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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Mr. Saylor's Micro Strategy

*** The Rally Continues! Happy days are here
again...or are they?

*** The latest GDP figures - statistical lies?

*** A good day for the cops...a drug-induced
boom?...a telecom with profits...and the poor woman
- tied up, abused, and now on trial for murder!

*** London is quiet this morning. The plywood is
coming down along Oxford Street. The mobs seem to
have gone home. Capitalism is still in business.

*** It was a great day for the London police. They
must have been training for this event for months -
practicing their tactics and working on their baton
swings. Normally, a cop's life is pretty dull -
endless waiting, filling out forms, and answering
stupid questions from tourists. But yesterday, the
average London cop went home tired and satisfied. At
the least he got to shove the crowds back - or stand
his ground with calm resolve, like Wellington's
troops at Waterloo...allowing the enemy to exhaust
himself against his disciplined ranks. And the
really lucky policemen must have felt especially
content - regaling the missus with the stories of
the day's actions...while she massaged muscles made
sore from bopping skulls and whacking bones.

*** The poor demonstrators never really got a chance
to fully express themselves. Gathering at Oxford
Circus to disrupt traffic, they found themselves
trapped. Police sealed off the four streets with
ranks of baton-wielding bobbies...backed by other
cops mounted on horses. The would-be rioters were
unable to break out.

*** Finally, in the evening I heard shouting outside
my hotel window...just off Oxford Street. A group of
ragged protesters had managed to collect outside
police lines and was headed towards Tottenham Court
road, breaking a few windows along the way. They
were charged by a phalanx of police swinging their
truncheons with great delight and enthusiasm. A few
missiles were launched from the mob in the cops'
direction...but none did any damage that I could
see. The police - backed by mounted officers -
formed a line, waited, and then charged again,
driving the demonstrators before them. And then, the
street was quiet again.

*** The Dow soared 163 points to 10,898. The Nasdaq
climbed to 2,168. Bonds advanced 12/32. And yes,
even gold stocks managed a sparkling return on the
day - up almost three percent. Every asset seems to
have a bounce in its step these days, now that the
Fed appears to be back in control.

*** Or maybe Greenspan can't lay claim to all 163 of
today's Dow points. According to the financial news
networks, the late afternoon rally on Wall Street
stemmed from investor delight over news of a crucial
deal in Congress to implement a $1.35 trillion tax-
reduction plan over 11 years.

*** Didn't the stock market already implement a tax
reduction plan of its own? It erased $4 trillion in
capital gains over the last 12 months.

*** Since Greenspan's second surprise rate cut, the
Dow has recovered much of its losses. It is even
ahead - up 3% so far this year. But the Nasdaq has
only managed to regain 12%.

*** "The worst is behind us," chants the financial
media. "We've seen the bottom," say the Wall Street
analysts. "Happy days are here again," chorus the
consumers. Maybe, dear reader. But, if I were Mr.
Bear, I would be as happy as a glass company before

*** "The employment index dumped again," observes
Weldon's Money Monitor. "It's down more than two
full percentage points, to a lowly 38.1, the first
sub-40 reading in years...the New York purchasing
manager's report states that only 13 percent of
respondents expect to hire new employees in the next
six months."

*** Moody's latest Credit Market Overview will
provide little solace to job seekers. "Almost all of
the labor market's major indicators have
deteriorated significantly," writes Moody's John
Lonski. "April's projected 5.4 percent monthly
increase should leave first-time jobless claims
higher by 36.1 percent year-over-year for the
quarter ended April. Initial state unemployment
claims have entered into their steepest yearly
advance since surging by 35.1 percent annually
during the recession-bound first quarter of 1991.

"Of great concern is the ultimate reaction of
consumer spending and home sales to the forthcoming
rise in unemployment...Both the jobless and those
who fret over job security do not make for good

*** "Solid growth in U.S. incomes persisted in
March," reports the Financial Times, "but growth in
spending was relatively subdued as consumers built
up savings." Oh la la...are consumers beginning to
act...responsibly? Personal income rose 0.5% in
March while spending rose only 0.3%. Thus did the
savings rate manage a small, but potentially
significant, increase. Remember, if consumers ever
get serious about saving money - the whole borrow-
borrow/spend-spend economy is in big trouble.

*** What happened to the recession? According to the
government, the GDP grew at a 2% annual rate - about
twice what most economists expected. But John
Crudele of the N.Y. Post points out that the number
is probably a statistical lie. It includes estimates
of the trade deficit and inflation that are
fictions, he says. "If the inflation number used in
the GDP report was equal to other government figures
on inflation," he writes, "the GDP would have been
minus 0.1%." If Crudele is right, the U.S. economy
didn't grow at all in the first quarter. "We are in
a recession," he concludes.

*** "Small Online Brokers in Fight for Survival as
Market Slides Bite," reads the headline in the
Financial Times. The story to follow states
helpfully, "Online brokerage accounts are insured by
the US Securities Investment Protection Corp. for up
to $500,000." Do any online brokerage accounts still
hold $500,000?

*** Investment tastes/preferences are little
different from any other fashion trend. Last year
about this time, Abby Joseph Cohen was in, Warren
Buffett was out. early retirement
was in, working a lifetime in an honest profession
like medicine or education was out. And, of course,
tech stocks were in and everything else by
comparison was out. What kinds of stocks are now de
rigeur portfolio accessories? Drug stocks.

*** The Economist notes a "whiff of change" in the
S&P 500 composition. "[T]he share of health-care
stocks has increased from 9% to 13% [over the last
year]." Much of the gain comes at the expense of the
withering technology sector. Immediately after Cisco
did its James-Cameron-I'm-king-of-the-world thing
last year by surpassing - momentarily - GE's market
cap, its death spiral began. Meanwhile, Pfizer has
ascended into the number four slot - jumping past
Cisco Systems, IBM and Intel in the process. Is a
new drug-induced mania now unfolding?

*** "The chain-smoking doctor. The heroin-addicted
vegetarian. The boozing captain. All kinds of people
do all kinds of dangerous and dumb things they know
they shouldn't do," writes James Padinha of "Fed policy makers are no

Padinha: "By wrongly leaving the funds rate too low
during a crucial two-year period from 1997-1999, the
Fed set in motion a vicious fed funds cycle that
forced the central bank to tank the economy in 2000,
KO-ing consumption, business investment and share
prices. It's true that the Fed potentates have
recently done the right thing in bringing down the
funds rate more aggressively than they raised it.
But to give credit for that is to applaud Exxon for
trying to clean up Prince William Sound. Heck, a few
thousand sea birds later, the place doesn't look too
bad. The same is true for the economy, where the
fallout from the Fed's error will continue to play
out to our collective detriment in the coming

*** "Stimulating continued credit excess at this
very late stage of the business cycle," adds Doug
Noland, "should be recognized for what it is:
an obvious misadventure in monetary management...
While Nasdaq stocks have declined sharply, excessive
money and credit growth continues to fuel strong -
unsustainable - consumer spending. Nasdaq was not
THE bubble, but only one component of THE Credit
Bubble." (see: Ohh, You Mean That Bubble!)

*** But wait, what's this? A major telecom company
with growing profits? Yes, it's true. India's
international long distance company, VSNL, reported
an 88 percent jump in net income over last year's
result. "The results are better than expected. Both
topline and bottomline have beaten forecasts,"
Sudhanshu Asthana, telecoms analyst with Birla
Sunlife Securities in Bombay, told Reuters. Indeed,
much of the Indian economy is running contrary to
the sluggish global trend at the moment. GDP growth
continues to hum along at rates approaching six
percent. So while true that VSNL is no Ma Bell,
maybe Maharashtra Bell is a better name to own these

*** "You have probably not read the book..." writes
James Glassman in a familiar sounding e-mail to me.
He was responding to Monday's Daily Reckoning in
which I mentioned his book "Dow 36,000." "Bears, like
stopped clocks, tend to be right a couple times every
24 hours. Now, they're in their glory. But watch the
hubris!" First Reuven, now Jim. I guess ought to
mind my p's and q's... (see: Glassman Responds)

*** Okay...I know you are on the edge of your
chair...Here's the latest from page 3 of the Daily
Telegraph. The former aide to the Duchess of
Windsor, aka the "stupid cow," said in court
yesterday that her boyfriend "tied me to the bed. I
was face down..." Wait. I can't report this. The
details are too disgusting. The woman said she was
sexually abused as a child and raped by her
boyfriend just hours before she killed him. "The
trial continues," says the paper.

*** On the same page, we find the story of a bride
"under stress," who tried to exchange a pair of
shoes and became enraged. "She picked up the
scissors from the counter and the
cashier," reports the Daily Telegraph. "I just hope
I never get any customers like that again," said the

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The Daily Reckoning presents a "special guest"
editorial by Eric Fry, Editor-in-Chief of


To the ramparts, shareholders of MicroStrategy Inc!
Your company needs you to defend your stock against
the short sellers. (But don't expect your CEO to
join you - he's been unloading his shares.)

Some CEOs try to boost the share prices of the
companies they oversee by improving operating
performance. Numerous are the timeworn means by
which they seek to "enhance shareholder value." But
MicroStrategy CEO Michael J. Saylor has devised a
novel approach: squeeze the shorts.

To judge from his latest shareholder missive, Mr.
Saylor sees no connection between the company's
chronic losses and its falling share price. But he
has identified something nefarious that is gnawing
away at the stock price - short sellers. And he's
taking the highly unusual step of asking
shareholders to defend the MicroStrategy crown by
squeezing these shorts. We found it equally unusual,
if not unseemly, that, at the same time, Mr. Saylor
himself has been selling the stock at a 15,000-
share-per-day clip.

Short sellers like MicroStrategy. As of the end of
March, a whopping 5.78 million of the 17.08 million
freely floating shares had been sold short - that's
33.84%. So, writing in his April 19 letter to
shareholders, CEO Saylor issued a call to arms:
"There is something that you might be able to do to
help us, and in the process, help yourself," he
writes. "[L]ike many stocks in the technology
industry, MicroStrategy's has been recently trading
at a low share price level. Although general market
sentiments about technology stocks and our company
have undoubtedly played a major role in the recent
price of our stock, management believes that the
current stock price is also attributable in part to
heavy selling pressure from 'short selling' in the

Mr. Saylor then graciously provides a brief short-
selling primer: "In 'short selling,' traders sell
stock they do not own by borrowing shares from a
broker that need to be returned at a later date. If
the stock price goes down, the short sellers buy
stock in the market at a lower price, return the
stock to the broker and make a profit. By selling
first and buying later, short sellers benefit from
stock prices going down instead of up. This makes
their interest in our company directly opposite from
what most of our stockholders want - i.e., for the
price of our stock to increase. If there is a lot of
short selling, supply of our shares may exceed
demand for our shares, causing the stock price to go
down. In other words, short sellers can make money
by selling enough stock short to artificially
increase the volume of selling and drive down the
market price."

But, soon enough, he's back to the mission at hand:

"While many companies experience short selling in
the marketplace, the amount of short selling
compared to the trading volume in our stock has
recently been unusually high. Our financial advisors
believe this may be adding downward pressure on the
price of our stock.

"How Stockholders Can Help To carry out short sales,
traders need to borrow stock from brokers that is
registered in 'street name' or held in a margin
account. However, if enough stock is taken out of
street name or margin accounts, short sellers will
have difficulty maintaining the current volume of
short sales. Therefore, we are asking all of our
shareholders to promptly call your brokers and have
your MicroStrategy stock taken out of street name or
put into a cash account [so that] a short seller
would not be able to borrow your stock for short
sales without your permission. So long as the stock
is registered in the broker's name, the broker is
the legal owner of record, and can lend your stock
to a short seller without your permission.
Similarly, so long as you have your stock in a
margin account, it is available for loan by your
broker. If you have the stock registered in your own
name or placed in a cash account, brokers will not
be able to do this.

"Would there be any downside for stockholders in
having shares registered in their own names or held
in cash accounts? From an economic point of view,
the answer is no - nothing will have changed. The
only difference would be administrative including
some possible paperwork and expenses you may incur
in re-registering or moving your shares...We think
this is a small price to pay for relieving the heavy
short selling pressure on our stock."

The letter winds up with another plea for
stockholders to move immediately if not sooner, with
Mr. Saylor adding that MicroStrategy "intends to
work with its transfer agent and participating
brokers" to make the process of re-registering
shares and moving them into cash accounts as quick
and easy as possible.

Mr. Saylor's missive is certainly trend-setting. But
shareholders shouldn't expect to find their CEO
shoulder-to-shoulder with them atop the ramparts.
For the last two months, Mr. Saylor himself has been
on the same side of the MicroStrategy trade as those
reviled short sellers, according to Bloomberg's
database of insider sales. He has been a relentless
seller of MSTR, unloading 511,500 shares in 59
separate transactions from February 12 through the
end of March.

And price is no object. Since logging his first sale
at $10.40 per share, he's been selling it all the
way to the $3 level. In all, the sales netted the
market-savvy CEO $3.7 million - good news for the
Saylor household. Not such good news is that the CEO
still holds 3.4 million shares of a stock that now
trades in the low fours. Those shares once traded as
high as $289, a price not likely to be repeated
anytime soon.

But a modest short squeeze should provide a larger
bid, at the very least, just in case anybody who
owns the stock was, you know, thinking about maybe
selling some.

Your guest correspondent,

Eric Fry

Mr. Fry is editor-in-chief at

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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: May 02, 2001

Published By Tulips and Bears LLC