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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Dumbbells

*** The Bush rally fizzles...Nasdaq down again...

*** Technology, we discover, is not merely cyclical - but 

*** Amazon down again...the euro gets a fund 
inflows decline...FDIC warnings...and more!

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*** George W. Bush claimed the presidency yesterday...and 
the long-awaited post-election rally finally got underway.
But like so many things in this Autumn of Anxiety - the 
celebration didn't go exactly as planned.

*** The Blue Chips managed to end the day up a modest 75 
points. But the Nasdaq couldn't keep up. After almost 
bumping up to the 3,000 level, the tech rally fizzled and 
the index was 23 points lower at the close of business than 
it was at the beginning.

*** There are "some fundamental questions dogging 
technology stocks," opined one analyst. Yes, and the big 
question is: why would any investor pay so much for so 
little in earnings?

*** Investors are beginning to realize that technology 
itself may be cumulative, but tech stocks are cyclical. 
"The average industry group has outperformed the index this 
year in most global equity markets," writes Michael Belkin 
in Strategic Investment. "That is simply a function of 
technology, media and telecom underperformance. TMT [tech, 
media, telecom] became a large percentage of index 
capitalization over the past several years - as portfolio 
managers piled into sexy New Economy stocks. There was 
little interest in stodgy old (profitable) companies while 
the prospect of instant gratification in TMT existed."

*** Techs, you may recall, were supposed to be resistant to 
the normal cyclical forces: interest rates, credit, 
consumer spending, inflation, employment. Techs were 
thought to inhabit a very new world - a New Economy, where 
the old economic laws didn't apply. Even the law of gravity 
was thought to be ignored, as tech stocks drifted further 
and further into space.

*** "Ironically," continues Belkin, "tech has become the 
most cyclical sector of the U.S. stock market, simply 
because the valuations and expectations are so high for 
growth stocks that there is absolutely no margin of error - 
When a high-flyer misses by a few pennies or guides future 
estimates lower, it gets dumped immediately."

*** Yesterday, it was Broadcom that disappointed investors. 
Salomon Smith Barney warned that Broadcom might not do as 
well as thought. So, their fantasy `target price' was 
lowered from $300 to $200. Broadcom shares slumped 17% - to 
below $100. 

*** But it was a good day in the retail sector - even for 
on-line retailers. etoys rose 10% on news that Friday's 
holiday shopping on-line was 27% ahead of the year before. 
On-line sales in the 3rd quarter grew 15% over the previous 
quarter. And on-line sales during the holiday season are 
expected to double from 1999.

*** Our favorite on-line retailer,, joined 
yesterday's party. But then, it had to leave early. The 
stock finished down 3%. 

*** Henry Blodget, cheerleader...I mean, analyst of the 
Internet sector, has turned cautious on AMZN. It could be a 
bad sign, he noted, that Amazon decided to extend the 
deadline on its Free Shipping offer to customers. Blodget - 
who never met a stock he didn't like - continues to rate 
AMZN as "accumulate/buy."

*** Existing home sales were slower than expected in 
October. Only 4.96 million were sold, compared to 5.16 
million in September.

*** Bonds and the dollar fell yesterday. The euro rose 2% 
against the dollar. 

*** "I have seldom experienced such a widespread negative 
sentiment about a currency as is now the case for the 
Euro," wrote Marc Faber two weeks ago. "This bearish 
sentiment and total lack of confidence in the Euro reminds 
me of the desperation investors felt about the U.S. dollar 
in 1980, just as it embarked on a powerful five-year bull 
market. Thus, given this bearish consensus...I advise 
investors to gradually shift some of their funds into Euro-
denominated highest-quality bonds."

*** Gold rose too - up $3.l60. Those mining companies I 
mentioned a few days ago seem to be stirring. 

*** Net inflows into equity funds are declining...they fell 
28% from August to September. Lipper believes they fell 
another 50% in October. 

*** And the WSJ reports that day traders are returning to 
their jobs...and that "Value Investing Suddenly Makes Sense 

*** "Over the past 30 years," writes John Myers, "the 
world's population has increased by as much as the 100,000 
years prior to the mid 20th century. According to an 
estimate by the US government, $25 trillion in energy 
investments over the next half century is needed to meet 
developing world demand... There is no better place for 
your money right now than the energy sector."(see: 2nd Wave 
of the Industrial Revolution

*** The FDIC, which insures bank deposits, warns that the 
nation's banks are over-exposed to real estate loans. 
Called the Real Estate Stress Test, the FDIC's November 
report states, "Between 1987 and 1995, even though it was a 
period that included the New England and California real 
estate crises, the percentage of very vulnerable banks 
never exceeded 5% of the total. But by December 1999 that 
percentage was at 8%, and it now exceeds 9%. An additional 
15% of the industry is identified as somewhat vulnerable 
should an economic downturn take place."

*** "The 'crisis' continues..." says Dan Ferris, referring 
to rising electricity demand in California. According to 
Penn Net's Power and Gas Weekly, "California is still 
struggling to keep the power on. With electricity reserves 
under 7%, the California Independent System Operator (ISO) 
called a Stage 1 emergency alert at 5:30 a.m. [last] Monday 
as the state continues to flirt with power outages." These 
power outages, says Ferris, "will probably go on for 
another 12-18 months, due to the fact that it takes awhile 
to get a power plant built." 

*** All over the world, markets and economies seem to be in 
decline. Tokyo stocks are still less than half their all-
time highs set 10 years ago. Thai stocks are down 80% from 
their peak. In the Philippines, stocks are down 50%. In 
Indonesia, they are off 40%. TMT [tech, media, telecom] 
stocks are in decline in the UK, France and Germany - down 
about 40%, along with the Nasdaq.

*** A forecast: If, as we suspect, American consumers, 
investors and businesses get what deserve, rather than what 
they expect - deflation and recession will force Americans 
to reduce spending and begin saving. The dollar will fall. 
Stocks will retreat to "Big Bottom" levels...and the whole 
world economy will slow down further. Euro bonds...and gold 
stocks...will turn out to be good investments.

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It was raining when I left the office last night. Not 
wanting to give up my promenade, I set off with my 
umbrella, rather than take the subway. 

I find that I can read on the subway. But it is hard to 
think. There are two many people and too much activity. By 
contrast, on the hour-and a quarter walk...the sensations 
seem to come at a slower rate. Information is all around me 
- sights, sounds, people - which I take up with great 
interest. But they don't "lurch out and grab me by the 

Thus was I able to cross the Pont des Arts - admiring the 
way the lights of the Louvre slipped and slid on the wet 
pavement - while still cogitating on yesterday's 
breathtaking insight:

My friend Michel suggested as much months ago. "More 
information makes people dumber," he said. But the thought 
seemed so counter-intuitive...and so theoretical...that I 
resisted it.

But now, the evidence is mounting. And the theory is 
beginning to make more sense.

Overwhelmed by the rush of sensations, people are unable to 
think. There is too much to think about. So, they look for 
short-cuts...ways to understand the data without studying 
each and every bit of it themselves. They are forced, by 
the flood of information, to the high ground of collective 

Personal experience and direct observation - for which 
there is never enough time - are replaced with off-the-
shelf explanations. Mass ideas replace custom made ones. 

You may be concerned that I will bring up Nietzsche's two 
forms of knowledge at this point. But I will save him for 

There is a big difference between thinking for yourself and 
mass thinking. In the hands of the mob, ideas get hollowed 
out like campaign slogans, to the point where they are 
completely empty. They appeal, not to the reason of an 
intelligent observer, but to the lowest common denominator 
of emotion.

And emotions themselves are turned into puerile imitations, 
not the real things. For proof of this, I refer to you 
David Broder's amazingly idiotic comments on the American 
election. Broder wrote in his NYTIMES editorial, that this 
Thanksgiving was the "saddest" since JFK was assassinated. 
Certainly the death of someone you know is cause for real 
sadness. But a close vote in a presidential contest - with 
the attendant charges, countercharges, carpet-baggers and 
lawsuits - should be a source of amusement to any sensible 

Broder's `sadness' was not the genuine, personal emotion 
you see expressed at pet funerals. It was a different kind 
of emotion - a mass-marketed pseudo-feeling, stocked on 
shelves all over the nation for anyone who didn't have an 
emotional life of his own. 

"Crowds," as H.L. Mencken observed, "properly worked up by 
skillful demagogues, are ready to believe anything and to 
do anything."

Coincidentally, I have been reading two memoirs of Jewish 
economists who grew up in Nazi Germany. Henry Kaufman and 
Albert Hirschman. Then, as now, there was no shortage of 
ideas and information available. Young German intellectuals 
read Marx, Lenin, Engels, Kautsky, Nietzsche and scores of 
others. They joined discussion groups and sat around 
drinking strong coffee and arguing about dialectical 
materialism. They published their own newspapers...dozens 
of them...and battled opposing groups on the street 

Even after the Reichstag fire, when Hitler outlawed these 
agitating groups, reports Hirschman, they continued to 
meet...and distributed their ideas on mimeographed 
manifestos. Groups came and went - each with its own angle; 
its own plan for a better world. Hirschman recalls that he 
joined a schismatic bunch of gabby youths in something they 
called the Socialist Workers Party...which was known as 

One does not have to be a historian of the 20th century to 
know that upon this rich manure pile of information, ideas, 
and opinions...a thousand flowers did not bloom. Instead, 
the most malignant imbecilities flourished...crowding out 
and eventually smothering all the competition.

Even the SAPs realized that if they wanted to win in the 
political arena, they couldn't permit dissenting opinions. 
Mass action requires mass thinking...which mean uniform 
thinking. This insight, of course, was not missed by Hitler 
or Lenin - who lost little time in destroying the media 
outlets of their enemies, preparatory to destroying them 

The ordinary German citizen in 1935 had access to far more 
information than anyone in history had ever had. Trains, 
planes, automobiles...telegraph, telephone...newspapers, 
radio... Berlin was also host to thousands of refugees from 
Russia...and to intellectuals from all over the world. Its 
universities were the best on the planet - its level of 
cultural, art, literature...second to 

And yet, the whole society was overwhelmed by such 
galloping dumbness that it seemed to do the worst possible 
thing in the worst possible way. Chasing chatterbox 
economists such as Kaufman and Hirschman out of the country 
may have been no great loss. But, alienating...and then 
murdering...a whole race of scientists - including the 
physicists who would eventually build the atomic bomb - is 
further proof not just of sublime stupidity...but evidence 
to that people get what the deserve rather than what they 
expect. In the end, the blockheadedness of German mass 
thinking led to the near-total destruction of the nation. 
By 1945, the Reich had ceased to exist.

And to the East, the wealth of ideas and information that 
emerged in the early 20th century had an even worse 
consequence. Russia fell into such an abyss of mass 
stupidity that it took two generations to climb out of it.

But what has that got to do with the Information 
may be wondering? 

In the early 1900s, the ideas and information that people 
argued about were political. The greater the abundance of 
such `information,' the more likely people were to turn to 
mob-like interpretations of it. Intellectuals in 
information-rich centers such as Berlin, Paris, St. 
Petersburg and New York - were soon wearing red scarves or 
swastikas and acting like morons. While people in rural 
areas went about their business in ignorance and relative 

Nearly 100 years later, we have yet more `information' than 
ever. It lurches out of the worldwide web like Nazi youth 
groups - and clutches at our hearts and minds. Will it make 
us smarter...or richer? 

More to come...dear reader...more to come...

Bill Bonner

P.S. It rained harder and harder as I walked home. My feet 
got soaked...but the views, especially of the Seine, were 
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Last modified: April 01, 2001

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