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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 18 JUNE 2001 


Today:'s Chance In Hell

*** Second half recovery...or second half collapse?

*** Consumers getting poorer...manufacturing fell for 8th 
month in a row...Nortel's 'brutal experience'...

*** TheStreet editor takes a walk...confidence in the 
dollar...are the rich 'rich' yet?

*** Will the recovery begin next week? Next month? Has 
it already begun? Investors are not sure when it will 
begin, but they are sure that better days are coming 

*** This could be a dangerous week. People have been 
expecting a 'second half recovery.' Yet, the second half 
is almost here - with no sign of a recovery. In fact, 
the news just seems to get worse. Consumers' net worth, 
for example, fell 8% in the first quarter, from a year 
earlier - the biggest drop ever. What a surprise it 
would be if the second half produced worse conditions 
instead of better ones. With a report from Wall Street, 
here's Eric Fry:

- On Friday the Federal Reserve reported that industrial 
production (among factories, minds and utilities) 
slumped in May for the eighth month in a row. Also, the 
capacity-utilization rate plummeted to 77.4%, its lowest 
reading since August 1983.

- Nortel Networks, JDS Uniphase, McDonald's, Nokia and 
Juniper Networks all announced shockingly poor earnings 
trends for the current quarter.

- In a report headlined, "Nuclear Winter," Merrill Lynch 
analyst Steve Fox predicted that earnings from Corning 
Inc.'s fiber-optic operations will "be below even our 
worst-case scenario."

- Mr. Market took the news at face value. The Nasdaq 
registered its worst weekly performance of the year 
falling 8.4% to 2,028.

- The earnings shortfall announcement out of the Nortel 
Networks was particularly alarming, given its sheer 
magnitude. As Reuters reported, "[Nortel] announced 
plans to slash 10,000 jobs and predicted a huge $19.2 
billion second-quarter loss as demand for its equipment 
that moves Internet traffic slows to a trickle. The job 
losses, on top of 20,000 cuts announced in April, mean 
that the company.will have axed a third of its global 

- Chief Executive John Roth: "We have had better times. 
Is this the end of it? We sure hope so, this is a brutal 

- As part of its desperate, sweeping overhaul, Nortel 
promised to shutter an astonishing 8.8 million square 
feet of office and manufacturing space. With 
announcements like this, is it any mystery that North 
America's largest commercial REITs are reporting both an 
unanticipated falloff in demand and fewer inquiries from 
brokers looking to fill space?

- The, a bullish financial Web site catering 
to day-traders, lost its editor-in-chief last week. The 
affable Dave Kansas resigned to leave behind the not-
affable James Cramer and his beleaguered Web site. 
During the mania, it was fun springing out of 
bed each morning to write about tech stocks that go up 
every day. But lately, Kansas must have felt like Casey 
Stengel, manager of the 1962 Mets, considered the worst 
professional sports team of all time. "The only thing 
worse than a Mets game is a Mets double header," Stengel 
once said. For Kansas, the only thing worse than 
watching the tech bubble burst has been watching it 
burst some more. 

- "Listen up, all you bottom-believers," writes's Edward Moy, "tech-stock auguries 
are dropping like canaries in a coal mine. In Taiwan, 
where prosperity depends on the high-tech economy's 
demand for semiconductors, global trade plunged 26%. On 
the demand side, U.S. orders for computers and 
semiconductors have collapsed, dropping 40%, according 
to International Strategy & Investment (ISI). From our 
perspective, it's way past time for investors to exit 
the high-tech mines. All that's left is the shaft."

- Lynn Carpenter has pieced together a string of 
winners, of late, in her trading service The Contrarian 
Speculator. I mentioned her 271% 'put' on Nokia last 
week. Now, in her regular letter, she's actually 
recommending that you buy another telecom - but a very 
unusual one. The company has an average return on equity 
of better than 20% (34% last year) even as competition 
has grown and the tech industry has melted down. "The 
shares have been beaten down to $19 and change," says 
Lynn. "In a normal market environment they're worth $50 
at a minimum - and within two years, Wall Street will be 
paying that much." (see: The Fleet Street Letter)

- John Lonski of Moody's observes, "Dollar exchange rate 
appreciation in the face of the US' record-smashing 
current account deficit underscores the strength of the 
world's demand for dollar-denominated assets." In 
particular, Lonski notes, "Foreigners hold a near-record 
36.7% of all outstanding U.S. Treasuries, a record 13.3% 
of federal agency bonds, and an unprecedented 22.7% of 
U.S. corporate bonds." Lonski suspects that waning 
foreign appetite for U.S. assets will begin to undermine 
the dollar's strength.

*** "Confidence in the US$ is all that holds this 
termite house together," asserts Harry Schultz. "Only 
confidence keeps the US$ up, despite having printed too 
many & removed its gold backing; the same with a stk mkt 
that's still dangerously overvalued fundamentally. Only 
confidence keeps people buying in shops. Greenspan must 
lie hard to keep all those balls in the air, defying 
gravity to do it. But doubters are starting to come out 
of the adoration closet." (see: The Ultimate Con Game)

*** On what, one wonders, does confidence in the dollar 
rest? "The average wealth of the poorest 40% of 
Americans fell by 76% between 1983 and 1998," the Blue 
Team's Dan Denning says, citing a Barron's article on 
research by Edward Wolff... "and by 1998, median net 
worth for the US had fallen to $1,100." The great bull 
market of '82-'98 not only failed to lift all boats, but 
"most Americans missed the boat altogether," Denning 
concludes. (see: Crack's In The Dollar's Hide)

*** Are we rich yet? Cerulli Associates reports that the 
rich doubled their assets in the last five years - from 
$4.4 trillion to $9 trillion. Cerulli breaks the rich 
into 3 classes. There are the lumpencapitalists, who 
Cerulli call the 'mass affluent,' with $500,000 to $5 
million in assets. Only 200,000 people have more than $5 
million. The ordinary rich have from $5 million to $50 
million. Beyond $50 million, there are a few 'ultra high 
net worth' people.

*** If you are embarrassed by wealth, Wall Street has 
professionals who can help. Four California professors 
examined Wall Street's buy and sell recommendations for 
the year 2000. They found that the most highly 
recommended stocks under-performed the market by 31%. 
The least favorably recommended stocks, meanwhile, beat 
the market by 49%.

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investor put it: 

- "Lynn, I wanted to thank you for [your] the last couple of weeks the 
information [you supplied] has produced a realized 
total of $23,210." 

With Lynn Carpenter's F-O-X system, you'll be alerted to 
early price volatility in stocks like American Express. 
Lynn's readers bought bargain call options when the 
stock was at $54.38...and sold them the next day for 91% 
gains. Follow this link - and get in on her next trade: 

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* * * * * * * * * * * * * * * * * * * * * * * * * * *


The wind blew. The rain came down in torrents. 

We had been working at a furious pace - getting ready to 
leave for the summer. But when 6PM came we packed into 
two cars to drove about a half an hour to a tiny hamlet 
called La Barre. 

Even with the intermittent downpours, the place was 
delightful. There were only about six stone houses, with 
a tiny road threaded between them. Flowers were in bloom 
everywhere - in window boxes, in the hedges, in the 

Our hosts were a charming English couple who moved to 
France the same time we did - about 5 years ago. They 
live in a common farmhouse, a long, stone building with 
a red roman tile roof and a barn attached to the end. 
But they have given it the Cotswold touch - dolled it up 
with flowers stenciled on the walls, exposed beams, and 
English-pine furniture. 

There are many English people in the area. They come 
because it is cheaper to live in France...and nicer too. 
A farmer with 100 acres in the south of England can sell 
his land for, say, $10,000 per acre. Here, near 
Poitiers, he can buy land for only $1,000 per acre. 
Without leaving the European farm system - with its 
elaborate rules and subsidies - he can end up with twice 
as much land, plus $800,000 in the bank. What's more, it 
is less crowded, and prettier in France.

But among the people at the garden party was a new breed 
of English immigrant.

"God told me to come," said a pretty young woman with 
short hair. An older man, too, reported that he was on a 
mission from God. He wasn't sure what the mission was, 
but he accepted it.

"It could be that God doesn't want to attack the 
Catholic church directly. Maybe he is sending us here to 
renew the faith from the bottom up..." the young woman 

"Do you have a personal relationship with Jesus?" she 

"Well, I don't think of it like that," I replied. 

"But it is not just a matter of style," she continued. 
"The Bible tells us that you can only approach God 
through Jesus. You have to get to know Jesus, or you 
can't know God."

Maybe my ambitions are too modest, dear reader. But I 
have never been on a first name basis with a divinity. I 
do try to figure out how the 'invisible hand' works, but 
it seems presumptuous to give it a shake. 

Real truth, real beauty and real value are similar. You 
can't just walk up and introduce yourself like a waiter 
in a bad restaurant. The best you can do is to work as 
hard as you can to discover them - thinking so hard 
"your brain hurts," as Heisenberg put it - and hope to 
meet them by accident. 

Perhaps it is by modest expectations that great ones are 

Modest expectations are built into the price of Maxxam 
stock. "Today..." wrote Jim Grant a few weeks ago, "the 
company is valued at less than half its net cash." But 
Maxxam has more than cash in its till. It also has 
shares in a company called Kaiser, which alas, has been 
dusted with the talc of financial disaster - asbestos. 
Kaiser shares have, understandably, already been deeply 
discounted. But even if the Kaiser shares disappeared, 
Maxxam would still have two dollars of assets for every 
one dollar of stock price.

The company does not have to shoot the moon in order for 
investors to come out ahead. It just has to avoid 
shooting itself. 

Another deep value company is one whose condition I 
reported many months ago - W.R. Grace. Unable to predict 
how the invisible hand of the future might deal with the 
company, I modestly noted that the stock seemed to be a 
real value at the time.

The trouble was that while the company's assets could be 
toted, its liabilities could not. Grace faced, then and 
now, thousands of asbestos-related claims. Seeing no 
other way out, management decided to put a bullet in its 
own foot...using the bankruptcy courts to create a wound 
of the sort soldiers dreamt about - bad enough to get 
them sent home, but not bad enough to kill them. 
Investors reacted unfavorably - W.R. Grace stock fell to 
even lower lows.

But all is not lost. Bankruptcy is a way of defining and 
limiting the extent of the asbestos claims. About 4 
years from now, analysts believe the company will be 
resurrected with shareholders ending up with about $9 
worth of assets per share. At a current price of $1.24, 
this would represent a modest, but healthy, return on 

Your modest reporter,

Bill Bonner

P.S. As I was discussing religious doctrine with a 
pretty young woman, a very big man was flirting with my 

"He was shameless," she reported. "He began by telling 
me he had been divorced for 20 years...and then he said 
he had been having 'a relationship with a young woman of 
the opposite sex'... God only knows what he meant; I 
didn't want to ask - opposite to what? Finally, he asked 
if I had come to the party with my husband. When I said 
'yes' he looked terribly disappointed...

"I might have been flattered had he not been the size of 
a hippopotamus and just as dim." 

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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 18, 2001

Published By Tulips and Bears LLC