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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Lambda Factor

*** Smart money still leaving the techs...looking for 
earnings and safety in the Dow and utilities
*** Oil up...euro stable...
*** Doubts about the CPI...will the next Congress have to 
raise the debt ceiling?...Gore's planet in retrograde. 

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*** Nothing special about yesterday. The smart money left 
the Nasdaq and moved over to the Dow. The Dow rose 49 
points. The Nasdaq fell 104; it is now at its lowest 
point since May 31. 

*** Remember, this is the Autumn of Anxiety. And you 
don't have to look very far to find a reason for jitters. 
There are still the 4 E's to worry about, for example - 
and none of them improved yesterday.

*** After Apple, Intel, Kodak and others...along came 
Xerox last night and announced that it would lose money 
this quarter. The confession was made after closing time 
on Wall Street. But stocks in the Far East were hit by 
selling this morning. In Japan, for example, stocks fell 
on "tech weakness," according to the Financial Times, 
even though the Tankan report of business sentiment 
revealed the highest level of confidence in 3 years.

*** The euro went down a little yesterday. But not much. 
It is still about 88 cents. 

*** Oil rose in price - by $1.28/bl. This was blamed on 
"tension" in the Mid-east. 

*** And, finally, the economy didn't look any better at 
the close of business than it did when the doors opened. 
In fact, it looked a bit worse. People are beginning to 
notice the gap between the abstract, collective knowledge 
given to us by the Bureau of Labor Statistics - and their 
real, first-hand experiences. The BLS admitted an error 
last week and adjusted its inflation rate estimate to 
3.4%. But when you go to buy something - a house, a 
gallon of gas, for example - you discover that the price 
is 20% to 50% higher than it was a year ago. 

*** At the least, people are beginning to suspect that 
the BLS inflation rate is understated. Perhaps that is 
why the Treasury's inflation indexed bonds rose against 
the non-indexed bonds yesterday... 

*** Alan Abelson in Barrons, refers to Charles Peabody of 
Mitchell Securities: 

"For openers, he says, it means that...real rates of 
interest are thus are not as high as thought. Monetary 
policy, in other words, may be even more accommodative 
than it has seemed. More to the point, it reinforces 
Charlie's view that inflation is running at over a 4% 
rate, which implies that P/E multiples...will come under 
severe pressure."

*** P/Es will come under pressure, most likely, where 
pressure is now least apparent - in the high altitudes of 
the Big Techs. Yesterday, for example, Intel and Apple 
both lost about a buck and a half.

*** "Given the recent campaign rhetoric in which both 
major parties are advocating legislative programs that 
would tap into the ever-growing budget surplus," comments 
William V. Sullivan Jr, money-market economist at Morgan 
Stanley Dean Witter, "most voters would no doubt be 
surprised to find out that the federal government's 
overall debt loan continues to expand. Indeed, despite 
huge liquidations of outstanding securities in the 
secondary market, total indebtedness remains on an upward 
trajectory as non-marketable issuance continues to soar." 

*** The passage above is from a column in the Financial 
Times, written by James Grant. "The facts are in the 
public domain," Grant continues. "The big government 
trust funds - notably, the social security trust fund - 
currently take in more than they pay out. However, the 
government relieves them of this surplus and spends it, 
courteously leaving behind a marker, the aforementioned 
non-marketables. As these claims are not negotiable 
outside government channels, they constitute no visible 
burden on the public markets. Out of sight, out of mind." 

*** Investors regard, or rather fail to regard, these 
invisible federal borrowings much in the same way that 
they fail to regard Cisco's deteriorating operating 
margins...that is, rather like a French woman regards her 
husband's mistress: she would rather not know.

*** Yet, sooner or later, the man is dead and the other 
woman shows up at the funeral - as happened when ex-
president Mitterand was officially cast off on his one-
way voyage to eternity. The woman was there - dressed in 
black and making the appropriate sobs. At some point in 
the future - Grant believes it may be during the next 
presidential administration - a curious scene may take 
place in the twin theatres of Congress. While the 
politicians are strutting and puffing with pride over 
their budget surpluses, they may be forced to take notice 
of a huge figure dressed in black...lurking among the 
federal books of account, and feeding herself 
continuously to assuage her grief. Like a freakishly fat 
person who has let herself go to the point where she is 
unable to make it out of her bedroom door... it may be 
necessary to raise the legal debt ceiling to accommodate 

*** As you may have gathered, from my frequent citations, 
I am a fan of Grant's work. So, I'm especially pleased 
that we were able to make a deal with Grant's Interest 
Rate Observer to carry some of its articles on our Daily 
Reckoning website.

*** "Thirty-seven Wall Street analysts rate Ariba Inc. a 
'buy'," writes Grant's colleague Eric Fry. "But to judge 
from the actions of company insiders and numerous other 
investors close to this 'Interprise' software company, 
Ariba is an outright sell. Everyone seems to love this 
thing, except the guys who run the show. Consider the 
numbers. Since Ariba became a public company on June 23, 
1999, insiders have filed to unload about 13.2 million 
shares of stock, to realize about $1.8 billion." 
(see: Ariba, And All That Jazz)

*** "The Semiconductor Industry Association says the 
latest 'integrated circuits' have as many as 21 million 
transistors on a single wafer of silicon," writes Dan 
Ferris. "They run at a speed of 400 megahertz on 90 watts 
of power. Within 10 years, those chips will run at 1,800 
megahertz and contain 1,400 million transistors. Instead 
of 90 watts, they'll draw 175 watts, almost double the 
power. Bigger chips, more juice." And potential profits 
for investors in electricity producers. (see: The 
Internet's Dirty Secret, Part II

*** The nice thing about democracy, most would say, is 
that it eliminates the need for coup d'etats or even 
civil wars to remove one hand from the public till and 
replace it with another. The Great Debates...and the 
ballot box...have replaced the guillotine in the public 
square or the grenade lobbed into the presidential 
palace. But reading about the upcoming contest between 
Bush and Gore makes me wonder if it was a good bargain. 
The two contestants will flail away at each other with 
clich‚s and slogans...desperately trying to draw blood to 
delight the mob of viewers. Bloody force has been 
replaced by a bloody farce. (see: Campaign 2000 vs. The 
Sovereign Individual

*** Cheryl Lee Terry, who must be the official ELLE 
magazine astrologer, is credited - at least by herself - 
with having "called the crashes of '87 and '89." I don't 
recall that there was a crash in 1989. But perhaps she 
called the crashes of 1998, 1999 and 2000 too - as I did. 
Anyway, she recently announced that Bush would win the 
November election. "Gore's planet, Saturn, is in 

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Computers are everywhere.

Even the ticket clerk in the little Montmorillon train 
station uses a computer to write tickets. He punches keys 
slowly, carefully, deliberately. He waits. He watches. He 
peers at the screen over his reading glasses...and 
occasionally hits another button. He twitches his long, 
bristling mustache. Minutes go by. Customers, on the rare 
occasion when the plural is appropriate, begin to get 
restless. They look at the clock. They look at their 
watches. They wonder if the train will arrive before the 

Finally, the ticket clerk lifts up an ancient dog-earned 
manual from under the table. His fingers find the right 
page and then trace the city of destination, Paris, over 
to the little city of departure...Montmorillon. He taps a 
few more keys. Then, after another couple of minutes, 
just when you think the ticket machine is finally ready 
to give birth...the phone rings. The ticket clerk takes 
off his hat, and answers the phone. 

Thanks to the Lambda Factor, this time-wasting will soon 
be history. At least, that is the promise of Jim 
Davidson's latest article. 

"Within a few years, you'll have essentially free 
telephone service across the planet as well as across the 
street. You'll have the equivalent of 80,000 channels of 
television from which to choose. You'll be able to listen 
to any radio station in the world...See any sports event, 
anywhere, with interactive, three-dimensional viewing 
capability which will give you the choice of turning 
third person spectator events into first person 

But the benefits of the Lambda Factor do not stop there. 
"You'll be able to talk to your appliances." I already 
talk to my tools, such as when I hit my thumb with the 
hammer. But Jim has something else in mind: "Tell the 
stove when to bake a loaf of bread or heat up your stew; 
tell the vacuum cleaner to dust the antique books in the 

I set myself too modest a goal in these Daily Reckoning 
readers: chronicling the most thundering examples of 
human lunacy. My targets are too easy: people who pay 
hundreds of thousands of dollars for a doodle by a 
sensationalist artist...or those who buy Big Tech stocks 
selling at such high prices they will have to wait until 
the polar ice caps melt to get their money back (if all 
goes well). The bar is so low, I don't have to jump over 
it...I trip over it without trying.

Jim Davidson, Porter Stansberry and George Gilder, by 
contrast, are doing the dangerous work. Like interviewing 
the detainees in an asylum, they try to figure out which 
of the lunatics might actually be an unrecognized 
genius...rather than merely stark, raving mad. 

"A new economy is emerging," says Gilder in his book, 
Telecosm, "based on a new sphere of cornucopian radiance 
- reality unmassed and unmasked, leaving only the 
promethean light."

That sentence may mean something; I don't know. But I can 
find nothing in my personal experience to make sense of 
it. So...I will just push on...

Moore's law - the insight, or prediction, that computer 
power would double every 18 years - is old news. Cheap, 
abundant microprocessing has changed the way the world 
does business. Even the train station in Montmorillon is 
hip to computers. 

Metcalfe's law is the recognition that each node in a 
collective system becomes more valuable as the system 
expands. The simplest illustration of this is the 
telephone. One phone has no value. As more and more 
people get phones...each one becomes more useful.

And now the Lambda Factor offers to throw both of these 
laws ahead a warp speed. 

Lambda is "a measure of a unit of wavelength," writes 
Davidson, "which will be key to the next optical phase of 
the Technology Revolution. If you missed the opportunity 
to ride Moore's Laqw to riches in the early day of the 
personal computer, stay tuned. The Lambda Factor gives 
you another chance to capture gaudy wealth by betting on 
an ascendant technology in an ascendant market."

The Lambda Factor refers to the exponential growth of 
bandwidth, made possible by advances in photonic data 
transmission. When you download a photograph on your 
computer, it takes times. But when the Lambda Factor gets 
limbered up, it will be possible for you to have almost 
instantaneous access to any data you want, anytime. "You 
will be able to watch any movie ever made at any time you 
want," Davidson reports.

If I had three magic wishes, "being able to watch any 
movie I want at any time I want" or "being able to talk 
to my refrigerator" would not be one of them. But perhaps 
among the people who will cast ballots in this fall's 
election there are millions who will jump at this kind of 
service - and pay good money for it. I don't know.

But Davidson and Gilder see this innovation in an 
entirely different, well...promethean, light. Davidson 
likens it to the Industrial Revolution, which "made an 
anachronism of Malthusian economics." Or, perhaps it is 
more like "the huge volcanic eruption in the Krakatoa 
region of the Sunda Straights of Indonesia in February 
535," he says. "That explosion darkened the sky as far 
away as Beijing and created a close approximation of 
nuclear winter which destroyed the political remnants of 
the ancient world by dimming the sun for 18 months."

Again, nothing in my personal experience...and nothing 
that I can infer from the experiences of others...helps 
me to understand how an explosion of data, information 
and entertainment would be anything more than a minor 
convenience. But then, I think small...

"The answer is that only faith enables us to make this 
kind of leap," says Gilder. 

Yes, I thought so.

Bill Bonner

P.S. I'm on my way to Las Vegas this afternoon. I'll be 
sure to write, but I don't know how our schedule will 
work out.
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...

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Last modified: April 01, 2001

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