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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Blowing Bubbles

*** Greenspan to Wall Street: Drop Dead

*** Heavy casualties on Dow and Nasdaq... "capacity 
utilization" drops below 80% - a historic sign of 

*** Rate cut in Japan...AMZN sinks into single digits...the 
'most dangerous tech stock'...and more!

*** Spirits sank as the news spread up and down Wall 
Street: Field Marshal Alan Greenspan spoke to the civilian 
authorities in Washington yesterday and seemed to indicate 
that the situation was not yet grave enough to warrant 
sending a relief column.

*** "Greenspan to Wall Street: Drop Dead" as one journalist 
put it. Was Wayne Angell wrong? Probably, but there are 
still 2 days left in the week.

*** There were a lot of casualties yesterday, as the Dow 
fell 141 points. The Nasdaq dropped 55, bringing it to a 
13% loss for the year.

*** Investors continue to listen for the sound of artillery 
and advancing tanks...but all they can hear is the 
continual sniper fire from Mr. Bear...and an explosion from 
time to time as yet another Big Tech blows up.

*** "The market is looking for positives and there just 
haven't been any," said Eugene Profit of Profit Funds.

*** Instead, in addition to rate cut that didn't happen, 
Wall Street got more bad news yesterday - growth didn't 
happen in the 4th quarter either. GDP growth was revised to 
just 1.1%, the slowest rates of growth in more than 5 

*** Plus, Intel's CEO, Craig Barrett, gave voice to what 
many are beginning to suspect: there is no reason to think 
that business might recover in the 2nd half. Intel's stock 
was hit for a 1.5% loss.

*** The worst damage yesterday was among the Internets. 
Poor Jeff Bezos! His stock fell into the single digits 
before rebounding to close a little over $10. 

*** Cisco fell below $24...amid the typical whining and 
hand-wringing of a bear market.

*** But the most dangerous Big Tech, says John Crudele in 
his NY Post column, is IBM. "Dell's profit forecasts are 
down 11.5% for the month, and 31.5% over 3 months. Hewlett 
Packard's down 7.5% for the month and 21.1% over 3 months. 
And Gateway, down 3% for the month and 60% over 3 months." 
Gateway, for example, warned investors that it would be 
lucky to 'break even' in the first half of the year. But 
IBM and its shareholders have still not recognized that 
computer makers are in a major bear market.

*** Mr. Greenspan said yesterday that there was no cause 
for alarm, because "the forces contributing to the long 
term productivity growth remain intact." But just in case:

*** "Just how hard Greenspan is pushing on the accelerator 
pedal," noted Marc Faber recently, "is evident from the 
recent bulge in money supply. In most recent weeks, the MZM 
aggregate of money supply has been increasing at an annual 
rate of more than 19%; on a 13-week measure it is rising at 
an annual rate of close to 10%, and at a rate of 8.2% year-
over-year. This wouldn't be disconcerting if it wasn't for 
the fact that the last few years have seen one of history's 
greatest credit expansions." (see: The "Desperado's" Last 

*** "Greenspan said that he doesn't really watch the money 
supply," Bill Fleckenstein points out. "That should come as 
no surprise, since he's already admitted that he doesn't 
know what money is. Anyone who has watched his behavior for 
the last few years already knows that he doesn't watch the 
money supply, or anything else, except for spurious things 
he makes up like the 'quit ratio,' P* (P-star), and the 
ECI, which stands for Employment Cost Index, to name a few. 
And now he is watching consumer confidence. He ought to do 
the world a favor and resign, but that's a topic for 
another day." (Mr. Magoo Lays An Egg)

*** While U.S. investors are desperate for a rate cut and 
disappointed, Japanese investors actually got one - and are 
still disappointed. The Japanese equivalent of the Fed 
Funds rate was cut to 0.25% - that's one quarter of one 
percent, or effectively nothing. 

*** But American investors might want to reflect on what 
good these rate cuts actually do. Japan's central bank has 
been giving away money for years...and it's government has 
been spending money it didn't have at such a pace that it 
became the world's biggest debtor. And to what effect? 
Yesterday, the Nikkei Dow dropped below 13,000 - its lowest 
level in 15 years. Since 1986, in other words, stockholders 
in Japan have earned exactly zero on their stocks (not 
including dividends, which have been marginal).

*** Yale Economics professor Robert Shiller, recently 
interviewed in Barron's, said he saw a similar fate in 
store for the U.S. "Stock prices clearly have a long way to 
go on the downside," said he, "At a minimum, I think that 
we will face a decade or two of desultory price action in 
the stock market...such as the Nikkei has suffered since 
its collapse... That's what happened after past U.S. stock-
market bubbles burst in 1901, 1929, and 1966. Twenty years 
of grind and substandard returns."

*** Shiller does not believe the Information Age offers 
much of a boost to productivity. He argues that the 
National Highway System, begun by the Eisenhower 
Administration, was much more important. The Interstate, 
not the Internet, changed the face of the country, and made 
it easier for business and consumers to get around. Even 
so, during the 20 years in which the Interstate system was 
being built, S&P earnings grew at a substandard rate.

*** "Capacity Utilization" - a stodgy term economists use 
to indicate how efficiently factories and businesses are 
using their equipment - has dropped below 80%. "That's 
historically a sign of deflation," says The Fleet Street 
Letter's Lynn Carpenter. "The last time we saw this number 
was in 1991. The Fed cut its benchmark rate from 6% to 
under 4% over the next year, and still utilization fell... 
for another three years. Then it rose slowly. It didn't 
climb back above 80 until 1995."

*** Gold lost 60 cents yesterday. From a recent column in 
the Financial Times: "Gold has become a marginalized 
currency that is still in search of a new - and probably 
much lower - fair value." The dollar fell too, with the 
euro rising above 92 cents.

*** John Myers: "Technically gold is coming off a double 
bottom in mid-February and looks one heck of a lot better 
than it did a week ago. Meanwhile Canada's Gold and 
Precious Metal Index rose almost 4% on Monday and now sits 
at 4386, up 26% from its lows last autumn. During the same 
period the NASDAQ has fallen from just under 4,000 to 2300. 
Canadian golds have been a leading indicator for the gold 
market all the way back to the '70s." 

*** GE - a stock in which a lot of people are destined to 
lose a lot of money - fell $1.50.

*** Here's an opportunity for an idiot. Dr. Ego-ebo Michael 
sends an "Urgent Business Proposal" by mail. "I am the 
special adviser on arms control and acquisition to the 
current Republic of Sierra-Leone," writes Dr. Ego-ebo. The 
letter then goes on to explain how he was given $25,300,000 
and sent to the Netherlands to buy weapons but decided to 
defect (with the money, of course.) He now asks my help in 
transferring the money into a different account and offers 
to pay $5 million for the service, plus a couple of million 
(!) to cover hotel and fax bills. If you feel like being 
fleeced by this scam you may contact Mr. Ego-ebo at

*** Yesterday, in 1849, a ship called California docked in 
San Francisco and dropped off the first boatload of miners 
seeking to find 'gold in dem dar hills.' 

* * * * * * * * * * Advertisement * * * * * * * * * * * * 

The landing approach has begun. The flaps are down. A 
moderate slowdown has hit the U.S. economy. Investors are 
still optimistic. But consumer spending is way off. seems that everyone believes that Alan Greenspan 
has engineered a soft landing for the formerly high-flying 
tech bubble. But according to one of the world's leading 
economists, it's worse than blind faith. It's high-octane 
'new paradigm' propaganda. Here's what you need to do - 
right now - to prepare yourself for: 

The Coming Economic Crisis
* * * * * * * * * * * * * * * * * * * * * * * * * * * * 


It has been widely reported that Mr. Greenspan spends an 
hour a day in the bathtub. 

There, the most powerful man on the face of the earth... 
indeed, more powerful than any asleep in its bowels too... 
must do his important work. Surely, he studies the same 
figures and reports we do, though sometimes a day or so 
before we get to see them. He must also have to squint his 
way through the blizzards of data that blind so many 
economists, journalists and investors.

But then, you can imagine that the moment must come when, 
with a dripping hand, he puts down his papers and pauses to 

At that moment, were it not for the delicate scent of 
jasmine bubblebath and the womb-like comfort of the 
tub...he might panic. For he must realize, as you and I do, 
that he has helped create the biggest debt bubble the world 
has ever seen. And all it would take for the bubble to pop 
into a messy recession...which might take years to clean a shift of consumer sentiment. What if people 
suddenly began to act like the Japanese - working hard, 
saving their money, paying off their debts? 

A shiver must pass over the Fed chairman when he thinks 
about these things. He knows that a credit bubble only 
lasts so long as people are willing to spend more than they 
can afford. If the "group feel" of Americans ever turns 
toward thrift - Pop!

"There is a precedent for a such a return to frugality," 
writes David Tice. "In the 1980s, it was the Japanese 
consumers who were spending like crazy...The Japanese were 
such avid spenders that from '82 to '90, consumer credit 
jumped 130% while disposable income rose just 27%."

Then, the 'group feel' of the Japanese shifted away from 
debt, and has not returned.

If that were to happen here, he...Alan Greenspan...will be 
transformed as quickly and as completely as the bubble 
itself. Instead of being viewed as a maestro, he will be 
seen as a musician who can't get on-key. Instead of being 
loved by investors, they will detest him. Instead of 
enjoying the whole world's esteem in the final years of his 
career, he will be regarded as a fool.

And yet, if he can just pull off another rescue - as he did 
in 1998 - his reputation and career will end on a note so 
high that none of his successors are ever likely to match 

"This IS a lot like '98," he must think to himself: "Then, 
it was Thailand. This time it is Turkey. And what did we 
do? We did what we always do," he must reflect, perhaps 
running a little more hot water into the tub, "introduce 
more always works." 

Most people are ready to fact they are 
desperate to believe...that the trick will work again. 

"We know where Alan Greenspan is headed," writes Robert S. 
Salomon, Jr. in Forbes, "down the rate-cutting path, 
potentially leading to a record number of mortgage 
refinancings and other benefits. He will be joined by the 
Bush Administration, which will succeed in getting a tax 
cut... In addition to fiscal and monetary stimuli, look 
forward to declining oil prices in the spring, giving 
consumers an additional break. Soft economic landings and 
stock market rebounds are made from all that."

Almost all leading strategists and analysts on Wall Street 
expect a recovery of stock prices in later in the year. And 
"of 54 economists recently surveyed," writes Marc Faber, 
"52 are looking for a powerful rebound in the second half 
of 2001."

Or as Jim Cramer puts it, appealing directly to the 
sentiments of mob investors: "Quit moping about last year's 
market meltdown. That's ancient history. The time to get on 
with the rest of your investing life is right now...Now 
that Greenspan has taken his foot off the brake and begun 
to force interest rates down, you want exposure to the 
stock market...This is the lowest risk, highest reward 
environment possible. You have the Fed - and history 
totally on your side." 

There is no doubt that the Fed is on Cramer's side. But 

"Didn't [rate cuts] work magnificently in 1998?" asks Dr. 
Kurt Richebacher. "Apparently, this happy memory of highly 
successful Fed magic in the past is playing quite an 
important role in banishing any gloomy thoughts about the 
U.S. economy in the present..." 

But the memory of '98, with which Mr. Greenspan may comfort 
himself in his bath, may be defective. Dr. Richebacher 
recalls the period: "Under the shadow of the Russian 
crisis, culminating in the crisis of the LTCM hedge fund, 
expectations about the U.S. economy had turned more and 
more gloomy...The Dow index had lost almost 20% within 6 
weeks [and] according to Mr. McDonough, chairman of the New 
York Fed, 'the developing financial crisis had the 
potential to become the worst in the post-WWII period.'"

The crisis disappeared, perhaps Mr. Greenspan even believes 
it himself, because of hasty Fed rate cuts.

"Mr. Greenspan's rescue operation looked like a great 
achievement," continues Richebacher. "The recession that 
many had feared never materialized." 

But this time it may be different. Why? "In reality," 
explains Dr. Richebacher, "the U.S. economy never slowed 
down. Quite the opposite, its growth, sharply accelerated 
from 2.9% in the second quarter and 3.4% in the 3rd quarter 
to 5.6% in the 4th quarter [annualized rates]. Mr. Greenspan 
was successful in fighting a recession that never existed. 
Nor was there any true credit crunch. America experienced 
its greatest credit deluge ever..."

Instead of cutting back their borrowing and spending, 
Americans rose to the bait of easier credit. The credit 
bubble, which had begun inflating in 1995 began to swell at 
an even faster pace. By mid-2000, nominal GDP, measuring 
all the goods and services the economy produces, had risen 
$2,720 billion during the 5-year period. But corporate 
and consumer debt rose almost twice as much - up $4,750 
billion. And the financial sector added another $4,150 
billion...bringing total credit and debt creation to $8.9 
trillion for the period.

"The rate cuts obviously had their true cause in nothing 
but full-fledged panic on the part of Mr. Greenspan and the 
Wall Street elite..." concludes Dr. Richebacher.

Three years later, Mr. Greenspan can be counted on to do as 
he has always done. He will lower rates. But it is a 
different world. Consumers are far more deeply in debt than 
they were in '98. They own less of their homes. Oil is more 
than twice as expensive. The inflation rate is more than 
twice as high as it was in '98. Mortgage rates are still 
more than 50 basis points higher. Real incomes are growing 
at 2.7% rather than 4.6%. The saving rate is already 
negative; it was still over 3% in '98. And the Wilshire 
5000 stock index fell 12% last year rather than rising 21% 
as it did in 1998. 

Consumers may want to accommodate the Fed chairman...but 
thanks to his previous rate cuts, they may be unable to 
afford it this time.

That thought must cross Mr. Greenspan's mind too - when he 
is alone in his tub, with his bubbles.

Bill Bonner

* * * * * * * * * * Advertisement * * * * * * * * * * * * 

The Shocking Final Stage of the Internet Revolution 

Strap on your seat belt. It's going to be a bumpy ride. The 
financial markets have entered an entirely new phase. In 

The New Era ended on May 4th, 2000. 

That's the day the Bureau of Labor Statistics officially 
reported that U.S. productivity growth was much lower than 
expected. The whole premise of an economy that could borrow 
and spend its way to "inflation free" growth forever was 
finally revealed for what it is - a complete and total 

Now, the smart money has moved here to learn: 

The Seven Best Investments for the Next Ten Years
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 
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