FORECAST #1: When the NASDAQ's 200-day MA crashes...the S&P
FORECAST #2: After the Dollar falls - hard!...
FORECAST #3: And bonds and equities bottom out together...
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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
*** 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, Amazon.com, 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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splendor of gardenias, hibiscus, and hollyhocks. The sky is
clear blue. The sea a deeper blue. A gentle breeze
comes drifting in from the ocean as your maid brings you
breakfast in bed. You think you have died and gone to
heaven. But this paradise is real. And very affordable..."
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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
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
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
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
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 development...music, 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 Age...you
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...
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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