*** Uh oh...Intel down another 11%...
*** But analysts are not surprised by the downturn in
Nasdaq Nation...
*** CALPERS pulls out of tobacco...the euro falls on a
'Wim'...and ditto-heads discover the Daily Reckoning...
Several top geologists quit big firms, and start out on
their own. The new stock pays 100%-2,000% a year. But As
usual...
Nobody Notices The Good News Until It's Too Late.
Early investors make all the money before Wall Street
even gets wind of the deal. The pattern is repeated.
Again and again. With the right tip you could have bet a
whole lot less than the ranch - and still made a killing.
For reliable hands-on intelligence - and your shot 1,000%
gains in stocks ignored by Wall Street:
(http://www.agora-inc.com/reports/CRIS/ProfitsinAsia)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
*** The investment club members I wrote about yesterday
were separated from their money sooner than I expected.
Intel, the stock they decided to buy, was certainly a
"leader in its field" yesterday. It led the losers with
an 11.6% drop, down more than $4 per share.
*** Following the giant Intel was the giant Microsoft,
which shed 5% of its value. Down $3, MSFT dropped below
$50 - its lowest level in 2 years and 60% below its high
of last December.
*** Also conspicuous in the pack of losers was the once-
giant Xerox, down more than 25% - at a 9-year low of $7.
Xerox's commercial paper is selling for 72 cents on the
dollar.
*** Meanwhile, Amazon.com fell $4 a share; this 'must
own' Internet retailer has lost 75% of its value since
the end of 1999. Would it be too immodest of me to point
out that I began making fun of this River of No Returns
stock while it was still over $100? Yes, it probably
would.
*** "Nasdaq's fall no surprise after meteoric rise" is
the headline on Steve Harmon's Internet Insight.
Unfortunately, like so many New Economy analysts, Mr.
Harmon may have forgotten to make this point before
prices fell.
*** The 30% drop in Nasdaq prices now seems to have been
inevitable - even to those who never saw it coming. And
now they are as sure that it is over as they were that it
wouldn't happen. "But that won't stop technology," they
say. Harmon points out that the Nasdaq was only 500 in
March of '91. In the next 9 years, thanks to the wonders
of technology he believes, it rose 1,000%. Didn't they
have technology in '91?
*** Could it be that it wasn't really technology that
lifted the Nasdaq - but debt and irrational exuberance?
*** In January 2000 stocks were worth a record $16.8
trillion, compared to a GDP of $9.5 trillion. Somehow,
technology seems to have lifted up stock prices, but left
actual output to take care of itself. Even at the height
of the Japanese bubble in 1989, stocks only slightly
exceeded the value of GDP.
*** Throughout the 90s, consumer credit grew about twice
as fast as GDP. Even now, consumers are increasing their
borrowing at nearly 10% per year...while a record 1.28
million people filed for bankruptcy last year.
*** This could be an important week for Wall Street.
Investors are getting nervous. They still believe in
technology and in stock market wealth...but they are
beginning to have doubts. If the Nasdaq could stage a
rally - it would help restore confidence and complacency.
*** But yesterday, investors seemed to be looking for
safety. The Dow rose 46. The Nasdaq fell 26. More
worrisome is the fact that 1483 issues declined, while
only 1373 rose. Also, there were 3 times as many stocks
hitting new lows as new highs. This does not look like a
rally. It looks like a pause.
*** The huge California state pension fund, CALPERS,
decided to sell its tobacco stocks. Tobacco, though, is
one of the best investments the retirement fund has had
all year. Would it be too immodest to remind you that
Philip Morris rose more than 50% since I suggested it
earlier this year? Yes, I guess it would.
*** "Stunning incompetence" is how the head of currency
trading at Goldman Sachs described Wim Duisenberg's
remarks yesterday. Duisenberg, head of the European
Central Bank, broke the cardinal rule of currency
managers - never discuss your strategy publicly.
*** The euro got knocked down below 85 cents, near a new
all-time low, and considerably lower than the point I
thought might be a bottom. But its leading competitor,
the dollar, is still probably "an accident waiting to
happen," in the words of economist Peter Bernstein.
*** And the nemesis of both currencies, gold, lost 90
cents.
*** In late August, Lynn Carpenter issued a report that
warned readers to sell the leading Big Techs. "Since
Labor Day," Lynn wrote last Thursday, "those stocks are
all down: MSFT down 20%, SUNW down 18%, ORCL down 30%,
INTC down 47%... and CSCO down 22%." (We've reposted the
report here: The 5 Most Dangerous Stocks You Can Possibly
Own Today...
http://www.agora-inc.com/reports/fsus/theNASDAQburns/)
*** Meanwhile, current assets of India's largest telecom
- Videsh Sanchar Nigam Ltd (VSNL) - "exceed current
liabilities by a ratio of more than 2 to 1," writes
Grant's Investor analyst Jay Akasie. "The company has
cash equivalent to more than one-third of its market
capitalization, and there is no long-term debt - amazing
in a world in which global telecoms are often highly
leveraged with high equity valuations to match. Despite
the potential in VSNL's vast reach... the stock has
failed to click with investors. The company trades at 4.6
times estimated 2001 earnings." Nigam Ltd. was listed on
the NYSE in August. (For more see: Talk Is Cheap
http://www.dailyreckoning.com/body_headline.cfm?id=630)
*** Daily Reckoning fame spreads. A reader reports that
Rush Limbaugh refers to it in his monologue.
*** I decided to paint clouds on the ceiling of one of
our rooms at Ouzilly. So, I asked Sophia, 18, to try her
hand at it as a test. In the billions of clouds, no two
are the same. There are an infinite variety of swirls,
and puffs, and a multitude of grays, blacks and
crimsons...and yet, Sophia's cloud looked like no cloud
that ever existed... or could exist. Instead, it reminded
me of a glop of rice pudding, left in the refrigerator so
long, mould had taken up residence. (By the way, you can
see a photo of Ouzilly by clicking here:
http://www.dailyreckoning.com/body_index12.cfm)
*** Henry, 10, left on a class trip. For 11 days, his
class will stay in an ancient abbey a couple of hours
outside Paris.
America's wealthiest families enjoy a financial advantage
that helps them increase their wealth far faster than
ordinary investors: a "family wealth office" which
provides a place to pool large sums of money and direct
access to a battery of investment experts who uncover
really "great deals."
Recently, a small group of private investors duplicated
this "billionaire's edge" gaining the connections,
security, freedom, and financial well-being most people
only dream about...
"A rich man came up to Jesus with a question. 'How can I
be sure of getting into heaven,' he asked.
"Well," replied Jesus, "you have to obey the 10
commandments."
"No problem there," said the man, "I have obeyed them
since my youth..."
I cupped my ear with my hand to make sure I could hear
what followed. Pere Marchand was recapitulating a
particularly annoying gospel passage. His voice quaked
whenever he quoted the words of Jesus. Moderating your
voice in that way is probably not required in the
handbook of reverence, but the gray-haired priest must
have felt that he was getting too old to take chances:
"Well, then," said Jesus [perhaps with a challenging
twinkle in his eye], "you can give all your wealth to the
poor and follow me... for it is more difficult for a
camel to go through the eye of the needle than for a rich
man to enter the kingdom of heaven."
Preachers and rich men have wrestled with this passage
for many generations. The priests, who have taken a vow
of poverty, generally take Jesus's words without
question. Rich men, and those who want to be rich, even
the one speaking directly to Jesus, balked. They would
rather be camels...
The Nasdaq has lost about a third of its value from its
high of March. Few people will rejoice - even though,
taking the Biblical passage literally, they now have a
better shot of getting into heaven. Surely, a few months
of losses, followed by a few years of relative poverty,
is worth an eternity in heaven? But why would being a
greater fool get you a ticket to heaven?
Today's letter, dear reader, has no answers to these
questions...just more questions.
Taking the logic on its face, taxes must make it easier
for people to get into heaven too. At least those from
whom the wealth is looted will have smaller humps - and
will pass more easily through the eye of the needle. On
the other hand, the people to whom the loot is given may
find themselves - along with tort lawyers and rap singers
- doomed to hell. At least, I hope so.
Barron's reports that Warren Buffett, the son of a moss-
backed member of Congress and now a "Democratic Party
stalwart," appeared at Columbia University to endorse the
candidacy of Hillary Clinton. Buffett told the audience
that he considered himself "very under-taxed."
Buffett, the fourth richest man in America, says he
doesn't mind the estate tax either. "I do not believe in
the divine right of the womb," says the billionaire who
forced his daughter to sign a promissory note before he
would lend her $20 to pay for a pizza.
Buffett likens inheritance to welfare: "People are
leaving tons of money to their kids. And when those kids
emerge from that womb, instead of a welfare officer, they
have a trust fund officer."
Buffett is so rich; how come he's not smart?
Whoever gets Buffett's wealth risks being damaged by it,
if not in this life, perhaps in the next. He may choose
to give it to his own children, or to welfare children.
It's up to him. There is no 'right of the womb,' divine
or otherwise.
The only issue is who decides what happens to Buffett's
money - Buffett himself? Or the government? Yet, Buffett
sees no difference in having his own children receive
money willingly given by him or forced at the point of a
gun from unwilling taxpayers.
You may recall my discussion of the 'marginal utility of
money' about a year ago. The principle is simple: each
additional dollar you earn is worth less than the last.
You can easily see why. If you have only $5 to your name,
and someone gives you $50,000, it will completely change
your circumstances. But, if Buffett were to get an
additional $50,000, he wouldn't even notice. The extra
dollar is worth a lot less to Buffett than it is to other
mortals.
Thus, Buffett's views on taxation come cheap. He built
his fortune by compounding capital gains, thus avoiding
income taxes. Now that he is filthy rich, his excess
capital means nothing to him - its marginal utility has
declined to almost zero.
Plus, Buffett says he intends to leave his children very
little money anyway - the rest he will give away to
abominable tax-exempt causes.
"Can't buy me love..." wrote the Lennon/McCartney team,
"Money can't buy me love." I'm not sure. Maybe it can't
buy you the best quality love, but at least it will bring
you the economy class variety. Studies show that richer
men, generally, get more sex.
One of the unattractive features of human nature is the
way people regard other people with more money. Let a man
make a fortune in the stock market and soon people ask
his opinion on foreign policy or tax policy or some other
collective absurdity. Why else would Warren Buffett
appear on a stage with Hillary Clinton?
Americans are particularly prone to this weakness. With
no hereditary aristocracy before which they can grovel,
the rich will have to do. People feel an almost
irresistible urge to bend a knee and crook a neck when
meeting rich people.
But it doesn't stop there, because as much as they want
to genuflect before the super-rich, they are also envious
and feel the need to cut the rich down and see them
squirm. Many, if not most Americans, would have been
happy to see Bill Gates not merely hauled up before the
thieves and knaves in Congress - but taken out onto the
Capitol lawn and beheaded.
The super rich develop their own defenses. Upper class
Brits stutter and do funny things with their mouths when
talking. Americans act like buffoons. They become
Democrats and hang expensive modern art on their walls -
monstrosities that prove their susceptibility to popular
sensations. They wear blue jeans and work-shirts. They
hug people they don't know.
Perhaps as evidence that inheritance turns people into
Democrats and morons, Nelson W. Aldrich Jr., the author
of "Old Money" and the editorial director of Civilization
magazine, proudly tells the world that he is happy to pay
estate taxes on his family inheritance (which includes a
New England Coast beach house where "four generations" of
his family have lived).
Perhaps Mr. Aldrich is rich enough, too, so the cost of
the estate tax is marginal. Besides, he didn't earn the
money anyway. Easy come, easy go.
Bill Bonner
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Last modified: April 01, 2001
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