*** Gridlock...just what voters wanted - but more than
expected. Is America a 'banana republic?' If so, how much
is a peso, I mean a dollar, worth?
*** Deathwatch list grows... Is E-Bay sick too?
*** What do the best market timers think of this market?
*** Gridlock! That's what Americans really wanted from
Washington. And that's what they got - even more than they
expected. Americans elected at least one dead senator, an
almost perfectly deadlocked Congress, and a president
(whoever he is) disabled by ballot irregularities and
*** Something always seems to go wrong on the road to
perfection. The perfect, Goldilocks story of last January
has turned into a different kind of fable. American
triumphalism has been replaced by comic uncertainty in
Washington...the U.S. economy has slowed down to a rate of
growth no greater than in Europe...and the bears have come
home and chased the Nasdaq down 21% since the beginning of
*** The Nasdaq fell 31 points yesterday. It is down 40%
from its high in March.
*** The Deathwatch continues and the sick list grows. Dell
announced its numbers after the close of business. Earnings
were fine, but sales are growing at only a 20% rate. The
stock fell $1.75.
*** Investors have noticed that a good story is not enough.
Neither is a good business. The stock has to be priced
reasonably. 20% growth is fine for a company with a P/E of
15. But not for Dell with its P/E of 41.
*** Early yesterday, the ECB intervened on the euro's
behalf without much consequence. But later, Gore's campaign
chief, Daley, and Jesse Jackson, meddler without portfolio,
announced that a recount alone may not be good enough. This
had a remarkable effect. The dollar promptly fell by 1.1
cents against the euro. More below...
*** The euro was not the only thing to fall. The Dow also
collapsed - 288 points. Prices came back after Warren
Christopher reassured the world that Bill Clinton was still
in the White House and would remain there until January
20th, when a new president would take up residence.
*** "Banana Republic!" was how a Roman newspaper
characterized the U.S. election process. In a Banana
Republic, an incumbent president might decide to ignore a
tainted vote. He would call for a new election, say, in 18
months - and call out the National Guard to maintain order.
Bill and Evita, I mean Hillary, Clinton wouldn't do that,
*** The Dow ended the session down only 72 points, down
5.8% for the year. There were 1086 advancing issues; 1730
declining one. 57 stocks hit new highs on the NYSE; 51 hit
*** And it doesn't look good for today. "Friday looks
grim," said one analyst - citing the reaction to Dell and
the continued uncertainty of the election. Stocks fell in
Asia this morning and the Financial Times thinks they will
fall in Europe too. But who knows?
*** Oil rose to nearly $34 in Asian trading. Traders fear a
cold winter with tight supplies. Long-term, though, experts
say producers are pumping 2 million barrels per day more
than the market can take up.
*** Gold rose 80 cents.
*** Mark Hulbert reports that his five top-rated markets
timers - newsletter gurus with the best records for
predicting market direction - are bearish, though none has
pulled 100% out of stocks. Bob Brinker recommends a 65%
cash position. No-Load Fund Investor Sheldon Jacobs is
similarly only 35% invested in stocks. Value Line and the
PAD System's Dan Seiver, meanwhile, recommend having half
your money in stocks. Only one of the 5 best market-timers,
Michael Burke of Investors Intelligence, recommends being
fully invested in equities.
*** Looking at sentiment, Hulbert found that advisors who
concentrate on the Nasdaq have become very pessimistic -
which he looks at from a contrarian viewpoint. "Bearishness
in the Nasdaq," he observes, "may have become so
pessimistic that a wall of worry now firmly is in place for
a Nasdaq rally to resume."
*** Are we in a bear market? Of course, it depends on which
market you look at. "If a bear market is defined as a
decline of at least 20% from the indices high point,"
writes Ray DeVoe, "the Nasdaq's 35.8% decline from March
10, 2000 level...would qualify. The Dow Industrials would
have to close below 9,378 to qualify as a bear market
according to that widely held standard." (see: Rich Beyond
The Dream Of Avarice)
*** In response to my "when investors will meet their
Waterloo" question, William Fleckenstein:
[Referring to the election] "Personally, I had hoped we
wouldn't head down this path. It is fraught with risk and
is exactly the kind of unanticipated event that can
undermine the currency and the stock market. Given the
absurd valuations of stocks, the weakening economy and
earnings problems, this could be a real Waterloo for the
market. We shall have to see, but folks should be on red
alert." (see: Split Decision Makes For Unpoetic Injustice)
*** And this recent experience with a dot.com, from Steve
Sjuggerud: "If personal experience is any indication,
eBay's online auction monopoly could be in trouble...
Cleaning out my garage on eBay, I've actually made many
thousands of dollars on junk. On Sunday alone, I sold two
musical items gathering dust for $2,500. I know what
they're worth, and I started these two particular Sunday
auctions at a dollar, just to get rid of them. So I'm a
satisfied eBay customer.
"But now, apparently eBay's patchwork programming is
finally catching up with them. I've got five more things
out of my garage on eBay that haven't seen bids in days.
One item, top-notch wireless stereo headphones which should
easily fetch $75 or more, hasn't seen a bid yet, and it's
listed for $1. I went in to figure out why, and found that
I COULDN'T BID ON ANYTHING RIGHT NOW EVEN IF I WANTED TO.
"No word from eBay on this situation. Trying to find
customer service or tech support online, I quickly found
out that there is none. Here's a quote from their tech
support message board - the only place where you can get
support, run by users, not the company (this quote from a
thread with over 600 "where-are-you-eBay?" complaints):
"I would have never thought of leaving my beloved eBay. I
have been a huge fan...buyer and seller since May of 1999.
But I too am exhausted over the problems. Sad to say, I am
taking my auctions to yahoo also. I use this as income....
I can't afford the problems and with zero customer
support... well I am just a small fish that I am sure eBay
won't miss. I have some auctions on now but once again
(this month)....all of a sudden...the photos aren't
loading and I am going to have to sell items at a loss. I
can't afford eBay anymore."
"EBay is at a P/E of 515," Steve concludes ominously, "And
customers are unhappy." Another candidate for the sick
Before Labor Day we began with a simple warning...
GET OUT OF BIG TECH!
IT'S NOT ROCKET SCIENCE - Bear market sentiment works
hardest against the bull's highest flyers: Intel, Sun,
Oracle - you name a tech darling - we'll show you how far
they will fall...
This week's carnage: Oracle down 6.59%, Cisco down
8.15%, Intel down 7.58%, and Sun - nearly a perfect
10 - down 9.98%.
Trouble is, you may own these stocks and not even
know it. If you still haven't - now is the time to
check your 'retirement' money. Will it be there when
the bear is done mauling?
Your FREE report: "While The Nasdaq Burns" will tell you
which stocks to sell. And, suggest 7 value-for-all-time
companies to keep your money safe. After a day like
yesterday - you simply can't afford to miss While The
Nasdaq Burns. Read it immediately.
"So...who eez zee president ov zee Yooo Esss? Ha ha..."
Addison and I were having lunch at a crowded little
restaurant near the Pompidou Center, not far from our
office. The words quoted above were delivered by a man with
gray hair who leaned over towards us, after hearing us
speaking with our American accents.
In the space of just a few days, America has gone from
being on top of the world...to its laughing stock.
Thus did a headline echo the thoughts of a bar owner in
Count on the foreign press to get the story wrong. In
Italy, governments come and go. Civilized Italians don't
take politics very seriously. They ignore their leaders and
cheat on their taxes.
America is completely different. Americans pay their taxes
and pay attention to politics as if it mattered.
But a Roman newspaper, La Republica, elaborated:
"The first election of the new millennium," said the
Italian editorialist, "has brought America into the realm
of the surreal."
Newspapers, the chattering classes, and bar owners all over
the world are enjoying the public spectacle of U.S.
presidential politics. One of the dullest election
campaigns in generations - with two candidates no one
really cared much about...one without a heart and one
without a brain (as the media characterized them) - has
been transformed in its final hours into one of the most
exciting collective dramas of our day.
A Russian web-site jokes that the "latest reports show
Vladimir Putin in the lead."
"Banana Republic" said La Republica... Yes, "it does sound
very Mexican" said a political scientist named Federico
Lynn Carpenter set my brain to work yesterday with an
offhand comment on the dollar. I cannot quote her, because
I cannot remember exactly what she said, so I will make up
"All currencies," she did not say, "including gold and
silver, are features of the collective imagination. Their
only value comes from what people en masse believe them to
In the world's collective imagination, the U.S. has become
a subject of ridicule. The question I pose today: Will its
currency become a joke one day, too?
Like most of the rest of the world's press, Die Welt has it
backwards: "It's not a cheap detective novel, not a soap
opera, but a debacle that could turn into a comedy."
Quite the contrary, dear reader, the presidential elections
are a farce that could turn into a disaster.
This is not the first time an election was close. Nor is it
the first time an election turned on a small number of
disputed votes. In November, 2000, the voters of Missouri
elected a dead man. But in November 40 autumns ago, dead
voters probably elected a live president.
That was when John Kennedy beat Richard Nixon, thanks
perhaps to the deceased voters of Chicago. Some campaign
managers are better than others, of course. And no one
could get out the vote in Chicago like Mayor and Kennedy-
supporter Richard Daley. So effective were his efforts that
even the corpses of people long dead managed to cast their
votes. And people still among the quick were so animated by
civic responsibility that they decided to vote more than
Daley has left office to join the dead voters of Cook
County, but his son, William, is the head of Al Gore's
campaign. Yesterday, Mr. Daley joined with Warren
Christopher and fellow Cook County voter Jesse Jackson to
proclaim that although "we do not intend to provoke a
constitutional crisis..." simply recounting the votes may
not be enough. "This is the start of a process," said
What process? Where does it lead? No one quite knows.
Richard Nixon discussed the 1960 election in his memoires.
He might have contested the results, but "the effect could
be devastating to America's foreign relations..." Al Gore
may not have quite the same reluctance to challenge the
The value of the dollar - like a dot.com stock or a
candidate's intelligence - rests on nothing more than a
collective illusion... They are worth what we, en masse,
are willing to give them.
So far this year, the triumphalism with which the U.S.
marched into the new millennium has begun to yield - to
doubt, chaos and losses. The U.S. economy no longer appears
to be so miraculous. Growth rates have fallen. There are
signs of distress in several areas - from falling
inventories of heating oil to rising personal bankruptcies.
Nasdaq stocks are down 40% from their highs, while the
leading sectors - techs and dot.coms - have been crushed.
Only the dollar, so far, has resisted the general retreat.
But even the dollar seems to be giving ground. It hit an
all-time low against the euro of 82 cents in October. Now a
euro is 86 cents. I don't know any better than anyone else
what will happen... but the collective illusion that
supports the dollar has been weakened. And the smart money
is probably hedging its bets - buying assets with their
roots in other currencies, other places and other
Your reporter, watching the U.S. elections and the dollar
from the other side of the Atlantic,
P.S. How big a debacle might the election chaos cause?
Life has a funny way of going in directions you don't
expect. Just when things seem to be going well - boom,
something unexpected happens. That, as I have pointed out,
is what happened in the 20th century. It began as the most
promising century of all time. But the Archduke Ferdinand's
driver took a wrong turn in Sarajevo...touching off a
series of events and catastrophes that resulted in the
deaths of 100 million people over a 75 year period. At one
point, more than half the world's people - and half its
landmass - were under the control of murderous regimes with
no sense of humor, nor any concept of property rights.
Could the Palm Beach ballots be the 21st century's
equivalent of a wrong turn in Sarajevo?
There are trillions of dollars worth of bad investments
that have been made in the last few years. In other
letters, for example, I've estimated that U.S. equity
prices might represent $5 - $10 trillion in wealth that
exists only on paper. Sooner or later, this 'wealth' is
going to disappear. Gently...or not-so-gently. A sharp
decline in the dollar could bring about a very hard landing
of U.S. stocks and the economy...causing widespread anger
and bitterness. Who knows what the ultimate consequences
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Last modified: April 01, 2001
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