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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Convergence

*** Bill at the Wealth Symposium... 12 very unnerving 
earnings warnings overnight...
*** Facing a "true" Energy Crisis?... the market that 
ought to be on every investor's mind...
*** A delicious "seasoning" recipe for the CPI... the Big 
Mac celebrates... and more.

*** As Bill is still in Las Vegas, living it up at the 
Agora Wealth Symposium... Addison is writing the notes 
today... below you'll find a Daily Reckoning Greatest 

*** The Nasdaq - home of "one sick-looking tech sector" - 
was all the news this morning... as she stiffened up a 
bit, struggled out of bed and rose 67 points. At days end 
the index was resting at 3,523, up nearly 2%. The 
previous three sessions had conspired to knock 8.5% off 
her top...

*** Still, as anyone who's been laid up for 3 days 
knows... the flu is hard to shake. And sure enough, late 
in the day, Dell threatened to take the index down with a 
fresh round of earning shivers. 

*** Dell warned investors that "weak demand in Europe 
would lead to softer-than-expected revenues." Dell traded 
down $3 after hours, coming to rest at $25.

*** William Fleckenstein: "First Intel, then Apple and 
now Dell pre-announces. In Dell's case, the most 
significant part of the announcement is a rather large 
revenue shortfall for Q4. The question isn't what's 
happening. [Regular readers already know that.] The 
question is whether any of the dead fish will be able to 
connect the dots tomorrow, or will they try to maintain 
that all three are company-specific and therefore we 
should buy Compaq and Gateway."

*** Company-specific? Well let's see... "we had another 
12 negative pre-announcements overnight..." Larry Wachtel 
an analyst with Prudential Securities told Reuters. "It's 
very unnerving."

*** Oracle, too, fought negative territory. Again, Bill 
Fleckenstein, "Taking a page out of the duffer golfing 
handbook and take a Mulligan, Oracle said it wasn't 
trying to issue a sales or profit warning yesterday, 
it hadn't changed any guidance and it didn't think 
its margins would contract. I guess seeing the stock 
drop 20 bucks was too much for Larry Ellison, so the 
company had to attempt a rewrite - after being down 
about eight bucks, Oracle closed down only a buck and a half."

*** The Dow climbed 64 points, closing higher for the 
third straight session at 10,784. The Dow was helped, in 
part, by gains at Boeing, Dupont, IBM and Home Depot, but 
remains down 6.2% for the year.

*** The S&P 500 gained almost 8 points to close at 1,434.

*** The dollar held steady at 114. Gold was down $1.60 to 
$273. Oil... fell 60 cents to $31.43. 

*** In a speech to the Energy Institute of the Americas 
in Oklahoma City this past Monday, Matthew Simmons noted:

"I feared we would face an Oil Shock. I was wrong. We are 
now facing a true Energy Crisis..." He went on to say, 
"Let me be clear. The world has not run out of oil and 
North America has not run our of natural gas...What we 
have run short of is any way to grow the supply of each."

*** "Mr. Simmons went on to point out," says IMRA's Kevin 
Klombies, "that there are only a handful of major new 
supply projects on the go at present with little chance 
of a meaningful increase in supply until perhaps 2005." 
(see: Skyrocketing Energy Prices and Consumer Confidence

*** Meanwhile, "the largest commodity market in the U.S. 
is not oil... but electricity," says Real Asset Investor 
Dan Ferris. "The United States spends more than $220 
billion a year on electricity. Crude oil might be our 
number one import, but only because we can't import 
electric power." Right now, Ferris contends, "this market 
ought to be on every investor's mind. It's one of the top 
few markets to search for the biggest and best 
opportunities in." (see: The Internet's Dirty Secret, 
Part 3

*** "No matter how good the next report on consumer 
prices [due out October 18th]," writes Jim Grant, "It will 
likely pale before the previous one, which featured the 
first monthly decline in 14 years... a revelation 
government statistics keepers partially explained by 
noting a seasonally adjusted FALL in energy prices." 
(All-caps added...Addison) 

*** As "virtually everything we do in the economy depends 
on the CPI," it's worth looking at some of the 
adjustments the government bean counters have implemented 
in the last decade - in effect to combat an upward bias 
on the inflation rate. Grant's list:

1991: Hedonic pricing introduced for apparel; greater 
recognition of discounted air fares.

1992: Improved imputation methods for new product models

1994: Quality improvement recognized for reformulated 

1995: Generic pricing recognized when drugs lose patent 
protection; "seasoning" procedures introduced for food to 
eliminate upward bias. 

1996: "Seasoning" extended to other products.

1997: New procedures for pricing hospital services. 

1998: Hedonic pricing of home computers.

*** "One of these days," muses Grant, "it will be 
interesting to learn what share of the inflation rate has 
been assumed away by the calculations."

*** By the way, as Bill noted earlier this week, we've 
signed an agreement with the good folks at Grant's. As 
part of it, you gentle reader, have been invited to 
receive a one month subscription to - 
free. If you haven't already, you can avail yourself of 
this opportunity by following this link and filling in 
the appropriate registration information: 


... I know the link's a bit long, but it will get you 
where you want to be.

*** In other fascinating news, Ray Kroc... American 
entrepreneur, inventor of the Big Mac, and purveyor of 
clean bathrooms along the nation's interstates... was 
born today.

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1999... one year ago today. (For a little context... when 
this issue first ran we we're on the eve of an 
unprecedented run-up in Internet stocks, fueled in part 
by an increase in the money supply in preparation for 
Y2K... Addison) 


I was trying to read the "Forbes'" ASAP issue on the 
topic of convergence on the airplane. There were some 
good people in the issue - George Gilder, Tom Peters and 
so forth. But the more I read, the less I found. 

The idea of convergence is, from a technological 
standpoint, the combination of TV, Web, telephone...the 
idea of putting all the world's knowledge, entertainment 
and business together into one seamless communications 
system. That will take shape, or not, in due course. It 
is part of the reason that the telecom stocks shot up 
yesterday (remember, this is a year People 
think convergence will make them more valuable. 

On another level, convergence is the discussion we've 
been having here...about how the virtual and the real 
come together. The "Forbes'" writers clearly had no idea 
what to say...or what to think. Even Muhammad Ali was 
asked his opinion...which he gamely gave, recalling the 
importance of religion in his life. 

Webhead, futurists and "new era" investment advocates 
believe that this development is of transcendent 
importance...sort of like the Second Coming or an 
invasion from space. They seem to think that the real 
world will come to resemble, more and more, the virtual 
world. Investors who take up this line of thinking 
believe that the stock valuations of Internet companies 
will one day apply to all they will all 
become Internet companies or go out of business. If you 
ask for evidence of are dismissed as an "old 
fogey" who just doesn't get it. 

There is no denying the Internet is an important 
innovation. It makes this message possible. Is it as 
important as the printing press? Air conditioning? The 
internal combustion engine? I don't know. I've argued in 
these messages that it will have a big effect on the real 
world...just not the benign effect that investors seem to 
expect. Regular companies will not morph into Internet 
companies and suddenly be worth a lot more money. 
Instead, Internet companies...those few that survive... 
will grow up and act more like regular businesses...with 
stock prices to match. 

They will have profit margins to worry about... 
inventory... employees...competition...and all the other 
things that make running a business tough work. That is 
the convergence that has already begun. 

The virtual world, on the other hand, will remain 
virtual. People will not sleep on virtual mattresses. Nor 
will they eat virtual hamburgers. They will sit in 
cramped airplane seats...and long for an increase in 
material comfort, not the virtual kind... 98.2% of the 
economy is still much like it was 10 years ago. And 
though almost everyone uses a computer now, productivity 
is not rising. Indeed, the rate of productivity increase 
is lower today than it was before Jeff Bezos was born. 

Readers will recall from yesterday's message that the 
"productivity miracle," in which productivity began 
rising in the United States in the last quarter of 1995, 
is a sham. The statisticians created a new way of 
measuring output that transformed a real increase of $2.4 
billion in computers into $14 billion in chained dollars. 
In every quarter thereafter, the actual numbers have been 
replaced by these virtual numbers. And no one seems to 
notice that it is all phony. 

This is not an isolated statistical curiosity. The U.S. 
financial structure rests on these virtual numbers... 
stock prices, the dollar, bonds...all amplified by a 
hundred TRILLION in derivatives. When the virtual numbers 
converge with reality...there will be hell to pay... 
(For a current update as of October 5, 2000 see: Two-Tier 
Statistics, Not Two-Tier Economy.

In the Wall Street Journal Dorothy Rabinowitz' has done 
superb reporting on the child abuse hysteria that washed 
over the United States in the `80s. 

"Believe the children," jurors were told...not realizing 
the children had been prodded, coaxed and pressured into 
making accusations that, as one judge put it, "no 
rational person would believe." The children were not 
telling the truth...they were telling a virtual 
truth...the one the prosecutors and abuse specialists 
asked them to tell. 

Today, the only evidence for many of the fantastical 
child abuse cases is the fact that people are still in 
jail for them. But now the mania has passed. Innocent 
people are slowly getting out of prisons. And except for 
the ambitious prosecutors, child psychologists and Janet 
Reno, who used the hysteria to benefit their careers, 
almost everyone has sobered up and realizes it was a 

So, too, will the Internet mania be one day regarded. 
People will ask themselves, "How could I ever have 
thought that company was worth so much?" virtually was. 

Your faithful correspondent, 

Bill Bonner
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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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"

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serious warnings and the state of the market with gentle humor"

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Last modified: April 01, 2001

Published By Tulips and Bears LLC