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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

EUROSTAR, SOMEWHERE SOUTHEAST OF LONDON 
FRIDAY, 17 AUGUST 2001 

 

Today:  The Sweet Nothings of a Toaster Oven

*** The Loveable Mr. Fink - the great white hope of the 
civilized world...

*** Dollar down 7% since July... The beauty of being the 
world's largest debtor nation...

*** "Wall Street, The Game" - two easy rules to play... 
a slight delay on the Eurostar... Congratulations to two 
of London's finest... and more!

*** Ah yes... now we're getting down to it. "The 'real 
heroes' in the front line of the battle against the 
slump," says the Financial Times, "may well be the 
unsung ones - people such as Jonathan Fink." 

*** The loveable Mr. Fink, we're told, "is a 28-year-old 
insurance company employee who lives in southern New 
Jersey and commutes to work in Philadelphia." He 
recently took out a bank loan... and bought a new 
Mercedes sports car. 

*** This summer, "paying close attention to financial 
developments by monitoring the Internet," Mr. Fink 
noticed the mortgage rates dropping - while the value of 
his suburban Cherry Hill home skyrocketed... so he took 
out a second mortgage and paid off the higher interest 
rate car loan. 

*** "Home ownership has become the means by which 
American consumers are continuing to spend in the face 
of the most severe business contraction in a decade," 
says the FT. "Tens of billions of dollars in cash have 
thus been injected into the economy." 

*** "You see, Addison," Eric wrote to me last night. 
"There's nothing to worry about... as long as we can 
suck the equity out of our homes." 

*** Unfortunately, one item disappearing rapidly..."is 
home equity that is actually owned by the homeowner. In 
1945, Americans owed mortgage creditors just 14% of the 
value of their homes - the rest, 86%, was theirs as 
equity. [But] as of the first quarter [of 2001] they 
owed 45%, leaving [only] 55% in equity."

*** You may be interested to know that I spoke to Bill 
last night. He and la famille have arrived back from 
their vacation in Nicaragua and are safely back at 
Ouzilly. He reports only that the vacation went well, 
and that he'll be back "on the job" on Monday... until 
then, on with the show. 

Eric, what's shakin' in the Big Apple?

*****

Eric Fry reporting from Wall Street:

- It had to happen - the dollar falls and immediately 
Wall Street parades out the tired list of multinationals 
"certain" to benefit from dollar weakness. McDonald's, a 
company that produces about 58% of its sales outside the 
U.S., always seems to top the list.

- What the analysts neglect to mention is the part about 
why the dollar is falling - little things like a gaping 
current account deficit, a recessionary economy, and a 
waning foreign appetite for U.S. assets.

- If, for example, the dollar is falling because 
foreigners are selling their U.S. equity holdings, these 
U.S.-based and U.S.-traded multinational stocks may not 
be such great assets to own.

- Nevertheless, for a day, companies like McDonald's, 
Procter & Gamble and Merck were back in vogue with 
investors.

- Still, overall, the trading action on Wall Street 
remains uninspired at best. Thanks mostly to the 
aforementioned multinationals, the Dow advanced 46 
points. The Nasdaq managed an 11-point gain... its 
second positive close in 10 sessions.

- Most telecom and Internet stocks have fallen so far 
from their highs that they have very few points left to 
lose. Nevertheless, Ciena managed to plummet 30% 
yesterday to $19.62, after the company forecast "lower 
than expected" earnings.

- The first mistake, it seems to me, was expecting any 
earnings in the first place.

- The dollar's decline seems to be gaining a head of 
steam. The world's most popular brand of currency fell 
for the seventh straight day to 91.6 cents per euro. The 
greenback's cumulative losses against the euro since 
last July now total more than 7%.

- "To finance both our current account deficit and our 
own export of capital," former Fed chairman, Paul A. 
Volcker, testified on July 25th before the Senate 
Banking Committee's Subcommittee on Economic Policy, "we 
must import close to $3 billion of capital every working 
day to balance our accounts. That is simply too large an 
amount to count on maintaining year after year, much 
less enlarging."

- But as James Grant observes, "Americans consume more 
of the world's goods than they produce. They finance the 
deficits with dollars. The beauty of the position of the 
United States as a debtor nation is that hundred-dollar 
bills cost no more to print than singles do."

- Have you noticed how all the Wall Street analysts have 
started proclaiming their "independence" and "honesty?" 
Don't believe it. These claims are but the latest 
marketing ploy. The style and form of the game may 
change, but the rules of the game never do:

Rule #1: Wall Street wins; Rule #2: You lose.

- As Chris Byron writes, "When sell-side financial 
analysts spoke of 'new paradigm' concepts for stock 
valuation, they knew they were spouting nonsense. They 
knew it was demonstrably absurd to speak of 'revenue 
growth' as a way to determine a stock's worth in the 
market. They knew it was all baloney, but they spouted 
it anyway - because the fees their firms stood to earn 
(and thus their own bonuses) were so enormous. In other 
words, the temptation proved too great to resist, and 
they simply wound up stealing from the market.

- How much was stolen? "Coming up with a precise number 
is almost certainly impossible," says Byron. "But one 
way to look at the matter is to make reference to the 
infamous 'Internet Suckers Index'"... which Mr. Byron 
began publishing on an irregular basis - and to much 
derision - as the dot-com bubble swelled ever-larger. 

- "Of the more than 400 Internet stocks we monitored on 
a regular basis during the course of the boom," Byron 
concludes, "only seven are still in positive territory 
from their offering prices - with nearly every other one 
having lost more than 95 percent of its value; most have 
simply gone out of business and disappeared."

*****

Back to Addison, writing from London today...

*** Curiously enough, as I write this, my friend and 
fellow scribbler John Forde and I are stuck on the 
Eurostar just outside of London. We've been sitting here 
for about half an hour, armed only with the information 
that was given to us over the loudspeaker 5 minutes 
ago... 

"We are troubled to inform you," said a voice in a heavy 
French accent. "We are stuck in this place because the 
immigrants are on the track."

*** Anyway, here we sit. We're on our way to London to 
conduct a little business. But also to join in the 
wedding celebration of two of our colleagues, and great 
friends, from the London office. Congratulations, Nic 
and Ellie! Hope you'll enjoy many happy years...

*** Arriving on the train from Paris is "a little like 
passing through Hamden," observed John, referring to a 
little-known hub of humanity in Baltimore. "Every 
backyard's got a big wheel, a satellite dish and laundry 
hanging out to dry..." There's something a little 
unsettling about the sudden awareness that everywhere 
you go vaguely reminds you of somewhere you've already 
been.

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

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"Financial Times" recently proclaimed the 'Death of 
Gold.' Once again, the mainstream media is leading 
investors astray. 

But their foolishness offers you the perfect opportunity 
to make huge profits now. New technological 
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Some new stocks will pay 100%-2,000% a year. Early 
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* * * * * * * * * * * * * * * * * * * * * * * * * * *


The Daily Reckoning Presents: A Guest Essay 


THE SWEET NOTHINGS OF A TOASTER OVEN, or Technology's 
Siren Song

By Dan Denning

When you set out to learn about investment markets and 
how to profit from them, it's not new technology or the 
Federal Reserve that you're studying. What you're really 
studying is human behavior. 

You're simply trying to figure out what products and 
services lead people to change the way they behave, and 
thus, the way they spend their money.

For example, take the idea of home networking.

I just read Michael Lewis' latest book "Next: The Future 
Just Happened." Lewis made his name exposing the inside 
operations of the bond office at Goldman Sachs. Now he's 
exposing the latest generation of hucksters: futurists 
and technologists. 

In "Next," Lewis tells the story of two men named Jim 
Barton and Mike Ramsay who thought they could build a 
company based on the idea of home appliances talking to 
one other. 

Huh?

I don't know about you, but when I first heard about 
this, I thought it was nuts. What would the garage 
opener really say to the dishwasher if it had a chance? 
Would the toaster really care what the blender was doing 
out late with the food processor? 

Sounds novel in theory.

But the reality is, ideas don't change people's behavior 
unless they have specific applications that are useful 
or desirable. 

Fortunately, the marketplace thought the idea nuts too. 
So Barton and Ramsay moved on. They decided instead to 
focus on the convergence of television and computers. 
All it would take was a little black box.

With souped-up black boxes full of computer memory, 
people could record hours of television at home without 
ever using a VCR. What's more, they could watch the 
programs they wanted to WHEN they wanted to watch them. 
And perhaps best of all, they could completely skip the 
commercials.

These obvious benefits made the black box - the TiVo - a 
hit with consumers. As Lewis says "Over time, the viewer 
could create, in essence, his own private television 
channel, stored on a hard drive in the black box, 
tailored to his interests."

But besides letting people watch what they wanted, when 
they wanted, the black box would have an unexpected 
function: it would watch the viewer.

Not literally. Rather, it would accumulate a vast 
database of every user's viewing habits... when you 
changed the channels, what time you watched your 
programs, how long you watched for, how may commercials 
you watched.

The last part was crucial.

In early trials, 88% of viewers used the TiVo to skip 
over commercials. 

The findings were network television's worst nightmare - 
a new technology that blows gaping holes in their multi-
billion dollar ad-revenue-based business model. 

Or maybe not...

You may be shocked to find this out, but people actually 
LIKE to get advertising - when it's advertising for 
things they want.

Case in point: Three weeks ago, when I was experiencing 
the worst heartburn of my life, I was eager for anyone 
who could promise me some relief. I wasn't interested in 
hemorrhoid ointments (although if I'd had them at the 
time, I probably would have been). 

I was looking for a real solution to a real problem. A 
database of my viewing habits could have helped 
marketers target me with a solution.

The same could be said of people shopping for thousands 
of item...diapers, cars, home security.

It doesn't matter that 88% of viewers skip 
commercials... if you can reach the only ones watching 
who will buy.

I can't tell you the future of TiVo. For one thing, 
there are privacy issues to overcome.

But the phenomenon makes sense. The consumer gets more 
choices and lower prices. Advertisers find out how to 
serve you better by knowing what you buy.

That's the way the free enterprise system works. If 
TiVo helps marketers to capitalize on that, their future 
could be bright indeed.

Therein lies the lesson for investors.

Wall Street has made a living from offering painfully 
generic investment advice to the entire country: Buy, 
buy, buy!

Sure, they've told people to diversify, and buy value 
stocks along with growth stocks. But they did this only 
after stocks stopped going up. 

The results have been disastrous for many.

Why? In retrospect, the advice Wall Street has given 
America is the equivalent of a primetime ad for Pepsi: 
it's designed to appeal to the broadest audience 
possible. The broader the advice is, the less useful it 
becomes. 

If your goals are ambitious - if you see the market as a 
vehicle to finance your business, your retirement, your 
chateau overseas - there ARE ways to make these things 
happen.

But only with better-targeted solutions.

For instance, between 1969 and 1979, Morgan Stanley 
Capital International's Europe, Australia, Far East 
Index (EAFE), almost doubled the return you would have 
gotten on the S&P 500 - 10.09% to 5.86%. Between 1979 
and 1989 it was even better. The EAFE index returned 
22.7% while the S&P returned just 17.5%. 

It's not being in the right stock that matters. It's 
being in the right asset class. And knowing which asset 
class has the best return tells you which asset to own. 
This, of course, turns the Wall Street "buy and hold" 
mantra on its head. 

Of course, there is no TiVo database that tracks 
investor goals. If only there were, Wall Street's 
generic, watered down, self-serving bombast might 
finally come to an end.

Regards,

Dan Denning
Daily Reckoning, Blue

Daniel Denning is the editor of the Daily Reckoning 
Investment Advisory. For investment advice consistent 
with the ideas in this essay, please subscribe to the 
Daily Reckoning Blue Service:

http://www.agora-inc.com/reports/STRT/BigReturns

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

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next 18 months might be NEITHER! 

The tug of war between Wall Street's bulls and bears 
shows no signs of ending. Neither side seems quite 
capable of finishing off the other. Are we in a stalled 
bull market... or are we in the midst of a genuine bear 
market...or is the worst of the bear market already 
behind us? It's quite likely that we won't have clear 
answers to these questions for many months. In the 
meantime, the clock ticks. And the question remains: 

How do we make money in this market? 

In every market situation there are moneymaking 
opportunities. And this year's Agora Wealth Symposium in 
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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: August 18, 2001

Published By Tulips and Bears LLC