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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Fall of King Dollar

*** Another tech rally...puissance dimmed...

*** More evidence of a 'soft landing'...

*** The First Great Event of the 21st Century...Pre-
presidential drunk driving...and more!

*** Not very much in the news today. Which is a good thing 
because I've got to rush out and see a man about fish.

*** Our pond has finally been cleaned out, reshaped and, 
after a couple of days of rain, refilled. It's time to 
stock it with fish.

*** Meanwhile, a couple of Daily Reckoning readers from 
California have come to visit. They've been driving around 
France and have seen more of the country in the last two 
weeks than I've seen in the 5 years I've been living here, 
albeit off and on.

*** Back to the financial world...the techs managed another 
rally yesterday. Intel stepped up to the microphone 
yesterday and announced that sales were back on track. And 
the Bureau of Labor Statistics came out with some good news 
of its own. This was all the encouragement tech diehards 
seemed to need.

*** The Nasdaq rose 95 points. Techs and nets were up 
across the big board. IBM rose $3. Even Amazon rose again 
and is now almost back at $40. Maybe I've been wrong about 
the big River of No Returns all along. Great company. Great 
stock. (Note to Bezos: Please keep buying books from us.)

*** A couple noteworthy exceptions to the tech rally - 
Worldcom lost nearly $1.50. And Oracle fell about 10% on 
rumors that someone is leaving.

*** Someone is definitely leaving The 
company fired about 15% of the staff and the CEO, Heidi 
Miller, named by Fortune as the "second most powerful 
business woman" in America, resigned. But her puissance may 
have dimmed a little in the last 9 months. Since she 
assumed command of the company, the stock has lost 90% of 
its value.

*** The Dow got no help from Intel (a Dow component) nor 
from the BLS figures. The Dow fell 19 points. 

*** 1760 stocks advanced; 1114 declined. 93 hit new highs; 
35 saw new lows.

*** The BLS also tossed out news that non-farm productivity 
rose 3.8% in the 3rd quarter. It is up 5% - if you believe 
the BLS numbers - from a year ago. Unit labor costs rose 
only 2.5%, after falling in the 2nd quarter. 

*** Auto sales fell 1.5% in October.

*** Are the tires on the runway? Has Fed succeeded in 
bringing about a 'soft landing' - reducing the rate of 
growth of the U.S. economy to a more 'sustainable' pace?

*** "Yes, I think we have," said regional Fed Governor 
Edward Gramlich. 

*** Oil fell a modest 71 cents on news of another Mid-east 

*** "The Saudi royal family has announced they will not 
tolerate violence against the Palestinians," writes 
Outstanding Investment's John Myers. "Saudi Arabia is the 
world's largest oil producer. The Saudi's can push oil 
prices into the stratosphere... traders remember that the 
Yom Kippur War was the launching pad for the first oil 
embargo in 1973..."

*** "But, even without war in the Middle East, oil may stay 
expensive," says Myers. Oil prices trending hire are part 
of what he calls: 'The First Great Event of the 21st 
Century.' "According the M. King Hubbert Center for 
Petroleum Supply Studies 'The world has been consuming far 
more oil than has been discovered since 1980 ... We now 
burn four barrels of oil for each new barrel [located in 
the ground]'." 

*** "In 1956, Hubbert, a geologist, predicted that oil 
production in the lower 48 U.S. states would rise for 13 
more years, peak in approximately 1969, and then fall off," 
explains Myers. "In short, he was right. Oil production 
peaked in 1970 and has been falling since then. But that's 
only the beginning. When you apply Hubbert's techniques to 
world oil, you find out we're just a few years from peak 
production. The world has produced roughly 800 billion 
barrels of oil. There's about another 850 billion barrels 
in proven reserves, and an estimated 150 billion barrels 
yet to be discovered. In other words, we're almost halfway 
through the world's supply of oil." 

*** One way to play this trend is to keep an eye on energy 
companies. For example, "Calpine is America's fastest 
growing power company," also from John Myers. "Its earnings 
for the third quarter marked the 17th consecutive quarter 
in which earnings grew. According to CEO Peter Cartwright, 
'By the end of 2004, we expect to be one of the nation's 
leading and most profitable power generation companies, 
with more than 40,000 megawatts of generation on line in 
attractive energy markets throughout the U.S.' Calpine is 
up 50% since May."

*** The dollar index rose the euro settle a little 
but held at over 86 cents.

*** Gold rose 50 cents.

*** "El Salvador earned the distinction as the 'Hong Kong 
of Latin America', finishing as the 12th freest economy in 
the world in this year's Index of Economic Freedom," writes 
Steve Sjuggerud. "I expect El Salvador to dollarize in the 
next decade eliminating local currency risk, and government 
has done a nice job keeping its hands out of the economy as 
well, consuming less than 10% of GDP (imagine that in 
France)." Unbelievably, Mugabe-torn Zimbabwe, says 
Sjuggerud, managed to finish in 146th place... meaning that 
there are apparently 15 countries worse off than Hell on 
Earth. (see: Where Freedom Reigns)

*** George Bush was arrested for drunk driving 24 years 
ago. But he says that when he turned 40 he decided to give 
up alcohol and take up politics - that is, to stop abusing 
himself and begin abusing others. 

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No banks or brokerage houses went bust in the 1929 crash. 
In fact, many investors and businessmen prospered. The real 
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against stocks altogether. Just as is happening in our 
markets today...

Will you profit in the months ahead? You will if you 
prepare yourself now - EVERYTHING that is happening in the 
markets today has already happened before. Click here to 
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *


So what now?

The dot.coms have done pretty much what we thought they 
would. They have been crushed. The squeezing is far from 
complete, of course. Many companies still have cash...and 
hope. For most dot.coms, both accounts will be drawn down 
to zero in the months ahead.

And now the big techs are being ground down, too. These are 
real companies with real revenues. They will not disappear. 
But they will soon trade at prices similar to those of 
other stocks - that is, between 10 and 20 times earnings, 
rather than 100 times earnings.

The destruction of the techs will take time. But it will 
happen. Because, as I explained yesterday, investors' 
emotional attachment is to the hope of getting rich in 
stocks, not to any specific group of stocks. Technology has 
merely provided a rationale.

Investors will find other stocks. They will continue 
putting their money "in the market." They will still 
believe that stock market investing is the surest way to 
wealth. They will believe it until, one by one, they can no 
longer afford to believe it.

And here I will offer a prediction:

The decisive event...which will turn the dream of stock 
market riches into a nightmare...will be the fall of the 

Few Americans care about the dollar. Perhaps only those of 
us who live overseas and see the daily price fluctuations 
notice it. But it is upon the King Dollar that the U.S. 
economy and its markets rest. But the dollar is a strange 
monarch...because it depends on foreigners for its power. 
The burden of today's letter is that a revolution is 
coming. If I am right, the dollar will soon be pulled from 
his throne and decapitated. 

"We continue to wait and to look for the dollar's impending 
collapse," wrote Dr. Kurt Richebacher. 

When? How?

"The decline...will start once the economic news begins to 
disappoint," continues Richebacher. The 3rd quarter GDP 
figures were disappointing. Hedonics, technology, 
flexibility - suddenly, all the reasons why the U.S. 
economy would grow faster than Europe no longer mattered. 
Because, in real terms, Europe seems to be at least keeping 
up with the US, and maybe surpassing it.

The U.S. is the most successful paper currency of all time. 
While Europeans and Asians produced cheese, wine, shoes and 
walkmen...the U.S. produced dollars. For many years, 
dollars have been traded for the foreigners' products with 
no trace of regret on either side.

As the automobiles and designer clothes piled up on U.S. 
docks, the dollars piled up in overseas banks. "Today, as a 
matter of fact, Europe's central banks [alone] sit on a 
huge dollar hoard of $222 billion," says Richebacher. And 
"gross foreign dollar holdings today exceed $7 trillion..."

Even these enormous dollar holdings fail to describe the 
magnitude of the flow of cash out of the U.S. At least $400 
billion comes back into the U.S. this year - to finance the 
current account deficit. That money comes willingly, as 
long as people have faith 1) in the U.S. economy and 2) and 
in the superior rate of return from U.S. investments.

On both points, faith is being shaken. Stocks are down. And 
now the U.S. economy is slowing down. 

"Everybody hedges against a falling euro, but nobody hedges 
against a falling dollar," observes Dr. Richebacher. (see: 
The Secret Fear)

Even in the Age of Information, investors and business 
people are where they always are: closer to the clueless 
point on the information spectrum than anywhere else.
With no direct experience nor any points of reference, they 
are caught up in the latest collective thinking. The dollar 
is strong because of 'technology in America' or because the 
U.S. economy is 'more flexible,' 'dynamic' and so on. The 
fantasy du jour is that the euro must always go down and 
the dollar must always go up. And yet, all it would take 
would be a little hedging on the part of investors and 
dollar-holding foreigners to send the dollar plunging. 

"[T]he dollar's stability depends on the perseverance of 
capital inflows of preposterous magnitude," continues 
Richebacher. Not only do Americans mortgage their homes in 
order to consume foreign products, U.S. corporations borrow 
money on European markets to take advantage of Europe's 
higher saving rates. 

Fannie Mae, Freddie Mac and the Fed Home Loan System were 
set up to help disadvantaged borrowers obtain home 
financing. After the biggest boom in mankind's history, 
apparently a lot more Americans are disadvantaged. The 
assets (mostly mortgage loans) of these three institutions 
rose three times since 1993 and now approach $2 trillion. 

Did this money go into new and better housing? Dr. 
Richebacher calculates that only one tenth of that money 
was actually used in residential building. Where does the 
money go? Some of the borrowed money is used to increase 
American's standard of living. And the rest seems to go 
into U.S. investment markets.

Where do these three institutions get the money they lend? 
Much of it, it turns out, directly or indirectly, is 
borrowed overseas. U.S. corporations borrowed $282 billion 
overseas in 1999 and $71 billion in the first quarter of 
2000, reports Dr. Richebacher.

Normally, real GDP and real incomes rise together. But for 
the last two years, disposable incomes in America have been 
going up only at half the rate of the GDP. Though incomes 
increased at a 4.8% annual rate in the first quarter of 
1998, they went up at only 1.9% in the first quarter of 

But spending continued to increase even faster than the GDP 
rate. This spending, coupled with the paper profits of the 
stock market, allowed people to increase their standards of 
living while feeling richer from the 'wealth effect' at the 
same time. It was gain without pain...wealth without effort 
or sacrifice.

And it was an illusion. Now, with the wealth effect in 
reverse, even the slightest pullback in the dollar will 
prove disastrous. The cost of imported goods will go up. 
Credit from overseas lenders will dry up. Purchases of U.S. 
assets will fall. Foreign dollar holders - including 
dollar-based bonds and equities - will sell. Living 
standards will fall in America. 

People will feel poorer, not richer.

But other then that, things will be fine.

Your cheerful correspondent,

Bill Bonner
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
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

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serious warnings and the state of the market with gentle humor"

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Last modified: April 01, 2001

Published By Tulips and Bears LLC