*** A backlash against Wall Street...Blodget, Meeker...and
*** Phillip Morris is smokin'...Amazon is
choking...Women.com is croaking...and, of course, more!
*** The Santa rally continued yesterday. The Dow rose 111
points. The Nasdaq climbed 43.
*** The Dow looks pretty good. Twice as many stocks rose as
fell - 2048 to 908 - on the NYSE. And it is widely believed
that a rate cut by Mr. Greenspan in January will put stocks
back in growth mode.
*** So, it is possible that the index will continue to go
up, for a while at least. My guess is that the Dow will be
undermined by a sinking dollar, falling earnings,
bankruptcies and recession. Greenspan will cut rates... too
little, and too late... But all of this is in the future.
*** Speaking of which, it is almost time for our Daily
Reckoning Predictions for 2001. Stay tuned...
*** One of the predictions offered by Mark Gilbert, a
Bloomberg columnist, is that there will be a "backlash
against analysts." People will want to know why Henry
Blodget, for example, maintained a "buy" on Amazon.com as
the stock fell 85%...and then switched it to a "near term
accumulate." They'll also be curious as to why Mary Meeker
gives eBay an "outperform" rating, when the stock is clearly
in a dead heat with AMZN and others for the title of one of
the most dreadful disasters of the year. Is it because they
really believe their own hype? Or because their corporate
finance departments would nail their hides to the wall if
they told the truth?
*** One of the best-performing stocks on the Dow this year
has been Phillip Morris, which rose to $45.25 yesterday. I
am happy to point this out because I suggested the tobacco
company to you early last year - when people were sinking
every available penny into the big techs and MO was
*** While most stocks did well yesterday, the Internets
continued their decline. TheStreet.com Internet index fell
another 4%. Network Associates, a company specializing in
software protection, fell 61% after announcing a loss for
the 4th quarter of $130 to $140 million.
*** Yahoo! and Amazon also lost ground. AOL dropped to its
lowest level since Feb. '99...and Cisco - at $40 - has given
up more than a year of stock gains.
*** The Index of Leading Economic Indicators fell 0.2% in
November, after a 0.3% decline in October. It has fallen in
6 of the past 11 months.
*** "Heating Fuels Soar as Frigid Weather Blankets Northern
U.S." a Bloomberg headline reports. The cold weather has
turned natural gas stocks hot. Is it time to sell them?
*** And this cheerful item from the San Jose Mercury News:
"Nasdaq reflects road to '29 crash analysts warn." The
article compares the Nasdaq of the last 5 years to the Dow
of the five years running up to '29 and remarks on other
*** Nasdaq losses have already taken $3 trillion out of the
economy. Bringing the index back to a more comfortable P/E
of 40 (or about twice the Dow P/E) would mean a drop of
about 60% from current levels - or about another $2 trillion
of nominal wealth.
*** Could the Nasdaq collapse on its own - while the Dow
remains relatively untouched? Not likely. The stock market
IS the economy. $5 trillion in losses cannot be ignored.
That amount equals about $50,000 per family. People cannot
take that kind of loss without changing their spending
habits. They will buy fewer, cheaper goods and services -
and postpone major outlays until things begin to look
better. When will that be? Hmmmmm...
*** Here's a hint from the dark side of the planet -
"Japanese Gloom Deepens." After 11 years of a bear
market/deflation/recession, earlier this year economists had
begun to think Japan was on the road to recovery. Alas,
consumer prices have fallen about 1% in 2000. The Tokyo
stock market is very near its 1998 low...and yesterday, it
was announced that industrial output fell 0.8% in the month
*** What's wrong with the Japanese? Have they no central
bank? Have they no knobs to turn, no pedals to push, no
levers to switch? Maybe the principles of economic
management don't work east of the Urals...or West of
Honolulu? Or maybe an economy is not quite as simple a
machine as most economists and investors seem to think.
*** The dollar bounced very slightly yesterday. Remember,
the 10- to 15- year cycle that has favored dollar-
denominated assets has come to an end. It is time to switch
to anti-dollar investments.
*** The poor yield curve! It is "inverted." Should it get
out....make some friends...have some fun? Nope. What this
means is that short-term loans are cheaper than long-term
ones. This is an anomalous situation - which has been a good
indicator of coming recession. Normally, and reasonably,
people want a higher interest rate on longer-term lending.
The longer the term, the more that can go wrong. So, lenders
expect to earn a higher rate of interest on longer-term
loans to make up for the additional risk. When short term
rates go higher than long ones, it means that credit is
getting tight...with lenders unwilling or unable to make
loans. They may be happy to lend the U.S. Treasury money for
30 years at 6% - because they can be reasonably sure the
treasury is good for the money. But they're not so sure
about corporate 30-day notes.
*** My friend John Mauldin reports that the yield curve has
never been more inverted than it is now. "There should be no
denying," adds Doug Noland of the Prudent Bear recently,
"that we are in the midst of an historic and systemic
collapse in credit quality."
*** The season, here in France, has been very mild. But this
morning, we awoke to a dusting of hoarfrost. And Mr. Deshais
tells us that it is expected to snow tomorrow. The kids are
In a Private Room at the Four Seasons Hotel in Las Vegas -
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In the early stages of the Internet bubble, we all had many
chances to get rich.
One of them came to me in the form that was both especially
absurd and especially promising.
"You gotta get in on this," said a friend of mine, a partner
in a major investment bank. "This can't miss." My friend is
no fool. He was not suggesting a buy and hold
investment...but a buy and dump speculation.
But, alas, I decided to stick to my value investing, stick-
At that stage of the blossoming mania, the most promising
business plan buds were those of websites that would attract
the largest number of eyeballs and sell the greatest amount
of advertising. And thus did some shrewd hustler notice that
a little more than half the eyeballs of this world belonged
to a group of people theretofore relatively ignored by the
techno geeks and slightly addled sci-fi prophets.
Of course! The concept was almost irresistibly preposterous.
Soon, women would spend hours on womens' sites - kvetching
about the men in their lives...exchanging
recipes...retelling sad stories of their diets and skin
tightening...their relationships...their bosses and co-
workers. And all the while, they would be buying
things...directly from the site....cosmetics, vacations,
clothes, insurance...you name it.
If ever there was a winning concept in the dot.com mania
world, this was it. And if ever there was a winning concept
in the business world, this was not it.
For the only thing that would supposedly attract women to
this site - rather than to any of the thousands of others
that might provide more specialized attention - was that
they were not men. The winning concept in business is to be
able to identify a particular group and provide them with
goods and services better than anyone else. The losing
concept in business is to try to sell everything to
everybody - with no competitive advantage in any niche. And
the Internet was supposed to amplify the need for
specialization - making it possible to segment the market in
smaller and more particular ways.
Women are not `everyone.' But they are every other one. And
yet, here was a proposal whose business premise was nothing
more than the idea that the distaff half of the human race
would be happy to do their inter-networking on a
condescending site which identified them purely on the basis
of their fair sex.
"You've got to be kidding," I replied to my friend. "There
is no way that will ever work."
Until about two years ago, it was customary for venture
capitalists to fund start-up enterprises until they proved
themselves. A company was expected to have at least three
years' of profits and growth before it went public. Until
that time, the VC investors took big risks - but they
watched their investments closely and stood to earn huge
profits if they succeeded.
But as the Internet mania flowered, the investment banks
discovered that they could take companies public even
without proof that the business models worked. Morgan
Stanley collected $2.6 million in fees for laying Women.com
shares on their clients at $10 a share near the end of 1999.
Goldman Sachs did even better selling Candace Carpenter's
Ivillage shares at $24 apiece in the first offer... and then
a secondary offering at $28 each.
A few months after Women.com went public, the $50,000 in
seed capital I might have invested in the project was worth
about $5 million. In this case, as in so many others, I
missed my chance to get rich.
But now, yet another 9 months have gone by, and Bloomberg
columnist Christopher Byron updates us on what happened:
"In the last year, the financial underpinnings of these two
companies - propped up with IPO money from the latter stages
of Wall Street's great dot-com investment bubble of the
1990s - have all but collapsed, with both concerns now
looking, for all the world, to be in a flat-out race to
extinction. Coming down the home stretch, it is almost
certain to become a photo finish."
Women.com was worth almost $1 billion a year ago. Since
then, the company has lost 98% of its value. Ivillage stock
has sunk 97%. It too was worth nearly a billion dollars at
the peak of the Internet mania. Now, it has a market value
of $22.3 million.
Neither company has much to show for all the money they've
spent and all the hype they've generated. Each has some cash
left, but that is about all. Byron calculates that Ivillage
should have a book value - based on the cash in the till -
of no ore than about $1.50 a share. Women.com has less than
half that amount. They are each burning cash at the rate of
$10 million per quarter...and both are expected to run out
of money before the end of 2001.
The business model turned out to be as comic as it first
appeared. Women.com's revenues are falling - with only $8.9
million in the most recent quarter. "At that rate," says
Byron, "Women.com will, for all practical purposes, be
generating almost no revenue at all by June. Meanwhile, its
losses keep widening, from $15.5 million in the three-month
period ended in March, to $30 million in the September
Ivillage is not doing much better, when you look behind the
numbers, says Byron. The company "is now drowning in charges
and write-offs. In 1999, the company bought a bunch of
women's issues-type Web sites for $156 million in mostly
IVillage stock, then wrote off roughly $25 million of it as
goodwill. Now, it has written off almost all the rest - some
$98.1 million in all - as being basically worthless."
But Candy Carpenter may have gotten another opportunity to
make some money on the Ivillage concept. According to Byron,
British supermarket chain Tesco has given her $20 million to
start up an Ivillage site in England.
Bully for Ms. Carpenter! But soon, investors may be asking
Goldman Sachs and Morgan Stanley how come they sold shares
in companies that were obviously hopeless.
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Last modified: April 01, 2001
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