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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 15 JUNE 2001 


Today:'s Chance In Hell

*** More earnings shortfalls on Wall Street

*** More the rally over?

*** Euro bounces...summer at the moves 
up...and more!

*** "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?

Eric's report:

- 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,'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: 

Grab sign.
Pound it into front lawn.
Pray for phone to ring.
If all else fails, e-mail Greenspan to slash interest 
to 0%.

- 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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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., 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, has $22 million in cash. is one of 70 companies listed in a 
Barron's article this week. At risk of trivializing the 
sturm and drang of the last few years in the 
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 
insignificant worry.

Bill Bonner

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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: June 15, 2001

Published By Tulips and Bears LLC