*** Tech investors are 'freaking out' all over the
world...
*** Biggest bankruptcy in history...
*** Oil up...heating oil supplies down...The Big
Surprise...
*** Poor Ms. Wu. You may remember, the Korean investor
demanded that her government 'do something' to stop her
tech stocks from falling. But again yesterday, the
S.Korean stock index - led by the techs and telecoms -
fell by 5.3%.
*** Of course, misery loves company and Ms. Wu at least
has plenty of that. If you look at the Financial Times'
list of World Stock Markets you see a column on the left
hand side that is nothing but red numbers - indicating
the change from the last session. From New York to Tokyo,
stocks are falling.
*** Tokyo hit an 18-mo. low this morning - down almost 2%
to 15,513. The index, for the benefit of readers with a
sense of history or a sense of humor, was near 40,000 in
January of 1990.
*** Earlier this week, Japan was rocked by the biggest
bankruptcy in Japanese history...perhaps in world
history. Chiyoda Mutual Life went belly up owing an
estimated $27 billion.
*** "US investors are pulling their money out of Japan,"
speculates the Reuters article. If so, what are they
doing with it?
*** The Nasdaq fell 3.4% yesterday...dropping down near
the low of May 24th of 3,164. "Techs Savaged" read the
headline in Reuters - a bit hyperbolically. "People have
freaked out," said one broker.
*** The focus of the problem in the tech sector was
weakness among the chipmakers. Xilinx dropped 21%. Altera
lost 27%.
*** Other techs suffered similarly - including Broadcom,
down 5% and Intel, which lost $1.50. Lucent, the world's
largest supplier of telecom equipment, announced late in
the day that it was having trouble - and lost 26% of its
value. 'Freaking out' investors are nervous and
unforgiving.
*** The Nasdaq has lost almost a quarter of its value
since September 1st. Birinyi Associates' figures were
given in Monday's Wall Street Journal: "Some 1,364 Nasdaq
stocks are down 20% or more since Sept. 1, of which 830
are down 30% or more."
*** "Intel..." the WSJ report continues, "has lost 45% of
its market capitalization since Labor Day; Dell Computer
is down 40%; Oracle is down 25%, and Microsoft is down
21%." That was on Monday morning. The figures are worse
today.
*** According to Kevin Klombies, Oracle's Larry Ellison
lost $1.2 billion in net worth yesterday.
*** The Dow fell too as the 'Autumn of Anxiety' seems
have turned more quickly than the leaves. The Dow was
down 43 points yesterday, with 1132 issues rising and
1688 falling. 35 stocks hit new highs on the NYSE; 111
hit new lows.
*** The brokers - such as Morgan Stanley and Lehman Bros.
- fell sharply yesterday. Bear markets mean lower trading
volumes and lower profits for the brokers. Most investors
and practically all the financial media now believe that
the bear market they never saw coming, and whose
existence they refused to recognize, is now over. Still,
the smart money seems to be betting that there are leaner
days ahead for Wall Street.
*** A word of caution: Mr. Bear doesn't like to do things
in an obvious way. I would not be surprised to see him
lighten up in the days ahead, in order to let the
citizens of Nasdaq Nation recover their mood of
complacency. Then, the Big Surprise, as I mentioned
yesterday...may be how aggressively Mr. Bear attacks.
When that happens, investors will not merely 'freak out'
- they will get out.
*** National heating oil supplies are 35% below last
year. Also below last year's measure at this time is the
temperature. Oil rose 4% yesterday, to over $33 a barrel.
Oil has recovered half the ground it lost after the
Clinton Administration opened up the strategic oil
reserve. It has since been revealed, however, that many
of the bidders for that oil were speculators, not oil
men, and that much of the oil will be sold to Europe.
*** The euro was up a little yesterday. Gold rose a bit
too.
*** "The global Yahoo! franchise is stronger today than
ever before," said Tim Koogle, Yahoo's chairman, in the
NYTimes. The company announced $82 million, in quarterly
earnings. The figure represents 13 cents a share... one
penny more than analysts expectations. The company,
however, warned that 40% of its advertising comes from
pure Internet companies, which will be a drag on revenues
in the next quarter. "If companies like Yahoo! are
feeling effects of a pullback in on-line spending," said
an analyst at Deutsche Bank Alex. Brown, "then second-
and third-tier companies must really be struggling."
*** One of those struggling businesses is reviewed in an
article in Advertising Age: "Pets.com as a business is in
dismal shape. Since the ad campaign kicked into high gear
in the fourth quarter of last year, the company has spent
more than $3.50 on marketing and sales expenses for every
dollar it's generated in revenue. That's $76.6 million in
marketing and sales spending from October through June
vs. $21.6 million in revenue.
"Pets.com's second-quarter loss-$24.1 million on revenue
of $8.8 million-shrank from the first quarter's eye-
popping loss of $39.1 million on revenue of $7.7 million.
The company had little choice but to slow spending: Even
with its lower marketing spending last quarter, it still
burned through nearly half of the $70 million cash it had
in the bank as of March 31."
"Pets.com VP-Marketing John Hommeyer left in May-right
after finishing his one-year vesting period..."
*** Many analysts believe Pets.com will not survive the
year as an independent company. Ironically, the only
value the company may still hold for potential investors
is the brand image created by an ad agency: a sock
puppet. Company officials have declined to reveal how
much of their website sales consist of the sock puppet
replicas they are selling for $20.
*** And just how long Harry Potter's brand of wizardry
will continue to beguile the crowds is anybody's guess...
but stock in Enesco - the company responsible for this
particular popular sensation - might be worth a look.
GrantsInvestor.com's Eric Fry: "Since June 1, KDE
insiders [purveyors of the Pokemon phenomenon] have sold
107,900 shares for $2,261,012. Meanwhile, since April,
eight separate Enesco insiders, defined as management and
directors, have purchased 144,400 shares at a cost of
$665,568, or $4.60 apiece on average. None has sold."
(see: Spellbound: Magic Profits from Adolescent Fads)
*** I walked downtown yesterday to the Motor Vehicle
Administration to get my driver's license renewed. The
office is in a Baltimore subway station. But what a
strange place it is. Hundreds of millions have been spent
to build the system - and it is practically deserted. I
felt like the Omega Man, stalked by dark shapes of
creatures who were once human. Maybe no one really wants
to come to downtown Baltimore.
Combined efforts by the world's central banks have
failed. American investors faith in the super-dollar is
unshakeable. Too few realize how these events are
intertwined... and why the untouchable American market is
in for a nasty surprise.
In this edition of the INVESTOR LIBRARY, former central
banker and esteemed Austrian economist Dr. Richebacher
examines the truth behind the euro crisis. To learn why
the dollar's collapse is imminent... and what you can do
to position your portfolio for the utmost safety read
this special report. It's yours free:
(http://www.dailyreckoning.com/specialreports)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"The New Economy," writes Jim Davidson, "is increasing
productivity by more than conventional methods can
analyze, resulting in structurally lower inflation, which
should continue to surprise on the downside..."
Nasdaq Nation is a strange place. People seem to have
almost unbounded confidence in things they will never see
nor could ever understand. Theory trumps experience.
So great is their faith in these unseen powers that
people are willing to subordinate the evidence of their
own senses. They discount their own "erfahrung" - first-
hand, direct knowledge - while putting a premium on
"wissen" - abstract, collective knowledge...to use
Nietzsche's terms.
Take, for example, consumer prices.
"No matter how good the next report on consumer prices
may be," writes Jim Grant in the current issue of Grant's
Interest Rate Observer, "it will likely pale before the
previous one, which featured the first monthly decline in
the CPI in 14 years."
According to the Bureau of Labor Statistics - the font of
collective knowledge on inflation - prices fell, at least
for one month. And the general rate of inflation is so
low, according to the official number-keepers, that it is
of no real concern to the market. Otherwise, writes
Grant, "there would be no explaining the remarkably low
yields attached to government securities in the past 20
years, below the nominal rate of GDP growth), or the high
dollar exchange rate, or the low prices of gold and
silver."
Even the great inflation-fighter and former Fed chief,
Paul Volcker said of the official CPI on public
television: "I have the cynical view that maybe it's
understated."
The first hand evidence is, of course, mixed. Many
commodities are at very low levels - and seem to be
falling in price. The charts I referred to yesterday, for
example, show that gold, cocoa, nickel and even oil -
until recently - have been in bear markets for decades.
But the 'until recently' qualifier may be an important
one. Especially in the case of oil. Oil rose again
yesterday. And while the capacity of the world's oil
producers to keep up with worldwide demand may or may not
be in question - there is little doubt that the people at
the Bureau of Printing and Engraving...the Federal
Reserve system...Fanny Mae, Freddie Mac...and Wall Street
brokerage houses...will be able to keep up with the
demand for dollars and credit. They have even been known
to work overtime on occasion...and to sometimes overshoot
their stated production targets.
MZM - which measures cash - is rising at a rate of about
11% per year. This is at least twice as fast as the
nominal rate of GDP growth...and probably at least 4
times the real rate of GDP growth.
Credit is growing fast too. In fact, according to the
most recent report from Dr. Richebacher, it's being added
to the national ledgers at the rate of $4 for every $1 of
extra GDP.
Anyone who buys a gallon of gas or a house - two things
most people find indispensable - knows that the CPI
numbers don't seem to match his actual, first-hand
experience.
That is why the CPI numbers are such a "surprise on the
downside." You don't expect them...because prices do not
seem to be falling, they seem to be going up.
Davidson's point is that the falling cost of data-
transmission makes possible an exponential growth in
wealth. This he likens to the Industrial Revolution,
which "made an anachronism out of Malthusian economics."
Yet in the Industrial Revolution, the evidence of a major
change was easy to see. Machines produced things more
quickly and more cheaply than they could be made by hand.
It was obvious that the prices of goods would fall - in
real terms. You could see the prices falling and you
could easily understand why. Wissen and erfahrung
...theory and experience...converged.
One problem with measuring price increases today is that
the measuring stick is itself one of the elastic
variables. This was not true during the Industrial
Revolution. The money system of the last century was less
hospitable to manipulation. Gold still backed the world's
money. And gold, for all its faults, is not nearly as
accommodating as Alan Greenspan.
Your correspondent,
Bill Bonner
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Last modified: April 01, 2001
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