*** Santa comes to Wall Street...bearing presents...or lumps
*** Investors discover earnings...7 fat years for value
*** Plenty of room on the downside...for stocks...and the
dollar... A mass exodus from Paris... Sympathy for Flatiron
*** 'Here comes Santa Clause, Here comes Santa Clause...'
my sources tell me you could practically hear them singing
on Wall Street yesterday. Why? Rumors circulated that Alan
Greenspan was on the phone talking about a 'surprise' rate
*** And who knows? Maybe Old St. Alan will come through with
a rate cut sooner, rather than later. But no matter how
soon, it is likely to be too late. The economy is breaking
down faster than expected. And the negative wealth effect is
so great it cannot be reversed by a few basis points.
*** At least, that's my story...and I'm sticking with it
until it is proven wrong.
*** Eventually, the markets make fools of us all. But how?
When? That will be the big surprise.
*** But, yesterday, investors were content to believe that
the Fed would come to the market's aid with lower rates. The
Dow regained most of its loss on Wednesday...and even the
Nasdaq managed a token gain. The Dow rose 168 points; the
Nasdaq inched up 7 points.
*** There were 1619 stocks advancing on the NYSE; 1230
*** "Value Stocks Experience Rebound," says a WSJ headline.
Fund manager Richard Rosen: "After the Nifty 50 in the early
`70s, we had seven years of value, and after the energy
crisis of the early `80s, we also had seven years. I expect
the same here, now that the tech bubble has burst."
*** "Investors seemed to be rediscovering companies with
earnings, revenues, and viable business models," noticed
TheStreet.com. Companies with none of those things -
notably, the Internets - continued to fall. The index was
down another 8% . And The Standard reported that online ad
revenue fell for the first time ever. It declined 6.5% in
the 3rd quarter.
*** Amazon lost $1.50. Palm fell 32 points. Real Networks
took a really big hit - minus 44%.
*** TheStreet.com, itself, made news yesterday, announcing
that it would spend $10 million buying back its own shares
on the open market. A cynical observer might suspect that
the insiders want out at a better price. The stock, which
had dropped below $2, rose more than 40% on the news. Notice
to shareholders: if you want out and are willing to sell for
less than a dollar, talk to me.
*** One of the major shareholders in TheStreet.com is
Flatiron Partners, a New York venture capital firm. The WSJ
reports that Flatiron backed 55 new ventures. 11 of them
went public, everyone of which now trades for less than its
IPO opening price.
*** The WSJ piece tells of a recent Flatiron start up: On
October 25, Scout Electromedia, makers of a $99 pager - Modo
- that alerted its users to movie reviews, restaurant tips
other vital entertainment information, held their launch
party at Hollywood's trendy Le Deux Cafe. But even before
the champagne bottle cracked against the bow of the ship it
had slid into the water and sank beneath the waves. Just the
day before, Scout they received a fateful email. The company
was informed that its backers who just a few weeks earlier
had showered praise on Modo, were pulling the funding plug.
Scout had exhausted the $22 million in venture backing
including millions from lead investor, Flatiron Partners.
*** You win some and you lose some in the venture capital
business. But the Flatiron Partners will probably still be
able to afford a Christmas pudding. Like most venture
groups, they get their shares for pennies during early stage
financing. Flatiron has turned $250 million invested between
1996 and the end off 1999 funds into $1.2 billion.
*** Capital was absurdly cheap in the last half of the last
decade of the last century of the 2nd millennium. A company
like TheStreet.com could raise hundreds of millions -
without ever having to prove that it could make a dime. It
has never made a dime. The money was frittered away...and
now TheStreet.com and companies like it are fast running out
of cash - with no way to raise more. For while the cost of
capital was cheap in the last millennium, it has become very
expensive in the new one.
*** Bloomberg reports that junk lending (to high risk
borrowers) has fallen off for the first time in 8 years.
Investors, as I have pointed out, are becoming less
concerned with the return on their capital. They're worried
about the return OF their capital.
*** "Analysts, economists and business executives now
worry," reports the New York Times, "that the [credit] binge
may take years to cure." People who expect a quick fix from
Alan Greenspan may be disappointed. After the market crashed
in '29, it took three years before the Big Bottom finally
arrived. Following the top out in 1968, in real terms, the
bottom was not reached until 14 years later. And in Japan,
the market crashed in 1989. As of this morning, stocks were
just 3% above the low recorded in 1998.
*** The Big Techs have been taken down. Cisco is down 55%
from its high. Intel, 58%. MSFT 65%. Ebay 78%. They have not
gone down as much as the Internets - but because they were
much bigger stocks, more people have lost more money,
*** And as of this morning, Juniper Networks is still worth
$30 billion - or more than the value of GM. Juniper has
sales of only $102 million. But GM has $17 billion in sales.
There is still a lot of room on the downside.
*** A headline in the International Herald Tribune warns
that the dollar may have a lot further to fall too. The
virtuous circle of the `90s, the article explains, has been
replaced by a vicious one. Falling stock prices cause
foreigners to withdraw funds from U.S. assets. The dollar
falls. This makes the performance of dollar assets even
worse. So they sell more.
*** Investors' Business Daily's Mutual Fund Index shows the
leading funds with a 22.5% loss for the year. This is about
what the average investor is realizing. Half the families in
America own stocks and for the average stock-holding family,
stocks are the number one asset.
*** My own family seemed happy to see me when I finally got
home last night - especially since I was carrying a bag of
Christmas presents I had bought on my trip to America.
Today, we're packing up the van and heading out to the
country for the vacation - along with, it seems, almost
every other family in Paris.
*** The roads out of town are going to be packed. Jean-Luc
Goddard made a movie about the holiday exodus back in the
`60s. In the film, people spend the entire weekend in a
This was my mother's advice when I began my business career.
Hard to imagine, but that was already more than 2 decades
ago. We celebrated our 22nd annual Christmas party on Friday
It seemed as though everyone had the same idea for Friday
On Mt. Vernon square, people dressed in gowns and tuxedos,
suits and jeans, often carrying shiny, wrapped presents
under their arms, made their way to parties. The Engineers
Club was lit up with holiday lights... so was the women's
club next door. We outdid them - we had so many Christmas
lights strung up that the whole city of Baltimore seemed to
go dim when we turned on the switch. And whatever power we
didn't consume in light was promptly converted to decibels -
Thom's blues band entertained us with those holiday
favorites such as "Dead Blind Man's Christmas Blues" and
"Mean Mrs. Santa's Got Her Clause All Over Me."
It was not the kind of Christmas music I recalled from my
childhood. But we have among our employees muslims, hindus,
jews, kwanzans, nail biters, and skin-heads, vegetarians,
and followers of the late prophet Elijah E. Neuman, who
claimed to have been reincarnated from the spirit of Rocky
the Flying Squirrel, and believed he could leap from tall
buildings without suffering severe injury.
It was tragic what happened to him. He took a dive off the
roof of a low-rise Subway shop on North Ave and sprained his
ankle. But as he was getting up, someone shot him.
Thus martyred at 23, he has become a cult figure locally.
Anyway, the nice thing about Thom's band is that it was
equally offensive to everyone, which seemed to be in keeping
with the spirit of Christmas. The music was so loud that we
couldn't hear ourselves talk, which was okay, inasmuch as we
had nothing to say anyway. So we shouted out our holiday
greetings and lip-read best wishes for the new year,
neighbors a block away called the police to complain - and
the party was a big success.
Twenty-one years ago the bubble de jour was in the gold
market, where the price of the yellow metal had just hit its
zenith - reaching above $850 an ounce. Just as, today, we
recall Lenin's prediction of using gold for the floors of
public lavatories, back then we spoke of using stock
certificates to paper the walls of our storage closets.
Stocks were beneath contempt.
People were less interested in getting rich than they were
in avoiding poverty. They did not dream of becoming
millionaires so much as they had nightmares about dying
In the 2nd year of Jimmy Carter's presidency, America's
perch on top of the world seemed even more precarious than
it does today. It was not at all obvious that the greatest
bull market of all time was about to begin.
At that time, stocks yielded as much as bonds yield today -
more than 6%. But investors wanted neither stocks nor bonds. They
wanted hard assets and natural resources. Oil seemed like
the investment of the future. Buying Exxon seemed like the
"sure thing." Buying gold seemed like an even greater "sure
thing" for even if the economy collapsed, as was widely
predicted, the price of gold would rise as the dollar became
Stocks generally, were viewed as a dying asset class in
1980... one that was given last rites by the classic
Business Week cover of a couple years later... the very
bottom of the market... "The Death of Equities."
It was hard not to recall these things as I saw many of my
old friends at the party, many of whom you may know, if not
in person, by reputation.
Jim Davidson was there. So was Lynn Carpenter. I have known
both of them from childhood. We all failed to grow up
together. Jim has grown a little more distinguished looking,
and a lot richer. But otherwise, I wondered how much had
Jim and I got together with Mark Hulbert to launch the
Hulbert Financial Digest, back in 1978. That was the
beginning of our publishing business. We were curious about
what kind of investment advice really paid off. We thought
investors would be too. Mark Hulbert, a student of
philosophy whom Jim had met at Oxford, took up the project
with enthusiasm and continues to do it even now.
In 1980, our contrarian instincts told us that gold and
natural resources were probably overbought. Doug Casey
predicted a bull market in stocks in the early 80s. Gary
North even recommended buying Microsoft in 1986 - an
investment that turned out to be the call of the decade.
Still, we were all "gold bugs" - more or less. We were
convinced that inflation would destroy the dollar, bonds and
the stock market - it was just a matter of time! And maybe
it still is. But in the 20 years since, gold did not rise.
Not $100. Not $10. Not $1. Not even a penny. Instead, it
fell - in real terms - by about 80%. The dollar did not move
into Weimar-style hyperinflation. Inflation declined. The
federal budget deficit did not fly out of control. It turned
into a surplus. Stocks did not die. They enjoyed the
greatest growth cycle ever...
And here we are - Christmas, Anno Dominus, 2000. Richer?
Maybe. Wiser? We can hope. Older? Definitely.
"Mishter Bonner," said one young woman, in a red velvet
dress, late in the evening, slurring her syllables a bit,
"I've wanted to say this to you for a long time. I love this
company. I mean it's great."
She was standing near the fireplace in the front room, with
the Christmas lights adding a glow to her cheeks. I had just
finished my annual ritualized humiliation. Thom had invited
me to join the band. I sang the lead to that Christmas
morning classic, "You Can't Always Get What You Want." I
couldn't quite remember the words...or the music. But other
than that I'm sure my performance was smashing.
Holding a drink in her hand, the young woman looked like
someone I had seen in a liquor ad. Who was she? I didn't
know. Someone's wife? Someone's girlfriend? An employee in
the accounting department?
"But y'know something... there's just one problem..." she
"Oh?" I replied, Fezziwigishly.
"C'mon..." she continued, "I mean, no offense, but this
business sucks. Newsletters are gonna be out of business
soon. Everybody's giving away information on the Internet.
Like, you can get, I mean, like all you want."
"Oh no, " I reminded her, "you can't always get what you
want. And you definitely can't get all you want of it."
Then, worried that I had placed an obstacle in her path...a
puddle of repartee she couldn't cross gracefully...I laid
down my cape:
"Tell me more..." I said, honestly. I wanted her to go on
talking. She was talking nonsense, but a man never tires of
nonsense from a beautiful woman.
While this was happening, Ebenezer was being set upon too.
But his was no earthly beauty. No beauty at all... in fact.
"Come with me," said the spirit. "I am the ghost of
Christmas Present. Look upon me. Touch my garment."
Ebenezer did so and instantly found himself flying through
the streets of Baltimore. Even from what seemed like
hundreds of feet up in the air, he could hear the music
blaring on Mt. Vernon Square. "What a strange time for a
rock concert," he muttered to himself.
Christmas lights were run up the tower of the monument to
George Washington and caused the whole square to glisten
But the ghost did not pause. He continued his flight across
Charles Street and over to East Baltimore. Finally, he
stopped in front of a modest row house.
"What is this?" asked Ebenezer of his guide.
"This is a house."
"Yes, I can see that," Ebenezer pursued the issue, "but why
are we here?"
"That is for you to answer," replied the phantom.
Ebenezer looked in the window. It was a very modest house,
of the sort you could have bought with a few shares of Cisco
a year ago. Now it would take twice as many shares.
And there was a family... and yes... he recognized now where
they were. This was the house of his old trading partner,
Bob. He had not seen Bob in 15 years - not since the two of
them split up after their hedge fund went bust.
Poor Bob, he had given up investing altogether and gotten a
job at a mining company. Silly bugger, thought Ebenezer, he
saved his few pennies and bought gold coins. He probably has
hundreds of them buried in the yard. Not worth the trouble
of digging them up.
And he could have bought growth stocks..
Bob's wife and three daughters were talking in the front
room. How pretty the girls were. And so full of life.
"Martha," said Bob's wife, "Dad will be so glad to see you.
We have so much to do to get ready for Christmas. But sit
down in front of the fire. It will be so nice... now that
"Oh... there's Dad's car," said another of the girls, with
red, curly hair like that of a doll, "Hide, Martha! Let's
So Martha hid herself, and in came Bob. And there upon his
shoulder was Tiny Tim. Alas, he bore a little crutch, and
had limbs supported by an iron frame.
"Not coming," said Bob, with a sudden declension in his high
spirits; not coming for Christmas?"
Martha didn't like to see him disappointed, if only in jest;
so she came out from behind the closet door and ran into his open
"Oh there you are! I knew you wouldn't disappoint us. It
wouldn't be Christmas without you and all the children."
"And how did little Tim behave in church," asked Bob's wife.
"As good as gold," said Bob, "and better. Somehow he gets
thoughtful, sitting by himself so much, and thinks the
strangest things you ever heard. He told me, coming home,
that he hoped the people saw him in the church, because he
was a cripple, and it might be pleasant to them to remember
upon Christmas Day, who make lame beggars walk, and blind
Ebenezer could barely suppress a "humbug." For he knew there
were advances coming in the biotech and microtechnical
sectors that would cure cripples and blind people. He had
seen the IPOs go up by 10 times. It was just a matter of
time until all of life's inconveniences were done away with.
And anyone who cared to could be rich too - they just had to
stop being so stupid and stubborn, like Bob. Get with the
program, for Pete's sake.
The evening dinner progressed, with Ebenezer and the ghost
watching. The table was set, the whole family seemed in
motion. Everybody had something to do... and something to
say, well, about everything!
And such merriment!
"A wonderful dinner," said Bob to his wife. "And the pudding
His wife confessed that she had doubts about the pudding.
Even in a low-inflation world, Christmas puddings can be
expensive. And, in truth, it was a rather humble pudding,
Ebenezer thought, for such a large family. He had seen that
much left on the used plates at the Deutsche Bank/Alex Brown
party the day before.
But no one said a word to suggest that it was a small
pudding. Any member of the family would have blushed to hint
at such a thing.
And when it was over, the cider was brought out and passed
around. Bob proposed a toast: "A merry Christmas to us all,
my dears. God bless us."
Close by his side sat his son, Tim. Bob held the withered
hand in his, as if he feared the boy might be taken from
"Spirit," said Ebenezer, with an interest he had never
before felt, "tell me if the boy will live." Even with all
the advances of medical science, Ebenezer somehow sensed
the answer was by no means certain.
"I see a vacant seat," replied the Ghost, "in the poor
chimney-corner, and a crutch without an owner. If these
shadows remain unaltered by the Future, the child will die."
By the time the ghost of Christmas Present left Ebenezer our
own Christmas party was coming to a close. The guests were
leaving, one by one, and in small groups. Arm in arm, many
of them made their way up to the top floor of the nearby
Belvedere Hotel where they continued to enjoy a night of
good cheer - until the night itself was used up.
But I was worn out and retired to my small apartment around
midnight. In less than 10 minutes, I was asleep in my bed,
with visions, perhaps not of sugar plums but maybe of some
kind of plums, dancing in my head.
Around about 4 AM - I looked at the clock - my sleep was
disturbed. There was a tremendous racket on the steps. What
ghosts were these I wondered?
P.S. I will conclude this story on Monday - Christmas Day.
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
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" (Timothy)
" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor" (Makram)
"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
Copyright � 1998-2002 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited. 'Tulips and Bears' is a registered trademark of
Tulips and Bears LLC
Last modified: April 01, 2001
Published By Tulips and Bears