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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  The Ghost of Christmas Past

*** Mr. Bear is having his revenge...Dow and Nasdaq down big 

*** Sic Transit...the Autumn of Anxiety gives way to the 
Winter of Woe...

*** Groping for a bottom...and more...

*** Let's see, if I twist my left leg up to touch my right 

...I've just spent the night on an airplane, contorting 
myself in different directions in order to try to get 
comfortable. Then, we got stuck in a traffic jam coming into 
Paris... so we're a little late this morning...

*** But what can I tell you that you don't already know? 
Instead of taking the holiday season off, Mr. Bear is having 
his revenge. For 18 years, he's been growling in the 
wilderness - ignored, dissed, even thought extinct. But he's 
back and seems to want everyone to know it.

*** It's very, very unusual for stocks to fall in the last 2 
weeks of December, says Richard Russell, but they're falling 

*** The Dow dropped 265 points yesterday. The Nasdaq 
suffered a 178-point decline. 

*** Volume was big - as twice as many stocks on the NYSE, 
and 4 times as many on the Nasdaq, declined as advanced. 
There were a shocking number of stocks hitting new lows on 
the Nasdaq - 933.

*** What went wrong? Well, nothing...and everything. Merrill 
Lynch analysts seemed to have gotten up on the wrong side of 
bed. They downgraded a group of stocks including Cisco, 
Hewlett-Packard and IBM. The whole crew took a dive, with 
Cisco down almost 3%...IBM down 4.6%...and HP minus 13%.

*** The big tech collapse continued yesterday - with the 
Internet index down 10% and the big techs down across the 
board. drifted yet further down the river of no 
returns - opening at only $16.

*** And giant AT&T announced that it was so squeezed for 
cash it would have to cut the dividend by 83! 

*** Sic Transit Gloria Mundus - what else can I say? Take 
eToys, please! The online toy seller was once thought to be 
worth $1.9 billion. That billion, with a `b'. Now, investors 
give it a market cap of only $37 million.

*** "Given the stunning lack of consumer demand for eToys' 
much-enhanced services this season," wrote a researcher for 
Robertson Stephens earlier this week, "it is now clear to us 
that eToys substantially over-spent relative to consumer 

*** "People rarely invest based on an ability to tear apart 
income statements and balance sheets," writes Doug Casey, 
"not to mention understand the business firsthand by not 
only interviewing management and employees, but suppliers 
and customers. They invest based on what are tantamount to 
tips and gut feeling. That's why nobody was in the market in 
1982 and why everybody has been in it for the last five 
years." (see: The Stock Market: Look Out Below

*** How times change. Just 6 months ago, many people thought 
you couldn't overspend. The sky was the limit. But now...the 
Summer of Love is gone. The Autumn of Anxiety if passed. And 
here we are in the Winter of Woe - and all the news is bad 

*** But here at the Daily Reckoning, you are always ahead of 
the curve - and sometimes around the bend! Investors are 
beginning to notice what we've been talking about for 
months: the economy is falling apart...the big techs are a 
death trap for capital...and the dollar is in decline.

*** They're even beginning to wonder whether Alan Greenspan 
really can save the day. "Wall Street still weighed down by 
doubt," says a headline in the Financial Times. If Greenspan 
can save the day, people wonder, what is he waiting for?

*** "The Fed cut rates massively and immediately during the 
Long Term Capital Management debacle, thus saving the day 
..." writes fiction writer Paul Erdman. "What is happening 
in the stock market now could have immeasurably greater 
consequences. But Greenspan does nothing but issue more 
enigmatic statements. It is as if Greenspan's vision is 
limited to trees such as Long Term Capital and the banks 
that backed it, but he's unable to take in what is happening 
to the forest known as Nasdaq in which most of us have a 
very significant stake."

*** Don't worry, Paul, Greenspan will take action. It just 
won't do any good.

*** The Nasdaq has now surrendered all of its gains since 
March 1999. Erdman says that the total loss of capital thus 
far in the bear market is up to $4 trillion. For reference, 
or amusement, that's about $40,000 per family. Can the 
average family afford to lose that much in stocks? We'll 

*** I love this item: Bryan Piskorowski, analyst for 
Prudential Securities, is quoted as saying that investors 
are "groping for a bottom." Watch out, Bryan, you can get 
arrested for that.

*** But while Bryan and other analysts are groping for the 
bottom of their dreams, they are grabbing cash. "While many 
investors have been hammered," begins a report on the 
Prudent Bear site, "such a dreadful situation is apparently 
not going to keep Wall Street employees from big year-end 

"The median bonus for Senior Managing Directors is between 
$2 and $3 million, Managing Directors (1-3 years) $1 to 
$1.75 million, Senior Vice President, Director, Principal 
$850,000-$900,000, Vice President (class of '94) $750,000- 
$800,000, Associate (class of '97) $475,000 to $485,000, and 
second-year Associate $250,000. And while ridiculous 
compensation was tolerable during the boom, it's hard to 
believe such pay will garner much goodwill going forward. It 
is certainly interesting how CNBC now mocks Wall Street 
analysts on a daily basis."

*** The euro rose over 90 cents yesterday. Looking ahead, 
March contracts have the Esperanto currency up to 91 cents.

*** Oil fell $2.19_ but gold rose (Feb. contracts) $2.70. 
Gold stocks were the big winners yesterday - rising 4%. 
Afraid of a meltdown in the dollar? Worried about a multi-
year bear market on Wall Street? Concerned about debt, 
defaults, bankruptcies? Don't worry. Be happy. Sell the 
rallies. Buy gold stocks, euro bonds, and ultra ugly 

*** What else? Well, Asian stock markets are heavy with 
techs. And they're getting hurt. Poor Ms. Wu, remember her? 
She was moaning and kvetching when her stocks were down 20%. 
She even joined a demonstration urging the government to "do 
something." But what can the government do? Korean stocks 
are now down 41% for the year. In Taiwan, they're down 
almost 50%.

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Old Greenspan was not dead. Not dead as a doornail, nor dead 
as a doorknocker. Not even as dead as a laptop computer 
after the power goes out - not even John Maynard Keynes is 
that dead.

Not even God himself, but that is another story. 

Nothing is as dead as a computer without power. For even a 
nail continues to provide good service after the spark of 
life has gone out of it. 

But Greenspan? The Fed chief was still alive. Not only that, 
he still had the power to flood the economy with cash...and 
lift stock prices. 

And Ebenezer knew it. He had seen him on television not long 
ago. The old Randite jazzman had said as much. Ebenezer 
could remember his exact words: "The committee will continue 
to monitor closely the evolving economic situation." It 
sounded like mumbo-jumbo. But Ebenezer knew what it meant. 

Of course, there were some - such as his old associate Bob - 
who said that Greenspan couldn't do it_.that merely reducing 
interest rates wouldn't work. But what did they know?

"Bah," said Ebenezer to himself, "humbug." 

"What reason is there to worry?" he asked, to no one in 
particular. "If I could work my will, I would have every 
idiot who goes about with `recession' on his breath forced 
to watch Wall Street Week and read the editorial pages of 
the International Herald Tribune." 

His musing to himself was interrupted by the entrance of two
gentlemen who introduced themselves quickly and proceeded to 
divulge the purpose of their visit. 

"We thought that, perhaps, given the spirit of the Christmas
season," said the leader of the two, "perhaps you could 
spare a farthing for the poor, the destitute and the needy." 

"Many people," added the second, "... the poor unfortunates 
invested their money in dot-com stocks...or the big techs. 
These people need our help." 

"Need our help?" questioned Ebenezer. "Are there no mutual

"Well, of course..." the first began to reply. 

"And do they not accept small amounts?" demanded Ebenezer. 

"Yes...but..." replied the second before being interrupted. 

"And has not the bull market been a fact of life for nearly 
two decades? And hasn't every dip turned into a buying 

"Well, yes..." 

"And has it not been shouted from every newspaper headline 
...every news report...every Internet chat room...and every 
conversation between even the most casual passers-by at even 
the most ill-informed and downmarket drinking establishment 
in the most remote and out-of-touch region of the country?" 

"Doesn't everyone who is capable of long division now 
realize," continued Ebenezer, raising his voice, "that 
nothing beats investing in stocks over the long run?"

"Yes, we are aware..." 

"Oh! Good. I was afraid that something might have 

Then, misinterpreting the ensuing silence for approval, the 
second gentleman ventured, "Well, in this great time of 
trial, how much would you like us to put you down for?" 

"My only wish is to be left alone so that I may continue to 
enjoy the fruits of the greatest episode of wealth creation 
in history," replied Ebenezer, "stocks may be down, but so 
much the better. I take it as an opportunity to buy more of 
them for less money...and I suggest that others do the same. 
Good day, gentlemen." 

And Ebenezer turned and walked away, muttering, "A poor
excuse for picking a man's pocket..." 

That evening, Ebenezer slept poorly, under the fullest moon 
in more than a century. He had seen Alan Greenspan's face in 
his doorknocker. An odd sensation, for Greenspan's face was 
hardly one that he expected or hoped for. But there it 
was...for a fleeting moment, at least. 

And now, after finally achieving the sleep he longed for, 
his sleep was suddenly interrupted by the sound of ringing 

Yes, bells.

The kind of bells they fail to ring at the top of a bull 
market. But why now...clanging like chains in the middle of 
the night? 

The door to his bedroom blew open...and the clanging sounds
seemed to mount the stairs. 

"Humbug," he thought, "I won't believe it. The bears have 
been hearing ringing in their ears for years. The poor 
fools. "Recession...bear markets...crashes..." And now 
they're at it again...more convinced than ever. Ha!" 

His color changed though, when, without a pause, it came on
through the heavy door and passed into the room before his 

The face: it was the same face he had seen on the 
doorknocker earlier in the evening. And on the television a 
few weeks ago. It was the face of Alan Greenspan, the Fed 
chief. His body was transparent, ghostly, but there was the 
source of the clanging. For the spectral figure was wrapped 
up in chains, to which were attached various metals - gold, 
copper, silver...both coins and nuggets, all clattering and 
banging against one another. 

Ebenezer had heard it said that Greenpan lacked guts. But 
there they were. In this ghostly form Ebenezer could all of 
him, inside and out. It was as strange as it was 

"Who are you?" asked Ebenezer, his voice cold and caustic. 

"Ask me who I could be," replied the phantom. 

"Okay...who might you be?" 

"That is a different question," said the spectre, "but I 
will answer it anyway. I have no time for word games. I am 
the spirit of Alan Greenspan..." 

"I thought so..." whispered Ebenezer. 

"...and it is required of every man that he walk among 

"But you are not even dead yet," protested the old man. "I 
would know if you were dead...I would have read about it in 
the paper..."

And then, after a pause... "What are these chains you wear?" 

"They are the chains you forge for yourself. But instead of 
gold and silver, yours are laden with computer terminals, 
stock certificates, portfolio statements, the New Era... You will be fettered not just for your life, but 
for eternity. And they grow heavier with each passing month. 
Unless, that is, you heed the ringing of these chains..." 

"I am here tonight to warn you," the ghost went on, "that 
you may have a chance of escaping your fate. Rise and walk 
with me." 

"I am mortal..." 

"Barely," said the ghost. "Here, look...Christmas Past: 

Ebenezer could see for himself. 

There before him was the face of another Fed chief. It was 
Paul Volcker himself. And there, what was that? A crowd of 
people were burning him in effigy. 

But why? Then Ebenezer began to recall what that Christmas 
was really like: 

Inflation, measured by the CPI, rose at 13% that year. 
Volcker's job was to reduce that figure. He did so. But it 
was not fun for anyone - except shortsellers. 

The Dow fell 24% after Volcker held his famous Saturday 
press conference and announced a change of direction. It 
took people a while to realize that Volcker, unlike previous 
Fed chiefs, meant what he said. 

Volcker threw out the WIN buttons and targeted reserve 
requirements. Interest rates soared. Twenty-year Treasury 
bonds yielded 15%. The prime rate hit 21.5% percent. 
Homebuilders and farmers - and perhaps some Wall Street 
brokerage houses - threatened his life. 

The Dow fell to 776. Adjusted for inflation, a generation of 
capital growth was wiped out. 

But not everyone was hurt. Investors who bet heavily on gold
stocks, oil and collectibles did well - at least, until 
Volcker's purposes began to be realized. 

Ebenezer recalled the predictions of 20 years ago: 

** Oil would go to $100 a barrel 
** Inflation would be at least 6% - forever 
** Gold would rise through the end of the century
** Bonds were "certificates of guaranteed confiscation" 
** Stocks were dead (a death that was confirmed by `Business 
Week' on Aug. 13, 1980 - the very bottom) 
** The whole key to investing was to avoid risk 

"Let us look a little further," said the ghost. And with 
that, Ebenezer saw a new scene. In this one, he saw himself. 
But it was not himself as he was...but as he had been. 

There was the young Ebenezer. Full of enthusiasm and 
eagerness to make his fortune. He had plenty of hair, too. 
And, look, you could see the muscles bulging beneath his 
polyester shirt. 

"These are but shadows of the things that have been," said 
the Ghost. 

And there he was, the young Ebenezer. Standing alone and 
neglected at a Christmas party several years after Paul 
Volcker had taken charge of the Fed. 

He looked quite sad...but Ebenezer knew why at once. 

"I won't make that mistake again," said the young investor 
to himself. 

"What mistake had he made?" asked the ghost of his guest. 

"Why does he reproach himself?" 

Ebenezer made no reply. 

Tomorrow: The Ghost of Christmas Present. 

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...

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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