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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  S.A.D.

*** World stock markets - $10 trillion lost

*** How bad can it get? No one knows, but everyone
will find out. World GDP has not fallen since the
1930s. Could it next year...?

*** Consumers feeling the pinch...bankers pinching
the feelers...spoiled brat investors...a bad time
to buy...far from the bottom...The Decline &
Fall...and more...

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*** "Can the world escape recession?" asks a
headline in the Economist. The accompanying
article points out that the damage has not been
confined to the United States. $10 trillion has
been lost worldwide, as equity values fell. That
amount is equal to 30% of world GDP.

*** "Never has so much been lost in such a short
time," continues the Economist. And it could get
worse - 46% of world GDP comes from just two
economies, the U.S. and Japan. Both are on the
verge of recession.

*** "We would say the odds...of a synchronous
global slowdown...are pretty high at 1 in 4,"
estimates Allen Sinai, chief economist at
Decision Economics.

*** "How bad can it get?" asks another headline,
this one in the Financial Times. The article
points out that debt is at record levels - but not
when compared to assets. Trouble is, the assets -
property and shares - are subject to huge
discount without notice. Debt is not.

*** World GDP has not fallen since the 1930s.
Could it fall in the next year or two? Maybe. But
the Economist still believes it is 'up to us.'
"Policymakers must be ready to support economies
if necessary, by cutting interest rates or taxes.
They must not send globalization into reverse."

*** What can policy makers do? They can cut taxes!
George W. Bush, for example, is proposing a tax
cut of $1.2 trillion over the next ten years. Will
that offset a bear market that wipes out $4
trillion in 12 months?

*** What else can policy makers do? They can try
to inflate the currency. But as pointed out here
many times - lowering the fed funds rate doesn't
necessarily make people want to borrow. And if
they don't borrow - the credit bubble doesn't get

*** "Banks Tighten up on Business Loans as Economy
Softens," notes the LA TIMES. "The banks have
become more cautious," said an investment banker
who had put out feelers for a loan for one of his
clients. A Fed survey from January showed 60% of
banks had tightened their standards.

*** Just as Henry Blodget was surprised to
discover that investors would want stocks in
companies that could turn a profit, no doubt The
Economist will be surprised to discover that banks
don't want to lend their money to people who may
not be able to pay them back.

*** (As long forecast here, )the Dallas Morning
News reports that "Consumers [are] no longer
feeling rich." The paper quotes an economist from
Standard & Poors: "The wealth going
into reverse."

*** And an ABCNews/Money poll found that 59% of
respondents thought this was a "poor" or "not
good" time to buy things. Only 3% said it was an
"excellent" time to make a purchase.

*** Alas, the world is a funny place...with a lot
of funny people in it. Reuters reports that "13
top Wall Street strategists" surveyed expect the
S&P to rise 40% by the end of the year. The Dow is
expected to rise 33%. And the Nasdaq - 89%!

*** We are a long way from a bottom, dear reader.
You will know when the bottom is reached - it will
be when the strategists expect the market to go
down, not up. And no one will care what they
expect anyway.

*** The Dow rose 182 points. Mr. Bear is taking a
rest - giving investors a chance to recover their
courage and forget about him.

*** Dan Denning: "'Don't fight the Fed,' is still
a rallying cry for investors. It offers comfort.
But if you believe the underlying logic of 'Don't
fight the Fed,' you believe bureaucratic monetary
policy makers can control the business cycle. It
also means you believe the market is efficient.
And that estimates of slower growth, bad earnings,
more layoffs, weaker consumer spending, and
continued high-energy prices are already priced
into stocks. And worst of all, you believe that
today is an excellent buying opportunity. This is
your chance to buy the 'Big Bottom'." (see: Buy
The Dips
, Don't Fight The Fed, The Check Is In The

*** The Nasdaq fell 10 points.

*** "Investors sometimes act like spoiled brats,
selling stocks when the Fed declines to satisfy
their every whim..." writes "Dow 36,000" author
James Glassman in Monday's International Herald
Tribune. "The Fed does make mistakes," he says.
But, "with the exception of the Great Depression,
slowdowns in the U.S. economy have been brief. And
in every case, the economy - and the market - has
quickly recovered to the higher level." Yes, sort
of. But no one would have thought so in 1940. Or
1980. And even though the market goes up and
down...stocks, all of them, eventually go down and
never get up again.

*** The Washington Post, for example, tells us
that 3 local telecom companies have "thrown in the
towel" in the last 10 years. The three include E-
spire, Metrocall, and our own friend PSINet, Inc.

*** Gold barely moved yesterday.

*** "The idea of the Fed Chairman, the Treasury
Secretary and a roomful of bankers sitting down at
a table to collude wouldn't even make a good
movie, because it's so incredible. At least to
me..." says Doug Casey, commenting on the GATA
lawsuit alleging collusion in the gold market.
"Still, is somebody manipulating gold? Well, it's
clearly in the interest of all governments and
central banks for the price to stay low just
because it gives the appearance that all's right
with the financial and economic worlds. It's one
thing for the stock market to be weak. But if gold
takes off at the same time, that could cause
people to push the panic button for real." (see:
An Unlikely Conspiracy; An Entirely Likely Swindle)

*** "The city was like one big party, but only the
chosen few could get in," the NY Times reported
about San Francisco at the height of the dot-
economy. The rental vacancy rate last year was
effectively zero, with 50 applicants for every
available unit. Today, in the South of Market
neighborhood, where many of the start-ups were
housed, the vacancy rate has skyrocketed to 18%...
and it is now over 8% city wide. "Defeated
entrepreneurs have been sent packing," says the

*** As you may have noticed, I am in Rome. What a
city! An American tourist overlooking the coliseum
was heard to remark: "Nice stadium, but it needs
some work."

*** Looking out over the exposed ruins of ancient
Rome, you can't help but wonder: what happened?
Over a period of about 800 years - from about 700
B.C. to the reign of Emperor Trajan, which ended
in 117 - Rome came to dominate the entire
Mediterranean and much of Europe, North Africa and
Asia Minor. It did so, we are told, in the same
way that Jack Welch built GE - by aggressive
management and superior administration. The roads,
the government, the builders, the army -
everything worked well in Ceasar's Rome.

*** But all excesses get corrected. Over the next
800 years, Rome declined. First the barbarians
were on the edges of the empire - then at the
gates of Rome itself. In the 6th century, Rome was
sacked. By the middle of the 20th century the
Italian army was often a liability on the
battlefield, and Roman administration was
oxymoronic. And by the 21st century, the barbarians
were paying guests in Roman hotels.

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stocks would head nowhere but south. He also says
the carnage is far from over. To make money in
this market you need to be on the short side.
That means jumping on share prices as they plummet
by selling short the most vulnerable, overvalued
companies. To learn how to capitalize on these
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"Bears and cynics should enjoy it while they can,"
says a Forbes columnist, because it won't last

The invitation is accepted. We will enjoy it with
the same enthusiasm with which we would attend a
tort lawyer's funeral.

In today's letter I yield to temptation, and give
myself over to the few pleasures a bear market
affords: recrimination, gloating, I-told-you-so's
and schadenfreude.

There are two ways to look at the recent manic
episode in the stock market. Depending on what
mood you are in, you could see it as merely a case
of "irrational exuberance" or it could be looked
at more darkly - as almost criminally slick.

"Someone is out of a lot of money," remarks the
Washington Post. "And that someone is the retail
investor. The insiders - entrepreneurs, venture
capital firms, investment banks, and large
institutional investors - pulled out their capital
long before the fall, leaving mom and pop
investors holding the bag.

"Instead of the greatest legal creation of
wealth," says the Post, "the high tech financial
bubble represented the greatest ever legal
transfer of wealth - from retail investors to

Whether it was a just a Big Bubble, or a Big Con,
the effect is the same - money is lost. But at
least the latter interpretation leaves the victim
with a grievance to fill the vacancy left by the
departure of his fortune. Nursing it carefully, it
could even grow into a promising lawsuit.

Thus, for example, did shareholders in
take their case to the courts for redress. In the
spirit of mischief, I offer the following details
to aid the plaintiff's cause:

The facts were reported by our own Ned Harper in
"The Great Dr. Koop Swindle," of August 2000. "On
February 15th, 2000," Ned wrote, "auditors came to
[Dr.Koop's] Austin, Texas headquarters to have a
look at the books. The accountants saw big
trouble. They issued a 'going concern' warning on"

You might think that news of this gravity might be
the sort of thing the SEC would like to see passed
along to investors. But the Dr. Koop crew
apparently decided to keep it to themselves.

"I went to the web site," Ned reports, and "had a
look at the press release issued the day of the

"Titled 'Dr. Koop Grows Revenue 75%,'" CEO Donald
Hackett made it sound like everything was coming
up tulips. "The successful execution of our
business strategy has firmly positioned the
company for growth," he continued. Even in the
information age, or so it seems, some information
is not worth passing along. No mention is made of
the "going concern" warning.

Investors, alleging fraud, say that Dr. C. Everett
Koop sold off $915,000 of his stock a week and a
half after the warning. "In fact," Ned elaborates,
"between February 15th and 18th, other panicky
officers and directors sold off their shares for a
profit of over $7 million...including Nancy
Snyderman (the ABC News health reporter)..."

The stock traded as high as $45. But, according to
"Deathwatch" website, the company ran out of money
on March 4, but today you can still buy a share for

Attitudes change with the seasons of the market,
dear reader. When the sun is shining, everything
seems possible. Who would blame Dr. Koop when his
shares were rising?

But when the days grow short and the weather turns
bad, investors get a form of Seasonal Affective
Disorder (S.A.D.). They grow grumpy, sullen, surly
- and litigious.

Another target that might interest plaintiffs'
attorneys is a company called Ariba Inc. "Consider
the numbers," suggested Eric Fry on the Daily
Reckoning website last October. "Since Ariba
became a public company on June 23, 1999, insiders
have filed to unload about 13.2 million shares of
stock, to realize about $1.8 billion."

The unloaders are living proof that some people
made a lot of money from the Great Tech Bubble.
"Not a bad haul for officers and associated
muckety-mucks of a profitless company..." Eric
continued. But "profitless" doesn't do justice to
Ariba. If Dr.Koop was a case of irrational
exuberance, Ariba was exuberance run stark,
raving mad.

The company was worth a colossal $36 billion at
its peak, despite having only $200 million in
total revenues from its inception in 1996 until
Eric's piece appeared. And profits? Profits?
Forget it. Ariba lost $463 billion in the 12
months leading up to Eric's report.

Neverthless, "the reigning 'Queen of the
Internet,' Mary Meeker and her Morgan Stanley
Dean Witter colleague Charles E. Phillips
lavished eloquent praise on Ariba in July 1999,"
Eric recalls, "just as the company began its
public life - a life sired, incidentally, by
the bankers on the other side of the Chinese
Wall at [Morgan Stanley]."

Apparently, just about everyone - except, of
course, the ordinary retail investor - was in on
the joke. "Although Credit Suisse First Boston
analyst Brent Thill initiated coverage of Ariba on
Sept. 24, 1999, with a buy rating, and followed up
with 13 reiterations of his rating over the past
12 months, Credit Suisse Asset Management was not
completely persuaded. It sold nearly 80,000
shares, or 43% of its original stake, in the
quarter ended June 30. The names of the company's
lead underwriter, its venture-capital backers and
many of its initial investor-clients can be found
on the list of selling insiders, as well."

One of the biggest insiders was CEO Keith Krach.
In a radio interview on April 12, Krach said he
and his group "were building a great company in
the 21st century and we are focused on the long

Focusing on the long term did not prevent Krach
from seeing his short-term interests clearly. Eric
reports: "Krach has filed to sell 2.2 million
shares (split adjusted) over the last 12 months,
netting $179 million...even as the red ink mounted
to almost a half-billion dollars last year, top
management pocketed more than $1 billion from
stock sales."

"Little investors never stood a chance," concludes
the Post. "Because they simply don't have the
access - both to key information and to early
deals, as big investors."

But at least they have access to lawyers. A class
action lawsuit against Ariba was filed last
Thursday as the stock slumped to $9.12 after once
trading at $173. Readers who would like to join
the suit are invited to follow the sirens to the
law firm's website at

Your reporter, on his way back from the Trevi
fountain, the Spanish steps, the coliseum...and
other wonders.

Bill Bonner
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