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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  South Beach

*** Nasdaq investors suffer 8% loss last week...17% for 
the year
*** Americans are out in space...leveraged against the 
*** Boo Hoo, again?... slobs at the beach...

*** The Dow held steady last week. But the Big Techs in 
the Nasdaq got hit hard.

*** Friday alone saw a 3% drop in the Nasdaq, bringing 
the week's losses to 8.49%. 

*** CMGI, the Internet incubus, I mean incubator, fell to 
$19 a share - down 87% from its January high of $163.

*** Amazon, our River of No Returns stock, dropped $2 to 
close below $32. The company will surely achieve 
profitability at some level - but enough to service a 
$2.5 billion debt burden?

*** Intel is below $40 - almost split, the hard way, from 
its price a month ago. 

*** fell to $5 and change - after having 
fetched as much as $104 in March.

*** 850 stocks rose on the NYSE exchange on Friday. 1977 
declined. 50 hit new highs. 127 hit new lows.

*** So far this year, Nasdaq investors are down more than 
17%. Dow investors are down almost 8%. Oh well, easy come 
easy go, right? No one actually bought the Big Techs last 
January, did they?

*** Certainly not readers of the Daily Reckoning. But a 
report in the L.A. Times tells of one sad case. Bernie 
Ebbers so loved his own stock that he bought millions of 
dollars worth of the shares on margin. But World Com 
proved that it could go down as well as up...and Ebbers 
got the call that all investors dread - the margin call 
from hell. This single call turned Ebbers from a buyer 
into a seller - he had to unload $79 million of his 
shares to cover his margin position.

*** There's an old rule on Wall Street: never meet a 
margin call. When you get a margin call, it's a wake-up 
call telling you that you were wrong. Don't fight it. 
Take your losses and move on.

*** Leverage is an amazing thing. "Give me a lever long 
enough," said Archimedes, "and a fulcrum in space, and I 
will lift the entire world." But the farther out into 
space you go, the farther you have to move the end of the 
lever to get the earth to budge. Likewise, the more 
leverage you have in stocks - the more damage you will 
sustain when prices move against you.

*** Right now, most of America is out in space, leveraged 
with debt...and the world may be beginning to move 
against it. Throughout most of the post-WWII period, the 
ratio of debt to GDP was 1.4. That is, there was $1.40 in 
debt for every GDP dollar. Now, that ratio has almost 
doubled. And, most recently, it has taken as much as $4 
in new debt to produce another $1 of output. That's how 
credit-based expansions work - you have to borrow more 
and more to continue growing.

*** According to Kevin Klombies, The US has consumed $5.2 
trillion in credit in the past 2 and 1/2 years.

*** The market for leveraged loans quadrupled in size 
between 1993 and 1999, rising to $626 billion from $150 
billion. "Last month, the Office of the Comptroller of 
the Currency [reported]" says the NY Times, "that the 
problem loans on banks' books had doubled in the last two 
years, to $100 billion, or 5.1 percent of all outstanding 
syndicated loans greater than $20 million."

*** Most people don't buy stock on margin, but they don't 
mind taking out a home equity line to pay for a big 
vacation, rather than cash out of some of their tech 
stocks. They've been told that if they just 'stay in the 
market,' over the long run, they'll make money. 

*** And the financial press is still encouraging: 
"Companies that are going to drop bombs," said one 
analyst to Reuters, "have already done so." Another gave 
his optimistic view: "We are kind of hitting a climactic 

*** Goldman Sachs held two conference calls last week to 
support its position (bullish, of course) on the big 

*** But the real low may be far ahead and far more 
climactic. Dow Jones keeps a world stock market index. 
The index hit a high last March 24th at 260.28. Since then 
it dropped to 227 on May 24th. The Summer of Love produced 
2 rallies in the world index - each one peaking out below 
250. Most recently, the index hit 248 on Sept. 24th, and 
is now back at 227. Numerologists are invited to inspect 
the recurring 24s and 27s. What will Oct. 24th bring?

*** Oil rose 33 cents Friday. Gold fell $1.30. I began 
reading Peter Bernstein's entertaining new book on gold 
on the plane from Las Vegas to Miami. I will have more to 
say about it soon. 

*** GM is taking a page from the Japanese playbook - 
offering financing on new cars at zero percent over 5 

*** - London's spectacular e-tail disaster story 
- is back in the news. is back in business, 
backed by a new partner. If reports I heard over the 
weekend are correct, Boo managed to spend more than $100 
million to produce only about $600,000 in clothing sales.
Maybe it will do better this time.

*** And here's something interesting from the Sunday NY 
Times: "Pat McConnell, an accounting analyst at Bear, 
Stearns, estimates that earnings among the companies in 
the Standard & Poor's 500 stock index were overstated by 
6 percent, on average, last year because of generous 
option grants." 

But now that prices are falling, says the Times piece, 
"new-economy workers may begin to demand old-economy cash 
from their employers. That would drive up corporate costs 
among technology companies the biggest users of stock 
options at exactly the wrong moment, when their 
operations are slowing." The article reports that "40% 
percent of options held by employees and at 
least 36 percent of those held by workers at Microsoft 
are now un-exercisable."

*** "In Europe, banks are making almost 1/2 of all their 
loans to media, telephone, and computer companies - 
loaning $252 billion to telecommunications companies 
through the first nine months of this year," writes Kevin 
Klombies. "With $150 billion in existing short-term loans 
in need of refinancing and an industry requiring $500 
billion to finance acquisitions, licenses and the cost of 
building new networks - the banking system is almost as 
leveraged to the telecom story as the companies in that 

*** Unemployment dropped to 3.9% in September putting the 
Fed on alert to hike rates again. 

*** "In 1980 you needed 25 barrels of oil to buy a single 
share of the Dow Jones Industrial Average," John Myers 
told listeners at the Agora Wealth Symposium this 
weekend. "But by 1985, when oil prices fell to $12 a 
barrel you needed 125 barrels to buy a single share in 
the Dow. Today, even at $32 a bbl, you need 353 barrels 
to buy one share in the Dow." Compared to equities, oil 
is cheap. (see: The Best Petroleum Stocks To Own?)

*** Elizabeth reports that it has turned cold and rainy 
in France. They're making fires in the fireplace. It's 
hard to imagine cold weather here in Miami. It's 8:15 AM 
and its already 85 degrees outside. From the top floor of 
Loew's hotel in South Beach, steam rises from the streets 
below like smoke from a hot griddle. More below...

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"What if God were one of us?
Just a slob like one of us?
Just a stranger on the bus,
Trying to make his way home."

Bob Dylan

South Beach is full of God-like candidates. 

Curiously, the city attracts more than its share of 
Venuses and Adonises...and more than its share of slobs, 

An art-deco slum in the 70s, the area was discovered by 
fashion photographers in the 80s...and finally reached 
the tipping point in the early 90s. Suddenly, everyone 
was talking about South Beach.

Now, people from all over North America and Europe seem 
to tumble down to this tip of the Florida peninsula as if 
they were loose change finding its way to the bottom of a 

And though there are many handsome bodies promenading 
down Ocean Drive, bodies, like stock market P/Es tend to 
regress to the mean. And the mean is a slob.

There are probably more slobs, pound-per-pound, in a city 
such as Duluth or Gary, but they are usually at least 
partially hidden from sight, like crazy uncles and 
political contributions from tort lawyers. But sin, 
insanity and ugliness is right out in the open in South 

You may remember, that according to those who 'get it," 
and George Gilder, in particular, mankind has lived in an 
age of darkness - until now. Thanks to an explosion of 
bandwidth (that is, an exponential decrease in the cost 
of transmitting data) we are about to be tanned by the 
"Promethean light" of unlimited, free knowledge.

My working hypothesis, dear reader, is that the past was 
neither so dark, nor the future so bright, as Gilder 
imagines. The extra bandwidth may increase the 
availability of information...but like ubiquitous pop 
music, and bared bodies, the extra data may not 
necessarily be a good thing.

One of the popular tee-shirts in South Beach is one with 
the familiar face of one of the world's most successful 
rebels without a clue - Ernesto "Che" Guevara. Che, a 
rich kid with some imagination, made himself a romantic 
hero by getting himself executed on this day in 1967. It 
was probably, like Elvis's heart attack a few years 
later, a good career move. Che must have felt that his 
discovery of communism was Promethean, too - an explosive 
insight into the way the world should work. But, like 
Elvis, communism only looked good from a great distance.

I feel a little god-like myself, here in South Beach. 
Looking at the near-naked, tanned bodies up close, I am 
like the one 'from whom no secrets are hid.' 

"Leave your brain behind," says a TV ad for the area, 
"and come on down to South Beach." A tanned body is de 
rigeur, but a brain is optional.

Even if you forget and bring your brain to South Beach, 
it probably won't function very well. First, there is the 
heat. Then, there is the unrelenting pop music. Loew's 
hotel is not a cheap flophouse. But even it cannot 
resist. In every public spot, bad music interferes with 
private thoughts. 

A friend of mine got out of jail recently, after serving 
two years. He reported that the worst thing about being 
in prison was that you couldn't escape the constant noise 
of radios. 

At least they didn't charge him for the room. Even in a 
$200-a-night hotel, it's hard to get away from it. 

Don't think you can escape by going outside either. Even 
the plants are wired. And the flora of South Florida has 
no better taste in music than the fauna. Each clump of 
tropical greenery at Loew's seems to sing along with Lee 
Greenwood. And as you make your way down Ocean Drive, 
each caf‚, bar and eatery blares away - and each one with 
its own version of bad music. The whines and screeches 
are inescapable.

There is also constant danger of being rear-ended, so to 
speak, by someone on roller skates. A pair of muscle 
bound poofters nearly knocked me down, as they raced 
along the sidewalk holding hands. One had rings in both 
ears and on both nipples.

As I was having a scoop of ice cream at a sidewalk caf‚, 
a retired couple came along. They wore madras shorts... 
and their mouths were open, gasping for air. They looked 
like they might fall down and die if they weren't 
immediately seated and given water. But I am probably 
exaggerating the emergency. They sat down and seemed to 
have revived within a couple of minutes.

A little further down the street an older man with red 
socks and a matching tee-shirt, walked along with a 
bottle of water on his head. Another man said hello to 
everyone he met. 

Abominations of the flesh are popular in South Beach. A 
woman with tattoos all over her sunburned body went by. 
So minimal was her outfit that it might have gone 
unnoticed...had it not been for the odd bluish color. 

There are said to be 1500 professional models in the 20-
or so block area known as South Beach. Many of the women 
I saw on the street were, by objective measures, 
beautiful. Yet, for the more average woman - the more she 
revealed, the less attractive she became.

I say that partly as an observation, and partly as a 
conclusion. It is not what you see that is most alluring. 
It's what you don't.

This is true of tech stocks as it is of women. The 
romance that investors began with the dot.coms is over. 
After they got to see a lot of each other, up close...and 
in the bright sunlight - the less besotted they became.

Investors moved on to the Big Techs. But now that 
relationship is in trouble, too. The techs have aged a 
bit. As they announce earnings and growth 
disappointments, investors notice the wrinkles and feel a 
little let down. They dump the techs and look for romance 
elsewhere - or swear off these paramours altogether.

The commentators and analysts you hear on CNBC are sure 
the techs are going to go back up. Like Al Frank, they 
think this is a buying opportunity.

But they don't understand how romance works. Once the 
facts are all out in the open - the spell is broken and 
the thrill is gone, forever.

Bill Bonner

P.S. Investments are "marked to market" on the basis of 
what "everybody knows." It is what everybody doesn't 
know...or refuses to see...that represents the potential 
for profit (or loss.) Even in the Information Age, it is 
what you don't know that is important. 
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)

Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

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Last modified: April 01, 2001

Published By Tulips and Bears LLC