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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Begging For Extermination

*** 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 
good deal.

*** Amazon fell 4%. 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 
[in 2000]."

*** 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.

* * * * * * * * * * 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 
sham. Now, the smart money has moved here to 

The Seven Best Investments for the Next Ten Years
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"There is smart money. There is dumb money. And there is 
money so imbecilic that it practically cries out for 

Bill Bonner

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 
investing public:

"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 
make money? 

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 
the compass.

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.

Your correspondent,

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

Published By Tulips and Bears LLC