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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

PARIS, FRANCE 
FRIDAY, 22 DECEMBER 2000 

 

Today:  The Ghost of Christmas Present

*** Santa comes to Wall Street...bearing presents...or lumps 
of coal?

*** Investors discover earnings...7 fat years for value 
investing ahead?

*** Plenty of room on the downside...for stocks...and the 
dollar... A mass exodus from Paris... Sympathy for Flatiron 
Partners...and more.

*** '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 
cut. 


*** 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 
declined.


*** "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 
traffic jam.


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THE GHOST OF CHRISTMAS PRESENT 


"Fezziwig, not Scrooge." 


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 
evening. 


It seemed as though everyone had the same idea for Friday 
night.


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 
paupers. 


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 
worthless. 


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 
really changed. 


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 
went on.


"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 
festively. 


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 
you're here." 


"Oh... there's Dad's car," said another of the girls, with 
red, curly hair like that of a doll, "Hide, Martha! Let's 
surprise him." 


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. 


"Now, where's our Martha," asked Bob, looking round. 


"Not coming," said his wife. 


"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 
arms. 

"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 
men see." 


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 
was sensational." 


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 
him. 


"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? 


Bill Bonner


P.S. I will conclude this story on Monday - Christmas Day.
 
 
 
 
About The Daily Reckoning:
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Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
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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
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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

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