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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Poverty Of The Information Revolution

*** Negatives? What could be negative?...

*** Nasdaq stocks fall sharply in after-hours trading - 
nearly $3 trillion in paper wealth has disappeared since 

*** The U.S. dollar may be in trouble...blabbermouths...
rich nations...consumers beginning to worry...and more!

*** "It's a very delicate market," said an analyst 
yesterday, "one that moves quickly and mercilessly if 
there's anything perceived as being negative." 

*** But what could be 'negative?' Yes, the economy is 
slowing...the revised figure for the last quarter showed a 
2.4% growth rate - the lowest in 4 years. And after-tax 
profits growth rate dropped to 0.6% - the worst performance 
since the '98 Asian currency crisis.

*** And, yes, an old friend reports that the IPO he 
scheduled for a start-up tech company had to be rescheduled 
for January. And the WSJ adds that IPO investors are losing 
interest in the new tech start-ups. "Everyone's bearish" on 
technology said another source - quoted by Reuters.

*** And, yes, collapsing Nasdaq prices have already wiped 
out nearly $3 trillion in stock market wealth - an amount 
equal to almost the entire increase in wealth gained by all 
the households in America in 1998. And still the average 
stock is overvalued by 2, 3, maybe 4 times.

*** And it's also true that the latest Presidential 
election was perhaps the most bollixed in American history.

*** And, yes, energy prices are twice what they were a year 
or so ago...and heating oil stocks are worryingly low. And 
the International Herald Tribune reports today that 
"Economic Signs Point to a Global Slowdown."

*** But apart from that - what's the problem?

*** The Nasdaq fell modestly yesterday, losing 28 points, 
and dropping to its lowest level since Oct. '99. It has 
been down in 12 out of the last 15 session. 

*** The Dow rallied, up 121 points. But there was no 
breadth behind the numbers... 1465 stocks advanced on the 
NYSE; 1396 declined. 101 issues hit new highs; 143 hit new 

*** The real action happened in after-hours trading. Altera 
and Gateway each fell about 25% after warnings of lower 
earnings in the 4th quarter. Intel lost 10% to close well 
below $40. Dell dropped below $20 to a fresh 2 � year low. 

*** "Market wipeouts now take months instead of years," 
says Ray Devoe. "The number of stocks down at least 95% 
from their 52-week highs is staggering. Some have fallen at 
least that much in 2-3 months. The latest casualty is (MDCM - $0.03) that has fallen from $22 a 
share in August 1999 to 3 cents today - a loss of 99.9% in 
14 months." (see: "Pilot Error" and the Short Lived Insect

*** When will the ' dollar' follow the 
stocks? Maybe we will not have to wait long. There is a 
"perception that the U.S. economy may be headed for 
trouble," said a gnome in Zurich, quoted in the Financial 
Times, "the dollar is over-valued and people are realizing 
that and reducing their long dollar positions."

*** The dollar fell again yesterday - to 86 cents/euro. Oil 
rose 41 cents. And gold fell $3.40. 

*** "It's only been 10 months since Janus closed some of 
its funds to new investors," writes Eric Fry, "and already 
the firm cloisters itself in a shroud of secrecy. Still, 
sagging investment returns are hard to conceal. The 
flagship Janus 20 fund, after gaining a blistering 65% last 
year, is down more than 20%... and a whopping 30% from its 
March 24 high. Likewise, many of its other funds are 
suffering losses on the year." (see: Janus: Expose Thyself!

*** "This morning on Good Morning America," reports a 
colleague from Baltimore, "a stock analyst showed Diane 
Sawyer two stocks, Cisco and Philip Morris and asked her 
which see would have thought fared better since Jan 1: 
Cisco, down 3% and Phillip Morris up 63%." Near the 
beginning of the year, Daily Reckoning readers were 
advised, if I recall correctly, to sell Cisco and buy 
Phillip Morris. So far, so good.

*** "You are a blabbermouth," (or words to that effect) 
scolds my old friend Harry Schultz, Chevalier, KOM, and 
BSD. "Only a friend would tell you," he writes, suggesting 
that I cut back the Daily Reckoning dramatically. He's 
probably right. But there's so much going on...

*** A survey by the Consumers Federation found that people 
are getting worried about debt. 24% of those polled said 
they intended to cut back on holiday spending.

*** And here's a man-bites-dog story: Crosspoint, a $1 
billion Venture Capital tech fund in the S.F. Bay Area 
decided to rap up the fund and return the money. "Unless we 
can look them [investors] in the eye," said the remarkably 
honest John Mumford, "and say we believe we have a great 
model to make all of this money, in good conscience, we 
can't go forward." Conscience, good or bad, didn't prevent 
venture capital firms from raising $70 billion in the first 
3 quarters of 2000, compared to only $11 billion in '99. 

*** And, according to one correspondent - a usually 
unreliable source - for all the blessings of its dynamic 
economy and New Era technology - the U.S. still is not 
among the top 7 countries in terms of per capita income. 
The Top countries are Japan (even after 10 years of 
recession and bear markets), and a collection of rigid 
European Social Democracies, including Denmark, Sweden, 
Germany, Luxembourg, Norway and Austria. 

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"It's a good thing they brought Michael Murphy along," 
wrote Dan Denning from San Francisco yesterday. Dan was 
attending a financial conference, and articulating the 
point we have (unintentially) demonstrated time and time 
again: you can't predict the future.

Murphy thinks "he CAN predict the future," Dan reports, 
"And he says we're in the middle of what he calls a 
'Transcession'." Evidently, the economists' glossary was 
insufficient for Mr. Murphy, who needed a new word - a mot 
juste - to describe this new phenomenon.

What is it, you may wonder? Dan explains: "It's the period 
when a revolution displaces the incumbent economy. For
example, the Industrial Revolution began in roughly 1845, 
but didn't seriously disrupt the Agrarian economy until 
1870's when the new technologies went from being disruptive 
to commonplace. Mass production hit full stride in
1918...[Remember, this is all according to Michael Murphy, 
who - I will warn you - thinks he sees another 'Revolution' 
in the making] but it wasn't until the 1930's that the
division of labor was fundamentally altered by the 

"And as you might guess," continues Dan's report, "IBM 
introduced the PC in 1981. And this, according to Murphy, 
will start destroying the Old Economy in earnest by 2003." 

Racing ahead, and to fully disclose our bias, I will also 
warn you that 4 of Murphy's 'must own' stocks for the new 
revolutionary economy are the very same ones which Dan and 
Lynn Carpenter have identified as 'must sell' stocks for 
the readers of their Fleet Street Letter: AOL, Cisco, Intel 
and Oracle.

Transcession must be the fall-back position for the New 
Tech bulls. The Nasdaq is down 46% from its March high - 
and some of the 'must own' tech stocks are down even more. 
Computer sales, chip sales, telecoms, Internet sales, 
profits, growth rates, GDP growth - just about everything 
associated with the big techs seems to be disappointing. 
"People are realizing," said a 'global strategist' for 
Merrill Lynch on the front page of the International Herald 
Tribune today, "that tech stocks are cyclical."

But now the dreamers and schemers among the New Era 
believers have figured out an explanation: there is a time 
lag between the introduction of 'disruptive technology' and 
its radical consequences. 

In fact, a Daily Reckoning reader wrote yesterday to pose 
the question: "Isn't it possible," he asked...making it 
hard to deny... "that information alone may not make 
people rich...but when it is applied by businesses to make 
better, faster, cheaper products it will then pay off in an 
astonishing way?"

Yes, it is possible. More access to information at lower 
cost should allow more people to do more different things, 
more efficiently. Everyone will benefit. Production will be 
improved. Prices will fall. We will all be richer.

But save the astonishment. You may need it when you see how 
low the information mongers - AOL, Cisco, Intel, IBM, AMZN 
- go. 

I return, today, as I threatened to do, to the subject of 
American capitalism...and why you cannot now buy shares in 
many of the leading public companies and expect to profit. 
More than that, I want to show you how the promise of the 
Information Revolution is making businesses and investors 
in America poorer, not richer.

You may recall how America's credit bubble made consumers 
poorer. Not wanting to miss out on the fast, easy wealth in 
the stock market, Americans became momentum investors at a 
time when momentum had reached record levels. Watching 
their portfolio statements go up month after month, people 
felt richer. And offered new credit every time they went to 
their mailboxes...they found that they could improve their 
standards of living, beyond the increases in their 
earnings, while still getting richer. 

So, they borrowed and spent...and bought more stock. They 
borrowed at 8% or more to buy TVs, vacations, and "I'm with 
stupid" tee-shirts that yielded no financial return. And 
the stocks they bought, similarly, yielded no more than a 
Paris taxi driver in a traffic circle. 

For a long time, though, Mr. Market told them they were 
getting richer. But Mr. Market has a way of changing his 
mind. Already nearly $3 trillion of 'wealth effect' has 
disappeared. And the debts remain. At some point, depending 
on when and how much stock they bought - investors become 
net losers. Having spent more than they could afford to 
spend, they are actually poorer then when they began.

This is true of the entire economy. During the last five 
years, spending increased faster than income. Putting aside 
the unrealized gains on stocks (which are fast 
disappearing) the whole society is has been 
hollowed out by the mass delusion of the Information 

But what is true of consumer households is also true of 
business. They borrowed at high yields, and bought assets 
with low ones...sometimes they bought other businesses, as 
Cisco did, or their own stock, as IBM did. "From a strict 
economic perspective," comments Dr. Kurt Richebacher, 
Austrian-school economist and old-school moralist, "it is 
hard to imagine a greater economic folly..."

Why would corporations do such a thing?

"In a world where managers' incomes are effectively linked 
to what is currently happening to stock prices," answers 
Dr. Richebacher, "there is a very strong incentive to put 
the instant maximization of shareholder value over any 
other consideration, regardless of foreseeable, adverse 
micro- and macro- economic consequences in the longer run. 
It's the policy of the desperado who has everything to gain 
in the short run and nothing to lose in the long run."

As reported here previously, IBM increased it revenues only 
5% over the last 4 years...and profits only 1.3%. 

"However," Dr. Richebacher continues, "thanks to a massive 
$34 billion share buyback program, it managed an average 
annual rise of 10.5% in the one number that Wall Street 
treasures above all others: per share earnings. Meanwhile 
the debt ratio when skyward."

The way to build wealth is no secret. You must save money 
and invest it in things that will produce more. A farmer 
saves his 'seed corn' and then plants it. The more he saves 
and the more he plants - the more corn he will have. 
Businesses need to take savings (either their own 
accumulated profits or the savings of others) and build new 
plants and equipment that will turn out more goods and 
services more efficiently. 

Of course, most businessmen went about their work in the 
ordinary way during the '90s boom. But many were infected 
by a group-think virus that was in tune with the illusion 
of the Information Age and investors' desires to get rich 
quick from it. They called it the "shareholder value 

"The conspicuous peculiarity of the shareholder value model 
is its enthrallment with corporate restructuring," explains 
Dr. Richebacher. "Basically, restructuring is a vague 
euphemism for all kinds of measures that tend to enhance 
shareholder value in the short run, virtually to the 
exclusion of any other goal."

Richebacher refers to this as "late, degenerate capitalism" 
and characterizes it as "a frantic chase of corporate 
management after quick and easy profits in the stock market 
through deal making and stock buybacks...the responsibility 
of the corporate manager under this 'new' capitalism begins 
and ends with the near-term stock price."

"It's late, degenerate capitalism in the sense that saving 
and capital accumulation have fallen into complete 
oblivion," Richebacher observes. "Worse still, it is a 
capitalism which any educated nation should be ashamed 
of... What really happens is rampant over-consumption at 
the expense of future generations who are to inherit 
depleted domestic capital formation, a mountain of foreign 
indebtedness and lots of worthless paper assets (stocks and 

Richebacher describes how these companies make the whole 
economy worse off: "Rising stock prices add nothing to an 
economy's capital stock. What they create is the exact 
opposite: soaring claims on the part of the stockowners on 
the national product and its capital stock. ...The booming 
stock market of the late 1990s has furnished stockowners 
with virtually limitless actual and potential purchasing 
power, and as a rule, this happens to stimulate borrowing 
and spending... As fewer resources remain available for new 
investment, such a switch in the use of resources ranks in 
economics as "capital consumption". 

It is as if, to use a familiar expression, the farmers ate 
their seed corn.

Your long-winded correspondent,

Bill Bonner

P.S. As the price of information falls...companies will put 
it to work. They will use it to inform their 
decisions...about what new factories to build and how to 
design them better. The auto companies will learn to 
produce and market better cars at lower prices, for 
example. This will not be the result of an Information 
Revolution, however, but of a haphazard evolutionary 
process of trial and error, luck, hard work 
and inspiration. The companies that will prosper will be 
those who figure out how to use the information available 
to them. Who knows, among them could even be one of Michael 
Murphy's 'must own' stocks. No one can predict the future.
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
and publisher of The Fleet Street Letter, offers you his daily market
commentary absolutely FREE. For the first time, outsiders are getting a peek into his powerful and profitable investment insights. Bill's practical contrarian advice empowers even average investors to protect their hard-earned wealth and achieve amazing gains.

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
advisory letter in the English language has consistently delivered
invaluable economic and political foresights to savvy investors. Current readers regularly enjoy impressive investment gains even as the market falters. Here's more from his online readers...

"My small portfolio has followed true to my wife's description of my
investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

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Last modified: April 01, 2001

Published By Tulips and Bears LLC