Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 15 JUNE 2001
Chance In Hell
*** More earnings shortfalls on Wall Street
*** More disappointments...is the rally over?
*** Euro bounces...summer at the beach...gold moves
|*** "Another day, another avalanche of "earnings-|
shortfall" announcements," reports Eric Fry from Wall
Street. " From semiconductor producers to office
furniture manufacturers, corporate earnings are heading
on a southerly course."
*** The course of true stock market investing never did
run smooth. In fact, it seems designed to frustrate
people. First, it builds their hopes up - with profit
expectations bright and loud as a bolt of lightning, to
borrow from Shakespeare... Then, ere a man has power to
say: behold!...and it all comes to confusion.
*** Information tech was supposed to boost profits.
Instead, profits are disappearing. But, not to worry...
things were to be better in the 'second half recovery.'
Uh...Midsummer's Eve is less than a week away...and the
second half begins scarcely a week later. Yet, corporate
executives report that they see little improvement
coming in the 3rd quarter. Maybe in the 4th?
- The tech-laden NASDAQ index fell 3.7% yesterday - its
sixth loss in seven sessions. The Dow dropped 181 points
and closed at 10,690.
- It's pretty clear, folks, we just aren't buying stocks
like we used to. Then again, not too many stocks are
giving investors much of a reason to buy. Discount
broker Charles Schwab warned it would miss earnings
estimates... they suffered an 11% decline in customer
trading in May.
- Whimsically describing the indebted American consumer,
grantsinvestor.com's Mary Levai writes, "Now starring in
'I'll Think About That Tomorrow' U.S. consumers pitted
against the dark forces of shriveling net worth." If
panic sets in and consumers become savers, Levai
predicts such a trend would "set the stage for a
sobering replacement: 'The Incredible, Shrinking GDP.'"
- Corporations aren't in any better shape, debt-wise.
"The worst is yet to come for the US leveraged finance
market," Moody's Investor Service predicts, "high-yield
default rates are not likely to peak until early next
year. Current projections call for the default rates of
US speculative-grade issuers to rise from the current
level of 7.5% to a peak of 10% by March 2002."
- Every summer Manhattan's well-sandaled crowd heads out
to the tony beach-side hamlets in the Hamptons. But in
this, the first post-dot-com era summer, noticeably
fewer vacationers are showing up. In their place, a
growing population of "For Rent" signs. "We're seeing
signs for the first time in very posh neighborhoods,"
real estate agent Judy Desidario tells the New York
Times. "So it's a little bit of a panic." Agent Diane
Saatchi moans, "I've had 'For Rent' signs in my storage
area for 10 years and never used them before."
- Diane, if you've lost the instructions, just remember
these four steps:
Pound it into front lawn.
Pray for phone to ring.
If all else fails, e-mail Greenspan to slash interest
- While Hamptons homeowners struggle to find renters,
Matsushita Electric reports that it struggles to sell
just about everything it makes. Matsushita, the world's
largest consumer electronics maker reported that it
would likely post its first quarterly operating loss
since listing on the Tokyo Stock Exchange in 1949.
- "The worldwide slowdown in information technology has
hit Matsushita hard," the Wall Street Journal reports.
"Demand and prices are falling for key components in
mobile phones, computers and other high-tech gear."
- Unmistakable deflationary trends - like falling PC
prices and rising unemployment - dwell in our midst. But
that doesn't mean that inflation's voice is silent.
Gold, that yellow dog, gained another $3.30 yesterday to
- If history is any indicator, gold is set to rally in a
big way. "Between December 1974 and November 1976," says
John Myers, our resident expert on all things Au. "The
central bank cut rates seven times -- a total discount
of 2.75%. And after a lag, the price of gold jumped 405%
between August 1976 and December 1979."
- And then again... "in the 1980s when the Fed went on
another rate-cutting spree the same thing happened.
Between November 1984 and August 1986 the Fed initiated
seven cuts for a total reduction of 3.5% -- and the
price of gold nearly doubled. Now the Fed has cut rates
five times for a total reduction of 2.5% -- and more
cuts could be on the way." Will the price of gold be far
- Love is blind. In a Lexington-line subway train
crammed full of working stiffs - including yours truly -
a couple of amorous teenagers "sucked faced" all the way
from 14th street to Grand Central this morning. The rest
of us did not.
*** The rally on Wall Street may be over. We'll know
soon. Meanwhile, the euro has moved up slightly, after
falling below 84 cents. The dollar may have seen its
highs for this cycle too - it fell sharply yesterday.
*** "The dollar's run is coming to end," says Kevin
Klombies of IMRA - a charting service used by members of
The Daily Reckoning Blue Team. "But not quite yet...
Yesterday's action was enough to clean out a few
'stops', but it will take a decline by the US $ Index
through 116 to break this bull's legs."
*** Must the stock market - and maybe life itself -
disappoint people? You work hard all your life to make
things better for yourself... only to die in the
process. "When I bought the place," a chateau owner once
said to me, "it was a tumble down ruin. I spent 20 years
restoring it. Now it is in pretty good shape...and I am
a tumble down ruin."
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SNOWBALL.COM'S CHANCE IN HELL
A company which is worth less on Wall Street than its
cash in the bank would seem to be the very definition of
a value stock. The business could be simply closed down,
the cash distributed, and the shareholders would come
out ahead. Such companies are rare. But they are
regarded neither as objects of beauty nor of admiration.
A market capitalization equal to cash on hand presumes
that the business itself is worth nothing. What about
when a company has a stock market capitalization less
than its cash; is the business of negative value?
Otherwise a virtue, excess cash is as surrounded by
question marks as an effeminate scoutmaster.
Snowball.com, for example, "brings together a blizzard
of content for geeks and girls with attitude," explains
a review on MoneyCentral Investor. One of the websites
operated by the company is called "ChickClick.' Alert to
the journalistic possibilities, Addison, my keen
associate, went thither.
"The site has a lot of goofy girl talk" Addison
reported, "but no visible means of support."
Nor does the genius of its business strategy jump at you
when you look at the numbers. It lost $4.62 per share
last year...or about $50 million, and now trades at 53
cents a share, giving the company a total value of $6.3
Yet, Snowball.com has $22 million in cash.
Snowball.com is one of 70 dot.com companies listed in a
Barron's article this week. At risk of trivializing the
sturm and drang of the last few years in the dot.com
world, these companies raised a lot of money when
investors were giving it away. They subsequently lost
millions in flaky business ventures and are now ignored
by Wall Street. But a few - either through prudence or
incompetence - still have cash left. Could it be that
among these stray cats and dogs are some decent value
We find, for example, that Be Free had nearly $150
million in cash at the end of March, against a recent
market value of only $83 million. Viant - worth less
than $100 million on the market - had more than $171
million in cash.
I mention these two because John Rolfe, of Argand
Capital in New York, believes they are worth looking at.
"Be Free builds, manages and maintains Internet-based
affiliate marketing programs," says the MoneyCentral
summary. Whatever they do, they manage to lose money at
it. The figures record a loss of about $2.83 per share
last year. Shares trade for about half that amount.
Indeed, the company is not a profit-making business, but
an anti-business, destroying capital at the rate of more
than $10 million per month. But, as noted above, at the
end of March, it still had $147 million to go.
Viant, meanwhile, is an Internet consulting firm. It
lost 74 cents a share last year, and sports a net profit
margin of minus 33.8%. Total losses last year neared
$100 million. What is Internet advice from a firm such
as this really worth? I don't know, dear reader. Yet,
it's current stock market value is $114 million...while
it has that amount, plus about $50 million more, in the
If you could get control of the company, you could fire
everyone, turn off the website...and pocket a cash
premium. But it isn't that easy. "In a lot of these
cases," observes Robert Chapman of Chapman Capital, "the
cash is merely a mirage. By the time you get to it,
management has sucked it dry."
Whatever the opportunity in these companies, the risk is
obvious: that the jaws of darkness will devour up the
cash before a workable business is discovered. Not an
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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.