Contributed by Bill
Publisher of: The
Fleet Street Letter
DELRAY BEACH, FLORIDA
TUESDAY, 3 APRIL 2001
*** Techs get hit...the River-of-no-returns below
*** "They're idiots" says Mark Cuban..."I dare you
not to own my stock," says David Rickey...
*** Is 'late, degenerate capitalism' flawed?...
consumer sentiment up, but consumers wait for lower
prices...Greenspan's stock falls...and the 'best
sector for the next 5-10 years.'
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*** Techs took another beating yesterday - led by
Micron, down 13%. Our old favorite River-Of-No-
Returns stock, Amazon, drifted down to, would you
believe it, $8.50. Cisco - one of the "must own"
stocks of the Information Age - fell to $15.
*** "They're idiots," said Dallas Mavericks owner
Mark Cuban on CNBC. "They have no clue," he
continued, referring to people who expect a quick
bounce back in Techs. "I'd rather collect my 3% to
5% in whatever investments and wait for it to turn
around." Cuban became a billionaire when he sold
his company to Yahoo! near the peak of the mania.
He then sold his Yahoo! shares for $90. Those
shares are worth only $15.75 today.
*** "I dare you not to own my stock," said Applied
Micro Circuits CEO David Rickey a year ago. His
stock was trading above $100 back then. Reminded of
his dare by Maria Bartiromo when he appeared back
on CNBC on March 2nd of this year, Rickey repeated
his dare - even though his stock has dropped 67%
since the summer.
*** "What Mr. Rickey did not say," the NY TIMES
tells us, "was that he had come close to accepting
his own dare." Between July 2000 and March 2, 2001,
he sold more than 90% of his shares - while the
share price fell from $100 to $29. Since 1999, he
has unloaded more than 99% of his holdings and
realized about $170 million. He even exercised
hundreds of thousands of options - and promptly
dumped the shares.
*** Is it better to be a knave than a fool? Poor
Julia Wainwright. By contrast, the CEO of Pets.com
failed to sell a single share. Now the company is
*** AMEX says its earnings for the first quarter of
this year will fall 18% below those of a year ago.
*** Profits are falling...share prices collapsing.
But a survey of America's 200 top corporations
shows that CEOs are doing okay. The average one
earned $10.89 million last year - about 2/3rds of
which came from options.
*** "13 months ago it took $25,000 to buy 100
shares of Yahoo," writes the Oxford Club's
C.A.Green. "For the same $25,000 today, you can buy
100 shares of Cisco, 100 shares of Motorola, 100
shares of Lucent, 100 shares of JDS Uniphase, 100
shares of Ariba, 100 shares of Nokia, 100 shares of
Intel, 100 shares of Sun Microsystems...oh
yeah...and one thousand shares of Yahoo...When
Yahoo shares burrow down into single digits...then
stocks as a group may begin to look interesting
*** This is the way 'late, degenerate American
capitalism' seems to work. The employees look out
for themselves first. The customers get taken care
of. And if there's anything left - it goes to the
*** "Is Capitalism Flawed?" asks a silly headline
in a silly paper, the Financial Times. Every
natural thing is flawed...and slated for
correction. It may be said of 'late, degenerate
American capitalism,' as with all things natural,
that 'this too shall pass.'
*** Microsoft went up in price yesterday - plus 2%.
The company has largely defied the collapse in Tech
shares - and still trades at 31 times earnings. For
how long? I don't know, but not forever.
*** The Dow dropped 100 points yesterday. The
Nasdaq fell 57. The Dow is above its March 22 low -
but has not yet managed the kind of major rally one
*** You may recall our own Lynn Carpenter forecasts
Nasdaq 1800 by early summer. Lynn: "Today's fall in
Nasdaq was strategically important. At 1800, the
Nasdaq shows significant support. At 1750, that
support is broken, giving a new sell signal and
increasing the likelihood of a few more bearish
weeks ahead. That number is really more important
than today's 29-month low."
*** Two indicators of improved consumer sentiment
came out yesterday. The Univ. of Michigan survey
showed rising consumer spirits. So did the
Conference Board Index.
*** Still, spending may not increase as hoped. The
Houston Chronicle reports that a "Wait For Lower
Price Syndrome" is developing. Consumers expect
prices to fall. In deflation, people typically hold
onto their money, rather than spend it. "If money
no longer burns a hole in pockets," says the paper,
"if we are all persuaded that the price of
everything but yogurt will be lower next month,
we're in a different economy."
*** Yes, one that is beginning to resemble the
Japanese economy - where consumers are reluctant to
spend and where borrowers don't want to take on
extra debt, even if they can borrow at nearly zero
*** The 10-year T-note is priced to yield 4.91%. A
10-year TIPS note (one indexed to protect the
holder from inflation) yields 3.21%. The
difference, only 1.64%, suggests that investors
expect little inflation in the years ahead.
*** One thing that is deflating dramatically is
Alan Greenspan's reputation. "Once Unthinkable,"
says a NY TIMES headline, "Criticism is Raised
Against Greenspan." The Fed chairman raised rates
too high for too long, say the kvetchers.
*** Is there a 'just perfect' interest rate that
assures investor happiness? I don't think so. More
below...on happiness and other things...
*** "The one best sector over the next 5 - 10 years
will be the electricity-related stocks," writes Dan
Ferris. Ed Yardeni, Deutsche Bank's Chief Financial
Strategist, agrees: "In the past, the key to
outperforming the S&P 500 has been to pick the one
sector that was most likely to be the decade's big
winner. In the 1980s, it was the Consumer. In the
1990s, it was Technology. Now my pick is Power
(i.e., energy resources, utilities, distribution,
and capital spending). A reasonable estimate is
that we will spend at least $200 billion between
now and 2005 to expand electricity-generating
capacity. (Energy & Utilities are still only 10% of
the S&P 500 market capitalization versus 26% for
Technology & Communication Services)."
*** It's a different world down here in Florida.
The cars are bright and new. And the people are old
and banged up.
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MORE PERFECT UNIONS
"Do you love him?"
"Was it better with him?"
"Then why did you do it?"
from "Don't Wake Mother,"
by Jean Anouilh
The subject was not roses. The subject was thorns:
adultery, a staple of French literature...and
perhaps French life.
"You seem shocked," said Sylvie last week. "Don't
women in America cheat on their husbands?" We were
reading a novel by Maupassant. I read out loud.
Sylvie, a young woman who teaches yoga as well as
French, corrects my pronunciation.
In the passage we were reading, a woman takes up
with another man when her husband is out of town.
In fact, she rents an apartment so they can conduct
their liaison without being disturbed.
"I am not so much shocked by what they are doing,"
I replied, "as by the deliberate way they are doing
"I suspect that people in America are not so
different," was her response.
"No, American women would agonize and feel more
guilt. They would need to talk to psychologists and
"We French," answered Sylvie, "prefer to save our
suffering for Hell."
Long time Daily Reckoning sufferers know that we
range far and wide - looking for the rare mushroom
of insight that might have grown up overnight...But
new readers may be surprised. This is a financial
service, isn't it?
Yesterday, I promised to tell you how to tell when
the stock market bottoms out. And, oh yes, I also
promised more - including how to find love...and
how to have a happy marriage. Would it surprise you
to learn that the secret is the same for all three?
The paradox of all three things is that you cannot
get to them by a direct route. No road sign on
life's highway offers "Love - Exit Here!" Nor will
you find a "Last Exit Before Bear Market"
signposted on your way to work. And don't bother to
look for "Happy Marriage" on a map. Even with GPS,
you will not find it.
If only it weren't so, I thought to myself as Jack
and Mimi exchanged wedding vows on Saturday. I take
some tiny portion of the credit for bringing them
together. Both worked for my company...at least
until one was fired. But by then it was too late -
the gravity that was to bring them into mutual
orbit had already captured them.
And now, what would happen to them? I feel towards
them as I do to my own children: If only I could
protect them from the mistakes I've made. If only I
could protect myself from the mistakes I am about
That is the problem with age and wisdom - it merely
shows you how helpless you are. The wiser you
become, the more you learn to keep your mouth shut,
until eventually the grave silences you forever.
What a pity there is no Federal Reserve system of
the heart - a group of wise old graybeards who
could protect the currency of love...and keep Jack
and Mimi's union in perpetual expansion, like the
U.S. economy, with only an occasional, mild
correction. If only there were some way to help
them keep their stock rising!
Alas, gentle reader, some things are beyond our
comprehension. Others are simply beyond our
All across America, investors, TV presenters, and
analysts are watching, waiting, and wishing for
that Big Bottom of their dreams.
"As stock prices have gone down," reports USA
today, "36-year-old Greg Reinhard has looked for
opportunities to buy good companies at cheap
"I'm happy with this type of market," he says.
"This is when you have to step up to the plate."
Meanwhile, Lisa Jiminez and Jay Maxwell, who share
a home if not a name, have "sold nothing during the
downturn. As a result, their losses are only on
Roger Pyle, who plans to retire in 6 years, says "I
still have a substantial amount in technology,
because I believe it's going to come back."
And Simon Richardson "plans to resume investing in
stocks when the market recovers."
How will we know when the market finally finds its
big bottom? It will not even be reported in the
newspaper. USA Today will not ask people what they
are doing with their stock portfolios. And no one
The bottom will come when people stop looking for
it...when investors have given up, and turned their
attention away from stocks - maybe even away from
their financial lives.
"Get Rich and Stay Rich Forever..." says the
headline on WORTH magazine. "The Next Big Money
Maker" promises another. [Worth once called me a
'genius,' so I am suspicious of anything I read in
the magazine.] Those are the not the sort of
headlines you find at the bottom of a financial
cycle. They are more likely signs of a top - when
everyone is obsessed with making money.
Bear markets correct not only stock prices, but
attitudes and philosophies. People turn away from
the existential pleasures of getting rich NOW! in
favor of other things. They turn to gardening. They
begin to think about history or read mystery
stories. They begin to think about what real value
In financial matters, their eyes drift from the
credit side of their personal ledgers to the debit
side. They look for costs they can cut...and worry
less about getting rich than about avoiding
The big bottom, when it finally comes, sneaks up on
them...and passes unnoticed.
What should a prudent investor do? He cannot know
when the market will go up or down. Should he take
advantage of whatever hot opportunity comes along -
like a faithless wife when her husband is out of
town? Will an investor's performance be improving
by chasing every big bottom that crosses his
path...and hopping from one investment liaison to
It sounds like fun. But it is not likely to be
"Come now. Think about it," urges Mark Rostenko.
"Do you really believe that the majority of folks
are going to identify the bottom when it shows up?
How many times have you picked a stock's top or
bottom successfully? How many people do you think
are good at it? Do you have any idea what the
statistics are for market timers? I'll give you a
clue: they are aren't so good."
But if you can't find a big bottom by looking for
it, how can you find it?
By not looking for it, of course.
Warren Buffett, the most successful investor who
ever lived, wastes no time looking for bottoms or
tops. Instead, he explains that he just wants
"great companies at a fair price." But, as prices
go up and down, they are not always 'fair.' In the
late 1960s, for example, Buffett found prices had
gotten too high. He explained to his clients that
he could find nothing worth buying - and returned
their money. Coincidentally, Buffett had found the
top. Stock prices peaked out soon after and didn't
begin to recover until 12 years later - at which
point, Buffett found many good companies at prices
that were more than fair. Without looking for it,
Buffett had found the bottom too, as a by-product
of sticking to his tried-and-true principles.
Is that the way to find love and happiness, too -
as a by-product of simply sticking to the basics,
the rules, and the important principles? I don't
know, dear reader, but I am nave and sentimental
enough to hope so.
The Daily Reckoning:|
author Bill Bonner
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.