Contributed by Bill
Publisher of: The
Fleet Street Letter
SOUTHEAST OF LONDON
FRIDAY, 17 AUGUST 2001
Sweet Nothings of a Toaster Oven
*** The Loveable Mr. Fink - the great white hope of the
*** 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
- 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
- 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
"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
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The Daily Reckoning Presents: A Guest Essay
THE SWEET NOTHINGS OF A TOASTER OVEN, or Technology's
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
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
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
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
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
The last part was crucial.
In early trials, 88% of viewers used the TiVo to skip
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,
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
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
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.
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:
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The Daily Reckoning:|
author Bill Bonner
Bill Bonner is,
in spite of himself, a natural born contrarian. Early each morning, Bill
writes The Daily
Reckoninghis take on the financial markets and whats going
on in the worldand 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 upnot 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 90sopening offices in Florida, London, Paris, Ireland, and
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.