*** Big Bottom Spotted At the End of the Tech Tunnel -
Nasdaq up 116 points...
*** Could the correction have been so easy...so
painless...? Could nearly $9 trillion in new debt and
credit have done so little lasting damage? Maybe not...
"I started with only $10,000, and it has gone on to make as
much as $5 million in a single year. This gave me a taste
for the wealth that venture capital investing could
generate."
- Jim Davidson, Strategic Opportunities
That same $10,000 invested at 9% would only be worth
$114,000. But because the company started with that "seed
money" has prospered - it's now worth many millions. Last
year's profit alone was more than 50 times $114,000. You
simply can't make that kind of money by pinching pennies.
And that's what Strategic Opportunities is all about;
catapulting your wealth with strategically placed
investments in high growth companies - at the venture
capital level. For more on...
*** Well, it's almost just like old times on Wall Street.
Companies report that their sales are falling and profits
are squeezed - and investors hardly care.
*** So it was yesterday when Yahoo! gave investors little
to cheer about...and Hewlett-Packard also admitted that
things were not going as well as expected. The two
companies were taken down... Yahoo! got whacked for a 15%
loss. Otherwise the good times continued to roll.
*** The Nasdaq gained 116 points. It is up 7% for the year.
The Dow ended the day up 5, fighting the suction of Old
Economy moneymakers such as Philip Morris, which was down
$2.50.
*** The Industry Standard believes it has spotted the
"Light at the end of the tech tunnel," as investors appear
to be rotating funds from the Old Economy back to the new
one. "We are trying to find a bottom," said one analyst
quoted by Reuters. Cisco rose almost $3 to close above $39.
TheStreet's Internet index bubbled up nearly 5%. And many,
many other Big Tech...and Internet companies registered
strong gains.
*** Sentiment seems to have turned more bullish - at least
for now. Investor's Intelligence reports that the
percentage of bulls is at its highest level since early
November. Ed Hyman at ISI Group also reports rising
bearishness.
*** Still, perhaps in the middle of the night, investors
must wonder: Could it have been as easy as that, to correct
a bull market nearly two decades long...one that took the
Dow from under 1,000 to more than 11,000? The boom created
a whole new class of 'dude billionaires' and changed the
financial habits of an entire generation of Americans...
adding nearly $9 trillion to the nations debt and credit
within the last 5 years alone; could its excesses be so
painlessly forgotten? Maybe not, dear reader, maybe not.
*** "One might have expected folks to learn something from
the damage that's already been done," says Bill
Fleckenstein, but "these really aren't markets - it's just
a casino." Still, "...for those folks who are overextended,
you are getting a once-in-a-lifetime opportunity, for
however long this rally lasts, to get your financial house
in order. Regardless of whatever prestidigitation happens
in the short run, we are headed for an economic and
financial market calamity of epic proportions. All we have
succeeded in doing thus far is delaying the day of
reckoning, thereby ensuring that it will be worse than it
had been." (see: Makes You Miss The Old Days...
http://www.dailyreckoning.com/body_headline.cfm?id=864)
*** This is whisper season...when analysts and brokers
speculate about what earnings companies will report. But
the whisperers have recently changed their tune. Forbes
reports that "whisper estimates flowered in the bull
market. Usually higher than the official Wall Street
consensus, they justified pushing stock prices ever higher.
Now that's begun to work in reverse, moving into uncharted
territory." Psst... It is rumored that eBay won't report 7
cents a share of earnings on Monday, as forecast, but only
5 cents. And on Tuesday, Intel, it is whispered, will not
announce earnings of 38 cents a share, but only 36 cents.
*** Another rumor has it that "work/life employee retention
provider" BeyondWork.com laid off 50% of its workforce
Wednesday - about 35 employees.
*** And here's something interesting: Forbes also reports
that the Internet company with a name one dare not speak in
polite society, F*%#edCompany.com, has decided to auction
itself off - on ebay. Bids have reached as high as $9.3
million - proving either that Internet investors are half
wits, or they still have a sense of humor.
*** But while a new tech boomlet seems to be underway in
the U.S., Japan's boom of the late '80s is still deflating.
Prices of real estate in Japan's 4 major cities fell last
year - for the 10th year in a row.
*** Yesterday, the yen slipped to a new 18-month low
against the dollar. And the Nikkei stock index is barely
above its post-bubble low of October '98. At 13,000,
Japanese stocks have lost 67% of their value over the past
decade. But that's the dumb Japanese for you. They must not
have had any 'intellectual capital'. That sort of thing
could never happen here, could it? Nah, no way.
*** Trend-setter Titan Motorcycle, maker of custom-made
machines, went 'chapter' yesterday...seeking the protection
from its creditors offered by the 11th chapter of the U.S.
bankruptcy code. Shares traded at 3.5 cents on Wednesday.
*** Gold dropped 80 cents. The mining index fell 2%. But
the pure gold mining index, HUI, rose 2%.
*** Oil rose $1.84 a barrel as OPEC continues to promise
output cuts.
*** "America has seriously depleted both its capital stock
and its manufacturing capacity," writes Dan Denning,
recently assuming the helm of Strategic Investment, "We no
longer make the things that create wealth, produce new jobs
and income, and lead to greater productivity. In short,
America no longer manufactures the way it used to.
Hard industries like textiles and electronics have been
replaced by software and services. And the net effect has
been bad for the economy." (see: In Praise of Hard Assets
http://www.dailyreckoning.com/body_headline.cfm?id=861)
*** And here's a remarkable quote from a remarkable source:
"Human nature never changes, and that fact is reflected in
the mirror of all economic activity, the stock market.
All lasting change is incremented, based on unfolding
traditions and developing institutions. Revolutionary
upheavals may change how the world looks but seldom changes
the way the world works. Lasting historical change comes
not through tidal waves but through the irresistible
creeping tide."
- Richard Nixon
*** My son Will goes back to college today. I'll miss him -
especially since the container of furniture we shipped from
the U.S. finally arrived. I was counting on Will to help me
move it. A strong back, as they say, is a terrible thing to
waste.
*** Ending this portion of The Daily Reckoning on a high
note... last year, almost to the day, I noted that
drkoop.com was "in trouble" and suggested you avoid it like
you would a Baltimore emergency room late on a Friday
night. On January 13th, 2000 it was selling for $11.56...
today you can back up the hearse and buy as much dr.koop as
you want for just 44 cents a share.
"It Feels Good To Be Right!"
- Craig Smith, CEO Swiss America
A quiet bull market in U.S gold coins launched in March of
'99, and my clients were the first to get in on it. Imagine
the delight - watching your portfolio of U.S. Gold
Commemorative coins appreciate as much as 90% in 90 weeks!
But, this is only the beginning! In 2001, I expect this
market niche to skyrocket (regardless of what gold bullion
does). Why?
Read my confidential U.S. Gold Commemorative Research
Report to find out. Click here ... or call 1-800-BUY-COIN
(1-800-289-2646)
I once knew a man who, for some un-diagnosed reason, was
able to remember every hour of every day of his life.
"Do you remember when we went to Georgetown..." I asked him
in the summer of 1969.
"Oh yes," he replied after a moment of reflection, "it was
on July 13, a Thursday...we left at 9:28PM"
His memory was comprehensive; his knowledge encyclopedic.
And yet, as near as I could tell, this idiot savant talent
had no known market value - either to him or others. All
his life, he remained a man of great potential...a man of
the future.
That was the state of things in the early '70s when a group
of free-market conservatives in the Maryland suburbs of
Washington needed a candidate to run for Congress - on
short notice. The man short-listed for the job had been
caught in some peccadillo the only resolution of which
seemed to be early retirement - leaving the field open to
anyone who could not find honest work elsewhere.
Desperate for a last-minute candidate, the local hacks
noticed that my acquaintance, John, was without gainful
employment. They asked him to run.
I have devoted several of these letters to the concept of
intellectual capital, for which I offer no apology.
Instead, I will give you a promise: this will be my last.
The idea of intellectual capital - when applied to justify
outrageous stock prices - is a bezzle, dear reader, a
swindle, not unlike the many other 'new metrics' which were
used to pick investors' pockets.
Not that cleverness, knowledge and wisdom cannot be used to
make money. A man with a good head on his shoulders,
especially one that is packed with useful information and
experience, can get up to all sorts of mischief - including
many things that are profitable.
But he also might do nothing at all. Or worse, write
pretentious drivel such as:
"Information, after all, represents the treasure of the
modern age, as valuable as all the doubloons and bangles of
the previous eras."
Steven Levy, Crypto
Information can come in handy. But its usefulness depends
entirely upon the context. You might have gotten an
audience with Julius Caesar just after he crossed the
Rubicon in 49 BC and revealed to him the secret of making
an atomic bomb. Yet, he would much rather that you could
tell him the disposition of the troops facing him.
In the abstract, knowledge of the atomic bomb formula must
have far more intellectual capital behind it. But, out of
context, it is useless.
Worse, information and knowledge are like tourists on a
crowded sidewalk. They get in your way - distracting you
with their inappropriate get-ups and retarding your
progress with their sluggish pace. They are only valuable
to merchants who entice them into a buying some gee-gaws at
absurd prices.
And yet, it is widely accepted that information is roughly
the same as gold bars ...and that knowledge is not much
different from real capital.
"In the past," wrote economist Lester Thurow, a man who can
be counted on to come to the wrong conclusion on just about
every issue, "when capitalists talked about their wealth
they were talking about ownership of plant and equipment
and natural resources. In the future when capitalists talk
about their wealth, they will be talking about their
control of knowledge."
At least when you put a stack of gold coins on a table, you
can fairly easily judge its authenticity and value. But
knowledge? It might just as easily be a pile of slugs as
kruggerands. Knowledge, unlike metal, is difficult to
assay.
You can dig into a plate of choucroute jambon or roti de
porc at any almost any restaurant in Paris. You can judge
the knowledge capital of the chef for yourself. Or, you can
hire a painter, or plumber, buy a book or a software
program - in every case, the intellectual capital behind
the scenes is evident in the thing itself.
But 'intellectual capital', in the abstract, like
'knowledge', is simply a cloak for rascality. Most of it is
as empty and worthless as a dot.com's coffer.
But back to my story...
At first, it looked as though he might have a chance. John
carried himself well. He seemed to be able to offer the
proper expressions of concern at the appropriate moments.
And his formidable archives of personal experience and book
learning seemed to provide an infinite library of anecdote
and information upon which he could draw.
"What about rising oil prices," the press asked him.
"Oh yes," he replied, "as the Wall Street Journal said on
page 23 of the June 13 edition, down at the bottom of the
page..." and then would he would quote the section as
though he were reading it.
But gradually, it became apparent that this walking
database had an impediment that even a vast archive of
quotidian recollections and abstract knowledge could not
overcome - one that made him entirely unsuitable to a life
in politics: His internal word processor had no 'edit'
function. He answered questions honestly and directly.
A free-market man, before it became fashionable, he was at
the height of popularity when asked, on television, if his
views were not a little 'extreme'.
"Yes, they are," he replied, making a gesture with his
right hand for emphasis, and then awakening to the obvious
conclusion, "I am an extremist!" he announced.
From there on, the campaign was doomed. Even prodigious
acts of gratuitous knowledge could not save his candidacy.
In the end, John got few votes...and returned to a life of
intellectual eccentricity.
Your correspondent...careful not to let too much knowledge
get in his way...
Bill Bonner
PS. "For a while, at least, anyone holding stock in
Yahoo!..." writes Christopher Byron, "might have thought
his or her money to be safe. After all, Yahoo! was and is
one of the largest and best-known Internet companies, and
it was - and is - one of the most profitable, with $61
million of net income in 1999 and $169 million in earnings
for the first three quarters of this year." Analysts
expected Yahoo! to earn $268 million for the full year.
If any company had intellectual capital that did not show
up on its balance sheet - it was Yahoo! The stock traded at
$250 a year ago. And it has $1.7 billion in cash even
today.
But yesterday was not a good one for the world's leading
Internet pure play. The company announced that growth has
declined from a spectacular 88% last year to an expected
rate of 18% now. Investors, for a moment, seemed to forget
about the intellectual capital, the knowledge, and all the
information in Yahoo!'s data banks. The stock fell as much
as 21% following the announcement...and now trades at a
price nearly 90% lower than last January.
Even at $25, few value investors would see much value in
Yahoo!. Multiplying the share price by the number of shares
outstanding gives us a market price for the whole company
of $14.4 billion - or 66 times earnings. Why would you pay
66 times earnings for a company growing at 18 percent per
year?
Well, maybe it has a lot of intellectual capital.
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
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