*** Big drop in the Dow...but don't worry this MUST be the
bottom!
*** A trip down `tobacco road' - debts soar...
*** More on dead presidents...another reason Bush should
demand a recount
*** I stayed in town this weekend, working in the office
but going downtown to do some Christmas shopping. I also
paid a visit to my sister down in Charles County, an area
that has become a redneck suburb of Washington.
*** My trip took me down `tobacco road' - as they used to
call route 301. Entrepreneurs used it to smuggle cigarettes
from low-tax North Carolina to high-tax New York. There
must be a million big, shiny pick-up trucks between
Baltimore and Charles County. They are everywhere -
overflowing from dealer lots and backed up by the dozens at
every stop light. Those - and the ubiquitous SUVs - are the
most visible debris of the great 18-year financial boom.
*** But the boom seems to be coming to an end. The Nasdaq
is down 35% for the year. It is down 50% from its high.
*** The Dow is down too...almost 10% for the year...and
will apparently end the year in the red for the first time
in a decade.
*** Last week alone, the Dow lost more than 2% of its
value. The Nasdaq lost 9%.
*** And on Friday, the Dow fell 240 points on very big
volume. People seemed to want out. There were 1305 stocks
making progress on the NYSE, while 1600 fell back. The Dow
is below 10,500...can 10,000 be far behind?
*** The Nasdaq fell 74 points - also on big volume.
*** The entire national economy only produces about $10
trillion of goods and services each year. So, the $3
trillion or so that has been lost in stocks is a lot of
money. It can't help but depress consumer buying.
*** Company after company is coming forward to say that its
sales/profits are softening - MSFT, Intel, Kodak, GM,
Compaq, Chase Manhattan. Even UPS and Fedex have warned
that they wouldn't be able to deliver the profits they
expected.
*** MSFT fell 11% on Friday. Cisco fell 5%. MSFT was $119
last December. Thanks to this season's `half-off' sale, you
can get it for less than $50. Cisco and GE, too, are also
priced below $50.
*** As mentioned above, there are so many unsold pickups
and SUVs along route 301 that they are practically parking
them on the streets. Many of these vehicles were leased
out. Now that the leases are expiring they're piling on car
lots and weighing down resale prices.
*** What happened to the end-of-the-year rally? Is it still
ahead? Has it already come and gone? We'll see.
*** But investment advisors are still bullish - 55.6% of
them. Only 26.9% expect falling prices.
*** And Wall Street is still looking for Santa's Big
Bottom: "This market has been anticipating somewhere
between a hard landing and recession," said Tony Dwyer,
chief market strategist at Kirlin Holdings, quoted by
Reuters, "which means your worst case scenario is probably
already discounted in the stocks."
*** Worst case scenario? With an average P/E for the S&P
500 of nearly 20? Dream on! The worst case scenario can't
even be imagined yet. It includes P/Es of 6 or 8...and a
public that will turn its back on stocks...lose faith in
Greenspan...stop spending and begin saving again.
*** Worst case? The weekend brought a report from Japan -
where stocks peaked out more than 10 years ago at nearly
40,000. Now, the Tokyo index is around 15,000...and the
Japan Times says that bankruptcies are rising at a 22% rate
(annualized)...while corporate liabilities increase at an
astounding 200%.
*** Meanwhile, back in the U.S.A., Barron's consensus of
corporate earnings expects a rise of only 5.7% next year.
But maybe earnings won't rise at all...maybe they'll fall.
*** Investors' Business Daily tracks leading mutual fund
performance. Its index is down 16.2% for the year - which
is probably about what most people have gotten from their
stocks this year.
*** The current account deficit approaches 4.5% of GDP.
Imports in the 3rd quarter rose 18% over last year. My
brother in law just bought a new John Deere garden tractor.
He reports that all the major brands are made in Japan - no
matter what name they have on the hood.
*** Fannie Mae expanded its mortgage portfolio at a 25%
annual rate in November. Freddie Mac's "net retained
mortgage portfolio" is growing rapidly too; it is expected
to increase 15% to 20% in the next year.
*** The dollar is falling. The euro rose above 90 cents for
the first time in 3 months. This is the most ominous event
in the financial news - but no one seems to notice.
*** Doug Noland surveys the credit bubble on the
Prudentbear.com: "For one, broad money supply, at almost $7
trillion, has surged $1.3 trillion, or 23%, since June 30th,
1998. Total mortgage debt has also increased about $1.3
trillion, or 23%, to $6.8 trillion. Total outstanding
corporate bonds increased 23% to $4.9 trillion. Total
liabilities of the U.S. commercial banks have increased 16%
to $6.3 trillion... Money market fund assets have increased
36% to $1.7 trillion. Total GSE liabilities have expanded
recklessly, surging 52% to almost $1.9 trillion.
"Outstanding asset-backed securities have increased 34% to
$1.75 trillion. Finance company liabilities have increased
37% to $1.1 trillion, while total Securities Brokers and
Dealers community liabilities have increased $263 billion,
or 28%. Mutual fund holdings have increased 54% to $4.8
trillion, since 1998's third quarter.
"And with credit excess fueling historic trade deficits,"
Noland continues, "the accumulation of foreign liabilities
has been nothing short of astounding (frightening). At the
end of the third quarter, the 'Rest of the World' held $7
trillion of U.S. financial assets, having increased by 35%
($1.8 trillion) in just two years."
*** Gold rose $1.40 on Friday. A group of pro-gold
activists has sued Alan Greenspan and others to prevent
them from manipulating the price of the metal. The gold
bugs think Greenspan and others have conspired to hold down
the gold price. I have never been able to understand this
point of view. If anyone wants to sell me gold below the
real market price - I am happy to take it.
*** Goldman downgraded Hewlett Packard. In a separate news
item it was disclosed that an HWP employee had fallen from
a company airplane. This is surely bad news - it is not a
good sign when employees bail out without a parachute. Who
can forget what happened to Bre-X after its geologist
exited a helicopter hundreds of feet above the ground?
*** "Just to add some more fuel to your fire about the
economy and falling stocks," writes DR reader MGB, "as a
professional business astrologer, I can tell you that
astrology also shows the Bush administration in a very
tough economy. Research showed the financial area of each
President's chart corresponded with the economy
of the country during their presidency. Bush has a very
tough financial area in his chart, no doubt expressed in
part when he lost three oil companies. His Presidency is
likely to reign over a recession. Clinton's financial area
of his chart is very expansive and quite good. And that is
the type of economy we had.
"Astrology shows that 100% of the Presidents died in
office when they were elected in years that coincided with
Jupiter and Saturn coming together in the same earth sign.
This has never failed. In 2000 these two planets came
together in the sign of Taurus, an earth sign,
so President Elect Bush will not leave office alive."
When The Greatest Credit Bubble in History Bursts...What
Comes Next?
No banks or brokerage houses went bust in the 1929 crash.
In fact, many investors and businessmen prospered. The real
damage was done later on - when popular sentiment turned
against stocks altogether. Just as is happening in our
markets today...
Will you profit in the months ahead? You will if you
prepare yourself now - EVERYTHING that is happening in the
markets today has already happened before. Click here to
learn more about:
Over the weekend, the SEC fined MicroStrategy founder,
Michael Saylor, $350,000. In addition, he and two other
executives had to pony up $10 million worth of stock in
order to resolve shareholder suits.
Saylor was one of those who `got it'. He knew, deep down,
an inchoate, indescribable truth that the rest of us
couldn't quite fathom. As a result, he was, and still is I
suppose, a Digital Man, one of the race of mutant Homo
super-sapiens that was supposed to not merely inherit the
world, but to take it over by adverse possession.
"The first person I knew who suggested that there was such
a truth and that it could distinguish you from other people
who didn't know or accept this truth was Louis Rossetto,"
writes Michael Wolff, in Forbes ASAP. "'He just doesn't get
it,' Louis would say, shaking his head in disgust when
almost anybody disagreed with him. WIRED the magazine he
founded was based on this notion that certain people
understood something profound, while most did not."
Saylor was one of those who understood something profound.
The company he founded had a mission. According to its 1998
Annual Report, "MicroStrategy's corporate culture is guided
by a shared vision for changing the world - to promote
universal intelligence by making information flow like
water."
Information certainly flowed. How much intelligence it
conveyed is open to question. But the money was real.
MicroStrategy hit a high of $333 a share on March 10, 2000.
Then, it was revealed that the company's numbers were the
product of considerable ledgerdemain - for which the three
top executives are now being punished. And the shareholders
have taken a beating too. The stock is down 98% in the last
8 months. All of which merely proves my dictum: you don't
get what you expect on Wall Street, but what you deserve.
I bring this up, though, not merely to relish the fact that
people get what's coming to them. It is much better to
dress up your base emotions with a veneer of
intellectualism... which is just what Saylor and the other
Digital Men did.
"Information wants to be free," they said - as if it meant
something. "Speed changes the meaning of information." "Our
goal is to achieve ubiquity." It didn't seem to matter what
they said...they were the young, hip, plugged in tech
guys...and they 'got it'.
Like the hustlers and chutzpahs who sold modern art to
Fortune 500 corporations, Saylor and others went right for
the high ground.
Wolff describes what is like when the absurd pretensions of
the New Era techies met feeble, empty-headed corporate
America:
"I wish I could communicate, however guilty I feel about it
now, the sheer joy of sitting in meetings with well-
established businessmen representing billions of dollars of
assets and multimillion-dollar profit streams and being
able not only to high hand them because I got it and they
didn't, but also to be able to actually humble them, to
flagrantly condescend to them, to treat them like children.
On the basis of this knowingness, hundreds of billions of
dollars have traded hands."
Why didn't the big money guys 'get it'? Because there was
nothing to get. The techies had no real knowledge. Just a
pretense of knowledge. Big, hollow ideas...that in the end,
meant nothing.
They had technology. But they had no more idea of what it
might do or what it might mean than anyone else. Probably
less - since they tended to have so little real experience.
And even the technology they mastered was often shown to be
ineffective, or quickly superseded by yet newer more
fantastic technology of even less certain impact and
importance.
Still, as they say, "you only make big money from people
who are stupider than you." The tech mongers figured this
out early...and were fortunate in having such a big market.
Everyone - from top corporate CEO's to cab drivers - wanted
to throw money their way.
But, now, finally the madness is almost over. MicroStrategy
stock has fallen - along with almost every other dot.com.
The tech stocks are not far behind. Finally, those who `got
it' are getting it - good and hard.
Your correspondent...cheerfully reporting the news, this
Monday morning...
Bill Bonner
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