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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Special Election Issue

*** Dow down...Nasdaq up...what are investors waiting for?

*** Today - Cisco announces its earnings...Is it really 
'severely undervalued?' Or grossly over-valued?

*** Dollar down! Why hasn't the broad market collapsed... 
Bill Gates on what poor people really want...and more!

*** The stock market seemed dull towards the end of last 
week. On Friday, for example, the Dow finished down 62 
points. The Nasdaq went up 22. Investors seemed to be 
waiting for something to happen.

*** Financial reporters are desperately trying to gin up 
some excitement about tomorrow's election. Analysts have 
been quoted saying that investors have been sidelined by 
the uncertainty of the elections and are waiting until Nov. 
8 before a beginning a strong year-end rally.

*** Well, maybe...but why wait? What's the uncertainty? 
What difference does it make? Possibly Bush would be better 
for tobacco and defense stocks...but possibly not. Gore's 
spending promises actually include more money for defense. 
And the federal government is no longer a big buyer of 
tobacco products in any case. More on the election below...

*** Apart from the elections, the other big event is 
Cisco's earnings announcement scheduled for today. Most 
likely, Cisco will report satisfactory figures. Sales have 
been growing at 30-50% for years. But the sharp analysts 
may detect some flaws in the Cisco Kid's picture. Telecoms 
are among Cisco's most important customers and the industry 
has gotten very soft in recent months. Other suppliers - 
such as Nortel, Lucent and Copper Mountain - have been 
already been crushed.

*** Nortel, too, has been growing at 42% per year...but 
that didn't stop investors from marking down its shares by 
nearly that same amount.

*** Cisco has a $400 billion market cap - equal to 20 times 
sales. At that price, at least one analyst claims that it 
is "severely undervalued." Meanwhile, a headline in the 
International Herald Tribune last week claimed that 
investors are "Going Back to Value." They will have a long 
way to go before they find value in Cisco.

*** The Nasdaq gained 5% last week. The Dow ended the week 
up 2%. 

*** Taking the week as a whole, there were 2398 advancing 
issues on the NYSE and only 904 declining ones. 248 hit new 
highs; 138 hit new lows. 

*** Labor costs increased 6% in the 2nd quarter. One of the 
miraculous features of the miracle U.S. economy was its 
ability to avoid inflation by getting more than enough 
additional output from workers to cover increases in 
salaries. That didn't seem to happen in the most recent 
quarter. Productivity only increased by 3.8%.

*** King Dollar may have topped out. The ECB intervened, 
suddenly and without much effect, on Friday. Still, the 
dollar index fell to 114.05 and the euro rose to nearly 88 
cents before falling back under 87 cents. IF the dollar is 
now falling, it marks the beginning of the end for the 
economic boom that began ten years ago. It also would be an 
important milestone along the path of retreat for the stock 
market boom than began in 1982...and turned into a bubble 
in 1998.

*** Why hasn't the weakness in the market leaders led to a 
general market collapse (yet)? "First of all," writes John 
Mauldin, answering the question I posed on Thursday, "the 
Bull Market of the past few years was a very narrow bull 
market, largely missing the vast majority of the market. 
Excluding the technology sector, the S&P 500 Index has been 
in a flat trend for two years. The Technology Sector of the 
S&P 500 is up almost ten times since 1992, which has 
largely fueled the bull market. For the last 8 years ending 
in 1999, transportation is up only 75%, utilities were up 
less than 50%..."

"In addition, the S&P 500 dumps the loser stocks and adds 
winners on a regular basis (as does the Dow). Companies 
which are going down are removed from the Index, so the 
bias is upwards. The tech component of the S&P 500 is 50% 
bigger than 10 years ago. 

"As of a few days ago, the S&P was down 7% for the year, 
but the tech component was down 21%. Due to the heavy 
weighting of the tech sector in the Index, the biggest 
portion of the recent decline is due largely to the tech 

"One is almost tempted to ask, 'What Bull Market?' The 
market in tech stocks was not a bull market, it was a 
momentum driven mania/bubble market frenzy. But because it 
was a component of the overall market, it masked the 
malaise in the rest of the market.

"...the out of favor Old Economy stocks went nowhere price-
wise. Now, however, since the first of the year technology, 
communication, basic materials and consumer cyclicals are 
all down between 20-30%. The rest of the market is doing 
just fine.

"What will cause a general bear market in all stocks?" 
John asks. "A recession." 

*** But a recession is just what you get when the `wealth 
effect' turns negative. A decline in stock prices alone can 
trigger a slowdown as households cut back on spending to 
offset losses in their stock portfolios. 

*** "The established euphoria continues to prevail among 
consumers, businesses, investors and economists," wrote Dr. 
Kurt Richebacher recently. "The consensus keeps expecting a 
continuation of the economy's stellar performance. The U.S. 
economy is expected to show its strongest growth since 1984 
by the end of this year, while the interest cycle has 

"We repeat," he continues, "was we have said many times 
before: It will come as a great surprise how fast the U.S. 
economy will weaken within the near's five 
minutes to twelve."

*** As I have been saying, the benefits of connectivity, 
bandwidth plenty and the Information Age are greatly 
exaggerated. Even Bill Gates agrees: "the world's poorest 2 
billion people," said the richest man in the world, 
"desperately need health care, not laptops or Internet 
connections or a bridge across the digital divide."

*** Addison and I are attending a writers' conference in 
Germany. I arrived late last night by train and stepped 
onto the platform where I discovered that everything was 
closed. Only one other person got off with me. She turned 
out to be one of the few people in Germany who speak no 
English or French. But she pointed me in the right 
direction and I arrived at the hotel a few minutes later.

*** My week's semi-holiday for All Saints was less than 
blissful. The weather was mostly bad. The family was 
fractured with various agendas that didn't match. And I got 
in the middle of the bitter 20-year-old feud between 
Francois and Pierre when I invited Francois to cut wood 
along the entryway. "He is going to cause trouble," Pierre 
warned, practically shaking with emotion. Now that Francois 
is retired, Pierre can't bear seeing him around the farm. 

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A presidential ticket with three drunk driving arrests 
can't be all bad.

We have the news of Mr. Bush's brush with the law thanks to 
one quick-thinking member of the electorate...a Mr. Tom 
Connolly. The Maine Democrat was worried that "Bush could 
relapse" and felt it his duty to reveal details of an 
arrest that occurred before the Spice Girls were born.

But no sooner were the chattering classes set to their 
labors when the news broke that the number two man on the 
Republican ticket also had had his problems with demon rum. 
Mr. Cheney admitted that he had been arrested not just once 
- but twice - for DUI. 

Mr. Gore, meanwhile, proving that sobriety is no sure 
defense against imbecility, has let it be known that he has 
successfully avoided arrest all his life. 

Drunk driving is not the threat that people think it is, 
and certainly much less a threat than that posed by the 
political process itself. One study I recall determined 
that a middle-aged drunk was less likely to have an auto 
accident than a 70-year-old woman or an 18-year-old boy. 
Mature drunks weave, but they tend to drive very slowly and 
cautiously - realizing that their abilities are impaired.

But the nation is indebted to Mr. Connolly. Were it not for 
his keen sense of civic responsibility, none of this might 
have come out and we would have been forced to make our 
presidential selections on the basis of incomplete 
information. Indeed, just about all we really know about 
the candidates - aside from the empty slogans and campaign 
promises are the little details that slip out from time to 
time unbidden, like change under a seat cushion.

Mr. Gore, for example, was told by his father to clear a 
20-acre section of land with only a hand axe and brush 
hook. This biographical flourish was supposed too enhance 
Mr. Gore's reputation for grit and determination. But it 
makes you wonder about the man's judgment. Clearing land by 
hand is a very inefficient way to do it. If young Al had 
had any sense or gumption he would have demanded at least a 
chain saw or bush hog. Instead, the future vice president 
merely did as he was told, like a Chinese coolie hauling 
dirt in a basket.

Of Mr. Bush we know similarly little. His chief virtue 
seems to be that he knows a NY TIMES reporter when he sees 

And now that the long season of hard campaigning is 
over...the debates have past...the fortunes have been spent 
to convince voters to `get out and vote' for one candidate 
or the other...the climactic moment finally arrives, 
tomorrow, when we discover by whom we will be robbed, 
bossed around and insulted for the next 4 years.

Will it be - as the media have cast them - the moron or the 
robot? Which essential body part are we able to do without 
in a president - a mind or a heart? 

Thus, dear reader, do we see the full quackery of the 
Information Age. We have access to all the information we 
could possibly want on the two candidates. We know where 
they went to school, what they've done with their 
lives...even with whom they've slept. And yet, we know 
nothing. We lack even the basic terms and ideas with which 
to understand the election itself...and how these two 
defective characters - whose programs are only marginally 
different - could be the only choice of an electorate 
numbering more than 100 million. 

It's not information we lack - it's insight and wisdom. 
People have so much faith in American democracy that they 
are unable to see the farce it has become. 

Coming back from a restaurant in Baltimore a few weeks ago, 
I noticed a whole group of posters hectoring people to 
vote. One showed a picture of a 60s era U.S. army helmet 
with bullet holes in it. The preposterous message: that 
soldiers died in Vietnam so you and I can vote for Bush or 
Gore. I know a lot of guys who went to Vietnam...and some 
who died there. I guarantee that the idea of defending the 
U.S. electoral system from the Viet Cong never crossed 
their minds.

Every one of the people with whom I was walking said they 
did not intend to vote. Smart, educated, well-paid people - 
and yet they didn't consider it worth their while to cast a 

Americans can read the election coverage in the papers. 
They see the candidates on TV. They may believe in 
`democracy' in the abstract. But when they see what 
actually happens, they know it is not worth their while to 
get involved. 

Ralph Nader, trailing in the polls but with an unbeatable 
lead in humbuggery, seems to reject the whole concept of 
centrist politics:

"Don't vote for the lesser of two evils," says St. Ralph, 
the patron saint of tort lawyers, "because at the end of 
the day, you end up with evil."

The New York Times and the Washington Post are mad at 
Nader. "Spoiler" they call him. People voting for Ralph are 
`throwing their votes away,' say the great liberal oracles.

Voters can see that the whole spectacle is phony...but they 
lack the terms to understand it. Even with the Internet at 
their fingertips - it seems impossible to gain a clear idea 
of what the election is really about or what it really 

Neal Gabler, writing an unusually sensible editorial in the 
International Herald Tribune describes the dumbing down of 
national politics as a feature of mass communications:

"The arrival to television and the televised debates, which 
enabled candidates to reach the electorate directly, forced 
the media to redefine their coverage," he says. "What has 
emerged is something suspiciously like celebrity reporting. 
Candidates' personalities are analyszed and their life 
histories exhumed as if they were movie stars. Again, like 
stars, they are judged by whether they exceed or disappoint 
the expectations that the media have created for them."

Mr. Gabler describes the positioning of the candidates as a 
"narrative" created by the though the election 
were a sporting event.

"Because the candidates fully understand that this is the 
media's obsession," he observes, "and because the media, 
through repetition, largely govern how the rest of us think 
and feel about the candidates, the narrative actually 
drives the entire electoral process now."

So who will you vote for? Brainy Spice or Friendly Spice?

Beneath the media's narrative is the logic of democracy. A 
recent survey revealed that the average amount of tax paid 
in the U.S. is about $7,500. Seventy percent of taxpayers 
pay less than that amount. And those earning under $10,000 
pay only 4% of their incomes in tax, while those earning 
more than $500,000 pay nearly 30% to the government.

Relatively few people earn more than $500,000 per year - 
not enough to elect even a county executive. But a lot of 
people hope to earn $500,000 and they're smart enough not 
to want to destroy the dream of great wealth. And many 
voters have a sneaking suspicion that that people are 
better off generally if the most successful among them are 
not routinely and ruthlessly plundered. 

Politicians need to position themselves as close to the 
point of balance as possible - the point where the most 
money can be squeezed out of people for the benefit of the 
largest possible number of voters. The leading candidates 
take up their posts on either side of the balance...close 
to the margin. Both are candidates of the status quo - 
since the balance point changes little from year to year. 
Thus, the evil choice that they offer is similar to a pair 
of criminals who break into your house at gunpoint and 
allow you to choose: one will take 29% of everything you 
earned that year. The other will take 31%. Choose one or 
the other and you become party to your own expropriation.

The Washington Post and NY TIMES hector their readers to 
vote - lest the 29% candidate carry the day. And 
Republicans are reminded that if they stay home on election 
day, or vote for Harry Browne, the Libertarian candidate, 
it could cost them thousands of dollars, too. And so, they 
are all drawn into the politics - all made accomplices to 
an act of larceny and absurdity. 

Sigmund Freud, you will recall, explained the Germans' 
attitudes at the end of the two world wars on the basis of 
how much they identified with their leaders. German troops 
abandoned the Kaiser when the going got tough. But they 
stood by the Fuhrer when the going got really tough. The 
difference was that the Fuhrer was elected, Wilhelm was 
not. Between WWI & WWII Germany discovered democracy. Mass 
thinking, mass media, and mass democracy had replaced the 
quirky independence of the House of the Hohenzollerns. The 
Germans had ceased being subjects of unelected monarchs and 
had become citizens of nation whose leader they elected, 
and with whose fantasies they fully identified and largely 

In Germany, as in America, as voting spread so did mass 
media, mass thinking, and mass self-delusion. 

Your 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
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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
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Last modified: April 01, 2001

Published By Tulips and Bears LLC