*** 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.'
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.
Still...it 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:
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
up...is 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 liquidity...it always works."
Most people are ready to believe...in 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
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.
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 on...click here to learn:
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.
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears