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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Heart of Truth

*** His hour come round at last...Greenspan slouches toward 
rate cuts

*** Dow rallies...but "Profits are falling off a cliff..."

*** The magic...actual rate of return on borrowed 
money...con game...and more.

* * * * * * * * * * advertisement * * * * * * * * * * * 
The landing approach has begun. The flaps are down. A 
moderate slowdown has hit the U.S. economy. Investors are 
still optimistic. But consumer spending is way off. seems that everyone believes that Alan Greenspan 
will engineer a soft landing for the formerly high-flying 
tech bubble. But according to one of the world's leading 
economists, it's worse than blind faith. It's "high-octane 
'new paradigm' propaganda." 
Here's what you need to do -- right now -- to prepare yourself for the 
coming crisis:
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

*** The hour cometh, cometh the man. And the man of the hour 
is Alan whom the entire world turns its weary 
eyes today. The Great Helmsman of the Fed is widely 
expected to save free-market capitalism's biggest boom ever 
by rigging interest rates. 

*** Few people appreciate the irony of this. And perhaps 
only those few suspect the futility of it. But we will 

*** A WSJ story yesterday let out the news that the Fed 
might be considering more aggressive efforts to avoid a 
severe business slowdown. The signs of such a slowdown seem 
to be multiplying.

*** "Profits are falling off a cliff," says an analyst 
quoted in the Economist. Estimates for profit growth in the 
fourth quarter have dropped from 15.6% in less 
than half that amount now. In the tech sector, analysts have 
lowered their expectations from 29% (annualized rate of 
increase for the quarter) to 10%.

*** And the techs keep falling. Cisco lost more than $5 
yesterday, for no apparent reason. Sun Micro dropped nearly 
$2. Microsoft gave up another 3% of its value. And Amazon, 
our favorite river-of-no-returns stock, fell below $20. 

*** The number of profit warnings is up 70% since last year. 
And Moody's says, this year, 4 times as many companies have 
had their credit ratings downgraded as have had them 

*** Yesterday, Time Warner alerted investors that profits 
would not be as expected. Gerald Levin, head of Time Warner, 
was among many of the rich and powerful on Wall Street who, 
at the peak of the Internet mania, wanted to be sure he "got 
it." So, he decided to buy it -- by merging with AOL. Now, 
he's getting it. Time Warner stock, $105 in March, fell 13% 
yesterday to $63. AOL, its merger partner, dropped 14% to 
close at $42. It was a $95 stock last year.

*** Be careful what you wish for. Once you get it -- you 
might discover that you were better off without it.

*** A lot of people are "losing it" on Wall Street and 
throughout the nation. And they are hoping that Greenspan 
has the magic to bring it back.

*** The Dow rose 210 points on that hope - 1,880 stocks 
advanced on the NYSE; 1,084 declined. 

*** Greenspan will surely try to accommodate these hopes. He 
will do the one thing he knows how to do -- he will make 
money more readily available to those who want to borrow it.

*** But, "for the magic to continue," opines a piece in 
yesterday's New York Times, "that is, for the economy to 
avoid a nasty recession in the next few years -- the 
borrowers must remain prosperous enough to pay off their 
bonds, credit cards and mortgages."

*** Financial commentators -- perhaps looking for the Big 
Bottom -- have noticed another anatomical feature: "The 
unprecedented level of private debt," continues the NYT 
article, "could well be the biggest single threat to the 
soft landing..."

"`This could be the economy's Achilles Heel,'" the NYT 
quotes economist Mark Zandi.

*** "The dust behind [Greenspan's] magic has been debt," 
notices the NYT. Consumer debt, at $7.5 trillion, is more 
than twice the level of 1990. Corporate debt has reached 
$10.6 trillion. 

*** Can you really defuse such a big debt bomb -- by making 
even more debt available? Greenspan can lower only nominal 
rates -- not the real, effective rate of return on borrowed 
funds. In the last eight months, investors who bought Nasdaq 
stocks with borrowed money have suffered a loss of 50% on 
the the interest charge on the debt -- for an 
effective rate of return of nearly MINUS 60%. A quarter-
point drop in the Fed funds rate is not going to make that 
hurt go away...nor is it going to entice borrowers to take 
on more debt.

*** There's also a new element in financial discussion: 
people are beginning to look for someone to blame for their 
losses. The Miami Herald reflects on the tech mania with 
this headline: "The boom was too good to be true...was 
America conned?" The Bay Area's Mercury News refers to the 
run-up in tech stocks as a "legal con game." 

*** "Minor manias or bubbles don't lead to any significant 
economic disruptions when they burst," writes Marc Faber, 
"because they are only based on a relatively small sector of 
the economy and are usually local in nature. Major manias, 
by contrast, are significant in the context of the whole 
economy and are very often of international dimensions and 
attract a large flow of foreign money." (see: The Dynamics 
of Investment Booms

*** "The steep slide of the high tech stocks, the broad 
retreat of the Old Economy stocks...," writes Dr. 
Richebacher, "multiplying bank announcements of sharp 
increases in bad loans, the virtual shut-down of high-yield 
lending, record-high indebtedness of firms and consumers, an 
unsustainable negative personal saving rate, an 
unsustainable, monstrous current-account deficit and 
countless profit warnings -- all these bigger and bigger 
economic and financial negatives, relentlessly eroding the 
U.S. economy's stability and strength, are flatly ignored by 
Wall Street's Panglossian economists... What's more, the 
markets have readily and unreservedly embraced this shallow 
approach." (see: Lies, Damn Lies, Wall Street 

*** The Web's many content sites are taking a beating along 
with everything else. has gone from $15 to $1. from $71 to $2.50. from $27 
to 18 cents...and the Individual Investor Group has 
collapsed from $7 down to 63 cents. 

*** I've tried to keep my eye on -- since it 
is in the same business I am. Recently, the market cap fell 
below the available cash on hand. Aha, I thought...this 
might be an opportunity. But TheStreet is still losing 
money at Internet speed -- and seems to be making a death 
march toward insolvency. 

*** How about the Well, we're profitable 
-- thanks to you, dear reader. But then, our expenses are 
extremely low. Addison and I make up the entire editorial 
team. And we don't earn much.

*** But money isn't everything. My tastes are modest. I 
just need to buy a few Christmas presents for the 
kids...and, oh yes, Elizabeth had her eye on a gold 
necklace. And, well, the car broke down a couple of weeks 
ago...and there are still five children to put through 
college. And part of the chateau needs a new roof...and 
there's Mr. Deshais, the gardener...and repairing the stone 
walls...and furniture for the grand salon...and we need a 
bigger apartment...and...

... For the love of God, please buy something! 

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"It is only with the heart that one can see rightly. What is 
essential is invisible to the eye."

Antoine de Saint-Exupery

No place in America is feeling the downturn in tech stocks 
more sharply than the San Francisco Bay Area. An article in 
the San Francisco Chronicle tells how dot-com failures and 
tech setbacks affect ordinary people:

"Roman Foldr has gone from dot-com gamekeeper to dot-bomb 
grim reaper in a matter of months," reports a recent 
article. "The 40-year-old entrepreneur has made a good 
living in the past few years renting foosball tables, video 
games and other cushy amenities to Internet startups. All 
across the Bay Area, cheers would rise up from the ranks as 
he rode up in his truck to install old Pac Man games and 
pool tables in their spanking new offices."

That was then...when those who "got it" were still were on 
the receiving end of billions of dollars from those who 

"But these days, with hundreds of Net firms folding across 
the country during the past year and even more cutting 
costs," reports the Chronicle, "Foldr finds himself 
repossessing foosball tables on a regular basis. His arrival 
more often than not sends dot-commers scrambling to update 
their resumes."

I have been looking at the consequences of "the pretense of 
knowledge" and at the way markets become most risky at the 
very moment when investors come to believe that risk is 
totally absent. The further the delusion rises above the 
truth...the further you have to fall, and the harder the 
concrete of reality.

The trouble is, when you are flying high on fantasy...the 
cement below is almost invisible. "The truth is hard to 

People speak casually about the truth -- as if it were 
something that they could look up in an encyclopedia and zap 
around the Internet. The "digital men" seemed to think that 
truth was the same as information...and that the key to 
success in life was having more of it than the next guy. 

And yet, even in the sciences, truth is unreliable.

"Every day," writes historian Jacques Barzun in Forbes ASAP, 
"the truths of geology, cosmology, astro-physics, biology 
and their sister sciences are upset. The earth is older than 
was thought; the dinosaurs are younger, the starts in huge 
galaxies have so much space they can't collide, yet they 
collide just the same; after being dry as dust, Mars has 
liquid water. The human bones in Central Africa do not mean 
what they were said to mean, and a new fossil shows the 
origin of birds to be entirely different from the view that 
was thought true yesterday..."

But there are two kinds of truth...just as there are two 
kinds of knowledge. One may furnish the brain...but the 
other dresses out the heart. There is the truth that you can 
find in the sciences, in textbooks and as observable fact: 
such as the length of a meter, the boiling temperature of 
water, and what Bill Clinton may have done with Monica 

And there is the truth you get from personal experience -- 
the truth that helps you figure out what the facts really 
mean and what to do with them. The first kind of truth is 
cheap. It's the second kind that is dear. Like a Big Bottom, 
it doesn't come along very often -- and then, only at great 
cost and after great suffering.

Smithers and Wright remarked that, "investors who lived 
through these [downturn] periods would have found that these 
bear markets had a large negative impact on their living 
standards." But at least they would have learned something.

And thus, truth is emerging in San Francisco: "Financial 
losses associated with the shakeout are rippling through the 
Bay Area's service economy like so many aftershocks," 
continues the Chronicle report, "affecting everyone from 
public relations and party planning firms to landlords and 

San Francisco's digital industry generated more revenues 
than its retail sector...with tech workers "pulling in an 
average income of $78,429." 

"When a dot-com is folding, and they tell you to pick up 
your equipment, you better be there in half an hour," said 
Foldr, who founded his South San Francisco business in 1989. 
"You never know when they're shutting the doors." 

Foldr is experiencing the trickle down financial effects of 
a mania meltdown. "There's been a bloodbath in our 
industry," said James Collins, a Sausalito recruiter for 
Toronto's Cyberplex.

"Even commercial real estate, long considered the most 
visible indicator of dot-com opulence, is cooling off. The 
once white-hot market has become a renter's market in areas 
outside the Financial District, according to Robert
Larscheid, a principal at Corporate Real Estate Service 
Providers, which represents commercial tenants. 

"As companies shut down and lay off workers, they give up 
all or some of their office space. The result is a sudden 
flood of offices being subleased."

Meanwhile, on another bay, the Miami Herald records the 
bewilderment of investors discovering a similar truth.
"I got in just a little bit before the peak," laments Melvin Klahr, a North Miami-Dade investor. "I just saw this stuff going up and up." 

"His biggest regret," the article tells us, "was not getting timely advice to sell. "Nobody rang the bell for me and told me that was the high point." 

"Few saw it coming," says the reporter, referring to the approach of the dot-com crash -- which anyone who cared to look could not have missed. Bells had been ringing so loud and for so long that those of us listening practically went deaf.Mr. Klahr's net worth may be impoverished by the experience of a bear market, but his life is enriched by the truth. 

Your correspondent, searching for the truth...

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"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

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Last modified: April 01, 2001

Published By Tulips and Bears LLC