Contributed by Bill
Publisher of: The
Fleet Street Letter
FRIDAY, 29 JUNE 2001
*** Discontinuing coverage? Or leaving the scene of a
*** Stocks rise on optimism...what else do they have to
*** A lousy year for investors...but "res nolunt diu male
administrari" (a handy comment for almost any occasion)...
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 dot.com tout
must have - in which every sunrise comes as a surprise and
every sunset as a complete shock.
I say 'former dot.com 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 USAToday.com'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-
- 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 Amazon.com and Pets.com - 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."
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MAKING A DIFFERENCE
"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 educations...by 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
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
"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
"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
"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
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.
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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.