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Contributed by Bill
Bonner
Publisher of: The
Fleet Street Letter |
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DELRAY BEACH, FLORIDA
WEDNESDAY, 4 APRIL 2001 |
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Today:
A Wicked World
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*** 'Stocks Mauled As Bear Turns Vicious' - Dow
down 290 points...
*** What kind of "new era" is this? A lot like the
old one...
*** Consumers tighten belts...Greenspan's stock
falls...Nasdaq could hit 1,200...credit cards for
teens...and more!
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*** Yesterday was a black day for investors -
especially investors in technology. Wait a
minute...wasn't technology supposed to be resistant
to economic downturns? Wasn't 'information'
supposed to eliminate inventory corrections? Wasn't
the new Information Economy immune from bear
markets?
*** I guess not.
*** Several of the companies we've been following
in these letters got hammered yesterday. Remember
Ariba? The stock fell another 20% - to $4.44.
Investors seemed to see the light about E.piphany
also - it fell 26% to $7. And Inktomi got whacked
for a 55% loss.
*** And Amazon? Another 47 cents was taken off the
share price.
*** "Stocks Mauled as Bear Turns Vicious" is how
TheStreet.com described yesterday's market action.
But what can you expect? April reminds us how cruel
nature can be...more below...
*** Yahoo! is now selling at $11. Cisco at only
$13. And even GE lost 5% of its value yesterday.
*** The Dow dropped 292 points. The Nasdaq lost
110. These losses were equivalent to a 3% cut in
the former index and an 8% one for the latter. The
Nasdaq, at a new low for the cycle, has now erased
more than two and a half years of progress.
*** "If it was still in question-the bear has come
out of hiding," reads a missive from The Fleet
Street Letter. "No more teasing. No more head-
fakes. The bear is ready to rumble. And he's rather
indiscriminately reducing stock prices wherever he
darn-well feels like it. We suggest staying out of
his way..."
*** David Tice: "Just because stocks have fallen by
60% or more does not give them a constitutional
right to resume their climb. Another 60-80% decline
from reduced levels could still lie ahead." (see: A
Refresher Course In The Hazards Of A High P/E)
*** But nothing is falling faster than Mr.
Greenspan's demi-godlike status. "From New York to
Tokyo to Frankfurt," reports William Pesek on
Bloomberg, "the talk is that Greenspan has lost his
touch." Isn't nature nasty? You work all your life
to inflate your own reputation...and then some
pri...I mean something happens and it deflates
suddenly.
*** "Suddenly, the critics are taking aim at
Greenspan," says the NY TIMES. "Chairman Greenspan
is dangerously close to engineering a worldwide
recession," said William Rutherford. People who
believed that Greenspan could find the magic
interest rate are becoming disappointed.
*** "A bear market - supposedly forecasting a
recession - may be assisting in bringing about the
conditions it is anticipating," writes Ray Devoe.
"By lowering consumer confidence, expectations
and spending, the bear market could contribute to
bringing about a full-on recession." (see: The
"Tail Wagging The Dog" Effect)
*** Or worse. The Levy Institute believes the U.S.
economy has entered a "contained depression." The
wealth effect has turned negative with potentially
devastating consequences. Each drop of the stock
market puts more and more pressure on consumers.
What if they are forced to cut back?
*** "I'm in belt-tightening mode," said Cathy Isaak
to USA Today, illustrating my point. "We've lost so
much in the stock market, I don't feel I should be
spending..."
*** But, so far, there is still no panic on Wall
Street. Just disappointment, frustration, and
worry.
*** John Crudele of the NY POST points out that
first quarter earnings reports will be coming out
soon - and they aren't likely to be pretty. And
even before that, 200-250 companies could issue
profit warnings. S&P 500 earnings are expected to
fall by 8% in the first 3 months of the year - the
steepest drop since '91.
*** And then, there is the economy. It grew only at
1% in the last quarter of 2000 and is likely to
grow at a lower rate in Q1 of 2001. Crudele notes
that inflation numbers are probably understated -
perhaps by as much as 2%. After inflation is
properly taken into account, the real growth rate
could be negative, he says.
*** What's ahead? "The low point is getting
closer," says the Financial Times, idiotically. The
FT cites a study by UBS Asset Management which
concluded that U.S. stocks are now "only 20%
overvalued." Hmmm...that implies a Dow of around
8,000. But, "we must watch for the possibility of a
deceptively strong rally before the final plunge,"
warns the FT.
*** "The Nasdaq could still decline to 1,200,"
writes John Crudele. "The Dow would be fairly
priced at 6,000." Who knows. There is no law that
says the Dow has to be fairly priced.
*** The Washington Post says that 22% of people
entering college had a credit card in high school -
a number that has doubled in the last 6 years.
Credit card companies are now targeting teenagers.
120,000 people under 25 years old declared
bankruptcy last year, says the Post.
*** The weather down here in Florida is nearly
perfect. A great place for riding motorcycles.
Every middle-aged man in S. Florida must own a
Harley Davidson. Oh for the open road! And the
feel of the wind in my thin, graying hair!
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A WICKED WORLD
Dying all the time
You lose your dreams and youth
You lose your mind
Life's unkind.
Ruby Tuesday
The Rolling Stones
"Life sucks," said a teenager on a TV show glimpsed
by your editor yesterday.
I'm am sorry to be so blunt about it, dear reader.
But he was right.
I say this not as a theoretical matter but merely
as an observation. Just look around you. Everything
you see is headed for correction.
That is true not only of today's stock market
prices, but of every edifice on the planet: Mr.
Greenspan's reputation, the Chrysler building, the
world's vast pyramid of credit and debt, the
beautiful people as well as the ugly ones,
motorcycles, the Internet...it is all a vain and
arrogant excrescence on the surface of life, just
waiting for destruction.
Down Atlantic Boulevard, in Delray Beach last
night, an intermittent flow of Harley Davidson
motorcycles disturbed our conversation with their
full throated roar.
Were these the local Hell's Angels - the wild,
unbroken hooligans from the wrong side of the
tracks, chucking beer cans alongside the road as
they thundered by? Not a chance.
I was having dinner with a couple of friends at a
sidewalk cafe. A couple of bikers pulled up to the
hotel across the street, parked their bikes and
dismounted. The bikes must have been the top of the
line - covered in chrome and brightly painted.
Powerful, shiny and new - the bikes still had a
nostalgic look to them. These were 'classic' models,
designed to recall something about the past...
But the bikers were contemporary from head to toe.
They were middle-aged stock brokers, lawyers or
accountants - who ride their motorcycles to chi-chi
restaurants where they drink a glass of sauvignon
blanc while discussing their latest real estate
coup in Boca Raton.
Harley Davidson has made a business out of helping
people to feel young and free again. It is an
illusion, of course. The choppers, the chopper
riders, and the chopper makers will all be cut
down.
Let us face the facts: all of life must be cut down
to make way for new life. That's how it works.
"But most responsible scientists believe humans
will soon be able to double their life span," said
my friend Mark last night.
"Do you know what that means?" he asked, not
expecting an answer. "It means that everyone will
be rich. Because the key to getting rich is time.
Compound interest. If you live to be 120, there's
no reason not to be rich."
Yes, by the time you are 50 or so - you recognize
that you should have begun a regular savings program
30 years ago. But if you have another 70 years to
live - no problem. You can still be a billionaire.
"It follows then," wrote former biker Richard
Russell recently, with a whiff of sarcasm, "that to
die rich all you have to do is to continue to buy
common stocks and presto - by the time you're an
old person, you'll also be a rich old person."
That is the problem with life, dear reader. By the
time you are rich enough to afford one of these
expensive Harley hogs you see on Atlantic Avenue,
you're also too old to ride it without looking
pathetic.
Time can make you rich. But it also kills you -
wearing down your body, little by little, until
there's nothing left. Eventually, the sight of a
Harley or a beautiful woman comes like warm spring
rain - falling upon roots too dull to stir.
Being an old person is bad enough. Still it's
better than the alternative. And if you're going to
be an old person - at least you might as well be a
rich one. But how much nicer it would be to be a
rich, young person.
But it is a world of sin and sorrow. As if the
curse of time weren't bad enough, the world is full
of faithlessness:
"I tell you, Peter," said Jesus of Nazareth on or
about this day two millennia ago, "the rooster
shall not crow this day before you will deny me
three times."
Yesterday's news brought more evidence that
faithlessness has not yet gone out of style:
"Insiders getting mulligans," said a Red Herring
headline. While investors suffer huge losses, the
people running companies look out for themselves.
Amazon and Lante announced that they were repricing
employee options. No offer was made to reprice
shareholders' stocks.
Priceline - another mega-loser in the stock market
- said on Feb. 15th that it would exchange 8.9
million worthless options and forgive executive
loans.
The New York Times reports that many companies have
rescinded stock purchases by executives - taking
back their own shares and refunding the purchase
price, after the shares fell in value. No offer was
made to rescind investors' purchases.
And a study at UCLA found that company "CEOs
manipulate the flow of information about their
companies to maximize the value of stock options."
"The only ones living with a company's bad
investment decisions," concluded Red Herring, "are
those not pulling a paycheck from the company."
Oh what a wicked, wicked world.
To be continued...
Your man in Delray Beach...
Bill Bonner
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| About
The Daily Reckoning: |
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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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