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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Greenspan Put II

*** Has the grinch already stolen the holiday rally? Dow 
down 234 points...

*** Earnings still plague the market...more signs of the 
big D: deflation...

*** What did Roosevelt know...and when did he know it?

*** What's this? Is the end of the year rally over already?

*** The Dow fell 234 points yesterday. The Nasdaq dropped 
93. 1218 stocks on the NYSE rose; 1678 fell. Mr. Bear may 
be getting ready for a holiday, but that didn't stop it 
from mauling a few shares before he left.

*** In particular, he took a big bite out of Apple, after 
the computer firm reported lower sales and its first 
quarterly loss in 3 years. Once again, earnings were 
blamed. If you want to put an Apple share in a Christmas 
stocking you can do so for just $17 - down from $72 on 
March 22nd. Another steeply discounted stock is Xerox - 
which sold for $29 in March and can now be purchased for 
less than $5 a share.

*** `Must own' stock, Intel, fell $4.25 - to $31.75. Yahoo! 
lost 14%. IBM dropped more than $6. Hewlett-Packard and 
Microsoft both fell about $3.

*** Compaq lost 17%. Juniper Networks slumped 10%. 

*** Earnings continue to disappoint investors. Even Dow 
Jones, publishers of the Wall Street Journal, announced 
lower earnings. The stock fell nearly $6. 

*** The Internet incubus, I mean incubator, Safeguard 
Scientific, has dropped from $100 to $9 - forcing the CEO 
to sell his stock to meet a margin call. More below...

*** Oil has dropped to $27. But energy shortages and cold 
weather dominate the news in the U.S. California utilities 
are giving customers a taste of the early `70s - asking 
consumers to lower thermostats and turn off Christmas 

*** Who would have thought...that this Age of Information 
would be marked by such monumental ignorance? Was it a 
secret that energy supplies were low? That usage was 
increasing? That autumn follows summer...?

*** Natural gas traded as high as $8.50 yesterday. The 
liquid has basically doubled in the last month.

*** "What is interesting about this market are the horror 
stories of utilities being short of natural gas," says Bill 
Fleckenstein. "With prices where they are right now, only 
in our wildest imagination could we pick the price it will 
trade at in the depths of the winter. I recall pointing out 
last winter an e-mail I got from a reader who knew someone 
who was buying $8 natural gas calls for January/February of 
2001... it was met with many guffaws. Obviously, whoever 
purchased those calls, should he still own them, has made 
an enormous amount of money." 

*** The spread between inflation adjusted TIPS bonds and 
regular bonds is a measure of the inflation that bond 
investors anticipate. The wider the spread, the more 
inflation they see on the horizon. The spread is now 
narrowing. It was 1.9% a few months ago. Now it has fallen 
to 1.6%. 

*** Bonds rose as stocks fell yesterday - another sign that 
bond investors believe inflation will be no problem. In 
fact, they expect the Fed to lower interest rates early 
next year. Henry Kaufman says interest rates may fall to 4% 
in this swing of the credit cycle.

*** And the latest money supply numbers from the Fed show 
MZM - money of zero maturity, or `cash' as we economists 
like to call it - increasing at a reasonable rate of 4.5% - 
down from the near-double digit rates earlier in the year.

*** Also from the Fed - the Beige Book, the Fed's report on 
economic conditions around the country - tells of "slowing 
in the pace of growth" in 8 of 12 Fed districts.

*** If sales growth and debt-financing are the keys to 
success in the business world - Hyundai would be one of the 
greatest success stories on the planet. Instead, Korea's 
largest company is close to bankruptcy. Seven out of 10 
cars in Seoul are made by the firm. People live in Hyundai 
apartments and shop in Hyundai malls. But the conglomerate 
has $5 billion in debt - and not much hope of paying it.

*** Telecoms worldwide have borrowed $866 billion since 
'97. Where will the money come from to repay these loans? 
Who knows. Two Canadian banks, for some reason, have the 
greatest exposure.

*** "There are some warning signs about out economy," said 
economist George W. Bush yesterday, "that I think we ought 
to take seriously." Translation: if there is a recession 
next year, it's not my fault.

*** Bankruptcies, recession, falling interest rates, 
declining asset values - these are all indicators of 

*** But what do you do in Deflation? Bonds are the place to 
be, normally. But U.S. bonds are denominated in dollars. 
And dollars are vulnerable. The euro rose more than 1% 
yesterday - and is now holding just below 90 cents. The 
dollar index hit a high of 118.65 on the 24th of November. 
It fell to 113.23 on Monday.

*** Gold is another possibility. The gold price rose $4 

*** "If one looks at various key markets in their entirety, 
it should be obvious that 'something just aint right'," 
writes David Tice. "An historic real estate bubble runs 
unabated. Energy prices are out of control. There are 
extraordinary price moves in the credit market and stock 
prices continue to move with historic volatility... the 
unfortunate but inevitable consequence of years of reckless 
credit and speculative excess." (see: Something Just Ain't 

*** "I met a woman and her husband in the high-end antique 
business," writes my friend Thom. "They say there's a 12 
month antique market indicator for an economic turndown. 
And the indicator has already kicked in - this quarter. 
Sales are soft. She's selling everything that she can and 
moving to cash. So that when the bottom falls out she can 
be a buyer at bargain prices. Her specialty is antique 
jewelry. The market has been great for a long time but now 
is D.O.A."

*** "When Franklin Delano Roosevelt proclaimed Dec. 7, 1941 
a `date that will live in infamy,' did he know that his own 
actions preceding the Japanese bombing might eventually 
come under a cloud of suspicion?" This message came to me 
from the Independent Institute, a S.F. think tank. 

Last May, the Institute hosted a speech by Robert B. 
Stinnett (author, DAY OF DECEIT: The Truth about FDR and 
Pearl Harbor, (Free Press)) who was finally able to examine 
the long-hidden evidence of the Roosevelt administration's 
provocation of the Japanese `surprise' attack on Pearl 
Harbor. The Institute summarizes Stinnet's findings:

"Not only was Japan's attack on Pearl Harbor expected, it 
was deliberately provoked through an eight-point plan 
devised by the U.S. Navy for President Roosevelt. The 
purpose? To break America's isolationist opposition to 
fighting in Europe and the Pacific.

"American officials knew that a spy on Oahu was sending 
Japanese officials a map of bombing targets.

"The Japanese fleet broke radio silence as it approached 
Hawaii. The U.S. intercepted Japan's military codes before 
the attack. U.S. Navy Admiral Kimmel was prevented from 
conducting a routine exercise at the 11th hour that would 
have discovered the oncoming Japanese fleet.

"Basically our policy was that we wanted Japan to commit 
the first overt act of war," Stinnett said. 

"After the Pearl Harbor disaster, both Kimmel and Short 
retired under a cloud. Short committed suicide shortly 
after leaving military service."

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Among the sad stories making their way around the worldwide 
web is this one from Philadelphia. "The Internet mania that 
thrilled and then battered Wall Street claimed one of its 
most aggressive promoters as a victim," reports Joseph 

"Like a high-stakes gambler risking the biggest bet of a 
long career," reporter DiStefano dramatized the situation, 
"Safeguard Scientifics Inc.'s chairman, Warren V. 'Pete' 
Musser, borrowed heavily this year to invest in the stocks 
of the company's faltering Internet affiliates."

Mr. Musser is no fool. The 73-year-old investor built one 
of the most successful new tech incubation companies in the 
nation - with huge stakes in the well-known stars of the 
Internet world - such as ICG, VerticalNet, and U.S. 
Interactive. He did not get to this position overnight. 
Instead, he began the firm decades ago and knew his 
business well. 

"Of all the guys who should have known better," said Howard 
Butcher IV, a Main Line investor, who is described as a 
longtime Internet skeptic. "He's a consummate stock 
promoter. You'd think he would have unloaded it and had his 
big nest egg of cash instead of being in debt."

But Musser apparently succumbed to the risk all stock 
promoters face - he came to believe his own hype.

"There's nothing new about the 'new' economy," commented 
Mr. Butcher. Musser was forced to sell 80% of his shares to 
cover an old-fashioned margin call. The shares, worth $738 
million in March, brought less than $100 million.

It may be too late for Mr. Musser, but the financial press 
worldwide reported that Mr. Greenspan is on his way with 
help. "Greenspan Arrests Wall Street Collapse" heralded the 
front page of France's leading financial paper, La Tribune, 

Shareholders believe that Mr. Greenspan still holds the big 
put option that will save them from losses. But does he?
Can a change in policy by the Fed save the Mr. Mussers of 
this world? Or are their investments so imbecilic, so 
suicidal, so hopeless that they cannot avoid self-
destruction? spent $179 to acquire each dog food customer. Now 
that the company has gone belly-up, what is left? How can a 
change in interest rate policy bring back the millions that 
were spent?

Likewise, lost $37 million in the first 9 
months of this year - or nearly $400 for every one of its 
paying customers. announced the closing of 
its UK office...and a 20% cut in employees. Maybe someday 
it will find a business model that works. But how will a 
lower fed funds rate help investors recover the $37 

How can the telecoms hope to recover that vast amounts they 
have spent over the last two years? How can those who lent 
them money hope to get their money back?

"The numbers coming out of the economy this quarter are 
going to be modest numbers," Henry Kaufman forecast 
yesterday, "It is going to require more than a quarter 
point move by the Fed to bring some momentum back to the 

Early next year, Greenspan and co. are likely to cut rates 
by a quarter point. Maybe a half point. Suppose they do?

Many companies are already shut out of the capital markets 
- not because rates are too high, but because they're 
perceived as bad credit risks. Other companies are paying 
17% or more to attract capital - even though the Fed Funds 
rate is half that amount. A rate cut, says Goldman Sachs 
senior economist Ed McKelvey, "is not going to affect the 
cost of credit a whole lot."

A cut in the Fed Funds rate doesn't all of a sudden make 
these borrowers more creditworthy. No one is going to jump 
at the chance to lend money to TheStreet or Amazon or other 
CWI - 'companies with issues' - borrowers just because the 
Fed cuts rates. It is big Bankruptcies not the big Bottom 
that is the problem.

If a man borrows more than he can afford...and spends the 
money on high living rather than productive investments... 
lower interest rates do not make you want to lend him more. 
He needs to put his financial affairs in order first - and 
that can't be done by borrowing more money. 

And there is the dollar. The U.S. economy relies upon vast 
amounts of credit from overseas. A cut in rates makes it 
relatively less attractive for foreigners to buy U.S. 
assets or lend dollars...and increases the cost of imported 

Thus, while Greenspan tries to boost the supply of credit 
through lower rates - he would be fighting a losing battle 
against world capital flows. For every dollar of credit he 
added to the U.S. economy by lower rates, two or three 
would disappear - taken away by foreign creditors...

And whatever Mr. Greenspan may is likely to trail 
the action of the stock market rather than lead it. A cut 
in rates is likely to speed the collapse of the dollar.

Already, the average American household has experienced a 
negative wealth effect due to falling stock prices of 
nearly $30,000. If stocks continue to fall, even the most 
aggressive cuts Mr. Greenspan could manage would, in 
comparison, be as negligible as the wind drag on a runaway 
tractor trailer.

Sell the rallies.

Your correspondent,

Bill Bonner
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

Published By Tulips and Bears LLC