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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Concrete and Oil

*** Stocks soar on Wall Street...big rally? Or bear 

*** "The biggest financial insanity in history..."

*** Serial bailouts...the FBI comes to call...and more!

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

You don't have to lose money. You don't even have to 
give up on high returns. 

Play it smart. Play it safe. Follow the trends. 

Take it from the analyst whose investors banked profits
selling Oracle, Sun Micro and Broadcom at the top, 
locking in 353%, 376% and 680% gains, respectively. And, 
as the bubble unwinds, his investors have already made 
141% from Dow Puts, 31% shorting VRST, 38% shorting 
SLMC, and 11% shorting AFCE. 

And that's just last week! Find out how to survive 
the coming market volatility in this late-breaking 
* * * * * * * * * * * * * * * * * * * * * * *

The Dow has lost 3100 points since its peak. The 
S&P is down nearly 40%. The Nasdaq has given up 74% of 
its gains. 

All over the country, business executives gather 
together to try to figure out how to cut costs and 
survive the coming downturn. Consumers have slowed their 
spending. Debtors are having a hard time making their 
payments. And people are losing jobs. MSNBC reports the 
economy "screeching to a halt." 

So what does the market do? Without even waiting 
for the sound of gunfire, they blasted stocks upward 
yesterday. Could this be the beginning of a major bear 
market rally? Yes, it could.

But could this be merely a feint by Mr. Bear, a 
trap for unwary investors - to be snapped shut by an 
even sharper fall in stock prices - or even the panic 
selling we've been expecting - tomorrow? Yes, it could.

Could this be an opportunity to sell your stocks, 
and get out of this crazy market until prices finally 
hit bottom at decent prices (10 times earnings, or 

Yes, it could.

Eric, what happened yesterday? (By the way, Eric 
is hosting CNNfn this week. Look for him from 9:30 - 
11:30 a.m. e.s.t.)


Eric Fry in New York:

- The big relief rally finally arrived, and what a 
relief it was. There's nothing quite like a bear market 
rally to get the speculative juices flowing. The Dow 
soared 368 points, or 4.5%, to 8,604 - chalking up its 
best one-day gain of the year. The Nasdaq bounced more 
than 5% to 1,499.

- Some of the day's notable winners included some of 
last week's biggest losers. Boeing, for example, gained 
almost 9%.

- As greed reasserted itself on Wall Street, many of 
last week's "fear" trades crumbled. Treasury bonds, oil, 
and gold all gave ground. Oil suffered a particularly 
dismal day. The price of crude fell almost $4, to $22 
per barrel - the biggest one-day drop in more than 10 

- So let's take a quick tour of the financial markets. 
Are we near a bottom? Near THE bottom? Or still just 
tumbling down haphazardly from the top?

- Certainly, stocks are relatively cheap - relative, 
that is, to where they were trading in March 2000. But, 
as a hedge fund manager I spoke with yesterday told me, 
"It would be hard to say that stocks are absolutely 
cheap. They just aren't." Even now, the S&P 500 index 
sells for about 25 times earnings. Valuations like this 
used to occur only at market tops...

- Sir John Templeton, one of the world's most respected 
investment advisers, says that the downfall in the stock 
market over the past year is bigger than the crash of 
1929, and he doesn't expect a recovery anytime soon. 

- In an interview last weekend with, 
Templeton said the run-up in market was "the biggest 
financial insanity ever in any nation in history." 
Templeton said he is warning investors that the recent 
"technology bubble...was far bigger than any previous 
bubble of any nation is not the time to buy 
common stocks."

- "Two weeks after the terrorist attack on the World 
Trade Center, the economic costs total $40 billion and 
are likely to climb," Crain's reports. "The disaster 
will likely be the most expensive ever, surpassing 
Hurricane Andrew, which cost $30 billion, and the 
Northridge, Calif. earthquake, which affected more than 
2,200 square miles."

- Worse, the aftershocks of the terrorist attack are 
rippling far beyond the epicenter.

- Crain's cites a typical example: Tom Cat Bakery. "The 
wholesaler, which sells bread to hotels and restaurants 
in Manhattan, was forced to reduce its employees' hours 
and thus their pay by 20% last week, because revenues 
are down about 35%. Four of Tom Cat's biggest customers 
are hotels that either don't exist anymore or are shut 
down indefinitely. The bakery's other customers, in 
midtown and upper Manhattan, have slashed their orders 
because of the shortage of tourists in New York."

- There may well be fewer tourists in New York these 
days, but those that are here are swarming to Lower 
Manhattan to catch a glimpse of "ground zero". They seem 
to easily outnumber the emergency workers. It's almost 
impossible to walk down the sidewalk on Broadway.

- "Bits of fine dust and ash still coat the windows of 
buildings 10 blocks away," writes the Blue Team's Dan 
Denning, who visited New York this weekend to bear 
witness. "Clean up crews are busy trying to get the city 
back to normal. Their efforts are being hampered by 
thousands of tourists looking for the best angle to take 
pictures of the smoldering ruins. It seemed like poor 
taste to me."

- "[A]ll over the metropolitan area," the New York Times 
reports, "people are slowly returning to shops to buy 
what they must: groceries, school supplies, new sneakers 
for the children. But the big-ticket items - cars, 
jewelry, huge-screen televisions - are moving slowly, if 
at all."

- "In wartime, markets do not operate freely," cautions 
Marshall Auerback. "There is a tendency toward increased 
regulation and centralized, government-directed activity 
- even those governments which, under normal 
circumstances, would champion free markets. Profit 
maximization, returns on capital and investment, all of 
these otherwise laudable capitalist objectives are 
temporarily subsumed in the pursuit of a broader 

See: "It's A Wartime Economy, Stupid!"


Back in Paris...

*** I heard from the FBI yesterday. They've asked for a 
copy of my message from September 11th with the prophetic 
headline - "Something's Coming, Something Big." Of 
course, I had no idea what was coming. But I knew there 
must be something, which in the sightless eyes of the 
FBI classifies me as clairvoyant.

*** And several Daily Reckoning readers wrote yesterday 
to warn me: "Watch out," said one. "You are in danger of 
losing your audience. You just can't imagine the 
sentiment over here. Returning from Europe, I was 
shocked. I've never seen anything like it."

*** "Something big has happened," Elizabeth explained, 
demonstrating that geography is no barrier to collective 
sentiments. "It is more terrible than you seem to 
realize. We Americans have been attacked. Thousands have 
died. We are no longer safe. This is no time for jokes 
or ironic reflection. It would be like telling jokes at 
a funeral."

*** "After the tragedy," today's International Herald 
Tribune quotes sitcom producer Steve Levitan, "being 
funny almost seems treasonous...and when you laugh, you 
feel guilty."

*** "It's not that irony is dead," said John Aboud, 
editor of Modern Humorist, "It's just that feelings and 
honesty are in."

*** "This incident has made everyone a lot more 
thoughtful," added producer David Ladd. A DR reader 
summed up the situation: "You have no idea what it is 
like here. Flags flying everywhere...everyone unified as 
I have never seem them before. It is wonderful. And a 
little scary, too."

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

Suddenly, it seems like the world is a more dangerous 
place...but the truth is, throughout the 1990s, it was 
getting more and more so - and no one seemed to notice. 

* While the United States spent billions on high-tech 
defense, fanatics armed with box cutters planned the 
most audacious attack on the United States in history... 

* While investors thought they were going to get rich 
with long-term Buy and Hold strategies - they lost $5 
trillion in wealth in an 18-month period. 

* While consumers heeded the Fed's call to " 
buy" - they scarcely noticed that their own financial 
security was going bye-bye under a collapsing tower of 

For help protecting yourself against the FINANCIAL 
THREATS you're going to face in the months ahead, click 

Mean New World
* * * * * * * * * * * * * * * * * * * * * * *

by Bill Bonner

Today I write to you with an irony-free letter. No out-
of-step ideas. No irritating reflections. 

Instead, I offer you two ways to take advantage of the 
coming bear market rally - if there is to be one. Or, 
merely a chance to buy stocks that are good enough and 
cheap enough that you could hold them throughout the 
long, dark teatime of an economic slump...without 
worrying about them too much.

When Jeff Bezos was enjoying fame as the world's 
smartest entrepreneur and was still selling 
for $88, in March '99, someone asked if there was 
anything the Internet retailer would not sell. 

"Cement," came the jesting reply.

This made us immediately sympathetic to things concrete. 
Anything so un-hip, so anti-New Era, we reasoned, must 
be as cheap as Amazon was dear.

Since then, Amazon has drifted downstream...selling 
today for only $7.46 a share. The companies that make 
cement, meanwhile, remained where they were. Relatively 
cheap in 1999...they are still cheap. One of them seems 
not only relatively cheap, but absolutely so. 

Might it get cheaper in an extended bear market? Yes. 
Earthquakes shake up everyone. But that is the benefit 
of sleeping on a low don't have as far to 

Cemex is the world's No.3 cement maker. It is based in 
Mexico and operates in 30 different countries. Forty 
percent of revenues come from two markets - the U.S. and 
Spain, with the balance coming from emerging markets.

Selling cement in the late 90's was hardly a glamorous 
business. Surely, the people at Cemex must have had a 
yearning to put a ".com" after their name or to start up 
a B2B Internet business. They must have felt a little 
d�mod� in their dusty, industrial age trade. So, they 
can be forgiven for trying to put at least one foot in 
the New Era. "The construction industry is ripe for a 
digital makeover," says the annual report, "and Cemex is 
leading the way, transforming itself from a conventional 
to a digital enterprise."

Fortunately, Cemex did not take this effort too 
seriously. It remembered that customers wanted tangible 
cement, not information, and it flourished. "Operating 
margins of about 25% and returns on equity of more than 
15% have been the norm since 1991," reports Grant's 
Interest Rate Observer. 

"On June 30, debt accounted for 42.3% of capital," 
continues Grant's, "...while EBITDA covered interest 
expense by 4.88 to 1."

Here at the Daily Reckoning, we do not feel competent to 
judge the business prospects of a multinational cement 
company. But to the question, "Do you really want to own 
a cement company on the eve of a war?", we answer: 

And to the question, "Why Cemex and not another cement 
company?", we reply: "Because Cemex is on the bottom 

At a P/E of 5.3 times 2001 estimated earnings, Cemex is 
less than half as expensive as rivals Hanson, Holcim and 
Lafarge. Its dividend yield, at 4.07%, is the highest of 
the group, and its price to book value, less than 1, the 

Our second suggestion comes from Frederick Sheehan, of 
John Hancock Asset Management. 

"We...will face energy shortages and bottlenecks for a 
long time," he wrote on September 6. "We are short of 
refining capacity in the U.S. and not much is being done 
about it. The U.S. needs more natural gas. The world 
needs more power plants. The world will need more 
gasoline. A lot of Asians who never rode in a car a 
generation ago now own one."

Has anything happened since September 6 to change that 
situation? Probably not. 

Sheehan lists 10 companies that he regards as "Rich and 
Neglected." I give them to you with their P/Es:

Amerada Hess 6.4
BP Prudhoe Bay Royal Tr. 4.7
Frontier Oil 7.9
Murphy Oil 9.8
Phillips Petroleum 7.1
Sunoco 6.8
Tosco 12.5
Ultramar Diamond Shamrock 7.8
Unocal 9.4
Valero Energy 5.1

Why are these companies so cheap? 

"All it takes is an announcement that gasoline inventory 
has risen over the past week, and these companies get 
sold. The thinking seems to be: 'The energy problems are 
solved, let's buy XO Communications.'"

"Maybe profits have peaked for some of these companies," 
writes Sheehan, "but they are filling a shortage that 
won't evaporate overnight."

Energy and commodity prices have been falling, more or 
less willy nilly, for the last 20 years. Prices reflect 
the widespread view that the next 20 years will be like 
the last 20. 

Will they be? 

And here, dear reader, I permit myself a moment of 
reflection. We do not know what the future will bring. 
But we share the feeling with other Americans that 
something big has happened. Some realignment of the 
stars...some volcanic rumbling and tectonic shift...we 
don't know exactly what it means...but we wait to find 

In the meantime, we will sleep on the lower bunks.

Your correspondent...keeping close to the ground...and 
trying to understand what is going on in the world 
around him.

Bill Bonner

[Ed. Note: The Agora Wealth Symposium is still on! We're 
gathering at the Las Vegas Regent from October 31-
November 3, 2001. Bill Bonner, Eric Fry and Dan Denning 
will be there. Hope you will be too!

To make your reservations today, call Agora Travel at 1-
800-926-6575 or 1-561-266-6570. For more information on 
the trip visit:

The Agora Wealth Symposium
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: September 26, 2001

Published By Tulips and Bears LLC