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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 17 JULY 2000 


Today:  The Internet Mania, R.I.P.

In Today's Daily Reckoning:
*** Let the good times roll - Nasdaq up 5.5% last week
*** And BOJ keeps giving away money
*** The price of a pound of flesh...urban myths in the country...and more

*** Let the good times roll. The wholesale price data greeted Wall Street
on Friday. It revealed that if you ignore food and energy, inflation is not
a problem. So, if you don't eat or drive - you don't have to worry about
rising prices.

*** And don't worry about rising housing prices either. The Bureau of
Labored Statistics tells us that the cost of housing increased less than 3%
in May, from the year before. 

*** If you live in a trailer in the Ozarks, raise your own hogs and don't
own an automobile you have probably noticed little inflation pressure. But
if you walk down to the nearest gas station and check the prices on the
pumps you will notice that they have risen from about $1.15 per gallon to
$1.50 per gallon in the last 12 months. 

*** And certainly beyond the Ozarks, if not in them, housing prices are on
the rise. "Home Prices Jump 25% in Year" proclaimed a headline from the San
Francisco Chronicle. 

*** And a friend reports from Greenwich Village, NY: "These days, you
practically have to get a blood test to find a new apartment and sign a
lease. The going
brokerage fees are about 15% of annual rent. And you have to put down the
standard deposit, equivalent to a pound of flesh, at signing. HOWEVER, I've
heard that if you're employer is a ',' New York landlords demand
THREE pounds of flesh (the standard first and last
month's rent... plus a 'dotcom' special order of two more months rent on
top of that)." I did not check the current market price for a pound of
flesh, but I have little doubt that the BLS will find a way to keep it in

*** Also from NY comes a report that a new Alain Decasse restaurant offers
a $160 prix fixe menu...and it's booked through October. 

*** No wonder. Wall Street is swamped with money. The Dow rose 18 points on
Friday - putting it ahead 1.6% for the week. The Nasdaq is at its highest
level in 3 months after a 68 point increase on Friday...and a 5.5% boost
for the week.

*** Everything was great last week. Advancing stocks led declining ones 2
to 1. And there were 3 times as many new highs as new lows. The Internets
rose - with AMZN up 7 � points on Friday alone. 

*** Even a $145 billion judgment against the tobacco companies failed to
depress investors' spirits. 

*** Gold fell a little, but platinum keeps going up. It rose $1.30 on

*** Hang on to your wallets, because this week could be even more exciting.
A lot of data is due out - including earnings reports, which are supposed
to goose up prices even higher.

*** There is an "expectation of a rosy reporting period," said one analyst
on the Reuters wire, "as the rally continues to unfold." 

*** Probably most important, and least noticed, was the fact that the Bank
of Japan decided to continue giving away money. The BoJ's zero interest
rate policy is the source of a lot of the hot air in this bubble, lest we
forget. The really smart money borrows from the BOJ at zero...converts the
money to dollars...and then places it in Wall Street. Even a 6% return is
fabulous - given the leverage. Five percent per week - which the Nasdaq
used to deliver regularly and now provides occasionally [such as last week]
- is even better. It works out beautifully... unless the dollar falls.

*** The dollar didn't fall last week. It rose. But it is the key, I
believe, to the whole thing... "Looking further ahead," says the 70th
Annual Report of the Bank of International Settlements, "the biggest policy
challenge could be coping with a sudden reversal in the fortunes of the

*** I am becoming alert to the "urban myths" of the Internet, ever since I
ran that note in which Janet Reno allegedly confessed her true feelings
about cultists. I couldn't resist the Reno quote. In these days of
mealy-mouthed gibberish from public officials, Reno's lunatic clarity was
refreshing. But even she was not dumb enough to have said what was
attributed to her. My apologies.

*** A reader sent me a new definition of Democracy which I will add to my
Contrarian's Glossary: 

Democracy: Three wolves and a sheep vote on what to have for dinner.

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Finally, the mania that you've been reading about in these letters for so
many months has made the front page of the world's most prestigious
financial newspaper - The Wall Street Journal.

"What brought on the mania?" asks the WSJ reporter. "Some answers lie in
the murky realms of mob psychology, the human capacity for denial, the
get-rich-quick mentality - factors in speculative frenzies since the days
of the tulip. But to an unusual degree, the Internet bubble was a product
of basic avarice and tactics that smack of the boiler room. From Wall
Street pros to fledgling day traders, all joined hands in a giddy game of
lowering standards, pushing out IPOs and trumpeting prospects, with little
regard for a company's true-long term - that is to say, more than three
months - outlook."

The WSJ article tells the story of companies such as, Career
Builder and Audible, Inc., for example, was considered too
tiny and unproven to take public when the idea first occurred to Credit
Suisse First Boston executives. And "it wouldn't have happened if bankers
hadn't changed their rules."

But changing the rules is precisely what the times seemed to call for. went public at $9 a share...and for one glorious moment the
firm was judged to a $1 billion business, as the stock rose to $97. 

Since then, the bubble burst and now you can pick up shares of
for less than $2. "Internet stocks as a group, valued at $1.4 trillion at
their March peak," says the WSJ, "have lost 40% of that - erasing almost as
much paper wealth as the 1987 crash."

Of course, I am not surprised that the Internets have crashed, nor should
you be. It is one of the few predictions I don't have to apologize for. But
what is startling is the blithe way the investors have carried on. The
Internets, I may now need to remind you, were considered the main feature
of the New Era Economy.

Now they don't seem to matter. Everyone seems to have realized that
Internet stocks developed into a bubble... and all seem to be glad that the
bubble has finally burst. 

"We all knew we were going to get a big kahuna correction at some point,"
says a fund manager in the WSJ piece. With the bubble out of the way - fund
managers and investors believe they can return to doing what they do best -
making money in stocks.

Not only is the Internet bubble cleared out of the way - so is the market's
reliance on the Great Internet Delusion. The National Academy of
Engineering recently surveyed its members to come up with the most
important scientific innovations of the century, as published in Barrons: 

1. Electrification
2. Automobile
3. Airplane
4. Water supply and distribution
5. Electronics
6. Radio and Television
7. Farm mechanization
8. Computers
9. Telephone
10.Airconditioning and refrigeration

Uh...what happened to the Internet? It is down at number 13, after

Readers will note that these scientific advances proceed incrementally and
cumulatively. Without the internal combustion engine, there would have been
no automobile nor airplane...and no tractors. Without the computer and the
telephone there would be no Internet.

Each advance, however great or modest, is cause for celebration on Wall
Street. The size of the party depends not so much on the eventual ranking
of the innovation by engineers, but on how much the hosts have to spend.
And thanks to the Japanese free money policy, Al Greenspan's loose money
policy, the LTCM and Asian currency scare...followed by the Y2K scare - not
to mention the bear's 20-year vacation - money has been no problem.

Technical knowledge accumulates. But investment knowledge, collectively and
individually, seems to evaporate in the warm summer sun. Technology may be
cumulative. But psychology is, alas, cyclical. 

Thus, when the party gets going, the rules that were learned at such cost -
like the customs and traditions of the common law - are thrown over. 

CSFR had, for example, a rule that they would only take a company public
after it had at least $10 million in revenues in the previous 12 months.
But as investors showed themselves willing to buy companies with much less
in revenues - and no hope of profits - CSFR changed its rule. Thus,
CareerBuilder, which had $2.8 million in revenue for the previous quarter,
was taken public at $13. It traded as high as $20...and has since fallen
back to $4.

There is even a website or two devoted to tracking the collapse of these

"It's about time..." says the website with a name that couldn't be reported
on a family show, "I'm sure they didn't mean for it to be this funny,
but... 'You have
reached Unfortunately, we are now closed.'" 

Another: "Rumor has it that online socks and pantyhose retailer's office in San Francisco is closed. The windows have been
frosted over, the blinds are drawn, and there's a big sign which says 'NO
SOLICITORS' on the front door. They probably needed a sign that reads 'NO

And yet another: "Too bad, so sad. Yet again, the site says it all. 'Thank
you for coming to visit us at Unfortunately, our site will be unavailable for the
foreseeable future.'" And, "Another data storage site goes bye-bye...A
notice on the Internet FileZone site reads, 'IMPORTANT NOTE TO EXISTING
CUSTOMERS: Internet FileZone will be discontinued August 31, 2000' Yes,
that does sound like an important notice."

What was so recently thought to be the peak of coolness has been an object
of ridicule: "Honk if you just got laid off...Rumor has it that just laid off 5 employees due to lack of sales."

In this summer of love, even the collapse of the Internet mania is cause
for laughter. We all knew it was a joke, after all.

Your correspondent,

Bill Bonner
About The Daily Reckoning:
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Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
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Bonner writes his email letter from Paris, France, each morning --
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Last modified: April 02, 2001

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