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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

BALTIMORE, MARYLAND 
FRIDAY, 13 OCTOBER 2000 

 

Today:  The World's Most Despised Stocks- ll

*** Dow down last 6 sessions...and today's Friday the 
13th...uh oh...
*** The Bear That Mauled Tech Stocks... more damage 
ahead...?
*** Amazon.com - down to $25 and change... are your 
relatives doomed to rot in Hell?

*** "The Dow has gone down for six consecutive sessions," 
reports the NY TIMES this morning. But "it has been more 
than a decade since it had a string of seven straight 
losses." Today... Friday the 13th...uh oh... 


*** Bill is on a plane right now, returning from the US 
to Paris. He assures me he'll be in the office to provide 
you with his essay and additional insight on yesterday's 
carnage. In the meantime, stayed tuned...you're reading 
"the notes" prepared by Addison S. Wiggin. 


*** For starters, the WSJ reports today that "the bear 
that mauled technology stocks has begun to sink its claws 
into the rest of the market." 


*** The Dow dropped 379 points - the fifth largest point 
drop in its history - to 10,034. The index is now 14% off 
its January high. And it has violated the 10,376 level, 
which the ever-vigilant Dow theorist Richard Russell says 
"will be signal that the bear has come out of his lair 
and a lot of damage lies ahead." 


*** The Dow first topped yesterday's closing level of 
10,034 the week of April 5th 1999.


*** Yesterday, only 414 stocks advanced while 2,133 
declined. The A/D ratio has been negative in 17 of the 
last 20 trading days. And the S&P 500 closed down 34 
points to 1,329 - a low it hasn't seen since October 28th 
1999.


*** Home Depot got walloped down $14, losing 30% of its 
value. And Amazon closed at just a few pennies above $25.


*** Will the Fed get spooked by falling stock prices? 
Will it be able to "do something?" William Fleckenstein: 
"We all know that Easy Al likes to loosen up at the drop 
of a hat - he's done it the last three years in a row. 
The problem is now he's between a rock and a hard place. 
Oil is going nuts because of demand, capacity and 
geopolitical reasons, and also because inflation has 
picked up even though we are headed towards a recession. 
The end of an economic cycle often looks like this." 


*** "In an inflationary environment," writes Bill King, 
"further money pumping exacerbates the problem. In '99, 
the global environment became inflationary. If Al tries 
to pump more credit/money, it will leak into oil & 
gold, reinforcing inflation, and weakening the dollar." 

*** Gold rose $5 to $278. 


*** The zero, I mean euro, remained at $.86 while the 
dollar index jumped to 115. 


*** The BLS released figures showing the US current 
account balance jumped again for the year ending Sept. 
2000. From Sept. to Sept. 1999-2000 imports increased by 
6.9%, exports grew 1.8%. Weakening returns on speculative 
stocks are likely to turn this number around. When it 
does... who will want to own dollars?


*** The PPI came out a minute ago. The number measures 
inflation at the wholesale level. Bill King predicted 
that it would have to be "a minimum 0.5% increase," he 
wrote last night "just to make up for August's bogus 
numbers. BLS sampled early in August, ignoring the 
explosion in energy prices." He was right. The figure 
came out at 0.9% - showing wholesale prices rising at an 
annualized rate of more than 10%.


*** Yesterday's ruckus in Palestine and a bomb-blast 
killing 5 Americans in Yemen drove oil traders into a 
frenzy. Fears that an already lagging supply-chain would 
be disrupted drove NYMEX crude up nearly $3 to $36.06. 


*** The Nasdaq continued its slide, too. Early in the day 
the Big Tech index threatened to rally into positive 
territory... but gave up, gave in, and finally 
surrendered another 93 points to close down to 3,074. The 
Nasdaq is now 39% below its March high. 


*** Big tech continued to suffer; Cisco lost a buck; 
Juniper dropped $6; and Yahoo! - despite positive 
earnings, and a conceivably healthy business - continued 
to fall, down $8.75 to $56. 


*** Markets around the world felt cold winds of autumn... 
Tokyo's Nikkei closed down to 15,330 - it's lowest since 
March 9th. Korean stocks dropped again - nearly 2% - now 
flirting with lows it hasn't seen since February of 1999. 
The Hang Seng and Singapore markets were both off more 
than 2%.


*** "Panic...Second Great Depression by October" 
proclaims the Weekly World News, September issue. The WWN 
is an entertainment journal - full of whacky, amusing, 
made-up news. It is like the International Herald Tribune 
in that regard, but more entertaining. One article tells 
how a "Real-life Crusader Rabbit saves sleeping family 
from blaze!" Another declares that "Adam & Eve's 
Skeleton's Found." My favorite: "How you can get your 
loved ones out of Hell," in which a Reverend Whathers 
suggests that you "begin with an 8-hour fast...to purify 
yourself." But make sure your doctor says its okay. I 
guess if your doctor won't go along your loved ones will 
just have to rot in Hell forever.

*** Bill just popped in. The guy is a maniac. He flew all 
night. Now he's in the office ready to work. His essay is 
below...


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

The white caps are forming... dark clouds are looming 
just along the horizon...

A PERRFECT FINANCIAL STORM IS GATHERING 

Skyrocketing energy prices and weak corporate earnings 
are threatening to wipe out the Dow - and take the dollar 
down with it. 

What's worse, it's systemic. And inevitable. Dramatic 
credit and inflation pressures on global stock, bond and 
currency markets - have been brewing up "the biggest 
financial disaster in a generation" for months. 

Don't get caught with your pants down. Click here to 
learn the most prudent actions you should take to keep 
your money safe: 
(http://www.dailyreckoning.com/imra7)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


THE WORLD'S MOST DESPISED STOCKS - II


Everyone loves a winner. You know who the big winners 
are. They are the people who get their pictures on the 
cover of TIME magazine. Jeff Bezos, for example. Amazon's 
founder and chief visionary was TIME's 'Man of the Year' 
for 1999. His smiling face appeared on magazine racks 
throughout the nation at about the precise moment when 
his stock hit its most lunatic high.


The two events are not merely coincidental. Fame and 
fortune beget friends. But by the time you see your face 
on TIME as the 'Man of the Year' you must realize that 
you have become about as popular as you are ever likely 
to be. Few men make it to TIME covers. Fewer still go on 
to greater fame and fortune.


It is a little like longevity. Few people live to be 100 
years old. And if you do, your chance of living another 5 
years are almost zero.


Bezos, in other words, had nowhere to go but down...along 
with the price of Amazon.com shares.


You could also look at the situation through the lens of 
the new paradigm. The theory was that Amazon.com stock 
could go up, if not forever, at least long enough to 
allow investors to get a good return on their money. The 
theory, gussied up with corollaries such as ever-
improving productivity, ever-expanding Internet sales, 
and ever-growing faith in the New Economy, enticed 
investors to pay more than $100 a share for Amazon.com at 
the beginning of this year.


Against the theory was pitted the experience of 
generations - which is described, neatly, as "regression 
to the mean." Every extraordinary sensation is reduced, 
sooner or later, to a less extraordinary one.


You will not find anything surprising in this. From an 
investor's point of view the lesson is obvious: when 
something or someone has reached what appears to be an 
extraordinary pinnacle of success, the next move will be 
down.


The question I pose in today's letter is this: when 
something has reached what seems like an extraordinary 
failure, must the next move be upward?


We saw yesterday how this appears to be so. Looking at 
emerging markets, we saw that they crash...and then 
rebound. And since we seem to be on the edge of a major 
downward slope in U.S. equity prices...perhaps one of 
these already-depressed markets would make a good refuge.


Edward Bozaan of Waterford Partners suggests a few 
alternatives. 


Columbia, for example, has watched its stock market 
collapse by about 70% from its 1994 highs - to a 10-year 
low. "Things have gone from bad to worse," he writes. 
"Not only is the country suffering from a recession and 
its highest unemployment since the 1930s, but social 
unrest and guerrilla warfare are escalating."


Contrarians should love Columbia. Even mother nature 
seems against it - with earthquakes and El Nino adding to 
the suffering caused by politicians.


It may be a little early for investing. President Clinton 
is moving forward with a $1.3 billion military and social 
assistance package that is bound to make things worse. 
But soon, you may want to consider an investment in 
Columbia. 


"Bavaria," says Bozaan, "remains one of the cheapest 
beverage companies in the world. After reaching a high of 
$11 in 1999, shares slid to below $3 in 2000. Shares are 
trading at 50% of replacement cost, and its enterprise 
value is $50 per hectoliter, as opposed to $100 to $150 
per hectoliter for the industry globally." 


Or how about an investment in Africa?

Among the greatest failures of the last 50 years is the 
idea of majority rule. 


Majority rule was an almost irresistible theory in the 
mid-20th century. Throughout most of Africa, the minority 
- white colonialists - were replaced by the majority - 
local black governments. More or less. 


But though the theory was appealing, the experience of 
majoritarianism - as it is actually practiced - has been 
another matter. In Africa, as in America, as more and 
more people got drawn into the political system - the 
worse the government became. 


You may recall the recent problems faced by Zimbabwe's 
tobacco farmers. 'Comrade Bob' Mugabe's black government 
had replaced Ian Smith's minority white government in the 
'70s. Nearly three decades later, the whites had become 
an even tinier minority - dwindling from 3% of the 
population in 1980 to about one half a percent today. And 
the nation's GDP has fallen in half. The average person - 
white or black - is only about half as well off as he had 
been under Ian Smith.


Mugabe, sensing a growing dissatisfaction with his inept 
and corrupt leadership, turned to his old friend, a man 
who goes by the nick-name "Hitler." Well, 'Hitler' rose 
to the challenge...and soon the country was an even 
bigger mess than it had been. People were beaten up and 
sometimes killed, gangs of thugs roamed the countryside, 
property was stolen by the government as well as by free-
lance criminals. And Mugabe blamed the problems on his 
opponents.


This is the background to what has become an 
extraordinarily cheap stock market. 


I do not expect you, dear reader, to pick up the phone 
immediately, call your broker, and put in an order for 
Zimbabwe equities. But that is the point. No one wants 
them. They are as despised by investors as Amazon.com 
was, until recently, so loved. If Amazon.com was at its 
zenith...Zimbabwe was at its nadir. 


But if Amazon.com was doomed to collapse - which so far 
has taken the stock down more than 70% - is Zimbabwe 
fated to boom?


I do not know.


But Mr. Bozaan describes a Zimbabwe company that might be 
a contrarian antidote to the Nasdaq:


"One stock I like," he writes, "is Econet Wireless, the 
country's dominant wireless phone provider... When the 
company was formed in June 1998, 20,000 subscribers 
signed up. Since then, that number has risen fivefold, to 
100,000 and the company expects to double it again in the 
next 12 months."


Wireless communication systems are less expensive to 
install and easier to maintain than land-lines. In 
Zimbabwe, as in other poor, disorderly countries, copper 
wires are frequently stolen and sold for scrap. 


The cost of servicing each customer is lower than in the 
developed world - and the un-tapped market is huge. 
Bozaan thinks Econet Wireless will get a big part of this 
new market - not merely in Zimbabwe, but in other parts 
of Africa. 


And, even after a huge run up in the value of the shares, 
the company is still very cheap - even compared to other 
similar companies. 


Even bigger bargains can be found in Zimbabwe farmland. 
Threatened by squatters and looters...menaced by 
expropriation and murder...prices have fallen to give-
away levels. 


Contrarians take note: the time to buy is when blood is 
running in the streets, as long as it is not your blood.


Your very contrarian correspondent,


Bill Bonner


P.S. I took the overnight flight from Washington to Paris 
and am back in my office. It was a good trip - I fell 
asleep before we took off and didn't wake up until we 
landed.
 
 
 
 
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
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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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