Bill Bonner

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About The Daily Reckoning:

Daily Reckoning author Bill Bonner

Bill Bonner is, in spite of himself, a natural born contrarian. Early each morning, Bill writes The Daily Reckoning—his take on the financial markets and what’s going on in the world—and sends it off by e-mail before most Americans’ alarm clocks have buzzed. Many readers say it's the first thing they want to read when they get up—not only because it's informative and thought provoking, but also it's inspiring, in its own quirky and provocative way.

Of course, there's much more to Bill than his daily market commentary. He's also the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies. Bill's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest . Since then, the company has grown to include dozens of newsletters focusing on health, travel, and finance. Bill has vigorously expanded from Agora's home base in Baltimore, Maryland since the early ’90s—opening offices in Florida, London, Paris, Ireland, and Germany.

Agora's publication subsidiaries include Pickering & Chatto, a prestigious academic press in London and Les Belles Lettres in Paris, best known as a publisher of classical literature in bilingual editions.


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Last modified: April 01, 2001

Published By Tulips and Bears LLC