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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Negotiating The "Bride Price"

*** A major watershed: Amazon, the "pro forma" company, 
discovers the real world...

*** 401(k) reports full of woe...investors discover a 
real bear market...

*** Junk bond investors get 12 cents on the 
dollar...Lucent needs a 12-step program...and Baltimore 
is no longer dowdy. Uh uh. Noooo...

Amazon, the 'pro forma' Internet retailer, was 
attacked by investors yesterday. The mob rushed the 
stock and knocked it down 25%...They must have figured 
out what 'pro forma' means.

American investors, meanwhile, seem to be figuring 
out what a bear market means. "I wish I'd taken your 
advice last year," said a colleague from across the room 
yesterday, graciously forgetting previous years. 

"I should have sold everything," she added, as she 
looked at her account statement. 

She is not alone. "401(k) Reports Full of 
Heartache," declares a Business Week headline. "No doubt 
about it, the bear market's claws have shredded dreams 
of an earlier and richer retirement for millions of 

Yesterday, alone, Mr. Bear must have postponed a 
few retirement dates. Stocks fell; bonds rose. Nothing 
seems to be working the way it should. Stocks should be 
rallying. It's summer...the second half...and subsequent 
to 6 rate cuts! 

And bonds should be going down; they should be 
worried about the inflation caused by lower rates and 
liquidity in full flood. 

Commodities should be rising in price - signaling 
an advance of inflation. Instead, they are falling. 
Signs of a global deflationary meltdown - which began in 
Japan in 1989 - are showing up everywhere. 

The Commodity Research Bureau's Futures Index was 
down last week - to it's lowest level in a year and a 
half. Energy and metals were both down. Cotton is at 15-
year lows. Coffee has collapsed. Palladium, recently 
$1,000 an ounce, is now half that. Copper is at a 2-year 

Like the bond market, commodities are telling us 
that times ahead are going to be tough. U.S.A. Today 
reports that high-end home sales have become 'squishy' - 
$1 million house sales are off 15% in the first 5 months 
of this year.

It is as if some major watershed has been reached. 
Instead of flowing down to a bright, sunny Pacific...all 
the news seems to drip towards a dark and stormy 
Atlantic of financial calamity. 

But let's check in with Eric and see what else 
happened on Wall Street yesterday:


- Bill, if I'm suffering from depression, I never want 
to be happy again. To be sure, it's not easy making 
money in a rocky stock market, but bear markets do 
cleanse the air. This one has been particularly 
enjoyable - it's been exposing the idiocy of the bubble 
era for what it was. Names like Blodget and Meeker - 
once synonyms for genius - now stand for something far 
less esteemed. Wall Street is a nicer place when 
stupidity fails to make a buck.

[Eric has found the silver lining in the bear market 
cloud; people are getting what they deserve...not what 
they expected or hoped for. It is always gratifying to 
see people get what's coming to them.]

- The Dow tanked another 183 points on top of Monday's 
152-point fall. The Nasdaq surrendered 29 points to 

- Not to worry however, one of the talking heads on CNBC 
assured viewers yesterday, "No one I'm speaking with is 
talking about a retest of the Nasdaq low at 1,635." Give 
it time.

- Sometimes we just get so busy with our own bear market 
that we forget about the bear markets of others, like 
Japan's for example.

- Last week, the plummeting Nikkei finished erasing the 
so-called Koizumi rally - the springtime jump in share 
prices that accompanied the new prime minister's first 
few weeks in office. This week, the Nikkei Average 
tumbled to a fresh 16-year low.

- The phrase "mired in a recession" seems to understate 
Japan's economic predicament. Twelve years after the 
Nikkei bubble burst, the economy can't seem to get out 
of its own way. 

- But the Japanese economy is nothing if not 
schizophrenic. "Tumbling industrial production, falling 
business sentiment and plunging exports may keep 
economists and company managers at midnight," the Far 
Eastern Economic Review reports. But despite sluggish 
economic activity, the Review observes, the middle-class 
seems unperturbed. "The line snaking through Tokyo's 
Tony Ginza district on June 28th was not in front of a 
government office providing assistance to the needy or 
unemployed...This line hugged the newest outlet of 
French luxury retailer Hermes..."

- Meanwhile, back in the States, about 2,300 US 
companies will report earnings this week - including 
one-third of the S&P 500 - and you can bet that very few 
of them will be crowd-pleasers. As we've been observing 
for months, it's tough to grow earnings when neither 
consumers nor corporations possess the means to spend.

- That's not to say both groups wouldn't be delighted to 
spend more - if only they could borrow more. But it's 
starting to get tricky to pile debt on debt. For 
example, telecom carriers added $255 billion of debt in 
1998, $326 billion in 1999 and $655 billion in 2000. Now 
that the telecom bubble has burst, many are unable to 
pay the money back. Pity the bondholders of bubble-era 
debt claims. 

- "During the first half of 2001," the Wall Street 
Journal reports, citing Ed Altman of NYU, "investors 
owning defaulted telecom junk bonds recovered an average 
of 12 cents on each $1 of face value, down sharply from 
25 cents on the dollar in 1999 and 2000."


Back to Bill in Baltimore...

*** The New York Times reports that "Dowdy Old Baltimore 
Turned Fashionable." Thanks to the movie director, Barry 
Levinson, novelist Anne Tyler, and a spiffed up 
downtown, Baltimore is now hip. Or so they say.

*** But on Friday night, I took the family to see "Kiss 
Me Kate" at the Kennedy Center in Washington. Maria 
looked startlingly grown up in her theatre gown. Sophia 
too, but I've gotten used to the idea of Sophia as a 
young woman. (I don't think I'm ready for Maria to reach 

*** A very cute production, "Kiss Me Kate" is the story 
of a theatre company that performs a musical version of 
Shakespeare's 'Taming of the Shrew,' with lots of gags 
and guffaws of modern theatre life. The play takes place 
in Baltimore, leading to such memorable exchanges as:

"Hey, Pat, can you lend me $2?"

"If I had $2, do you think I'd be in Baltimore?"

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The Daily Reckoning Presents: A Wednesday Guest Essay in 
which the author braves the wilds of Central Asia in 
search of tasty dish of... Qazy?

By Dan Denning

"If you're not a fan of endless semi-arid steppes and 
decaying industrial cities, Kazakhstan may seem as bleak 
as a month old biscuit," opens the Lonely Planet guide 
book on this Central Asian gem... "if sometimes it looks 
like the landscape has suffered from hundreds of nuclear 
explosions, well, parts of it have - ever since Russian 
rocket scientists started using Kazakhstan as a sandpit 
in the late 1940s."

Okay. So it's not Poughkeepsie. But it isn't Baghdad, 
either. And that's an important distinction - within the 
Kazakh border resides the formidable Tengiz Oil field.

When it goes live, the Tengiz Field will unleash the 
largest single injection of oil into international 
markets in 25 years. It's estimated that the Tengiz 
field alone contains 6 to 9 billion barrels of 
recoverable reserves. And right behind it? Another oil 
field may contain as much as 10 billion more barrels. 

At stake are billions in profits - for a handful of 
international conglomerates - and an even smaller number 
of Western-listed companies. 

What's more, next month, the Caspian Pipeline 
Corporation will open the it's 982-mile pipeline between 
the Tengiz oil field in western Kazakhstan and the 
Russian Black Sea port of Novorossiisk. The pipeline 
will start off with a 560,000 barrel-per-day capacity... 
a figure that will reach 1.5 million very quickly. 

That's a lot of oil a day, especially when you consider 
global demand is about 75 million bpd. 

Hmmn... Kazakhstan. Risky? Perhaps.

But here at the Daily Reckoning, we like to overturn the 
occasional emerging market rock to discover what 
slithery creatures lie beneath. Just a few months back, 
we took a peek to see if the light of progress had 
penetrated the Dark, we peer into the 
heart of another beast: Central Asia.

Many Kazakhs are nomads... they move herd, yurt and 
flock from collective farms to fresh summer pastures 
each year. Their affinity for horses shows in sports 
like Kopar, a wild-free-for-all ancestor of polo where 
the headless goat's carcass is used as the ball, and qyz 
quu, a boy-girl horse chase - if a boy catches a girl he 
kisses her... if she catches him, she gets to beat him 
with her riding whip.

Indeed, Kazakh women are confident... despite the 
lingering custom of wife stealing, whereby a man simply 
kidnaps the woman he wishes to marry - and forces her 
parents to negotiate the 'bride price.'

Today Kazakhstan is grappling with "an enthusiastic 
brand of deregulation that tends toward anarchy," and a 
growing GDP of roughly one tenth the size of GE's market 
cap. But under the hopeful stewardship of the former 
communist president, Nursultan Nazarbayev, the country 
is fashioning dreams of becoming Central Asia's economic 

But unless they're expecting a world-wide surge in the 
demand for smoked Qazy (horsemeat sausage), they'll have 
to maximize the only resource the Western world can't 
live without - oil. 

The key to Kazakh oil has nothing to do with geology. It 
has everything to do with geography. This endless semi-
arid steppe is NOT in the Middle East. And the country 
is NOT a member of OPEC. 

And what makes the proposition even more intriguing: 
Kazakh pension funds are sitting on $US 1 billion. Right 
now, pension fund contributions are being funneled into 
bonds. The result has been a bull market in debt. 

At a certain point, it's not healthy to have a large 
portion of debt assets on debt only. Trouble is, there 
aren't a lot of liquid Kazakh shares to buy. In late 
June, Moody's upgraded the foreign currency deposit 
ratings of several Kazakh banks. One of the banks, 
Kazkommertsbank, more than tripled last month, from 4 
euros to 14. 

But other than KKB, it's very hard for U.S. investors to 
buy local Kazakh shares. Aside from the procedural 
difficulties, there is no free float in attractive 
stocks. So what to buy?

"Hurricane Hydrocarbons and Nelson Resources have 
substantial ties to ruling Kazakh elites," says James 
Passin of Firebird Global Small Caps Fund. Some 
companies exist so that their owners can strip the 
assets from the company and sell them for cash. But "if 
you steal a dollar, you only have a dollar," says 

These clans have a vested interest in building up the 
value of the company for shareholders, rather than 
stripping it out by raiding the companies' coffers.

And so far, those interests have worked out fairly well. 
Hurricane is up from a low of $US 0.25 in 1999 to $US 
12.00. What's more, they've just declared a dividend of 
"subordinate debentures" worth C$4 per share that will 
be paid on August 2nd, 2001.

"CAIH, a Netherlands-domiciled company 'associated' 
with KKB, owns 30% of Hurricane," Passin reports. "But 
CAIH just lost a fight to acquire a controlling stake in 

"Nevertheless, CAIH is controlled by extremely 
influential and intelligent Kazakhs, who are associated 
with one of the clans. CAIH also owns 35% of Nelson. 
IEI, another offshore vehicle, is associated with Halyk 
Savings Bank, which is merging with KKB in a few weeks. 
IEI and Halyk are both allegedly controlled by Timur 
Kulibaev, the President's son-in-law. 

"Kulibaev also controls KazTransOil, the domestic oil 
pipeline monopoly. Kulibaev is associated with the 
'Nazerbaev Clan,' i.e., the President's 'family'."

All of which is just a complicated a way of saying that 
Nelson looks suspiciously like THE vehicle for the son-
in-law of Kazakh President Nursultan Nazerbaev to cash 
in, once the pipeline starts flowing. The Kazakhs 
reversed very attractive hydrocarbon licenses into 
Nelson in exchange for a 70% stake. 

While Nelson is very small, and the stock much more 
volatile, it's got the solid backing of powerful people 
interested in seeing it succeed.

Yesterday, OPEC President Chakib Khelil announced that 
he expects OPEC to cut oil output by 1 million barrels a 
day to shore up prices. OPEC wants high prices. But 
they'll have trouble keeping them high if another 1.5 
million barrels per day comes on-line from Kazakhstan. 

And who knows... the savvy investor may be able to 
"steal" a piece of these clan holdings... negotiating a 
handsome bride price, indeed.


Dan Denning,
The Daily Reckoning

Dan Denning is the editor of The Daily Reckoning 
Investment Advisory.

James Passin manages the Firebird Global Small Caps Fund 
for Firebird Management in New York. In the interest of 
disclosure, Mr. Passin is a shareholder in both Nelson 
Resources and Hurricane Hydrocarbons. If you have more 
questions about Firebird or investing in Russian and 
Kazakh stocks, you can call James directly at 212-698-

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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 25, 2001

Published By Tulips and Bears LLC