*** Dow continues to rally...but the Nasdaq falls...
*** The big losers - the Internets... the big winners -
*** "Keep the credit flowin'" urges Greenspan...more on
hoof and mouth disease...and senior services...keep on
*** Nature loves symmetry. The Nasdaq, which shot up so
quickly, is now falling in like manner. It lost another 55
points yesterday. The Dow, though, has been building since
1982. What takes a long time to build up also takes a long
time to destroy. More below...
*** The Dow rose for the 5th straight session yesterday - up
128 points, bringing the total gain for the week to more
than 400 points...and leaving the index only about 10%
below it's all-time high.
*** The big losers yesterday were the Internets - led by
Yahoo! A year ago, Yahoo! was a 'must own' New Economy
company. And a share in Yahoo! would have set you back
about $200. Today, you should be able to get it for $20.
Investors have lost about $90 billion on this single
company. How could they have been so reckless with their
money? Again, more below...
*** Yahoo! left Wall Street in suspense on Wednesday, after
trading was halted pending an announcement. When the
announcement was finally made, investors learned that the
company now expects first quarter revenues 25% below
forecasts...and profits have disappeared completely. This
was the news that sent the shares tumbling 16% yesterday.
*** But even at $20 a share, Yahoo! is worth more than $11
billion - which is a lot of money for a company with gross
sales of only about $180 million per quarter...and headed
in the wrong direction. In fact, it's 58 times this year's
earnings. As earnings decline that P/E number will go up -
making the company even more preposterously over-valued.
*** What's a good price for Yahoo!? Who knows? But bear
markets typically cut from 90% to 99% off the leading tech
shares. At $2...and a P/E of 8 or so...Yahoo! could be a
*** Amazon fell 4%. TheStreet.com dropped 6%.
*** A Reuters headline: "Greenspan to Banks: Keep Credit
Flowing." The Fed chairman realizes better than perhaps
anyone that you can't have a credit bubble without credit.
He's doing his part...lowering rates with the accommodating
grace of Bill Clinton issuing pardons. But whether it is
the integrity of the currency or the judicial system that
is being compromised, people don't always get what they
*** Recently, Japan lowered its own central bank lending
rate - reducing it to 0.25%...practically giving away
money, in other words. But even that failed to turn things
around in Japan. The nation's finance minister said
yesterday that Japan's finances were "near collapse,"
despite years of zero interest rates and trillions of yen
worth of 'fiscal stimulus' spent by the government.
*** But to confuse the picture, Japan's manufacturing
sector still looks strong. Output for the past year rose to
$1.26 trillion - $50 billion more than that of the U.S.
Who's really gotten rich...and who's gotten poor...over the
last 10 years? More tomorrow...
*** The big winners yesterday were the gold mining
companies. The price of gold shot up $3.70. Mining
companies rose 7% on average. Newmont, for example, rose
$1.93 to $18.85. The index of gold miners, the HUI, is up
70% since November. Flash prediction: Before the year is
out, Newmont shares will trade at higher prices than those
of Yahoo! or Cisco.
*** In recessions, junk bonds have historically done
well... an opportunity my friend John Mauldin thinks is
coming around again this year. Mauldin: "Junk bonds trade a
great deal more like stocks than highly rated bonds - and
therein is the current opportunity. Typically, high-yield
funds pay about 4% more than treasury funds. Today, the
spread is closer to 8%, so if rates come back to their
average, there is the nice potential for capital gains, as
well as interest income. The capital gains are what boosted
the 1991-93 junk bond returns to 79%." (One Man's Junk Is
Another Man's Treasure)
*** The boom years for banks ended last year, too.
According to the FDIC, "a 34% surge in bad commercial loans
- and $2.3 billion of losses on stocks - combined to break
the banking industry's eight-year streak of record earnings
*** The Daily Reckoning continues its eyewitness coverage
of evolving epizootics. International Living editor,
Kathleen Peddicord, reports from Waterford, Ireland
(Disclosure of the purpose of this coverage will have to
wait until we can think of one):
"There were two outbreaks last century, one in the 1920s
and another in the '60s. I overheard an Irish farmer the
other day remembering the later outbreak, when he was a
boy. 'Authorities came and killed every animal on our
property,' he said, 'except the dog.'"
*** My colleague Addison, who is also in Waterford this
week, says you have to wipe your feet on disinfectant mats
at the door of every establishment in which you set foot in
*** I returned to Paris yesterday on the Eurostar. Arriving
at the Gare du Nord I walked down the Blvd. Sebastopol to
get to my office. That area has changed complexion in
recent years - the population is almost entirely African,
either sub-saharan or North African.
*** But as you get closer to Chatelet the faces and
languages become more familiar. As I approached the rue des
Lombards a neatly-dressed woman about 60 years old beckoned
to me. I have no explanation, but for some reason this
quartier seems to be the place for prostitutes nearing
retirement age. While the women who hang out on the rue St.
Denis are young, vulgar, lascivious and shockingly
deshabile, these older women are charmingly bourgeois and
dignified. They are a tribute to their profession.
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
sham. Now, the smart money has moved on...click here to
"There is smart money. There is dumb money. And there is
money so imbecilic that it practically cries out for
You will recall yesterday's comment from Henry Blodget,
"King Henry" As the WSJ dubbed him, King of the Tech Touts.
Henry's top picks have dropped an average of 79%. Admitting
neither error nor incompetence, Henry blamed it on an
unpredictable shift of attitude on the part of the fickle
"The market went from saying 'we like companies that are
growing quickly but are losing a lot of money' to saying
'We want to see earnings.' It's very hard to predict a 180-
degree turn like that."
Yes, dear reader, who could have imagined that the stock
buying public might decide to stop buying companies that
are "losing a lot of money?" Who could have foreseen that
one day investors might expect the businesses they owned to
Of course, anyone could. Some things are not just possible,
they are inevitable.
But today I am not writing today to criticize stupidity,
but to praise it. For it is upon this ineluctability of
moronic behavior that nature counts to maintain her
delicate balance. Mistakes are merely nature's way of
carrying out Her Own Plan.
This thought occurred to me upon wakening this morning. I
looked at my right hand and found that I had 5 fingers. On
my left, also, were 5 fingers. I use my right hand much
more than my left, why are there the same number of
fingers? I could do with another finger on my right hand,
and one fewer on my left. But that is not the way Nature,
in her wisdom, set things up.
Nature loves symmetry and balance. Draw a line through the
center of a leaf, for example, and you will find that it is
the same on both sides. And the sea level is the same in
San Francisco as it is in Odessa...even though they are on
opposite sides of the earth.
Charts of market manias tend to be symmetrical. Sharp
upward spikes on the left hand side are mirrored by sharp
downward spikes on the right. Long, gentle inclines on the
left are usually followed by long, gentle declines on the
This tendency towards balance and symmetry is shadowed in
the political world, too. The Roman Empire, which took
centuries to build, also took centuries to dismantle. But
the Third Reich, the subject of Bevin Alexander's book,
"How Hitler Could Have Won WWII," was created in just a few
years, and destroyed in just a few more.
People get not what they expect from their investments but
what they deserve. Quick profits are lost just as quickly.
Little gains, accumulated over many years, tend to remain
for many years. If it were not so - everyone would always
go for the quick gains. And if that were to happen, the
gains would disappear - like a lush island that is suddenly
over-run by herds of grazing animals.
Hitler's military adventures brought Germany some very
quick gains. But ultimately, Germany got something very
different from what it expected...but something very close
to what it may have deserved.
Bevin attributes this to human error.
First, Hitler failed to destroy the British Expeditionary
Force at Dunkirk - when he could easily have done so.
Then, he failed to destroy the RAF - which he also could
have done. The British air force was near collapse when
Hitler switched the air campaign towards bombing Central
London. How this decision was made was typical of Hitler's
amateurish approach to warfare. In attacking British air
installations, a couple of Luftwaffe planes had gotten lost
and mistakenly dropped their bombs on London. The British
retaliated with a raid on Berlin. This so angered the
Fuhrer that he decided to bomb London until Britain lost
its will to fight. The opposite happened. While the
Luftwaffe lost planes damaging London, the RAF was able to
rebuild. And the bombs on London merely strengthened
British resolve to fight to the end...and gave Londoners a
taste for bomb alerts that they have relished ever after.
Then, says Alexander, Hitler failed to attack the British
base at Malta - diverting his target to Crete, which was of
little military significance.
And he failed to give Rommel the minimal support he needed
to take the Suez canal, which would have sealed off the
Eastern Mediterranean (and quick passage to the east) to
the British fleet.
But his most monumental error was his attack on Russia. As
a 19th century military historian put it, after studying
Napoleon's Russian disaster and the Swedish invasion of
Russia prior to that (also a disaster), "Russia is an easy
place to get into, but a hard place to get out of."
This blunder broke every rule of military strategy. It,
combined with his declaration of war on the U.S. after
Pearl Harbor, put him in the position of fighting the three
largest industrial powers on the planet - with his troops
spread out over thousands of miles towards every point of
And if that were not bad enough, he then proceeded to carry
out the campaign in Russia with such lunatic incompetence
that even the Soviet Army was eventually able to perform
the role that nature had given it: making sure that
Hitler's Germany got what it deserved.
Instead of setting one difficult objective, the Fuhrer set
three completely unreachable ones. This was such a classic
mistake - dividing his strength and stretching his supply
lines - that it was as if Hitler had sent an engraved
invitation to Marshal Zhukov with all his battle plans and
troop disposition and this message: "Destroy Me."
But at first, the German army performed so well, and the
Soviet Army so badly, that Zhukov seemed unable to accept
the invitation. It almost seemed like the ancient rules of
warfare no longer applied to this new battle. The Germans
attacked over dry ground against an enemy as foolish and
incompetent as Hitler himself.
Still, Hitler had gotten himself into a war of attrition
that could only end badly. The Soviets produced 4 tanks to
every one Germany produced. The tanks rolled off the
assembly line at the Dzershezinsky Tractor Plant in
Stalingrad and other places and were in action in a matter
of hours. Hitler's tanks could take weeks or months to
reach the front line - if they ever reached it.
Finally, the weather changed and it became clear that the
campaign was doomed. Not only that, it became clear, too,
that Germany was doomed. The Russians could not be stopped.
And Hitler would not make peace. As his generals reported
the devastating news from the front, Hitler removed them,
including Heinz Guderian, the best tank commander in the
army. They were "too pessimistic" he said. They were
"cowards" who "lacked drive."
What these professional soldiers really needed, said
Hitler, was the "glow of National Socialist conviction."
But the "glow of National Socialist conviction" wouldn't
stop a T-34 tank anymore than faith in a 'new era' would
stop a bear market in the Nasdaq.
Everybody makes mistakes. But Hitler's mistakes were so
imbecilic they called out for extermination. Finally, the
Red Army, taking up the task nature had given it, obliged.
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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