*** What a great market...everything is as it should
be...
*** Buffett's revenge...bad day for Bezos...
*** Has the 'soft landing' already happened? Where's the
runway? The flighty euro... Information Overload...and
more!
At the beginning of the decade, the tech stocks of the
day... radio... automobiles...electric utilities...
airplanes... were driving the market up wildly. It truly
was a New Era... If you had invested $10,000 in General
Motors in 1919, it would have been worth $1.5 million in
the summer of '29.
But by 1933 unemployment had reached nearly 24%...
What happened? Is it happening again?
Yes. Says a respected Austrian economists - and you'd
better be prepared. Falling technology shares
are only the beginning. Here's what you need to do
- right now - to prepare yourself for the collapse of
the credit bubble:
(http://www.agora-inc.com/reports/RCLF/ProfitFromChaos)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
*** I love this market. Hardly a day goes by that I don't
get to report that the Big Techs, and what's left of the
Internets, are falling in price.
*** It's not that I like to see people lose money. It's
just that it's good to see these stocks get what is
coming to them. God is in his heaven, the queen is on her
throne...and the hypesters and humbugs of the New Era are
getting put in their place too.
*** The Dow enjoyed another big day yesterday. The old
economy index rose 245 points, or more than 2%.
*** 1836 stocks advanced on the NYSE yesterday; 1044
declined. 101 hit new highs; 63 hit new lows.
*** Warren Buffett had a good day yesterday - Berkshire
shares rose $2,525. Jeff Bezos, though, had a bad one.
*** Nasdaq, home of the Techs and Nets, fell again - down
86 points, almost 3%. The Nasdaq 100, measuring the
progress of the Biggest of Big Techs, fell almost 4%.
*** It was an especially bad day for the Cisco Kids. A
Lehman Bros. Analyst decided that $90 might not be a good
target price for a stock trading around $50 and
apparently headed in the wrong direction. So he revised
his target to $60-$65.
*** When even the analysts give up on a stock, investors
really get spooked. Analysts, for those who were not
aware, are like the Italian general who remarked: "there
go my men...I must follow them, for I am their leader."
*** Cisco is, of course, a great company - like Amazon.
With a great product too. I love Cisco's routers and
switches, don't you? They're cute little things. They
will make good landfill when the Information Age is
finally superceded by the post-Information Age, next year
or so. The Cisco Kid's accounting methods are cute
too...about which more below...
*** Cisco stock ended down about $2.50, after being down
almost 10% earlier in the day. Nortel, which almost
single-handedly collapsed the Toronto stock market, fell
another $2.50 too. JDS Uniphase dropped about $6. Juniper
lost more than 8%.
*** And, what a surprise, Amazon lost about $2.75
yesterday, ending a hopeless rally. Analysts, said the
Reuters report, "took a closer look" at the net company's
latest quarterly report. I suspect that what they really
did was read the article in Barron's that questioned
Amazon's operating income. Then, they probably worried
about seeming out of step by being too bullish on the
River of No Returns stock.
*** Meanwhile, Amazon admits that the SEC is looking at
its books. And the company filed a report with the SEC on
Monday saying that it "may sell additional debt or equity
to obtain credit." Hmmm... maybe the company is closer to
running out of cash than we think.
*** But cheerleader, I mean analyst, Henry Blodget says
he is "comfortable with the company's calculation" of its
cashflow." The "3rd quarter is likely to be an inflection
point for the company and stock." Henry thinks he sees a
bottom.
*** On the other hand, "you can conclude this bull market
has lost its nerve," writes the Fleet Street Letter's Dan
Denning. "In October, disappointing earnings growth in
technology stocks signal, for us, that the bullish
psychology has finally been broken." Fourteen technology
stocks - the likes of which include Cisco, Microsoft,
Dell, Hewlett Packard, Lucent, Motorola, Intel, Oracle,
Texas Instruments, WorldCom - can account for $2,041.8
billion in market cap losses. (see: What Went Wrong With
Wall Street
http://www.dailyreckoning.com/body_headline.cfm?id=673)
*** In any case, The Destruction of Technology is
entertaining and long overdue...but what about the rest
of the stock market? I expected the entire market to
retreat along with technology. Instead, the Old Economy
seems to be roaring back to life. What gives? More
tomorrow...
*** Money leaving the Nasdaq seems to have gone
conspicuously to the financials - brokerages and banks.
Investors are seeking the safety of companies with
earnings. And they are anticipating a pop in the
financials when Greenspan loosens credit after the
election. In the imagination of the lumpeninvestoriat the
'soft landing' is not just dream...it's a fact. And the
Fed will address the slowdown with lower interest rates.
*** And yet, reports from the economic front are mixed.
Incomes rose 1.1% last month. Spending rose 0.8%. Plus,
the gap between 10 year Treasuries and 10-year TIPS, the
inflation-adjusted bonds, is widening. It is still a very
modest 1.89%...but headed in the wrong direction for an
interest rate cut. The widening gap is telling us that
investors are becoming more wary of inflation.
*** Besides, the slowdown in the U.S. economy is not a
consequence of too little credit, but too much. Credit
quality has deteriorated, while the quantity has
expanded. Ordinary families and major financial
corporations alike are up to their derrieres in debt.
Much of the debt, like much of the equity, must sooner or
later be marked down - as it represents investments and
purchases that never should have been made.
*** But "fears of the economy falling off the cliff are
overdone," said Bill Meehan, with the unlikely Cantor
Fitzgerald company. Who knows? Maybe not.
*** German Finance Minister, Hans Eichel, noticed the
same thing we did: Europe may be growing faster than
America.
*** But you'd think the euro was like a mushroom with red
spots - "Don't touch them," Francois advised me, "they're
poison."
*** "Euro Bears Gloat as another Bounce Goes Begging"
reports Reuters, trying to work as many metaphors into a
single headline as possible. Later in the article,
subheads such as "Flighty Euro, Steadfast Dollar," and
"Americans put Faith in America" tell the story. "No one
is more downbeat on the eurozone and more upbeat about
the U.S. economy than the Americans," continues the
report.
*** What actually happened in the markets yesterday was
that the euro rose to 85 cents and then slipped back to
84 cents. Where it goes from here is still anyone's
guess.
*** Not much change in oil or gold markets.
*** An Internet message entitled "INFORMATION OVERLOAD"
found its way to me: "A survey of thousands of workers in
Britain, Canada and the USA, conducted by both the
Institute for the Future in California and the
Pitney Bowes office equipment company, found that the
average office worker is overwhelmed by 169 telephone, e-
mail, voice mail and regular mail messages per day. The
study found that this message overload results in workers
spending an undue amount of time and energy trying
to respond to the message bombardment. The survey further
found that about one third of executives also felt
overwhelmed by the quantity of messages they received on
a daily basis."
*** "I can't help but question," wrote Doug Casey
recently, "whether the whole email/Internet phenomenon
really makes people that much more productive...how do
you account for the huge amount of time you spend reading
and answering emails? ...I know in my case, it's a burden
and the Delete button is getting more of a workout as
time goes on."
*** My friend Brian says that I am the source of most of
the email glut in his mailbox. But wait, Brian, I'm
saving you the trouble of having to read all those other
messages about the economy, the stock market and the
meaning of life. Please don't delete me, dear reader...
THE WORLD'S BEST undiscovered beach - has your name
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
The Big Techs are being destroyed...like Napoleon's
soldiers in their retreat from Moscow. One by one...and
sometimes by the hundreds...they are dropping. Never to
rise again.
Half the companies listed on the Nasdaq are down 50%.
Some of them are down far more - so far down in some
cases that only the tops of their campaign hats still
protrude up out of the freezing mud.
What began as a march to glory is now in full retreat...
with some sectors already routed. Rag tag bands of
survivors huddle here and there...overlooked by
investors. And a few groups still sit tall in the saddle,
flags flying and their shiny brass buttons and tunics
still un-bloodied.
But it is probably over for technology.
Alan Greenspan still shills for the tech sector. Diehard
tech buffs still believe that piling up digits will
improve the lot of mankind. Na‹ve investors still buy the
dips. But the stocks have lost the magic. They are no
longer invincible to the weather, the economy, interest
rates, earnings, competition, or any of the other forces
of financial nature that normally bring booms to an end.
Without knowing anything about technology itself...or the
miracles of modern science that will happen next week or
next month - I can tell you that the end has come for
Technology as an investment phenomenon.
Why? Because the voice of crowd thinking - the financial
press - has turned against it.
For example, accounting irregularities are, for the first
time, getting press coverage. Cisco, so recently the
mustest of the "must own' companies of the New Economy,
has fallen dramatically in price. Investors and the
financial media are beginning to understand the financial
game the Cisco Kids have been playing.
Over the last 6 years, Cisco bought companies more often
than you or I bought beer. Using its own, sensational
"Cisco scrip" - that is, its own stock - as currency,
Cisco bought another company nearly once a week.
As Doug Casey put it, "any company that has made some 240
acquisitions in the last six years can't possibly digest
them or manage them properly."
"In fact," Doug continues, "that rate of acquisition is
reminiscent of the conglomerates which were temporarily
popular back in the 60s. A major object of the
acquisitions back in those days was to hype the stock,
making it easier to make the next acquisition, hopefully
ad infinitum. By the time the bear market of 1969-70
bottomed conglomerates were a synonym for bankruptcy."
Cisco's popularity has been much greater and has lasted
longer than expected. Surely, its products are marvels.
But the company's spectacular success on the stock market
has little to do with the engineers in the design
department...and a lot to do with the engineers in the
accounting department. Cisco, in other words, is not so
much a triumph of technology as it is of folderology.
As I reported to you, the magicians in Cisco's accounting
office - perhaps recruited from the Bureau of Labor
Statistics - reduced the acquisition cost to a fraction
of the actual price, thus bringing in revenue streams and
huge increases in assets to Cisco itself.
And sometimes, the acquired company is also a customer -
perhaps even a customer having a hard time paying its
bills.
"[I]t's whispered," writes Grant's Eric Fry softly, "that
Sweden's Bredbandbolaget is getting financing to buy more
goods from its oh-so-generous benefactor." The story
develops:
"Swedish Internet company Bredbandbolaget (no relation to
Henry Blodget) postponed its $400 million IPO scheduled
for October 9 due to 'unfavorable market conditions.' The
postponement by B2 (as the company is known) would hardly
warrant a headline were it not for what happened next."
"'Cisco has come to the aid of Bredbandbolaget," Sweden's
Svenska Dabladet newspaper reported on October 11. "The
U.S. equipment supplier will guarantee Bredbandbolaget's
continued operations for the next two years..."
"Why did Cisco ride to the rescue?" asks Fry.
"If the rumor mill is to be believed," he continues,
answering his own question, "Cisco financed a sizable
Bredbandbolaget purchase of Cisco products. If so, that
raises a few questions: Is B2 emblematic of other credits
on the Cisco ledger? Might other B2-like accounts
receivable lurk in Cisco's accounting department? Will
Cisco lend financial support to them all, like some sort
of techno-IMF? Michel Camdessus, please forward your
resume to:
Cisco Systems Human Resources
170 West Tasman Drive
San Jose, CA 95134 ..."
Doug Casey likes to compare the Tech Stock Boom to the
periodic booms in junior mining companies. He reminds us
that almost every boom in the junior mining stocks was
capped with the discovery of a huge fraud.
"Net stocks," he says "lend themselves to this activity
quite as well as mining stocks." Mark Twain described a
gold mine as a hole in the ground with a liar standing
next to it. Investors have no way of knowing what's in
the hole. Nor do they have any way of knowing whether a
new tech company is an Iridium or a Microsoft. So, fraud
flourishes like worms in a manure pile.
"So what will be the Bre-X look-a-like of this tech
market," Doug asked in August, referring to the fraud
that brought down the most recent boom in the junior
mining sector.
"Well," he whispering softly, "I have something that you
won't hear anywhere else. Over 15 years ago, a very well-
connected source told me that Ronald Reagan had early
stage Alzheimer's. When I reported that outrageous
data...at least one subscriber cancelled, incensed that
I'd spread such a seemingly malicious rumor about his
hero. Of course, it turned out to be accurate... This
same source assures me that the FBI is quietly
investigating Cisco and several of its top executives for
various types of crime."
"The story goes that the purpose behind many of Cisco's
acquisitions to date wasn't so much to grow the company
as to hype the stock and enrich some top execs. The way
it supposedly works is when Cisco eyes a company, the
executives are given options or cheap stock in it, to
insure the deal goes through...when the deal is done, the
stock soars."
My guess is that the above passage...written only a few
weeks ago, should now be put into the past tense.
Technology, whatever it is, will continue developing in
its own quirky and unpredictable fashion. But the
Technology boom in stocks seems to be over.
But what surprises me is that the retreat of the techs
and nets did not cause a general collapse in equity
prices. Just as Napoleon beat a fast retreat back to the
West side of the Rhine, investors seem to think they will
be safe if they get out of tech and into Old Economy
stocks. But Napoleon's magic was gone after the Moscow
campaign. The end was already in sight.
And so, the question I pose in tomorrow's letter: when
will investors meet their Waterloo?
Bill Bonner
P.S. Enjoy Halloween. Boo!
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