*** 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...
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)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
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.
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Last modified: April 01, 2001
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