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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Cramer vs. Cramer

*** A question for the 4th: Are Americans too cock-sure 
of themselves and their future? 

*** The sasquatch recovery...abominable sales numbers in 
the telecom industry...hairy hotel figures...

*** Defunct dot.coms...airplanes that will never get off 
the ground...setting barns on fire...and more!

Have Americans become too complacent, too self-
satisfied, too confident of the future?

Why else would consumers continue to 'hang in 
there' while they lose jobs...incomes barely keep up 
with inflation...and debt payments, mortgage 
delinquencies, and bankruptcies soar? Even PSINet's blue 
neon sign still graces the new Ravens stadium in 
Baltimore. (PSINet went belly-up last month - one of 53 
dot.coms that went out of business in June, bringing the 
total of defunct dot.coms to 330 for the year.)

In 1995, Americans paid $100 billion on the 
principle of their debts. This year, it is 4 times that 

Yet, they continue to if absolutely 
sure that the 'second half recovery' will be here any 
day. Maybe it won't.

"If there's a surprise waiting for us in the 
second half of this year," writes Mort Zuckerman in US 
News & World Report, "chances are it won't be a recovery 
of growth but, rather, a disappointment that the 
combination of Fed easing and Tax cuts has failed to 
jump-start the economy. Why? Because of the triple 
whammy of weak consumer spending, declining capital 
spending, and tumbling exports."

"America is hurting," he observes. "After the 
booms in consumer spending, capital spending and 
exports, the time for adjustment has now come."

Yes, that's the way it appears to us, here at the 
Daily Reckoning. But let's see what Eric has to say...


Eric Fry reports from Wall Street:

- If Mr. Second-half-recovery has arrived, he is being a 
bit reclusive. A few folks report sighting this economic 
Sasquatch, but most of us have never laid eyes on him. 
In fact, many of us do not believe he exists. And for 
good reason.

- Scarcely a day goes by that several large American 
companies - 3M and DuPont being among the recent 
examples - do not report both disappointing earnings and 
a worrisome earnings projection.

- Five days into the second half, our recovery consists 
of strong car sales and decent home sales...on average. 
Of course, home sales are very sluggish in certain parts 
of the country. Apart from these two bright spots, most 
other indicators cast nothing but shadow.

- The US manufacturing capacity utilization rate, at 
76%, has now dropped below the lowest level of the 1990-
91 recession (76.6%).

- Worldwide sales of semiconductors in May sank more 
than 20% below year-ago levels, according to the 
Semiconductor Industry Association.

- "Hotels are having their worst time in ten years," 
reports the New York Times. "Domestic airlines, with 
their worst slump in 25 years because of the decline in 
business travel that started in January and accelerated 
in the spring, are so desperate to scratch up some 
revenue that the five biggest ones this week are all 
promoting special summer travel sales."

- If the recovery had arrived, would every major 
domestic airline and hotel chain be complaining in 
unison that business travel has evaporated? Delta Air 
Lines even announced this week that in response to 
slowing demand it will remove 10 aircraft from scheduled 

- And don't expect any help from either the Japanese or 
the European economies. Japanese business confidence 
fell sharply in June, according to the Bank of Japan's 
three-monthly Tankan report. Likewise, the euro-zone 
purchasing managers' index fell to 47.9 in June, its 
lowest level since December 1998.

- Yesterday, Marconi Plc, the U.K.'s largest phone 
equipment maker, disclosed a 15 percent drop in sales 
this fiscal year that will halve its earnings and also 
announced plans to shed a total of 8,000 jobs. Chief 
Executive George Simpson explained, "The biggest 
difference has been a significant falloff in orders in 
Europe." Marconi -- like Nortel, Alcatel, Corning and 
all the rest of the myriad companies selling various 
telecom products -- may find itself waiting a very long 
time for demand to recover.

- Michael E. Lewitt, an astute hedge fund manager I 
know, observed recently, "By the late 1870s, an 
abundance of cheap financing led to a doubling of 
railroad mileage...Two fifths of railroad bonds 
subsequently defaulted. Sound familiar? Maybe it is an 
historical accident that thousands upon thousands of 
miles of dark fiber-optic cable were laid along railroad 
lines." Or maybe it is simply poetry.

- As if the world doesn't already have enough debt 
sloshing around, worldwide bond issuance totaled a 
record $924 billion in the first half of 2001, according 
to Deal logic Capital Data. For perspective, 1999 was 
the first time that bond issuance topped $1 trillion for 
an entire year. Corporate and government debt is 
reproducing like rabbits, and just like these furry, 
long-eared critters, many of this year's debt issues 
will disappear into some black hole somewhere. Credit 
quality is falling as bond issuance is rising.

- Still, the tidal wave of cash cascading onto US shores 
from foreign investors is truly breathtaking. "During 
the fourth quarter of 2000 and the first quarter of 2001 
combined, the U.S. attracted more foreign capital inflow 
than during any other two-consecutive quarterly period 
ever," Greg Weldon observes. "The $373 billion in 
combined net direct and net portfolio inflows amounted 
to twice the current account deficit for the six-month 
period." Perhaps this indicates a telling sign of the 
recent strength in the dollar.

- But if the days of free-flowing foreign capital (not 
to mention plenty of dumb money right here at home) are 
ending, the dollar will suffer along with most other US 
financial assets. America has yet to "come to grips with 
its own structural excesses," says Morgan Stanley 
economist Stephen S. Roach. The yawning current account 
deficit is but one of them.


Back to Bill in Baltimore...

*** What really sets America apart from other nations?

*** "Everything seems to be a bit more extreme," said 
Benoit, a young Frenchman I know who is doing an 
improvised work/study program in Baltimore. 

*** I saw more of what Benoit must have had in mind 
yesterday, at the Scottsville, Virginia, Independence 
Day parade. The very small town on the banks of the 
James River put on a big show - displaying what Tom 
Wolfe calls the 'baroque exuberance' of our nation. 
There were cowboys and Indians, macro men in miniature 
cars, marching bands and county fair queens, and one 
zany enthusiasm after another...including a group of 
bikers flying a "Motorcycle Ministries" banner.

*** "We had an even better one out our way last year," 
said my brother-in-law from nearby Lovingston. "Every 
year they set off some fireworks... but last year was 
special. Somehow, one of the roman candles or something 
got into John Murray's barn and set it on fire. Of 
course, the volunteer fire department was right there - 
they were in the parade. 

*** "The barn blazed up and sent sparks up into the air. 
It was really they just let it burn. And 
everybody said it was the best fireworks show we ever 

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"Exit, pursued by a bear." 

William Shakespeare, (1564 - 1616), 
Stage direction in "The Winter's Tale"

"Dear TSC community," begins a cheerful letter from 
James Cramer of "I know what you're 
wondering; 'When is everything going to turn around?' 

"Everywhere I am, whether on CNBC, at my desk, or on 
Wall Street, I'm asked the same thing, 'Cramer, when 
will the market turn around?'"

How can Cramer be 'everywhere," a grammarian or 
philosopher might wonder. But our beat is investments. 
So what we wonder is this:

Why would anyone care what James Cramer thinks? 

I also have an answer: because knowing what Cramer 
thinks can be very rewarding...but only if you remember 
to do the opposite. 

"Cramer," reports Christopher Byron in an MSNBC article, 
"...declared on the day after the Fed cut interest rates 
for the first time on Jan. 3rd, 'I am now confident that 
the bull is back. We have arrived. We have made it. Now 
we can prosper. Nasdaq 1500 just ain't in the cards."

In order for the Nasdaq to sink further, said Cramer, it 
would mean that his 'must own' companies of the 
Information Age - such as Cisco and JDS Uniphase -- 
would have to "blow up." 

"On the day he wrote that," Byron reports, "JDSU 
Uniphase stood at just under $48 and Cisco stood at $41. 
Today JDSU sells for $12.50 and CSCO sells for $18 - a 
loss of 74% for JDS Uniphase and 44% for Cisco Systems. 
In other words, they did exactly what he said couldn't 
happen: they blew up."

[I understand Byron's point, but not his arithmetic - 
the loss for Cisco should be more than 50%.]

"That same day," Byron continues mercilessly, "Cramer 
said, after claiming to have 'touched base with a number 
of my sources,' that he had identified three stocks that 
'will still be standing' and won't be 'guiding down' in 
their next quarter." 

One of the three was the telephone giant Nokia, then 
trading at $44 a share. But within 10 weeks, Nokia began 
'guiding down' so often it might have been mistaken for 
an air traffic controller. It said first quarter 
revenues would not be what was expected. Then, it said 
second quarter revenues would also be disappointing. And 
then, last week, it announced layoffs of 1,000 people. 
Nokia has been whacked to its knees - losing more than 
half its value since Cramer assured us it would "still 
be standing." 

What of the other two? Brocade fell 80% and Veritas 
collapsed 57% "almost immediately after [Cramer] made 
his predictions," Byron notices.

The Nasdaq, too, defied Cramer's forecast. It didn't 
sink to 1500, but almost - falling 36% in the 3 months 
following, to 1638.

There was a time, believe it or not, when people treated 
Cramer, Abby Joseph Cohen, Henry Blodget, and Mary 
Meeker as if they had they had not lost their marbles or 
their scruples. Those were the days when you could pay 
as much as $71.25 for a share of Cramer's 
and not think someone had misplaced a decimal. (Today, 
shares can be purchased for only $1.42). 

Cramer boasted that would soon beat out 
the Wall Street Journal as the leading source of 
financial information and opinion. And many people 
believed him!

And they still believed him on February 29, 2000 when he 
gave investors his list of "top 10 stocks for who is 
going to make it in the New World."

The grammar got away from him, but not the pitch.

"You know what," he said, sounding like the manager of a 
professional wrestling act, "I am going to give them to 
you. Right here. Right now." He then named a list of 
companies which sounded exciting then...but now reads 
like a roster of the living dead: Ariba, Digital Island, 
Exodus Commuications, Infospace, Inktomi, Mercury 
Interactive, Verisign, and Veritas. 

"Exactly two weeks later," Byron resumes, "the tech-
bubble popped. Since then, Ariba and Infospace have 
fallen 96%, Digital Island and Exodus have plunged 97%, 
Inktomi is down 93%, Verisign is down 76%, Veritas has 
dropped 50%, and the best performing stock on his list - 
Mercury Interactive - has fallen 'only' 38%."

Cramer's own has done no better. TheStreet is 
down 98% from its high, and has never made a dime of 
profit. Its latest-reported quarter showed losses of 
$7.2 million on revenues of $4.4 million. Hard to 
believe that investors once valued the company at more 
than $1 billion. 

But then, investors seem willing to believe anything... 
and anybody who tells them what they want to hear. 

And thank God for them...the Cramers, Blodgets and 
Meekers! They've provided us with so many guffaws and 

...and profits, too, for those who were able to ignore 

Your financial pen-pal,

Bill Bonner

* * * * * * * * Advertisement * * * * * * * * *

When The Greatest Credit Bubble in History Bursts...What 
Comes Next? 

No banks or brokerage houses went bust in the 1929 
crash. In fact, many investors and businessmen 
prospered. The real damage was done later on - when 
popular sentiment turned against stocks altogether. Just 
as is happening in our markets today... 

Will you profit in the months ahead? You will if you 
prepare yourself now - EVERYTHING that is happening in 
the markets today has already happened before. Click 
below to learn more about: 

The Hidden Logic Of Credit Bubbles
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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 05, 2001

Published By Tulips and Bears LLC