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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Sinking The Greenspan Put

*** Forget the bottom...look for an exit! Nasdaq splits two 
for one - half-price sale.

*** "Falling Income, More Jobless" - the economy gets 
softer and softer...soon it will be mush

*** Those lucky Michael Murphy followers...yesterday's 
biggest news...pulling the plug on the incubators...and 

*** "People have stopped looking for a bottom," said John 
Manly, equity strategists at Salomon Smith Barney, "and are 
looking for an exit."

*** Thus, on this first day of December...the anxiety of 
autumn seems to already be giving way to the despair of 
deep winter. The Nasdaq slouched again - down 109 points, 
or about 4%.

*** It was one point yesterday, the Nasdaq was 
down almost 7% - nearly 50% below its March peak. In 
effect, the entire Nasdaq has just about split, two for 
one...the hard way. You can buy almost twice as many Nasdaq 
shares today as you could back in March, for the same 
amount of money. 

*** "96 funds have lost more than 40% this year," declared 
James Cramer on "The declines are 
unfathomable to me...but everyone acts as if it is business 
as usual...the strategists don't mention it." All you hear, 
according to Cramer, is `buy and hold'...and `it always 
comes back.'

*** Those lucky Michael Murphy investors. His `must own' 
Big Tech stocks became more affordable. Microsoft lost more 
than $7. Intel fell $4 and change. Cisco was down more than 
$3. AOL is barely holding above $40. IBM...HP...almost all 
the techs fell as investors began to doubt that Santa would 
come this year.

*** Gateway was at the epicenter of the tech shock - after 
it disclosed that computer sales were 30% below last year 
in the post-Thanksgiving sale. Gateway stock fell 36%.

*** The Dow had a bad day too. The index was down 2% - 214 
points, leaving it down 9% for the year. Retailers 
Abercrombie and Fitch dropped 26%; Ann Taylor fell almost 

*** "Falling income, More Jobless" explained a Reuters 
headline. Jobless claims, it was revealed yesterday, rose 
more than expected...and personal income fell 0.2 in 
October, for the first time in almost 2 years.

*** Spending rose just 0.2% - less than expected. 
"Consumers at the high end are starting to get concerned 
about their wealth," explained an analyst in a Reuters 
report, "and consumers at the lower end are going to be 
squeezed by higher energy prices."

*** Instant Analysis & Gratuitous Comment: Incomes falling, 
GDP growth slowing, spending still increasing, and the 
leading Information Technology stocks selling at half price 
- is this a `Transcession'...a brief interlude before we 
all get rich? Or is it something more familiar - a bear 
market and a coming recession?

*** The Nasdaq has fallen 20% just in the last 3 weeks - 
erasing more than $3 trillion in paper wealth. And yet, 
P/Es for the big techs are still above 100. 

*** Abby Cohen appeared yesterday - trying to restore faith 
in the fantasy that has so enriched her employer, Goldman 
Sachs. In October, she said the S&P would end the year at 
1575. It closed yesterday at 1314. Hmmm...anything is 
possible, but face it, Abby, you can't predict the future 

*** Ignoring that insight: if I were Mr. Bear I would be 
enjoying this immensely. The big, furry beast got no notice 
nor respect for years. Now his name is in the papers almost 
every day. If I were he, I'd want to stretch this 
out...enjoy it for as long as I could. So, I'd probably 
take a little holiday rest - giving the pilgrims a chance 
to forget about me for while.

*** Probably the biggest news yesterday got little more 
than a footnote in the financial press: The euro rose 2% 
against the dollar. When the dollar follows the Nasdaq down 
- all of the illusions of `late, degenerate American 
capitalism' of the 1990s will collapse...and the new 
millennium can begin. (More on that as it develops...)

*** "Euro Gains Against Injured Dollar" observes the 
Financial Times. The euro is at a 4-week high - at 87 
cents/euro. My guess: we will not see an 85-cent euro again 
for a long, long time.

*** Gold stirred yesterday like - rising $3.70. The gold 
stocks rose too. Let's see...if people lose faith in stocks 
and the U.S. dollar...where might their money go?
Another guess: we won't see Franco-Nevada at C$15 again for 
a long time either. 

*** Investors seemed to have pulled the plug on incubus, I 
mean incubator, stocks. ICG is at $ was $212 a 
year ago. CMGI lost $664 million in the last quarter; 
shares are down from $163 to $11. Divine Interventures fell 
from $12 to under $2. And Idealab raised $1 billion - but 
then had to cancel it's IPO.

*** Wouldn't it be nice if you could create a successful 
business that would create other successful businesses? 
That was the' idea - to leverage a 
few easy insights and billions of dollars of other peoples' 
money into a perpetual wealth machine. But it's not that 
easy, dear reader, it's just not that easy. 

*** The Champs Elysee is already decked out for the 
holidays. The trees, which last year, were bagged in an odd 
way...are strung with lights. The view down from the Arc de 
Triomphe to the big Ferris wheel at the Place de la 
Concorde is spectacular. 

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Another investor group turned a $100,000 investment
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Earlier this week, at least in California, the "Greenspan 
Put" was still in the money. 

The investment logic behind it was the soul of 
simplicity...with the sinew of experience. Ever since Alan 
Greenspan took control of the Fed late in 1987 it has been 
a safe bet that stocks would rise. 

The security of this gamble was insured not merely by the 
Information Technology or the New Paradigm - but by 
something in which the players had a lot more faith: Mr. 
Greenspan's readiness to pump liquidity when things started 
to get a little dry. The Fed chairman's control of the 
irrigation gear, in the parlance of Wall Street, kept 
things green.

A put option is merely an agreement that gives you the 
right to sell - to put - something to someone else at a 
given price. Put options protect you in a falling market - 
since they give you the right to sell shares (which you can 
buy at the market price) at a higher agreed-upon price.

The "Greenspan Put" is the way traders describe the 
protection against falling prices supposedly guaranteed by 
Mr. Greenspan.

If things ever really got bad, hydrologist Greenspan would 
open the sluices - as he did when Long Term Capital 
Management nearly dried up...and when the Asian Currency 
crisis threatened world markets. Or, so investors thought.

Even people who wouldn't know a put option from a golf club 
seemed to sense the security. If things got rough...Mr. 
Greenspan would find a solution.

"Folks are immensely optimistic out here," reported Dan 
Denning from the SF Bay Area earlier this week. 

"At a dinner party...guests marveled that the Presidio 
National Park (the former military base at the base of the 
Golden Gate Bridge) is now the most valuable property in 
the world... it must be true considering how high rents are 
in the area."

San Francisco is a long way from Baltimore. 

"I also talked to a young couple living in Berkeley (no one 
can afford to live in San Francisco anymore, except the 
homeless...) Anyway, both the husband and the wife work in 
dot.coms and they have a four month old girl. The husband 
works for a firm that does interface design for things like 
palm pilots. The wife quit her job at Wells-Fargo bank to 
work for a start-up because they `needed the money'."

"Wouldn't a job at the bank be safer?" asked Dan.

"Well," came the reply. "Maybe. But she works for a company 
that is going to sell personal financial planning over the 
web. Make it really easy for people."

"Don't most people like to meet their financial planner in 
person? I mean isn't that why they go to one? [Because it 
is personal]" Dan inquired.

"Good point," replied his interlocutor. "I guess we'll just 
have to see. They may have the wrong model. She'll just get 
another job though."

"That's what everyone around here seems to think," 
continued our reporter. "Even a close relative of mine. She 
makes a modest salary, enough to live comfortably on. But 
as we sat listening to hour after hour of terrible election 
coverage (they're fascinated by it out here, giving away Al 
Gore buttons on the street, although one elderly Asian man 
had a sign that said: `Impeach Clinton, Twelve Galaxies 
United'. On the back it said 'Made in Holland'." 

"Anyway, as we sat watching the election coverage, she 
checked her stocks. I asked how they were doing."

"Down 20% this year," she said. "But I'm not worried, they
always come back. Everyone knows that."

"She then asked me what were the symbols for Cisco and 
Intel, the two stocks she's banking her retirement on. I 
told her I thought she should be careful. But she said 
these were clearly the safest companies out there, you had 
to stay in them, everyone knows that."

Staying in them has been costly. So costly that the pros 
are beginning to ask: `What happened to Mr. Greenspan's 
put?' The Nasdaq has been cut in half...surely its time to 
exercise the the flood-gates and delight the 

The Fed chairman is, of course, very familiar with the 
hazards of moving too quickly. The main hazard is the moral 
one. If investors see no risk of loss - they will make ever 
more reckless bets. 

He also understands the virtue of inscrutability. If his 
responses are known in advance - the market discounts them. 
The head of the European Central Bank, Wim Duisenberg, was 
publicly ridiculed and practically hounded from his post 
after he revealed the bank's strategy for defending the 
euro. Greenspan does not want to make that mistake. Thus, 
he would like the "Greenspan Put" - an implied 
understanding of what the Fed will do - to disappear.

The Fed claimed it never `targeted the stock market' when 
it set interest rate policies. That is probably both true 
and insufficient. When the stock market went up - people 
thought themselves wealthier and spent more freely. The 
stock market created `wealth' - stock options, and 
portfolio values - that competed with the offerings of the 
Bureau of Printing and Engraving for the goods and services 
of the world economy. The Fed couldn't ignore it.

And now that the stock market is destroying `wealth' - Alan 
Greenspan will be unable to ignore that too. Eventually, he 
will move to lower interest rates...but in the meantime, he 
probably doesn't mind disappointing speculators.

And yesterday, St. Louis Fed governor, William Poole, 
described when the Fed will exercise its Greenspan Put 

"I would want to respond," he said, perhaps anticipating 
the next Fed policy meeting on Dec. 19th, "if it looked like 
the financial market events are feeding in to affect the 
real economy in an adverse way."

That moment cannot be far off. 

Your reporter, wishing he had bought puts...

Bill Bonner

P.S. And a very entertaining moment it promises to be. 
Because, from California to Boston people still believe in 
stocks. As James Cramer put it, the current decline is 
"unfathomable." Investors can't believe that this downturn 
will continue. Greenspan's put option - his ability to 
strike the market with the equivalent of a monetary cattle 
prod - is the device that is supposed to turn things 

Cattle prods may work well on bulls...but I don't know if 
it will work on a real bear. Japan has been prodding its 
market for more than ten years. Interest rates were 
reduced, as the FT put it, to "effectively zero." 
Government spending - known in the post-Keynesian lingo as 
`fiscal stimulus' - has hit records. And still - the stock 
market lies as dead and inert as a used-up battery or a office. 
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"

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Last modified: April 01, 2001

Published By Tulips and Bears LLC