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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Greenspan's Put Is Shot

*** Et tu, Intel...earnings disappointments everywhere...

*** But the fault, dear reader, lies not in ourselves... 
but in the WWES!

*** Power blackouts...protesters...Christmas parties...and 
Wall Street bonuses....and more!

*** Et tu, Intel? Less than a month ago, the `must own' Big 
Tech company assured investors that its business and 
financial progress was "on track." But, yesterday, after 
the close of business on Wall Street, Intel confessed: it 
would not be able to hit its sales targets for the 4th 

*** Intel's disclosure followed other earnings 
disappointments. Motorola and National Semiconductor, for 
example, both allowed as how growth and profits may not 
measure up to expectations. 

*** Even beyond the Big Techs, earnings were a source of 
embarrassment. Coca Cola and Bank of America said they were 
having trouble. Bank of America's problems are worth 
further comment...more below...

*** Almost all the companies blamed their problems on 
situations beyond their control. God, not man, was at 
fault. Sales were down across the board at Intel, the CFO 
explained, because of "a worldwide economic slowdown."

*** And so, stuck in the mud of a worldwide economic 
slowdown (WWES) Wall Street sank gently yesterday; the Dow 
dopped 47 points. The Nasdaq slipped 43. 

*** Microsoft fell 6% as analysts realized that maybe a 
WWES might not be good for software sales.

*** Yahoo! found no cause for cheer either. WWES or not, ad 
sales revenue on the Worldwide Web (WWW), are definitely 
going down, as people realize that web advertising doesn't 
work well. An analyst from W.R. Hambrecht downgraded the 
stock...and then Yahoo! fell to less than $35, after having 
been as high as $250 earlier in the year. 

*** True believers in the New Economy must be delighted 
with the WWES; it is making it far cheaper for them to buy 
their favorite WWW stocks. Amazon, for example! The River 
of No Returns slid more than $2 yesterday - it is barely 
holding above the $20 mark.

*** Amazon also has plenty, indeed perhaps a surfeit, of 
debt instruments available for investors with a sense of 
adventure. I have not checked them lately, but investors 
can expect at least 3 times the return of a passbook 
savings account - at least, while it lasts. Amazon has $2.2 
billion of debt outstanding, a heavy burden for a company 
with no profits.

*** Wall Street bonuses will hit another record this year - 
even while the customers' yachts fall with the tide of 
stock prices. The 178,000 employees of the securities 
industry are expected to get average bonuses of $74,000 
this Christmas.

*** But beyond Wall Street, there is a world of trouble. 
Glancing down the list of headlines suggests that the 
Autumn of Anxiety is quickly giving way to the Winter of 

*** "The Dow will experience its own Bataan Death March," 
says a cheery note from Bill King. "OTC's are down more 
than 50%. Small caps and OTCs typically peak a year or more 
in advance of the DJIA."

*** When markets are going up, King explains, "companies 
feel like the village idiot" when they report losses. But 
when a WWES occurs, they see an opportunity to bring losses 
out of the closet and get rid of them. "They'll report the 
biggest losses possible," he predicts, "looking back 5 
years to get refunds from the IRS."

*** "Protesters Battle Police in Nice," declared the 
International Herald Tribune, describing European leaders' 
most important get-together in years. Protesters include 
the usual anti-globalization crowd - the rebels without a 
clue - and Basque separatists, who know exactly what they 
are doing.

*** "California Limps Along with Threat of Blackouts," says 
an item on the Prudent Bear website. Power bills in 
California are 50% higher than last year.

*** Oil is below $30. The dollar slipped further against 
the euro... and bonds were up again.

*** Gold dropped $1.20. But the gold mining companies were 
up. Gold stocks rose in the `30s deflation. Gold is real 
money, after all...and real money rises in deflation.

*** And now, a moment of lachrymose reflection on the state 
of the New Tech industry....a note from Andy Carpenter: 
"Last year USInternetworking rented a museum for a lavish 
holiday gala. This year, no kidding, they'll be partying at 
a YMCA camp. Last year they danced to the mellifluous 
strains of big band music. This year we can only assume 
they'll boogie to the Village People.

Last year, USi's 1,000 employees donned fabulous formal 
wear. They sipped champagne and martinis in the museum's 
glass-enclosed atrium - which features a spectacular view 
of our downtown Baltimore skyline. This year's party, no 
kidding again, will feature a rustic log cabin, a bon
fire and a $20-a-plate buffet."

* * * * * * * * * * * Advertisement * * * * * * * * * * * * 

A Collective Manic Euphoria Swept the Land... 

At the beginning of the decade, the tech stocks of the 
day... radio... automobiles...electric utilities... 
airplanes... were driving the market up wildly. It truly 
was a New Era... If you had invested $10,000 in General 
Motors in 1919, it would have been worth $1.5 million in 
the summer of '29.

But by 1933 unemployment had reached nearly 24%...

What happened? Is it happening again? Yes. Says a respected 
Austrian economists - and you'd better be prepared. Falling 
technology shares are only the beginning. Here's what you 
need to do - right now - to prepare yourself for the 
collapse of the credit bubble: 

Credit Collapse
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


Gentle reader, the whole world now turns its weary eyes to 
Mr. Greenspan. The financial press portrays him as the 
savior of the modern world. TIME magazine, in fact, once 
put him on the cover, along with Robert Rubin and Larry 
Summers with this headline: Committee To Save the World - 
with no trace of humor. In Bob Woodward's book he is the 
"Maestro." Fortune ran a cover story: "In Greenspan We 

And on Tuesday, Mr. Greenspan...the former jazz saxophonist 
and Ayn Rand devotee...seemed to live up to his billing. 
"Greenspan Arrests Wall Street Collapse," said the headline 
in La Tribune. Greenspan had apparently done it. He had 
pulled out his put option and saved the day. 

And yet...the dollar continues to fall. And the price of 
credit continues to rise. Either of these are probably 
sufficient to render Mr. Greenspan's put option worthless.
"Euro continues to rise," reports the financial section of 
France's Figaro newspaper. The hapless European currency 
has defied almost every financial pundit in the known world 
by doing what none of them expected - it has gone up. 

So delicately balanced - at the margin - is this 
international flow of funds that merely a small shift in 
sentiment away from the dollar could be devastating. In 
effect, if the dollar falls - it means that foreigners will 
demand a higher rate of return for buying U.S. assets...and 
the cost of credit will increase, not go down as the 
Greenspan Put requires.. 

Alas, Mr. Greenspan's put is shot. 

Mr. Greenspan's only real weapon is central bank interest 
rate policy. But, as mentioned here in the last few days, 
that weapon only works when the enemy is in retreat.
Lowering the price of credit does no more to alleviate 
credit problems than lowering the price of Jim Beam whiskey 
helps cure dipsomania. 

In both cases, the problem is not the price of the 
elixir...but the use to which it has been put.

Over the last few years, every silly idea that came along 
could belly-up to the credit bar and imbibe almost as much 
as it wanted. Trillions of dollars worth of capital were 
raised...spent...and have now disappeared. What's left are 
I.O.U.s, stocks, bank loans, and bonds. The quality of 
these debt instruments is falling rapidly.

"The junk bond market is suffering through its worst funk 
since at least 1990," reports Boston Globe. "The market is 
cheap," according to Fred Cavanaugh, director of high-yield 
assets at John Hancock Mutual Funds. "The question is 
whether it represents value." 

"The average junk bond mutual fund had lost 10.85 percent 
for the year through Tuesday.." continues the Globe 
article. "In 1990, by any measure a disastrous year for 
junk bond investors, the average high-yield fund lost about 
9.6 percent."

"So-called 'TMT' companies, working in telecommunications, 
media, and technology, are the most worrisome creditors in 
the junk bond market. They borrowed huge sums to build out 
new communications networks and some are running into 
financial walls. ICG Communications Inc. had borrowed $2 
billion by the time it filed for bankruptcy protection last 

Falling prices for junk bonds means rising costs of credit 
for the borrowers - and not just TMT borrowers. J.C. 
Penny's bonds now yield 18%....Tenneco Automotive's bonds 
yield 21.3%. And the gold producer Ashanti's bonds can be 
bought to yield 27%. 

These are all troubled companies. But that is what you get 
after a credit binge - companies with problems...companies 
that have taken up too much capital and spent it too 
freely. You also get consumers with problems, for much the 
same reasons.

One company with trouble to spare is the Bank of America. 
"They let credit quality get away from them and it's coming 
back to haunt them," said an analyst quoted by Bloomberg.
"Loan problems are mounting at U.S. banks," the Bloomberg 
piece observes, " customers find it more difficult to 
pay debt. Bank of America expects to write off $1.1 to $1.2 
billion in bad loans in the 4th quarter, compared to $435 
million in the 3rd quarter. 

BOA was the a main creditor of Armstrong, the vinyl floor 
maker that went bankrupt a few days ago and Owens Cornings, 
which filed for bankruptcy on Oct. 5. Both companies were 
plagued by asbestos suits.

BOA wrote off a $500 million loan to Sunbeam...and also 
lent to Pillowtex and ICG - both of whom went bankrupt on 
Nov. 14. 

A bank with this keen a nose for deadbeat borrowers could 
have hardly missed the movie business. In fact, it lent 
$1.2 billion to Regal Cinemas - the nation's largest 
theatre chain - 2 years ago. Naturally, Regal defaulted and 
may also go Chapter 11.

When credit is too cheap, people treat it cheaply. The 
result is trouble. But it is not the sort of trouble that 
can be cured by even cheaper credit.

The U.S. economy is now at the end, I believe, of one of 
the biggest credit binges in history. The headaches and 
regrets cannot be dodged or ignored. And easier credit is 
not likely to make much difference - just as it has had no 
effect in Japan over the last decade. 

The entire psycho-profile and attitude of the market is 
changing. Instead of dreams...there will be nightmares. 
Venture funds are being replaced vulture funds. And hard-
nosed, bitter-end investors and workout specialists are 
taking the places of naive amateurs... The focus of serious 
investors will no longer be on cleaning up in the 
market...but on merely cleaning up.

Investors, who used to believe everything was possible and 
who accepted every fairy tale business plan, chapter and 
verse, are coming to believe nothing and accepting only 
chapters 11 and 7.

Things can't be put back in order without cleaning up the 
trash and butt ends. This won't be done by quarter-point 
decreases in the Fed Funds rate.

More on this next week...including more insight into why 
people would borrow and lend at such a furious pace...and 
why Mr. Greenspan's Put will not work...

Bill Bonner

Your constantly amazed, always amused, and often surprised 

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...

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Last modified: April 01, 2001

Published By Tulips and Bears LLC