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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

TUESDAY, 25 JULY 2000 


Today:  The Summer of Love, Part ll

In Today's Daily Reckoning:
*** Stocks fall...people aren't buying PCs
*** Beating the numbers - still not good enough
*** The U.S. is running out of electricity...false 
optimism...and forgiving 3rd world loans

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*** Up down...down...up - the Nasdaq fell yesterday and 
is once again in negative territory for the year. It lost 
112 points following a report that computer makers are 
shipping fewer boxes than they did a year ago.

*** How could it be that people aren't buying more and 
more PCs? Don't they know that the new machines are 
cheaper and more powerful (as the BLS tells us)...and 
that they increase productivity more than enough to pay 
for themselves (as New Era pundits claim)? 

*** I guess not. Instead, they think that last year's 
computer is plenty fast...and that all this IT spending 
may not be paying off after all.

*** So, Dell and Apple both fell about 10%. Gateway lost 
about 8%. But component suppliers Intel and Micron held 
steady. Go figure.

*** The Dow fell too - down 48 points. No reason given, 
and none needed.

*** came out yesterday and announced that 
it 'beat the numbers.' That is, it exceeded analysts' 
expectations in the 2nd quarter. Apparently, it should 
have roughed up the numbers a bit more. The stock fell $9 
- or nearly 25%. 

*** Beating the numbers isn't good enough. Not with an 
average P/E of 145 for the Nasdaq. Small increases in the 
"E" don't do much. E has to increase about 7-fold in 
order for the numbers to make sense. And that, dear 
reader, is not going to happen. It is not the E that will 
adjust, I confidently predict, but the P.

*** Bonds now yield 8 times as much as the S&P. Investors 
don't have to be geniuses to figure out that when stocks 
are falling their money is better off in bonds.

*** All but one major newspaper has reported stronger 
earnings in the 2nd quarter. Wall Street is "stunned" said 
the Reuters report. The Internet was supposed to put old 
economy newspapers out of business. Instead, it is the 
dot.coms that are going out of business. 

*** Which is bad news for the newspapers, too. Knight 
Ridder, for example, took in $6 million in 
advertising in the 2nd quarter...and another $16 million 
from the tele-coms.

*** There were 1105 stocks advancing on the NYSE 
yesterday against 1742 declining. The average stock is, 
once again, going down.

*** Gold fell $1.30. Platinum fell $4.30. The gold shares 
are getting down to what could turn out to be super-
bargain levels. NEM is at $17. HM is at 5 7/16ths. 

*** "The U.S. is running out of electricity," says the 
Electronic Telegraph. Electricity use has grown 35% the 
past 10 years due to the increased use of computers and 
various electronic gadgets. "The United States as a whole 
is using 3% more electricity each year," writes Dan 
Ferris. "To simply keep up with that demand, the entire 
electric generating capacity of the island of Taiwan, a 
country of over 22 million people, must be added to
the U.S. power grid-every two years... But in Silicon 
Valley, electricity demand is rising 5% per year..." Dan 
believes he has found more than one way to profit. 
(see: Is the US Running Out of Electricity?

*** Currency traders are spotting the opportunity in the 
euro. The dollar topped out against the euro on May 17, 
though almost no one noticed it. Euro-land grew at 3.4% 
for the last 12 months, above expectations. And the U.S. 
trade deficit continues to grow. In addition, interest 
rates between Europe and the US are converging - so the 
advantage of U.S. dollar deposits is declining.

*** "[The U.S.] is running a trade deficit of almost a 
billion dollars a day." says Gary North. "Foreign 
investors are funding this nation's buying spree. They 
bought $100 billion of U.S. shares in 1999; in 1996, they 
bought only $12.5 billion... When the U.S. goes into 
recession next year, the rest of the world will be coming 
out of theirs... the dollar will fall and import prices 
will rise... American consumers are not ready for this, 
but it's going to come." (see: An Orgy of Consumption

*** Another thing...Germany's tax reform bill includes 
cuts in both corporate and personal rates. And currency 
traders tell me that that the dollar has a seasonal 
tendency to decline against European currencies in the 
second half of the year.

*** A major subject of discussion at the latest G-7 
meeting was debt relief for poor countries. Poor 
countries could have borrowed on the open market if their 
projects had been able to clear the hurdle of prevailing 
interest rates - that is, if they'd been economically 
viable. They weren't. So, the rich countries robbed their 
taxpayers in order to back loans made by rich bankers to 
the rich mountebanks who run poor, third world nations. 
The money was, of course, stolen and wasted - like the 
ill-gotten loot it was. And now, in the name of 
compassion, the do-gooders are asking that the loans be 
forgiven. But the whole matter is make-believe from the 
beginning to the end. It is like a huge, plush float in a 
Macy's parade. The bankers, third world potentates...and 
a few hectoring, clueless moralists...all sip champagne 
or Perrier, pausing to wave to the crowds or talk to 
reporters - while the whole trundling contraption is 
tugged by poor taxpayers on one end and pushed along by 
poor Bengladeshi hod carriers and Brazilian trash pickers 
on the other.

*** A quote from Justin Mamis: "CNBC has become the 
standard bearer of optimism - give them a choice about 
how to interpret a statistic and the grins come out. If 
something's down, it's its own fault; if something's up, 
it's a sign of how marvelous the market still is. We'll 
wager, grumpily, that it takes 5 to 1 ups in a typical 
portfolio to make up for the loss in that 1 down. Nay, 10 
to 1, if we include the false-start ups, the inadequate 
ups, the irrational ups. It is, to be blunt about it, a 
helluva lot easier to lose money nowadays than it is to 
make any..." 

*** If the report in today's Financial Times is correct, 
Dick Cheney - who headed Gov. Bush's search for a running 
mate - found someone...himself.

*** "Give the readers a break," said Addison, encouraging 
me to lay off for a few days. Tomorrow, I'm taking the 
ferry from Cherbourg to Ireland - beginning a family 
vacation. I will try to keep up with the Daily Reckoning 
as I go...but I cannot promise anything. Addison, 
however, will still be at work in Paris.

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The sun reaches its zenith in countries north of the 
equator on the 21st of June. On midsummer's eve, 
celebrated as the Fete de St. Jean in France, bonfires 
are lit throughout Europe - following an old pagan 

But the heat of the summer doesn't peak until a month 
later. Heat has a momentum of its own and continues to 
build up for weeks after the event that will mean its 
decline - the summer solstice.

Likewise, the Roman Empire continued to thrive - even 
expand - for at least 100 years after the events that 
would eventually mean its demise.

And at this time of year, 187 years ago, Napoleon's army 
continued its advance into Russia - despite the fact that 
it was already doomed. Its momentum carried it all the 
way to Moscow...but alas, for 97% of the soldiers...not 
all the way home.

Markets, too, have a momentum. The most speculative and 
exaggerated prices - like the fluff of a milkweed flower 
- have been blown away. The Internets are in decline - 
with many facing imminent extinction. Probably 97% of 
them, too, will die before the winter is over.

But still, spirits are high. The momentum of nearly two 
decades of rising stock prices...and an economy that 
everyone says is booming keeps investors holding on and 
hoping that the good times will last forever.

"[T]he 18-year bull market," writes Lord Rees Mogg in 
Strategic Investment, "has made investors almost 
unanimous as long-term bulls." 

Rees-Mogg cites the survey done last year by Robert J. 
Shiller, author of Irrational Exuberance. Seventy-six 
percent of respondents agreed that "the stock market is 
the best investment for long-term holders." Nearly half 
agreed that even following a crash such as the one in 
1987, "the market will surely be back up to its former 
levels in a couple of years or so."
(see: Irrational Exuberance: Shiller's Chilling Tale

Maybe Americans have no history after all. Certainly, 
investors have none. As Shiller points out, there have 
been long periods where the returns from stocks greatly 
underperformed the returns from bonds. The "average real 
return on the S&P composite Index was 0.2% a year," he 
writes, "from June 1901 to June 1921, 0.4% a year from 
September 1929 to September 1949, and 1.9% a year from 
January 1966 to January 1986."

For these three 20-year stretches, investors got almost 
nothing from their stock market investments. At current 
prices, it is likely that another long stretch of low 
stock market returns lies ahead. Even if prices remain 
stable, it will take many years for earnings to catch up.
Investors, like Napoleon's soldiers marching along in 
good order in the summertime, are still hopeful. But they 
are probably doomed.

Down in Galesville, Maryland, a nearly full moon lit up 
the West River when I visited. Galesville used to be a 
fishing village near the Chesapeake Bay. It is an unusual 
place, where women of whatever age or marital status were 
addressed as "Miss Elsie" or "Miss Alice." And men of 
whatever profession were called "Cap'n Bob" or "Cap'n 

Summer in Galesville used to be different. Cap'n Earl and 
Cap'n Dick used to sit out on a derelict pier and drink 
beer - tossing the empty cans into the river. Nearby, 
down at "Molly and Dave's" customers would pick their way 
over rotten planks to the bar, which tilted towards the 
opposite shore, making it easy to roll drunks into the 
river. Motorboats roared up and down the river, and the 
smell of steamed crabs - with their distinctive Cayenne 
pepper flavoring - seasoned the heavy night air.

But that was back during the Johnson Administration. The 
Great Society changed Galesville. It brought a lot of 
money to the Washington much that it overflowed 
the Potomac and trickled down into the Chesapeake. My 
cousin now rents a little summer cottage - winterized and 
upgraded - for $2,000 a month. The motorboats have 
disappeared, replaced by sailboats. Molly & Dave's is now 
a quichey restaurant with deckboards so solid you could 
drop a Republican congressman from 20 feet and still not 
develop enough momentum to break them. And the 4th of July 
fireworks - which used to be lit and stuck down Larry 
Hall's pants - are now set off from a barge in the middle 
of the river with the approval of every federal, state 
and county agency south of the 40th parallel.

Money is visible everywhere in Galesville. It washed 
ashore in waves. The first wave was robbed from taxpayers 
in Minnesota and Arizona. But the most recent wave is a 
result of the l8-year bull market. The yachts are a 
quarter of a million each - and packed so thick you can 
almost walk across the river on them. The houses are so 
expensive that the sons of oystermen can barely afford to 
live there. 

"It's hard to be a doom and gloomer in the summertime," 
said an old friend of mine, PG, as we dined in Baltimore. 
PG has been a doom and gloomer for years - even though 
his own fortunes have done quite well. He is a good 
writer and earns a lot of money at it.

"I'm techno-challenged," he said, "but I try to look at 
the big picture. And the big picture is that there is 
good technology and bad technology. You can't get one 
without the other."

PG is worried about the momentum of technology. "There 
are always nuts among us," he told me. "Some people will 
always go postal and start killing other people. They run 
amok with a knife or a gun. Some people die."

"But now, a single nut-case can go on the Internet and 
get the plans for building a nuclear bomb...or a deadly 
new bug...or a computer bug that closes down the world's 
hospitals..or the ATM machines...or who knows what?"

"The point is," he went on, "no technology has ever been 
used just for good things. Human nature doesn't work that 
way. And human nature hasn't changed."

The chemical industry - heralded as one of the great 
innovations of the last 100 years - was begun in Germany 
at the debut of the century. Within less than 20 years - 
deadly mustard gas was used in the trenches of WWI.

Another of the century's great breakthroughs was heavier-
than-air transportation. Again, less than two decades 
after the invention of flying machines, airplanes were 
used to drop bombs.

Some innovations have less potential for harm than 
others, of course. Refrigeration and air-conditioning 
are, as far as I know, never been especially lethal. 
Television, on the other hand, has probably deadened more 
brains than opium. 

What evil lurks within the Internet, or the human genome, 
or any of the other breakthroughs Wall Street now 
celebrates? When will the dollar crash and bring down the 
whole structure of modern finance? Will the Nasdaq 
collapse and bankrupt millions of American families? No 
one knows. But the events that will determine our future 
have already happened. Stocks have reached unsustainable 
heights. The Internet is a fact of life. So are dozens of 
other innovations we haven't even heard of yet. 

But in this summer of love, under the hazy moon of 
Galesville, or the bright moon of Ouzilly, the threats 
from nuts and bears seem a long way off. 

Your correspondent...enjoying the summer... 

Bill Bonner

About The Daily Reckoning:
The Daily Reckoning... "more sense in one e-mail than a month of CNBC."  That's what readers are saying about The Daily Reckoning.

Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

Bonner writes his email letter from Paris, France, each morning --
describing the wacky, wonderful world of investment, politics and everything remotely related. Irreverent. Sharp. Honest. Thoroughly, unabashedly contrarian. It's also among the fastest growing e-letter on the Internet.  It's a brand new service... but it has a distinguished history..

For nearly 62 year, The Fleet Street Letter, the oldest investment
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

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Last modified: April 02, 2001

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