*** Consumer spending way up... yet pink slips abound...
*** California Utilities "too big to fail"... and a
birthday for the blues...
*** Addison here... Bill's on his way to Miami, then
*** I saw him briefly this morning and asked if there was
anything urgent I should pass along to you. "Umm" was his
reply. But then, on the way out the door, bags in hand, he
stopped: "There is one thing," he said. "Colombia is now
producing 5 times as many cocoa leaves as before the War on
*** OK, then... the show goes on. A veneer of delicious
economic news greets us as we delve into the popular press
*** "Sales at major chain stores are likely to rise almost
4 percent this month compared with January 2000," according
to weekly retail numbers published by the Bank of Tokyo-
Mitsubishi and reported by the New York Times. That number
far outpaces December's disheartening figures...
*** "Investors Eye New Bull Market," announces a USA Today
headline. "Fearing they'll miss a new bull run, investors
are piling back into the market," the article tells us.
"Scores of new stocks are sprinting to new highs. Last
week, 385 new 52-week highs on the NYSE and only 32 new
lows - the fewest since April 1996."
*** Indeed, Americans are optimistic about the economy,
even if they are not as fired up as they were in 1999 and
2000. "In mid-January," says the NY Times, "67 percent of
people surveyed by the Gallup Poll described economic
conditions as excellent or good, down from 74 percent in
August, but still higher than at any point between 1992 and
*** And Nasdaq investors couldn't be more giddy. While the
market moved only slightly higher yesterday - up 18 to
2,859 - the grand casino has ridden a new wave of
speculation up 15% for the year. Up 8% since the Jan. 3
surprise Fed move.
*** But, like the buyer of a fine painting at a
disreputable auction house who upon receipt of goods peels
back a sliver of the canvas only to reveal a Velvet Elvis
hidden beneath... so will we discover these rosy headlines
appear to be hiding something:
...Lucent, reeling from a $1 billion fourth quarter
loss, announced it is cutting as many as 16,000
jobs... and AOL Time Warner will shed 2,000 of its
...Textron, an Old Economy purveyor of aircraft,
automotive and industrial products - including Cessna
airplanes, Bell helicopters and golf carts - plans to
cut 3,600 jobs...
...Norfolk Southern, the second largest railroad in
the East, will give 2,000 employees the pink slip...
...JCPenney is closing 50 stores... and Loews
Entertainment plans to shut the lights on 675 movie
screens across the United States and Canada, a move
encompassing nearly a quarter of its total screens
*** "To make matters worse," writes Prudent Bear analyst
Lance Lewis, "you've got the NY Fed chairman yappin' about
how central banks should be more concerned with growth and
less concerned with such silly things as inflation."
*** Easy Al will appear before Congress today and give his
first public speech since the Fed surprised the nation and
cut rates Jan. 3. To the joy of CEOs, brokers, New Era
pundits and a host of government quants, Greenspan is
widely expected to announce the Fed's bias towards further
goosing of the markets when the FOMC meets next week.
*** "Though his most recent speech on Dec. 5 in New York
sounded rather minor in key compared to his customary
hype," reports Dr. Kurt Richebacher, "it still managed to
implement another exuberant jump in share prices, lifting
them by about $600 billion in a single day. The Nasdaq
soared by over 10%, its biggest daily gain ever."
*** In 1998, three small rate cuts, initiated by the LTCM
crisis, ushered in the greatest asset boom of all time.
*** Dr. Richebacher: "The American borrowing and lending
binge collapsed into completely uncontrolled credit
inflation in the course of 1998. This was well after the
outbreak of the Asian crisis, which started in mid-1997.
When the Fed cut its interest rates in late 1998 in the
wake of the Russian/LTCM crisis, this credit explosion was
already well on its way. It was to last until late 1999.
The wildest excesses in the stock market, actually, were to
follow in late 1999 and early 2000, when the Fed flooded
the banking system anew with reserves, this time supposedly
as a precautionary measure against the Millennium Bug."
*** "To unleash such monstrous credit excesses," Dr.
Richebacher continues, "definitely needs more than just a
reckless central bank. Above all it needs two conditions on
the part of potential borrowers and lenders: first, wildly
inflated expectations of future prosperity; and second, a
complete disregard of risk. Lots of people have been at
work generating this indispensable hype by blazoning all
kinds of miracles happening to the U.S. economy. In this
respect, one man has outdone all others - Mr. Greenspan."
(see: Desperado - Not Maestro)
*** The Dow appears to prefer sitting out what one JP
Morgan analyst called "sucker's rally." The Big Board
barely moved yesterday... dropping just two points to
10,646. The S&P 500 climbed just under four points to
*** Gold shed another $2.10 of its recent gains... the HUI
*** The euro slid back a couple of pennies to $.92... the
dollar index rose to 111, up 1%... and oil fell $.52.
*** Exxon Mobil, Chevron, Texaco and USX Marathon - four of
the five biggest oil companies in the United States - all
rode last quarter's highs in oil and natural gas to record
profits. Exxon Mobil saw profits rise 90% to just over $5
*** Compaq Computer slimly surpassed "diminished
expectations" for the fourth quarter and fiscal year 2000.
Compaq posted $11.5 billion in sales, up 10%, but as with
Intel and a host of other New Economy ringleaders, Compaq
also took a heavy hit on investments... $1.8 billion, to be
exact, in losses from stock held in Internet incubator
*** California's utility companies have been given a two-
week stay of execution... According to Reuters, "The new
Bush Administration extended Clinton Administration orders
requiring out-of-state power producers to sell surplus
electricity to California despite the near-bankruptcy of
the state's two biggest utilities." The extension expires
on Feb. 7, 2001.
*** "This whole scenario is reminiscent of the 1983 banking
crisis," says John Myers of Outstanding Investments. "At
the time I recommended that my subscribers buy put options
on big banks including Chase Manhattan and Citibank.
Everything was set - options were in place to pay a 10 to
one return. There was only one problem - the U.S.
government stepped in and bailed out the banks. The 'too
big to fail' slogan on U.S. banks was coined and our
options expired worthless.
"Twenty years later, California's major utilities have been
deemed 'too big to fail.' The list includes Pacific Gas &
Electric, Southern California Edison and San Diego Gas &
Electric. But just as bailing out the big banks didn't
settle the Latin loan problem, rescuing big utilities won't
address the energy crisis in California."
(see: The Midas Reprise)
*** On this day in 1938, blues great Etta James filled her
lungs with air for the very first time.
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EXODUS [A Reading From The Daily Reckoning, Jan. 25, 2000 -
one year ago today.]
The Bible is full of things for which the rational mind
finds no ready explanation. But so is the platform of any
And so is the stock market generally, and the market in
Internet stocks particularly.
Christianity does not rest on a literal, simpleminded
reading of Genesis. God made man from the dust of the
earth, we are told. The ancients, who wrote Genesis, had no
reason to lie about it. Darwin came along and described
what the process might have looked like if you were able to
rerun the tape, fast-forward. You would see the little
molecules of 'dust' coming together, taking shape, trying
out different forms, growing, specializing (just as human
progress depends on an ever-increasing division of labor...
so does all of nature), dividing, recombining, mutating,
flourishing, dying out... whew!
Nothing Darwin said contradicts the Biblical account. His
hypothesis, to the extent it proves correct, merely fills
in the gaps.
But what if the Red Sea did not part? What if the reporter
on the scene decided to make up that part of the story to
make it more exciting? What if he exaggerated a little?
What difference would it make? The story could be disproved
without undermining Christianity's stock.
The Book of the World Wide Web includes many hyperbolic
stories too. But unlike the early Christian martyrs, who
were made to suffer for the amusement of Roman mobs, the
early "true believers" in the Web enjoyed the mob's
Many nerdy Internet pioneers are now very rich. [Well, not
so much anymore... Addison.] Millions of new disciples have
gathered round their banners and bid up their stock.
Our job is to find the trend "whose premise is false." In
this, we are hampered by the fact that we cannot know the
future. We can never know, for example, when something will
come along that is really new.
Stone Age Pacific islanders got their first glimpse of the
outside world during WWII when cargo planes dumped supplies
in the jungle. The primitives could only explain this
phenomenon in terms they understood - the cargo planes must
have been sent by some deity... or were divine themselves.
Long after the war was over, the "Cargo Cults" continued to
worship the supply planes.
Likewise, when the first water clocks replaced sundials, it
was presumed that the water clocks were wrong - because the
sundials were the accepted standard of measure.
Since we cannot know which new thing will become the new
standard, we merely look for aberrations and assume they
will regress to the mean. Usually, they do.
We don't know what the ultimate impact of the Internet will
be. But we do know that the prices paid for Internet stocks
are irrational and foolish, by any proven, time-tested
measure. Unless there is something going on that is so new
and so revolutionary that we cannot possibly understand
it... these prices will revert to the mean. [Hmmn... if
"the mean" is anywhere between "down 90%-95%" and "out of
business," I'd say we got this one right... Addison.]
Faith is a necessary ingredient for Christianity, but it is
not by faith alone that ye enter investment heaven.
Yesterday's market suggested that investors might be
thinking about an exodus. [Praise the Lo'... Ad.] True
believers will still hope for a Moses who will deliver them
from the bondage of the non-wired world. [Amen, brother
Bill...] They may pray for a miracle that will give them
30% per year capital growth. [Ooh, yeah...] They may dream
of a land across the Jordan, flowing with milk and honey -
a land where even current Internet prices may be
reasonable. [Tell it like it is...]
But money, alas, is agnostic. Fickle. Cynical. Contrarian.
It does not deliver up what people want -- but what they
When the Christians faced the lions, Roman mobs would bet
on how they would die. With faith enough, perhaps you could
have bet on some Daniel and been rewarded. But the smart
money was on the lions.
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Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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