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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Traffic Accidents

*** The Big Rally continues! Thanks to Mr.
Greenspan, Intel, and thousands of wishful-thinking

*** Dollar bubble will burst too - some day!

*** Mr. Chou can sleep more soundly...but what next?

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*** What a relief! Earlier this week, it looked like
the Big Rally might be stalled...and the financial
press was chock-a-block with gloomy news. But
yesterday, Alan Greenspan made another attempt to
find the perfect fed funds rate - that is, the rate
that turns the economy around and puts Wall Street
back in bull mode.

*** Is 4.5% the magic number? Will the inventory
that couldn't be sold last week now suddenly fly off
the shelves? Will consumers, groaning under the
weight of the debt they've accumulated in the last
five years, now want to borrow more? Will investors
now find Juniper Networks a bargain at 50 times
earnings...and bid it up even higher?

*** We only have an answer to that last question,
and it is "yes!" The news from the Fed, along with
Intel's announcement that it expected a better 2nd
half, was all it took to move the Dow up 399 points
and the Nasdaq 159 points.

*** Intel reported its "worst quarter in years,"
informs the Wall Street Journal. Net income fell 82%
on a 16% drop in sales. The stock rose $5.24
yesterday. Go figure.

*** Oh, happy day. The bottom is in for sure. GE
rose 5%. Retailers were hot, with the index up 6%.
Just about everything did well.

*** And the dollar held its ground. Neither gold nor
the euro made much headway - despite the Fed's

*** "The dollar is the last bubble still intact from
the excesses that the U.S. economy accrued during
the late '90s," says Stephen Roach, chief financial
strategist at Morgan Stanley Dean Witter. "Some day,
it's going to burst."

*** Yes, some day. I've been expecting it for more
than a year. But then, I waited a year for the
Nasdaq bubble to pop too.

*** Which only proves that trying to time the market
is rarely a winning proposition. Instead, stick with
the essentials: buy investments that represent good
values. When will you find stocks at good values? At
the Big Bottom, of course. Is this really the Big
Bottom? If so, it is the toppiest bottom ever.

*** Jeff Chou may have slept a little better last
night. The former Cisco Systems engineer, fortunate
enough to reap a $6.5 million (fully taxable)
windfall by exercising Cisco options, but in so
doing was unfortunate enough to generate a $2.5
million tax bill that he is now incapable of
paying, recently whined to the Associated Press, "I
can't eat. I can't sleep. I am completely ruined."
But that was before the Federal Reserve reached out
and lent a hand.

*** It's only money, Jeff, don't take it so
seriously. Besides, ruination is relative. Mr.
Chou still holds 100,000 shares of Cisco, up $1.27

*** What kind of market is this? Intel, a beloved
tech company, reports disappointing earnings and the
stock soars. Freeport McMoran, a reviled gold
company, reports surprisingly strong earnings, and
its stock manages no better than a 24 cent loss on
the day. An investor could probably do worse than to
take the other side of both those trades - i.e.
Sell INTC, buy FCX.

*** But what a rally! NASDAQ 100 Index shares up
10.4 percent.

Sun Microsystems up 15.8 percent
JDS Uniphase up 14.7 percent
Internet Index shares up 9.7 percent
Merrill Lynch up 9.3 percent

*** To the eternal question, "What next?" we provide
the eternal answer: Who knows? But if I were Mr.
Bear, this is just the sort of rally I would like to
see: enough to allow the campers to relax...and get

*** And if this rally doesn't continue, Mr.
Greenspan still has 450 more basis points on the
downside he can try.

*** Philips, the largest electronics company in
Europe, (founded by Karl Marx's uncle...if I recall
correctly) said that its business was slowing down
too. It is laying off 7,000 workers.

*** Barton Biggs, skeptical chief investment
strategist at Morgan Stanley, tells CNBC viewers
after the rate cut, "I do want to throw 'cold water'
on the rally. But this is a move to sell into and
it's about 80 percent over."

*** And here's an interesting note from a DR reader
on Wall Street: "The DRG pharmaceutical index
declined 1.6 percent yesterday. I find it
fascinating that the so-called safe haven drug
stocks fell, even as the rest of the market put on
a monster rally. While proving nothing for certain,
this divergence suggests two things: 1) a large part
of the rally was due to short covering; 2)
investors who were actually buying stocks exhibited
a greater appetite for risk, that is, scorning
companies with secure earnings to chase after higher
risk fare."

*** I came up to London last night for a meeting of
our London venture capital group, the "Supper Club."
I was especially interested in one company that has
perfected a wind turbine power generator that is
tough enough to survive in very rough conditions. It
is suitable for lighthouses and remote military
installations. Another company makes TV programs -
such as "The Story of Sports" - which it licenses
all over the world.

*** Talking to one of the investors, I found that he
installs Internet communications systems. "Is it
true that there is a lot of used equipment coming on
the market at a fraction of the list price?" I
asked. "Yes," he replied. "But this stuff has a
short shelf life. I put in a system for $1
million...and then I may go back a year later and
rip it out. The equipment becomes obsolete very

*** "And what about foot and mouth disease?" I asked
my dairy-farming expert. He said, "Well, it seems to
have died down. It probably got into sheep, you know.
Sheep stay out in the fields. They could have had it
for months before anyone noticed...And by then, it
had been spread all over Britain."

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That same $10,000 invested at 9% would only be worth
$114,000. But because the company started with that
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"Skepticism, like chastity, should not be
relinquished too readily."

George Santayana

A website offers us an opportunity to "Vote for the
Dumbest e-Business Moment."

The first contender is the "summer of 1970" in which
"Kajsa Leander is born in Lund, Sweden...several
months later, Ernst Malmsten is born, also in Lund.
Together, they go on to found an ill-fated
multinational high-fashion e-tailer called"

The site lists a number of bizarre and amusing
events in the life of the bubble -
confirming both my faith in man's ability to delude
himself with visions of grandeur...and my new Theory
of Ignorance.

Noted, of course, is Dec. 16, 1998, when Henry
Blodget predicted that would go to $400 a
share. He was not joking - it did. But shares in can now be purchased for just a little
over $10. And don't be surprised if they are
eventually free.

And there is that day in June 1999, when Mark
Beier, CEO of, appeared on CNBC's
Squawkbox dressed only in his boxer shorts. The gag
was designed to underline the fact that you could
buy everything you needed over the Internet -
dressed only in your underwear. Of course, it might
have been taken as a forecast of what would happen
to's shareholders. They have lost
their shirts...and maybe even their the
stock has dropped to 28 cents. This week's issue of
Barron's has it listed as one of the companies
scheduled to run out of operating cash this month.

"One of every three publicly traded 'Net outfits'
stands to run out of cash within the next 12
months," says Barron's. "And that does not count
those that already burned out.

"The remaining 214 companies," continues the report,
"had negative earnings before interest, taxes,
depreciation, and amortization of $2.29 billion,
substantially higher than the negative $1.37 billion
EBITDA in the previous quarter."

What a sad end to such a magnificent delusion: The
Internet Age. The dot.coms have lost a total of
about $1 trillion in value since early 2000.

But there is something magical about big, dumb
ideas. In any specific application, they may be
demonstrably absurd.

The boocrew, for example, as the 450 employees at were known, spent money as if, well, it was
not their own. Expensive offices in London, New
York, Paris, Munich, Stockholm...$5,000 a day to
fashion consultants just to perfect the look of
"Miss Boo" on the website.

This was a company with almost no sales...whose
managers were burning through $135 million, with
almost nothing to show for it.

Who in the rag trade would spend his own money that
way? No one. The actual experience of doing business
and having one would weed out such
teach them.

But it was a New Era...and people believed in the
Big Ideas behind it. Even when they didn't work in
practice, people still had faith in the theory.

That is why the War on Drugs continues too. Hundreds
of thousands of people are sent to jail. Billions
are spent on 'law enforcement.' Otherwise harmless
drug users are driven into a world of crime and
sordid company. No, I don't mean politics, I mean
street crime.

You can make something illegal, but you can't make
it unpopular. In the movie "Traffic," the daughter
of America's drug czar begins using illegal drugs
while her father is away in Washington waging war
against them.

The perverse irony of the film is sure to appeal to
Daily Reckoning readers. Nothing quite works out as
it is supposed to. And in the end, the nation's drug
czar realizes that his problem is at home, not in
some distant command post, directing a phony war.

The Theory of Ignorance maintains that people know a
whole lot less than they think they know. But as
someone has observed, it's not what they don't know
that gets them into trouble, but what they think
they know that ain't so.

When a man drives down the road, he makes thousands
of decisions every minute - any one of which could
be fatal. But he knows what will happen if he turns
the steering wheel in the wrong direction and
usually ends up where he intended to go.

But his ignorance of cause and effect increases as
the subject of his decisions gets farther and
farther away from his immediate, personal
experience. In fact, like the intensity of heat, it
diminishes by the square of the distance from the

At a far enough remove from his own experience, the
same man who drives himself down the street without
accident, sees no road signs, no white lines, no on-
coming traffic. He drives his tractor trailer
straight into a concrete wall...and seems genuinely
surprised when the results are fatal.

Thus do investors buy shares in companies that do
things they would never do in their own businesses
and support big dumb ideas - population control and
the War on Drugs, for example - which offer no
identifiable benefits to anyone.

Also on Barron's list of dot.coms running out of
cash is It is trading at 20 cents and
scheduled to run out of money in August or
September. But every dog has its day, and enjoyed one brief day of imbecility,
when investors paid $97 for the stock - a price
equal to 350 times the revenues per share booked in
the entire life of the business. Was there a single
person in the entire world with business experience
to justify such a price? No, of course not. It only
made sense within the context of the New Era theory.

Finally, in May 2000, the deadly duo from Lund
called it quits..."It's easy to say that we spent
$135 million on Concordes and Champagne," Malmsten
tells the NY TIMES, defending himself, "but we only
drink vodka."

Raise a glass to the dotcommers. We'll miss them.

Your writer on the road,

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 19, 2001

Published By Tulips and Bears LLC