*** Today's TheStreet.com website says the "Annus
Horribilus Continues." This has nothing to do with a
certain NYTIMES reporter, however. Instead, TheStreet.com
refers to the year 2000AD...being suffered by Nasdaq
investors.
*** "Where's Festivus when you need it?" asks the reporter.
Festivus? I looked in the dictionary. There's festival,
festivity, festive - but no Festivus.
*** Hmmm...apart from me, the only one I have ever seen use
the term is the French philosopher Philippe Muray, who uses
it to describe the way the politics of western democracies
have been hollowed out, reduced to meaningless slogans and
empty celebrations. I don't know if Muray has mentioned it
or not - but American capitalism has also suffered from the
Festivus effect. More below...
*** Festivus or no...the Nasdaq had nothing to celebrate
yesterday. A few companies were the subjects of analysts'
warnings...and fair-weather investors decided to abandon
them. Juniper Networks, for example, lost $17...Sun
Microsystems dropped almost $7.
*** The Nasdaq itself was down 145 points - or about 5% -
to 2,734. Three stocks fell on the Nasdaq for every one
that rose, and 505 hit new lows.
*** Yahoo! sank $3. And Amazon almost as much, a loss of
about 10%, after a Banc of America Securities analyst said
he would "avoid" the stock. In typical Wall Street
euphemism, he gave AMZN a "market performer" rating.
*** Compaq fell 7% and Dell fell 8% as investors realized
that computer inventories have been growing and demand has
been falling.
*** And Broadcom drifted even further from analysts' $200
`target price' - it closed yesterday at $85.
*** The Dow also lost ground yesterday - down 38 points.
The economic news was bad. The government reported that
durable goods sales fell 5.5% in October. Durable goods
include large items such as cars, airplanes and furniture.
Lower durable goods sales mean lower business investment -
which can be taken as more evidence for a recession in the
making.
*** Meanwhile, the Conference Board reported the consumer
confidence fell again in October to its lowest point this
year. It is now at 133 - but still high compared to the
1985 benchmark of 100.
*** GDP growth will be nipped and tucked a little today. It
was reported at 2.7% in the latest quarter...and is
expected to be revised downward to 2.2% today.
*** If you want to lose money on the Dow, I suggest a
simple and obvious stock: GE, the world's largest company.
It is a conglomerate of businesses...priced as though the
whole were worth nearly twice the sum of its parts. Over
the last 5 years its P/E has risen from 15 to 33.8. But now
GE's CEO, Jack Welch, is retiring...and the bull market is
over. A modest prediction: GE will soon be back at a P/E of
15.
*** Goldman Sachs estimated profits for the 4th quarter are
down 36.4% from a year ago. And 8,789 dot.com workers got
pink slips in November.
*** More signs of deflation: bonds rose yesterday, and the
spread between 10-year Treasuries and 10-year inflation-
adjusted TIPS fell from 1.9% recently, to below 1.8%.
*** Credit bubbles never end in inflation, says Dr.
Richebacher, but always in deflation, as paper assets are
marked down and wealth disappears.
*** The danger with U.S. bonds is the U.S. dollar. The euro
rose against the dollar yesterday. So did yen. As I keep
saying (and sooner or later I will be right): The dollar
may have finally topped out. If so, it won't be long before
the foreigners holding $2 trillion worth of U.S. dollar
denominated assets decide that they are better off in
another currency. When that happens, the dollar will do
what the Nadaq has been doing. As Marc Faber suggested
yesterday - buy quality euro bonds.
*** Gold fell 50 cents yesterday, but Newmont and Homestake
shares were both up.
*** Al Gore accidentally spoke the truth on Monday. In the
International Herald Tribune, he's quoted as saying: "The
integrity of our democracy depends on the consent of the
government..." He meant, no doubt, the governed.
*** Elsewhere, David Broder, editorializing in the
Washington Post, gives "41 Fresh Reasons for Faith in
Politics." The reasons are incarnate in the persons of the
new members elected to the House of Representatives. But
one would need the faith of Job for it to be restored by
this mob of hacks, wonks and busy-bodies. Few have ever had
honest jobs - and two seem to have some genetic defect
predisposing them to a life of slime: they are the children
of politicians. One graduated from the University of
Florida...and scarcely two years later was a member of the
Florida legislature. One has the dubious distinction of
being "the first Latino woman elected to the California
senate." Another earns Broder's approval for having won a
"four-year fight to tax smokeless tobacco." One specializes
in the environment. Another in "children's and youth's
programs" ...one was a CIA snoop...and another messed
around with "major tax policies." What impressed Broder
about them was precisely the point that should be cause for
alarm: "The most striking thing," he says, "is the depth of
their governmental experience. These are not, for the most
part, rookies."
*** This recalls my proposal to select members of Congress
by national lottery: that is to replace fraud with chance.
No counts. No recounts. No elections...no campaign finance
reform. A Congress selected at random would be far more
representative of the American people. Jurors - with the
power of life and death - are selected by chance. Why not
Members of Congress? And once selected - treat them like
jurors: feed them chicken salad sandwiches and keep them
quiet.
*** And from the Toledo Public schools comes more evidence
that mankind grows ever more dim even in the Promethean
light of the New Era: The school's Jefferson-Madison
Leadership Camp has voted to change its name. "The recent
enlightenment that both Jefferson and Madison were slave
owners puts a negative light on things," declared Ralph
Schade, a school principal. Apparently, Mr. Schade had been
in the dark, or perhaps the penumbra, on the slaveholding
issue, until modern information technology somehow got the
news to him.
The "Crisis" Continues: 100% Profits From Electricity
The media has turned its attention elsewhere - the violence
in the Middle East, the election nonsense in Florida - But
the crisis in electricity rages...
In this edition of the FREE INVESTOR'S LIBRARY, you'll
learn how and why there is a power "crisis" at all. But
best... You'll learn about a company that is making big
profits, despite government regulations and interventions.
Even if you don't believe in business cycles, you can't
argue the change in seasons. And with investors distracted,
now's the time and the price to get in:
"I am reading a book by Vladimir Poutine," writes my friend
Michel, "which explains how the USSR fell apart. ... In
about three years the Russians went from having no
information they could believe - only rumors - to having
all the information they could ever want. The result:
whether they are underinformed or overinformed, the
Russians continue to believe absolutely anything...and to
know nothing."
Is all this information making the Russians rich? And what
is it doing to Americans?
Americans seemed to think they were getting rich - at least
until recently. Information itself was believed to have put
the U.S. economy into a new phase...a New Economy...where
things worked differently. And much better. Savings were no
longer necessary - because information technology needed
little capital. And information was supposed to have
boosted productivity to the point where inflation was no
longer a concern: metaphorically, or perhaps literally,
information allowed people to build new wealth faster than
then the Bureau of Printing and Engraving could print new
money.
"The new information revolution has been sold to
investors," writes Dr. Kurt Richebacher, "as a technology
that will do the greatest wonders to productivity, profits
and wealth, far more than the industrial revolution has
done... The general idea behind the unfolding euphoria was
and still is that this technology is able to deliver almost
limitless growth and productivity effects because its
implementation requires very little input of capital and
resources."
In the last couple of letters, we've observed that the
whole idea was a fraud. There really has been no
`information revolution' of the 1990s. The cost of
communication has been dropping sharply for the last 200
years.
"If you go back to the 1800s," said Greg Blonder in
Barron's, "sending a message across the ocean was a
several-week process, and it involved dozens of people."
Then came the telegraph, and that cut the time from a few
weeks to a day. But you still had to go to the telegraph
office, someone had to key it in, and it had to be keyed
out on the other end... Then we went to a phone, which
reduced the process to minutes from hours... Now you can
send a message in milliseconds, at the speed of light,
between here and England."
Of course, even the telegraph messages of 100 years ago
traveled at the speed of light. But the cost of
transmitting data has fallen dramatically, to the point
where Blonder believes long-distance service in the future
will be essentially free.
But as access to information increased, something
unexpected happened - the actual effect of the information
glut was to force people to accept group-think
interpretations offered by the media, pundits and
demagogues rather than to reason things out for themselves
from personal experience and observation. There is simply
too much information available on too many different
subjects.
Ideas, and the institutions that depended on them, became
simplified, hollowed out, and mass-marketed. Wherever mass
audiences were involved - such as elections, mass
entertainments, and the stock market - things had to be
taken down to a lower and lower common denominator - to the
point where every blockhead could understand...and still
believe what he wanted to believe. National elections, to
use an example on people's minds, were reduced to the
intellectual subtlety of heavyweight wrestling.
The mass media provided not only intellectual short-cuts,
but emotional ones. Genuine, personal feelings - sadness,
joy, sympathy - were hollowed out as the mob learned to cry
and cheer in unison.
But as we noted yesterday, mass-emotion and group-think is
not without its hazards. Blonder, as noted by Barron's,
"sees a clear downside to technology. One of the greatest
dangers he sees comes from an increase in uniformity..."
Blonder is worried about the dangers of a computer virus...
attaching a uniform system of communications software. But
there is also the danger of an intellectual virus - a
malignant idea, such as National Socialism, attacking a
population which is overwhelmed by information and choices
and yearns for a simple, and even final, solution.
Thus it was that the idea of the New Economy and
Information Age fell upon the U.S. financial markets a few
years ago. Awash in information - from the WSJ to Bloomberg
to the reports of thousands of analysts and commentators -
investors were delighted to discover that the hard work of
investment analysis was no longer necessary. The
Information Revolution would make them all rich. All they
had to do was to buy the names they heard on CNBC and wait.
Meanwhile, the managers of publicly-held companies had
their own experience with group-think. Building a
successful business is hard work. It takes sacrifice, time,
luck. Now, all of a sudden, it no longer seemed to matter,
because investors no longer cared about building strong
businesses; they just wanted stocks that would go up in
price!
This is, of course, just what the Information Age seemed to
deliver. "The Internet has created more value more quickly
than any other technology trend we know of," said a Merrill
Lynch analyst, quoted by Dr. Richebacher. "According to
another argument," Richebacher continues, "even after the
stock market decline, the market value of the U.S. Internet
sector is still $800 billion."
Thanks to the new information technology, the last five
years produced "colossal gains in household net worth in
the U.S.," writes Jim Davidson, "of 2.8 trillion in 1995,
$2.6 trillion in 1996, $3.8 trillion in 1997, $3.3 trillion
in 1998 and an astonishing $4.7 trillion in 1999..."
And now, dear reader, I come to the burden of this letter
and the climax of this line of thinking:
Were these gains real, the results of the Information
Revolution? Or were they paper profits - the products of a
mass-delusion, aided and abetted by the information glut?
I think you already know the answer.
But I will return tomorrow to belabor the point - and
develop a slightly new one:
Just as group-thinking hollowed out ideas and emotions, so
has it hollowed out American businesses. Tomorrow - more on
Dr. Kurt Richebacher's "late, degenerate capitalism" in
America...and how the information glut made people poorer,
not richer.
Your correspondent...late, but not completely degenerate,
Bill Bonner
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