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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Pi In The Sky

In Today's Daily Reckoning:
*** Techs get hammered...Asia takes a beating... Poor Ms. 
*** Intel's chips are just not selling as fast as 
*** Oil off...the dollar off...Abby Joseph Cohen off...

*** Poor Ms. Wu. She had already taken a big loss in tech 
stocks in South Korea and had demanded that the 
government 'do something' about it. But no sooner do 
things begin to brighten up then - whammo - another 
torpedo slams into the hull. Stocks in Seoul lost more 
than 7% in trading early today.

*** It was the same story all over Asia as the Autumn of 
Anxiety got off to a good start. Tokyo took a 3% hit. 
Hong Kong got whacked for a 2.46% loss. 

*** The trigger for these losses was an announcement last 
night from the world's biggest chipmaker - Intel. 
Apparently, the chips are not selling as well as 
expected. In trading in the after market, Intel shares 
fell 12 points. 

*** Dell lost $4 in after-trading too. Dell was in the 
news earlier in the day, announcing that it was on-track 
for 30% earnings growth. I've been hammering the Big 
Techs for weeks now - since they, like second marriages, 
represent such an obvious triumph of hope over 

*** Almost all the techs are trapped by their own good 
fortune. Dell, trading at a p/e of 55 - is just too 
expensive for a company whose sales are rising at 30%. 
You'd have to sit on the stock for 5 years - with sales 
rising 30% per year...and the stock price steady - before 
earnings (to say nothing of actual dividends) would equal 
what you could get from a T-bond.

*** Even if you were the sort of financial masochist who 
might enjoy doing that - you'd most likely be 
disappointed. The bigger these companies get - the harder 
it is to continue growing. Dell was supposed to grow at 
40% this year...which was revised down to 30%. Some 
analysts think the actual number will come in closer to 

*** The whole tech sector is doomed. The Nasdaq 100, home 
of the Big Techs, is down 21% from its March 27 record 
high of 4704. 

*** But wait, Abby Joseph Cohen says investors' fears are 
"overdone." Actually, investors are not yet fearful at 
all. They're still extremely bullish. Money is still 
flowing into mutual funds. People are still buying the 
Big Techs - even at prices that are preposterous. They 
still think there are New Economy stocks that are "must 
own" investments. Fear hasn't even begun. 

*** Investors are just getting edgy. The Dow is down 7% 
for the year. Major stocks such as Intel and Microsoft 
are off 30% to 50%. People are beginning to wonder what 
is going on.

*** I'm wondering too - but I suspect that Mr. Bear, who 
began his work last year when the Dow and Nasdaq both 
peaked out, and then took a long summer vacation, is back 
on the job. The U.S. economy carries $12 trillion more in 
debt than was normal, relative to GDP, for the first 3 
decades after WWII. My guess is that some people are 
getting uncomfortable under that burden.

*** Oil eased off yesterday - falling $1.24. Al Gore 
accused the big oil companies of price gouging and is 
proposing to open up the strategic oil reserve to make it 
easier for democratic voters to drive their SUVs and heat 
their homes. OPEC says oil production is in excess of 

*** And the dollar broke to the downside; the dollar 
index fell to 115 and the euro rose to more than 86 

*** The Danes are scheduled to vote on joining the euro 
bloc next week. Chances are, they'll vote no. If so, we 
could see another move down in the euro. But the bottom 
for the euro can't be much further down.

*** The Dow, meanwhile, rose 77 points, but the gain was 
not very satisfying. 17 stocks fell for every 11 that 
went up. Almost 3 times as many hit new lows as hit new 

*** "The trade deficit is now running around $30 billion 
a month," writes Ray Devoe, "compared with $36 billion 
for the entire year of 1992." When will this affect the 
dollar? And what would the Federal Reserve do? Raise 
interest rates to protect the dollar? And... if the 
dollar weakened would foreign money stop flowing into 
American securities? Or, conceivably, start returning 
home?" (see: Autumn of Denial in A Less Safe World)

*** Yesterday, the Fed Beige Book was released. Bill 
King: "It contained a most dire warning - wage increases 
and higher material costs are widespread (inflation), and 
the high labor costs are a problem. Oil, wage inflation, 
and the euro spell earnings contraction. Bye-bye stocks."

*** Also from King, speculating on why the rich got 
richer and the poor get poorer during the Clinton years: 
"Dems typically raise taxes to cover social spending, 
then paper over it with monetary promiscuity. The wealthy 
capitalize on the easy money via asset leveraging, 
whether its real estate, stocks, or whatever. The middle 
and lower class don't have the same access to capital and 
leverage, so their incomes sag."

*** What else? Well, in a bit of old news, Alec Baldwin 
has pledged to leave the country if Bush is elected. So, 
you see, a Bush victory wouldn't be all bad.

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Down, Down, Down... is worth 7% of it's IPO high. Webvan down 75%, down 75%, NetZero down 75%,, 
down... E-loan Inc. down... and on and on. I hate to say 
we told you so, but "we told you so." 

Meanwhile, you could have been making good money
from a different kind of "high-tech" investment. It's no It's a world-renowned company that's quadrupled 
sales in 5 years... and increased profits 6 times. You 
can buy it right now at a P/E that's 40% less than some
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


"Hey," said my assistant Addison yesterday, "that's just 
what we do."

He was referring to the movie "Pi," wherein the lead 
character decides that he can best discover the mysteries 
of the human heart in the movement of stock prices. He 
believes our amalgamated hopes, ambitions, work, emotions 
and fantasies can be tracked on a chart of stock price 

But the trouble with collective thinking, a point I have 
been making to the point of tiresomeness, no doubt - is 
that it creates a phony, shallow, slogan-driven view of 
the world, which ignores the complexity of real life. 

Herd thinking can elect a president. It can launch a war. 
It can make a movie popular. And it can lead entire 
generations to abandon two millennia of experience and 
take the world into a 'dark night' that lasts 7 decades. 

But it is not a good way to invest.

The tragic hero of "Pi" believes he can find a 
mathematical constant - like pi, or the Fibonacci 
sequence, or the golden constant - that will unlock the 
Deep Truth of the human heart. 

But our goal here at the Daily Reckoning is much more 
modest. Just show us an episode of madness so extreme 
that even we can't miss it.

The two biggest sensations in the investment world today 
are U.S. stocks (especially the Big Techs)... and the 
U.S. dollar.

The Techs seem to have already peaked out... and are 
working their way down. The dollar, though, is about 2 
cents (against the euro) above where I thought it had 
peaked out back in March. Unless the ultimate peak 
happened yesterday - the great reckoning for the 
greenback still lies ahead.

The madness of dollar strength reveals itself soberly, 
even tediously, in macro-economic analysis and 
statistical deconstruction. But the madness of the techs 
is more entertaining..

Alan Abelson recently cited the case of a tech company 
called SpeechWorks. It is a tiny company with total sales 
of only $14 million last year. And yet, thanks to the 
power of collective thinking its market cap has been 
amplified to about $2 billion. What makes a small company 
worth that kind of money?

Well, it's in the speech recognition business, which as 
Abelson puts it, "has always been a hot button for the 
racier element in the Street." 

In order to justify the stock price, the company would 
have to turn up the volume sales by approximately 
14,200%. Maybe it will. But only if and when it does will 
the stock be worth what it is selling for today. Until 
then, it needs to be discounted for all the many things 
that might go wrong - competition, technical failure, 
management problems, a general breakdown in the stock 
market, nuclear war, global warming...the list is quite 

Or, take the example of the 2nd biggest company in the 
world. In terms of market cap, that title currently falls 
heavily on the shoulders of the Cisco Kids. The current 
issue of Grant's reveals, that when it comes to reporting 
income and earnings, the Cisco Kids follow the beat of 
their own drummer. While Cisco says its diluted earnings 
per share for the last year, ending July 31, 2000, came 
in at 53 cents, following the more traditional beat of 
the GAAP rules yields only 36 cents. By Cisco's count, 
earnings also grew by 47% in the 12-mo. period, but GAAP 
gives a more modest figure of only about half that amount 
- 24%. 

Cisco is not some dodgy company in a Brooklyn loft. It 
has a market cap of nearly half a trillion dollars. Yet 
it is priced, by investors, as though it were a fast-
growing upstart with a patent on sugar. The current p/e, 
Addison tells me, is 169. 

But Cisco is a popular sensation. Apparently, few people 
actually look at the numbers. If they did, they'd 
discover what Grants found: ROE has declined from 33% in 
1996 to 10% in 2000. Operating margins have been cut in 

And even if they do look at the numbers...and connect the 
dots...they still might not be able to believe the 
evidence of their own senses. They must wait for 
confirmation from the collective unconscious.

Meanwhile, the Wall Street Journal told the story of a 
very young man who made a more than a quarter of a 
million dollars in the stock market. Jonathan Lebed of 
Cedar Grove, NJ, learned how to pump and dump stocks at 
the age of 14. Trading through his father's account, he 
bought shares in a thinly-traded company...then placed 
hypey notes on Internet bulletin boards. He sold the 
shares within 24 hours - to the slouch brains who 
believed his hype. 

Confronted by the SEC, Jonathan copped a plea - saying 
that he did nothing wrong, but would not do it any more.

Your correspondent...oozing thoughts...

Bill Bonner

P.S. The search for 'Pi' drives the hero of the movie 
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