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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Just Like In The Movies

*** Worst month for the Nasdaq in 13 years...earnings 
estimates lower...

*** Is there a Big Bottom around the corner? Or a Big 

*** Investors, gurus - still bullish...the Return of the 
Naughty Vicar, in drag...'Chaos' on the streets of 
London... and more!

*** Friday was not a bad day for Wall Street. The Dow fell 
off a bit. Still, more than twice as many stocks rose as 
fell on the NYSE...and there were more highs than lows, 101 
against 93. The Nasdaq even managed to rise a little - 47 

*** But November was the worst single month for the Nasdaq 
in 13 years. And last week alone took the index down nearly 

*** For the year, the Nasdaq is down 35% - and it is almost 
50% below its March high. Many Nasdaq stocks are down even 
more, of course, especially the dot.coms, which seem to be 
facing not merely a cyclical downturn in technology - but a 
mass extinction.

*** Since October 1st, 4th quarter earnings growth estimates 
for techs have fallen from 29% to 14%. Altera said it 
expects no growth.

*** The Dow, meanwhile, has held up reasonably well. It 
dropped less than 1% last week - and has lost only about 9% 
for the year.

*** Probably a better measure of what ordinary investors 
are experiencing is Investors Business Daily's Mutual Fund 
Index. It's off 17% for the year.

*** Hope springs eternal: The Nasdaq decline "does not come 
close to the '29 crash," notes a Reuters report, "which 
took stock down nearly 90% over a 3 year period." 

*** Of course, there's nothing to stop the Nasdaq from 
falling for the next 3 years either. But investors have 
faith in the master magician of the Fed, Alan Greenspan. If 
unemployment numbers become significantly higher...and 
other signs point to a slowing is believed 
that the Fed will come to the rescue. Greenspan is 
scheduled to speak tomorrow.

*** But what can the Fed do? They can make more money 
available. Will that do the trick? Maybe not... more 

*** "With over $80 trillion in derivatives out there," says 
Gary North "and hot-shot managers who have never seen a 
major recession, the risk of collapse is there. In any 
case, all talk about `Dow 15,000,' let alone 20,000+, is 
whistling in the dark. These whistlers did not tell 
investors to get out of the dot.coms last February or early 
March. They did not foresee a fall of 50% in the Nasdaq 
index. They do not foresee falls. They only foresee 
increases." (see: The Return of the Politics of Plunder

*** The American Association of Individual Investors' has 
released a poll showing that investors are actually 
becoming more bullish - with 60% expecting rising 
prices...against only 17% bearish. Investor's Intelligence 
reports that 55% of newsletter advisors are bullish while 
only 29% are bearish. And another Reuters reporter noticed 
that "there is a growing conviction that a bottom is not 
far away." 

*** But Big Bottoms don't usually appear until people stop 
looking for them. Prices don't stop falling, that is, until 
investors begin to think they will never stop falling. Just 
as the top arrived just at the time investors began to 
think that there was no limit to how high stocks might go, 
the Big Bottom will not make its appearance until investors 
begin to believe that there is no limit to how far they 
will fall.

*** "We don't see the capitulation or the give-up that's 
necessary to create a real bottom," writes William 
Fleckenstein. "Believe me, after a rout like this, when 
it's the bottom no one will know it for sure and folks will 
be scared to death - at least that's what I'm expecting.". 
(see: Are we there yet? Don't bet on it.

*** And before the Big Bottom arrives investors will shift 
from worrying about the return ON their money to the return 
OF their money. That's right, we will have another Big B to 
endure first - Big Bankruptcies. Personal filings are 
expected to rise 15% per year. But that figure assumes the 
economy and the stock market do not get much worse. If 
stock prices and the economy continue to deteriorate - as I 
think they will - the number of bankruptcies could rise by 
more than 20%.

*** Junk bonds are going bad at a 5% rate already. 3.3% of 
syndicated loans are in trouble. According to Bloomberg, 
Janus is dropping $1 billion a day in assets. But there's a 
lot more to come. Between '92 and 2000, financial sector 
debt rose from $3 trillion to $8 trillion. How much of this 
debt was applied to profitable activity? How much of it 
will go bad? We will find out soon enough.

*** Ominously, as the amount of debt rose, so did foreign 
holdings of U.S. assets - rising from $3 trillion in '92 to 
almost $7 trillion today. This figure didn't matter as long 
as the dollar was rising and the U.S. was thought to have 
the `miracle' economy. 

*** But the euro rose for the fifth straight session on 
Friday. It began the week at 83.80 cents and ended it as 
87.90 cents. The dollar, like tech stocks, has entered a 
cyclical bear market. This, dear reader, marks the end of 
the world as we have known it. About which...again, more 

*** The Swiss franc rose 5% against the dollar last week. 

*** Gold fell on Friday. So did oil. More signs of 

*** From DR reader LA: "The Bible is way ahead of all of 
us. King Solomon says in Ecclesiastes 1:18, "For with much 
wisdom comes much sorrow; the MORE KNOWLEDGE, THE
MORE GRIEF." In the New Testament the Apostle Paul writes: 
"...We know that we all possess knowledge. KNOWLEDGE PUFFS 
UP, BUT LOVE BUILDS UP. The man who thinks that he knows 
something does not yet know as he ought to know..."
(First Corinthians 8:1-2)

*** My daughter, Sophia, and I took the train last night 
from Paris to London. The train was packed. And London's 
hotels are packed too. London is booming. Even late at 
night on a Sunday, Leicester Square is mobbed with people. 
They've even set up a few circus attractions - including a 
ride that looks lethal, called the Chaos. A notice warns 
that it is not for people with heart trouble. Sophia, of 
course, wanted to try it. I was happy to watch as the 
lights flashed and she whirled overhead. 

*** I'm pleased to see that that staple of the British 
press - the Naughty Vicar - is back in the news. Page 5 of 
the The Times tells readers of the Rev. Carol Stone, 
formerly the Rev. Peter Stone, making a comeback to St. 
Philips Church in Swindon. This story edged out Gore's 
election battle by 7 pages and includes a loud observation 
by one of the Rev. Stone's parishioners. An elderly woman 
interrupted the service with this remark: "You are the work 
of the devil. Go to hell."

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"How can wealth actually be destroyed during a bubble?" 
asks Doug Noland. "Well, through massive overspending in 
projects of little economic value - either through over 
investment or malinvestment. "

As I have observed with tedious regularity, no one can 
predict the future. But sometimes if you look hard enough 
at the present, the future seems to come into focus. 

For example, there are occasional reports in the newspapers 
of people who do exceptionally dumb things. Every year, the 
"Darwin Awards," for example, pay homage to these people - 
recognizing their selfless contributions towards cleansing 
the human gene pool.

One posthumous award recipient pulled the trigger on a 
handgun while simultaneously peaking down the barrel - in 
order to see what might be going wrong...another leaped 
from a tall building convinced that he could fly. In either 
case, you did not have to be a clairvoyant to guess what 
might happen next. All you needed was a rudimentary 
knowledge of awareness of gravity...and 
perhaps an appreciation of the law of perverse outcomes.

Likewise, guessing about what might happen next in the 
stock market and the economy may not require a glance into 
a crystal ball. A glance at what is happening now may be 

"Historic overspending in technology manufacturing capacity 
- from PCs, to routers, to semiconductor chips - has 
created a situation of debilitating over-capacity," 
continues Mr. Noland. "And while the boom was fun and games 
while it lasted, now that enormous capacity has come on-
line and growth has inevitably slowed, there is the sudden 
and harsh reality that there is too much competition and 
profits for no one. "

Staring at the situation, as though down the barrel of a 
gun, the U.S. investor and consumer are looking at trouble. 
As reported above, financial debt increased from $3 
trillion to $8 trillion from '92 to present. Where did that 
money go? Did it get invested in new plant and equipment? 
In new, profitable businesses? In new activities that add 
to America's wealth and quality of life? 

Some of it did. But much - probably most - did not. 
Instead, consumers used debt to increase their standards of 
living beyond what they could afford from higher earnings. 
Businesses invested fortunes on mergers, stock buybacks, 
and Information Technology. Of the three, only the 
information technology has the potential to increase output 
- and the evidence suggests that it will not. 

Even where investment was put to fairly direct expansion of 
existing successful business models - excess credit 
produces grotesque consequences. 

"The U.S. movie cinema industry provides a much more 
straightforward example," Noland explains. "For too many 
years, unlimited credit was available to many operators 
who, not surprisingly, were more than happy to take the 
money and build with reckless abandon in communities 
throughout the country. Think of this example: if a small 
community has, let's say, two cinemas, then both will 
likely operate profitably and service the debt burdens from 
business cash flows. If, however, a speculative financing 
environment allows four new (megaplex) cinemas to be built, 
it is quite likely that not one of the six cinema operators 
will operate profitably. So, not only will the debt taken 
on to build the four new megaplexes be unserviceable, the 
ill-advised lending will also make the once sound debt of 
the original two operators unmanageable as well. The costs 
of credit excess are clear in this realistic example: 
wasted resources and problematic credit losses for the 
lending community."

"In an unfortunate situation that is all too commonplace in 
our economy, the inevitable costs are now to be paid for 
what has been nothing short of an absolute lending fiasco 
in the movie cinema sector. Thus far, seven cinema 
companies have filed for bankruptcy - Carmike Cinemas, 
General Cinemas, United Artists, Edwards Cinemas, Silver 
Cinemas, Resort Cinemas and Mann Theaters. Regal Cinemas, 
the country's largest operator, stated last week that it 
was considering filing for bankruptcy protection. Last 
month, the 3,000-screen Loews Cineplex announced, `if the 
company is unable to arrive at a longer-term plan to 
address its liquidity issue, it faces the prospect of a 
restructuring under bankruptcy proceedings.' Loews is 
currently negotiating with bankers over a $1 billion loan 
due next week, attempting to forestall bankruptcy filings."

We have no crystal ball. Nor even a ball of common glass. 
But it would not surprise us here at the Daily Reckoning if 
what was true in the movies was also true in many other 
parts of the economy. 

The dot.coms are disappearing leaving barely a chemical 
trace of the billions of dollars spent. More than $3 
trillion has already evaporated from the capital markets. 
Like morning dew, it has been taken up into the heavens and 
won't be seen again until the next spin in the credit cycle 
rains down liquidity once again.

How soon will that be?

Wall Street will be unusually quiet tomorrow, as the Street 
turns its ear in Mr. Greenspan's direction. If the economic 
news is bad - high unemployment, falling sales, fewer new 
homes - the Street will take it as good news, and count on 
the Fed chairman to his duty and cut rates. 

But will lower interest rates fill the over-built 
cinemas... and send businesses and consumers scurrying to 
borrow, buy, and invest again? 

More on this tomorrow - why Greenspan's lower rates will 
not work...and why the falling U.S. dollar means The End of 
The World As We Have Known It.

Your humble correspondent,

Bill Bonner

P.S. In today's Financial Times a headline informs us that 
the "Japanese Fail to Kick Start Economy." For ten years, 
the Japanese have been trying `kick start' their economy. 
If it were so easy to start the motor of economic 
expansion, you'd think they would have figured out how to 
do it in the country that produces so many millions of 
Hondas, Toyotas and Mitsubishis.
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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serious warnings and the state of the market with gentle humor"

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Last modified: April 01, 2001

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