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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Exodus

*** New Bull... or Velvet Elvis?

*** 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 
this morning:

*** "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 
dropped 6%... 

*** 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 
political party. 

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 
deserve. [Hallelujah...!]

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. 

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

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