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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Making Progress

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 
contradictions...and more

*** 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 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 
tanker space.

*** 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?

Stay tuned.

*** 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 least they appeared 
to be awake.

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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." 

Friedrich Hayek

"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, 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 
2004..." But...

"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...

Bill Bonner

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.
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...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

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Last modified: April 01, 2001

Published By Tulips and Bears LLC