In Today's Daily Reckoning:
*** Another big day for the Big Techs...fattening up for
the slaughter ahead
*** Oil stocks sink to near 24-year low...heating oil at
highest price since Gulf War...
*** Boy, the English can drink...mysterious
*** The Dow rose 5 points yesterday. The Nasdaq did a
little better - up 52.
*** Both Big Tech giants - Intel and Cisco - fattened up
a little more...by the time they looked at the scales at
the end of the day, each had gained more than $2.
*** "Technology stocks," said Barton Biggs, Morgan
Stanley's chief economic strategist, "have become a
worldwide obsession." And he further added "I think the
game is mostly over in tech and that the marvelous tech
sacred cows that create the Internet infrastructure
build-out are vulnerable because they are priced for
absolute utter perfection, and in the end technology is a
high-growth but somewhat cyclical and unstable business."
*** But "Sun, Cisco and Oracle are holding up," said one
soothsayer quoted by Reuters, "because investors believe
there is safety in them."
*** There may be a lot of things in the big techs - but
safety ain't one of them. Just the opposite. The 'crowded
trade' feels safe because it is crowded with investors -
all seeking safety, validation, and confirmation in the
middle of the great herd. But the big assembly of fat
investors merely attracts the hungry bear.
*** The bear doesn't just come up and announce that he's
going to eat you. He works the edge of the crowd -
picking off stragglers and weaklings. He doesn't want to
panic the herd. He just wants to go about his business.
*** So, investors crowd toward the center - toward the
most popular stocks...the big techs. But are the safe
just because investors think they are safe - and boost up
the price? Not at all - as the prices rise, the more
dangerous they become. Because, sooner or later, the bear
gets to them. Either quietly, one by one...or in a sudden
panic...eventually, he takes them down.
*** Albertson's got mauled yesterday. The food store
chain fell from $32 to $23. It's now down to the point
where it yields 3% and has a P/E barely in the double
*** But Albertson's is far from a tech company. It's an
Old Economy company - one that provides something even
Digital Man cannot live without - food. Analysts said
yesterday that the techs rose because they were not
vulnerable - as Albertson's was - to increases in the oil
*** Oil shot up by $1.25 a barrel yesterday, after
investors discovered that there isn't much of it around.
U.S. crude inventories are near a 24-year low. And
heating oil is at its highest levels since the Gulf War.
*** President Clinton, eager to help elect his #2 to the
White House, urged OPEC nations to get to work on their
pumps and bring more of the crude to the surface. And the
Saudis, moved by the spirit of cooperation...and perhaps
other things, said they would be happy to pump more oil.
Alas, some killjoy pointed out that pumping wasn't the
problem. Shipping is the problem. There is no extra
*** Meanwhile, the battle between the dollar and the euro
continues to hang in the balance. The euro bounced back
up yesterday, after coming very near to its May low. The
outcome of this battle, I believe, will determine the
direction of the oil price, gold and the Big Techs.
*** "Predicting that some day the international community
will make a portfolio decision to liquidate dollar-
denominated assets," says Bill King, "is like predicting
snow in the Rockies. It's inevitable." When that happens,
the dollar will fall...and so will the Big Techs. Gold
will rise. But will it be a gentle dusting of the white
stuff - like a Miami highway after a drug smuggler has an
auto accident? Or a real blizzard?
*** The markets are full of mysterious contradictions.
Bonds and oil are going up. That's not supposed to
happen. Along with labor, the price of oil - despite was
the BLS says - is the key ingredient of consumer price
inflation. And nothing is worse for the bond market than
*** Speaking of inflation, here's a letter sent to
Silicon Investor's William Fleckenstein:
I am an executive at a small home building
company - we employ 20 people. Last year, our
health insurance premiums rose 14 percent at
our renewal date. Just last week, I received a
notice from our carrier informing us that our
rates would skyrocket by 57 percent at this
renewal. They were gracious enough to offer a
more restrictive managed care program, and if
we chose this plan, our rates would increase
by only 40 percent. ... Boy am I glad
inflation is less than 3 percent as the
government tells us!
Also, our receptionist came to me today,
requesting a 20-percent raise because "that is
what people in my position are now making,"
based upon resumes we recently received for a
similar position. Lastly, at annual review
time, if I offer an average employee a 3-
percent raise they just laugh, stating that
they deserve more and can get it elsewhere if
I do not ante up... I am also glad that the
BLS says that wages are not a problem because
all of my employees are so productive!
*** Well, our Internet Conference came to an end
yesterday afternoon, so it's business as usual here in
the Ouzilly office of the Daily Reckoning.
*** I was very impressed by the participants - especially
the English. The English were the worst singers, but the
best drinkers. I woke up at 4 AM and heard them still
laughing and singing on the veranda. Then, at 8:30 the
next day, they were back at work...at least they appeared
to be awake.
Commodities are booming...while stocks languish. Oil is
at a decade high. Water recently set a record high.
What's next? You can make a fortune in Mining Stocks...
if you understand the industry and the money flow. We
recommended a mining stock last week. It's up 6% already.
Don't miss out. This is your opportunity. Learn the Seven
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"Human reason can neither predict nor deliberately shape
its own future. Its advances consist in finding out where
it has been wrong."
"I don't get it," said one of the participants, after
spending almost three days talking about the Internet
with colleagues from around the world. "How have they
been so wrong?"
The 'they' he referred to were the Early Proto-Digital
men, who believed that the Internet would cause people to
behave differently. For example, they believed that you
could not use sales hype to sell things over the
Internet, because people would "hit the delete button so
fast that sparks would fly."
"You should see how fast I can throw junk mail in the
trash," he continued. "But that didn't stop direct mail
advertising from becoming a ubiquitous, multi-billion
The pioneers on the Internet had hoped for something
different. They had the idea that they were ushering in a
whole new world, populated by a new race of humans -
Digital Man, free from emotionalism, sin and hype. It
seemed logical to them.
They longed for a world of pure reason - where bits of
data could simply stack up, like a staircase of 1's and
0's - free information that would mount upward forever.
All the problems of the Internet were discreet, bounded
problems that could be solved by mathematical algorithms
and engineering logic. It was not only a world of never-
ended progress, but also a world in which they were
comfortable. A world without a devil...a world where only
computing power mattered. A world that would be dominated
by smart, Digital people. A world where young women in
bars would be attracted to software programmers rather
than baseball players.
Technological progress is cumulative, as I've pointed out
many times. It just gets better and better. But how?
The Internet seemed to liberate information from cost
restraints - turning the staircase of technological
improvement into an escalator of uninterrupted progress.
All you have to do was get on board. The Internet would
make us all rich.
Jim Davidson recently explained: "Ideas are what allow us
to take the finite resource available on earth and
rearrange them in ways that make them more valuable."
Davidson, who believes in the New Era, but recently
declared himself a bear on the stock market, continued:
"In other words, ideas are the recipes of progress."
"The Internet," which brings the ideas and information of
millions of the world's smartest people directly to your
home computer at virtually no cost, Davidson went on,
"makes the information economy much more like the ideal
economy of theory, in which perfect information and
perfect competition erode local monopolies upon which
many Industrial-era firms have depended for their
In an ideal economy, advertising disappears. Mistakes
disappear. And so do profit margins. People have the
information they need - free - to make the most rational
decision. There is no need to try to persuade anyone of
anything. There is no need to ever buy a second-rate
product, theoretically, nor to ever embrace a second-rate
idea. People who "should have known" or could have known,
now have no excuse. The information is there, available
at no cost.
Of course, the Internet is filling up with advertising,
frauds, bad ideas, wrong information and hype. One thing
that has emerged from our three-day conference on the
Internet is that the Internet is not so different from
every other medium - TV, telephone, newspapers,
magazines...direct mail. For every line from Socrates or
Shakespeare making its way around the Internet universe,
there are thousands of dumb jokes, dopey ideas and
pictures that you wouldn't want you wife to find in your
People have not changed. Just as in the print media, an
Internet publisher is not likely to go broke from
underestimating the taste of the American public.
The idea of perfect information is nonsense. There is no
such thing. There is certainly more information on the
Internet - but it is far from perfect.
As Gary North points out, "perfect information wipes out
profits and losses, according to economic theory."
Has the Internet wiped out either profits or losses?
Nope. There are still many companies making money and
many losing it. Curiously, the most Digital companies -
that is, the most completely Internet firms - seem to be
taking the biggest losses.
"The Forrester Review forecasts," said an email I
received designed to sell me consulting services, "the
retail marketplace will generate up to $185 billion by
"On-line stores entertain many visitors, but convert less
than 2% to buyers. Without higher conversion rates,
companies will continue to reap painful results such as
poor customer retention, low margins, and revenue loss."
Another report from Forrester noted that fewer than 40
percent of dot.coms were aiming to be profitable before
2002. Many would not commit to any timetable. And as
recently as this past April, the people running these
businesses thought that even trying to make a profit was
a mistake. They thought it was more important to dominate
their "space." If they were not going to make money - how
were they going to pay to stay in business? A third of
the companies surveyed by Forrester said they didn't
Technological improvements are a fact of life. But even
they do not result from a simple process of accumulated
information. The ideas and information so methodically
and rationally stacked up by the Digital Men are being
knocked down. Economic progress is what you have left
over when the failures are eliminated.
Your correspondent out in the French countryside...
P.S. Polls of Internet geeks a few years ago showed them
to be just about the only group in America to favor the
Libertarian Party candidate. Small wonder. Libertarianism
is the only political strain in America with any logical
integrity - thus appealing to the prejudice of smart
people with limited imagination.
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Last modified: April 01, 2001
Published By Tulips and Bears