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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 29 JUNE 2001 


Today:  Making A Difference

*** Discontinuing coverage? Or leaving the scene of a 

*** Stocks rise on optimism...what else do they have to 
rise upon? 

*** A lousy year for investors...but "res nolunt diu male 
administrari" (a handy comment for almost any occasion)...

Market News:

Henry Blodget is still being quoted by the financial 
media as if he knew what he was talking about. Blodget was 
quoted yesterday on the subject of an appeals court ruling 
in the Microsoft case. "It is an unexpected positive," said 
the analyst, for whom almost all of life's events must be 
unexpected. What a delightful life the former tout 
must have - in which every sunrise comes as a surprise and 
every sunset as a complete shock.

I say 'former tout' for good reason. Blodget 
is, of course, still extant. So are a few of the stocks he 
once loved so dearly. But as our intrepid eyes and ears on 
Wall Street, Eric Fry, reports: the two aren't seeing much 
of each other any more.

"Now that the Internet bubble has imploded and millions 
of investors have lost billions of dollars," Eric writes, 
"Wall Street's brokerage firms have decided that enough is 
enough. Analysts like Merrill Lynch's Henry Blodget will no 
longer issue 'buy' recommendations on Internet stocks like 
CMGI Inc, iVillage or E*Trade. In fact, Blodget will issue 
no recommendation of any kind on these three stocks because 
he has 'discontinued coverage' - broker-speak for 'leaving 
the scene of the crime.'"

An appeals court ruled in favor of Microsoft 
yesterday - sending stocks racing upwards. By the close of 
business the Dow was up 131 points, the Nasdaq up 51. As I 
explained yesterday, res nolunt diu male administrari. 
(Things refuse to be mismanaged long.) Bill Gates is 
perfectly capable of mismanaging his own affairs - he 
doesn't need the government's help. 

I'm going to let Eric do most of the writing this 
morning. I was up late last night - at Sophia's high school 
graduation. More about that, below...


Eric Fry on Wall Street:

- The lead headline on Thursday's's "Money" 
page was, "Stocks Rally on Optimism." The headlines 
immediately below read: "FedEx Bruised by Slowdown," "Nokia 
Scales Back Workforce," "Deere to Trim Staff," "Wall Street 
Under the Knife" and "Firestone to Close Illinois Plant." 
Hope, indeed, does spring eternal.

- Rate cuts won't cure what ails this economy, Morgan 
Stanley strategist, Byron Wien tells USAToday. The biggest 
drag on the economy, Wien says, is the huge inventory 
pileup that is strangling profit growth at technology 
companies. "Just because you can borrow money cheaply, 
doesn't mean you are going to buy more equipment if you've 
got a lot of idle capacity."

- Besides, before borrowing more money, many companies and 
consumers will have to deal somehow with the money they've 
already borrowed. According to a Federal Deposit Insurance 
Corp report this week, the percentage of commercial loans 
falling more than 90 days past due rose to 1.8% - a seven-
year high.

- Over the past year, total revolving consumer credit rose 
more than $75 billion, to $697 billion. The Federal Reserve 
reports that, at the end of April, Americans were $1.584 
trillion in debt, a figure that excludes home mortgages.

- The number of New York City homeowners defaulting on 
Federal Housing Administration-backed home mortgages has 
surged nearly 30% in the past year. Between March 2000 and 
March 2001, the city's 90-day default rate on mortgages 
guaranteed by the FHA rose to 10.08%, the highest in the 

- Unlike the one investors experienced, last year was not 
so bad for the sellers of Internet stocks. According to 
Dealogic CommScan Inc, securities firms raked in more than 
$2 billion in underwriting fees in 1999 from selling 
Internet stocks, more than $1 billion last year and only 
$14 million this year.

- Investors fearful of being taken in by the next big 
bubble on Wall Street should note that the former Internet-
stock analyst at Thomas Weisel Partners - a fellow named 
Tim Fogarty who, like Blodget, urged clients to buy stocks 
like and - has moved on to a different 
beat. "Last week," Bloomberg News reports, "Fogerty began 
covering fuel-cell stocks, including FuelCell Energy Inc 
and Ballard Power Systems." It's probably just a 
coincidence. But investors prone to finding bubbles might 
want to steer clear of this group just the same.

- Would somebody please tell the people running the world's 
largest computer manufacturers that the Fed Chairman is 
cutting interest rates? These people are apparently unaware 
that Mr. Greenspan's interest rate cuts are resuscitating 
the economy. Just look at the price of the beleaguered 
computer chips known as DRAMs, which continues its 
relentless slide into a cyber-abyss. These chips, which in 
January cost a little more than $6.00 each, now sell for 
$2.00 apiece. Apparently, the buyers of DRAMs - computer 
makers - haven't been told things are getting better.

- Assessing Greenspan's rate-cutting extravaganza, The Blue 
Team's Michael Belkin states matter-of-factly, "Experience 
has taught that the authorities will usually do whatever it 
takes to paper over the damage caused by the bursting of a 
speculative bubble - if for no other reason than to 
preserve their own legitimacy. While such intervention may 
ultimately fail, in the meantime it can make things 
uncomfortable for overly bearish financial journalists, 
portfolio managers and stock analysts."

- There's a little-understood and even less-appreciated 
issue lurking behind Nortel's recent $19.2 billion 
quarterly loss, Business Week reports. "The biggest chunk 
of Nortel's loss was a $12.3 billion write-down for 
acquisitions that are now nearly worthless. Many other 
companies are in the same boat, having made acquisitions 
over the past couple of years that have declined in value 
along with the stock market."

- Is bad news from the telecom sector really "news?" Let's 
just say that more "reports of dire predicament" issued 
from the telecom sector yesterday. Both Lucent and JDS 
Uniphase announced additional job cuts. So fatigued are the 
shareholders of these two erstwhile tech darlings that the 
shares barely budged on the "news."

- The richly valued shares of 3M and Alcoa illustrate that 
unbridled optimism is alive and well outside of the tech-
stock arena. "These cyclical stocks may be getting ahead of 
themselves, given the risks roiling around in Chairman 
Greenspan's not-so-marvelous economy," grantsinvestor 
observes. "Even an already dubious V-shaped recovery may 
not be enough to fulfill heady expectations. And if any 
other letter of the alphabet shows up, these stocks could 
be in for a beating."

Eric Fry

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"These students have a big advantage," began the worst 
commencement address I have ever heard. "They are 
graduating from a school in which multi-culturalism was not 
just an ideal, but a fact of life."

The speaker was the dean of a Paris-based business school - 
a woman of middle-age, average looks, normal height and 
sub-par wit. She proceeded to tell Sophia and her 
classmates that they needed to go on to the next stage of 
their moving on to college or perhaps 
taking a year off to "help install a water pump in the 
Amazon or work for an activist organization that is 
protecting the environment..."

"You will want to continue your education. Because you need 
to know how the world works." 

There is a place for simplemindedness, dear reader. A 
general does not want his soldiers contemplating the 
futility of existence when they are supposed to be 
launching a mad cavalry charge. Nor does a brokerage house 
want the young men and women manning the telephones to 
begin asking themselves too many serious questions. 

And people who want to buy Microsoft at 40 times earnings 
or the Nasdaq at a 150 P/E multiple don't want to think too 
seriously about either the theory nor experience of stock 
market investing. It would only make them worry. 

But school seems like the sort of place one might want to 
examine platitudes, rather than toss them around like spare 

Among the many unproven assumptions of the modern era is 
the notion that formal education pays off. Poor people are 
always said to need "better education." And few people are 
curmudgeonly enough to admit that they think schooling is a 
waste of time. 

Education is widely thought to be the key that unlocks a 
better world. It "awakens the natural curiosity of the 
young - and makes them eager to learn," people say. 

And yet, here before us, delivering the commencement 
address was a woman whose natural curiosity seemed to have 
gone to sleep years ago. Was it a casualty of a life spent 
in school?

I watched the graduates' eyes. Could any of them change a 
tire, let alone install a water pump? What did they think of 
spending another 4 years in some pedagogical gulag?

One young man stared at the ceiling. He was a big hulk of a 
boy with the face of a Russian playwright and the body of a 
nightclub bouncer. 

"A strong back is a terrible thing to waste," I thought to 
myself as I saw him in his cap and gown.

I looked up and discovered what he was gazing at. In 
keeping with the chinoiserie motif of the woodwork, there 
were remarkable scenes of idealized Chinese life painted on 
the ceiling, such as you might find in a mid-priced eatery 
in Chinatown. One, the one that seemed to get the young 
man's attention, showed a beautiful woman, naked, sitting 
on a man's lap.

A few eyes rolled. Most were blank - as if they paid no 
attention. And a few shined with the earnest sincerity of 
dim poets and complete idiots.

Sophia's school - the Ecole Actif Bilingue on Avenue Victor 
Hugo - must be one of the world's most unusual high 
schools. It is a small place with a collection of students 
that looked like a version of the United Nations without 
expense accounts. The commencement ceremony included 
speeches in English, and others in French. When some of the 
students spoke, I couldn't tell which language they were 

The biggest single contingent of the student body was a 
group of Asians. One by one they were called up - a fair 
number of them receiving their degrees, "with honors".

There were a few Americans, several misfit French children, 
some of them with discipline problems who had been kicked out 
of the French system, and a collection of people whose 
provenance was unclear and perhaps, unknown.

The business school speaker had a point. Sophia had an 
advantage. She and her classmates had an opportunity to 
figure out the entire world's peoples even before leaving 
high school.

"The Asians work very hard," one of Sophia's classmates 
explained. "They're the only ones to get good grades. But 
they stick to themselves. Some of the Arabs are nice...but 
you can't trust them. And nobody knows what's going on with 
the Africans."

"What about the Americans," I asked.

"They're mostly goof-offs..." came the answer.

I don't know who I pity more. The students or the teachers. 
Both labor in the dungeons of the academic world - 
torturing each other while pretending to do something not 
merely useful, but indispensable.

But an even greater pretense comes at the end - when the 
students leave school and pretend to know something. What 
most students actually know - beyond the basics of reading, 
writing, and elementary math - is a great lot of nonsense, 
ideas and information that is unnecessary, irrelevant, 
wrong, or simply preposterous drivel. But this nonsense 
gets piled up around them, so high and so thick, that it 
fills their view of things. 

Looking to the left they find claptrap about government, 
Rousseau's noble savage cavorting in their mind's eye with 
pilgrims of Plymouth Rock and the Democratic Platform of 
the Roosevelt Administration in 1948. To the right, lies 
the Labor Theory of Value, which - no one bothered to point 
out - is complete rubbish. But there it is, next to 
Keynesianism, monetarism and Greenspanism. Behind them, a 
stack of art appreciation classes is heaped up like an 
oeuvre at the Tate. It is labeled, 'real art,' not be 
confused with anything worth looking at.

No matter what direction they look they see only the 
detritus of a dozen years of expensive instruction. 

And, in front of them all, ricked up so high it is 
impossible for any of them to see over it, lies a great 
pile of good intentions...a moral high ground, built atop 
the garbage of modern activism. 

"With your international backgrounds," continued the 
commencement's main act, "you have all learned to be more 
tolerant of each other's culture... And now, you have an 
opportunity to change the world. Each of you can make a 

Why these kids, with their souped-up tolerance, would want 
to change the world is never questioned. But then, neither 
is anything else.

Each will, of course, make a difference. And each will 
change the world. But not necessarily in the way our 
speaker imagined.

But first, they have to climb out from under the piles of 
debris from their years in school and open their eyes. 
Then, they might actually see how the world works...or at 
least come to their own conclusions about it. And maybe 
they'll decide to accept it as it is.

Your correspondent,

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: July 02, 2001

Published By Tulips and Bears LLC