*** Boo! Europe's first major dot-com disaster
*** The Greenspan Fed is locked-in to a course of
action...
*** The "Most Outrageous Housing Deal"
*** "Boo!" That's the news that greets U.K. investors
this morning. Boo.com, described as an online sports
retailer, became the first major Internet casualty in
Europe. The company was worth more than $400 million last
year at this time. But that was before it spent the $135
million it had raised.
*** "We have not had control of costs," explained the
CEO, with perhaps a bit of English understatement. The
dot-com was spending money at the rate of $1 million per
day. London's major stock index, the FTSE, fell 122
points.
*** Meanwhile, "Alan Greenspan is locked-in to a course
of action," explained "Strategic Investment's" Lord Rees-
Mogg to me yesterday. "He has to continue increasing
rates until he breaks the bull market psychology. Until
he does so, consumers will keep spending too much, and
investors will seize upon every piece of news -- good or
bad -- to take stock prices up to ridiculous levels."
*** The fever has to be broken. Otherwise, inflationary
pressures keep building. The economy "overheats" --
increasing spending and the demand for labor. And/or the
stock market continues to create new "wealth." The supply
of money increases, in other words, or the demand for it.
Either way, it's inflationary...
*** Investors must have awoken yesterday morning and
realized that continued rate increases would not be good
for stock values. Duh...
*** The Dow sold off by 164 points. The Nasdaq -- which
many people believe is immune to interest rates -- fell
72 points.
*** The dollar was up against the euro. Euros are now
below 90 cents each.
*** Is a bear market anything to worry about? So what if
stock prices go down for a while? Richard Russell
(http://www.dowtheoryletters.com) provides an insight:
"Prof. Robert Shiller's new book, `Irrational
Exuberance'... shows four extremes in price/earnings
ratios going back over history. The first occurred in
1901 when P/E ratios rose to approximately 25. The second
was 1929 when P/E ratios rose to about 33. The third was
1966 when P/E ratios rose to about 24. And the most
recent was this year when P/E ratios rose to roughly 44.
"The aftermath of the first three instances, 1901, 1929
and 1966, was that the total real (inflation-adjusted)
returns AFTER HOLDING FOR 20 YEARS for investors in
stocks was -.02 for those who held stocks after 1901. It
was 0.4% for those who held their stocks after 1929. And
it was 1.9% for those who held their stocks following
1966.
"The implication is that for those today who are holding
and will continue to hold their stocks for the next 20
years, there will be little or no real return. The
reason: you are holding stocks today that are
ridiculously overpriced based on all historical
experience. It will take the next 20 years for earnings
to catch up to today's prices."
*** "Since mid-April, oil and other commodities have
surged," notes Bill King. "A new round of inflation will
appear as gasoline, oil, food and industrial commodity
prices are much higher. Unless they tank in the next two
weeks, May PPI & CPI will be substantially higher..."
(To subscribe to Bill King's daily e-letter, call 1-800-
433-1528 and ask for code 3457.)
*** But April's CPI, which came out a couple days ago,
showed low inflation. "How did BLS get a benign April
CPI?" asks King. "They got energy -1.9% with heating oil
-4.8%, gasoline -4.1%, apparel -0.5% and transportation -
0.7%, the biggest decline in three years. They limited
electricity to +0.2% and housing to +0.1%. Heating oil
was 64 cents in the beginning of April. It fell to 60
cents on 4/11, then rose to 66 cents. Gasoline started
April at 78 cents, fell to 72 cents, then surged to 80
cents. Electricity was similar to heating oil except is
rallied even more sharply due to the unseasonably warm
weather in the East. BLS apparently sampled prices on the
low day of the month...Housing costs are totally bogus."
*** One Internet columnist in California has begun what
he calls "The Most Outrageous Housing Deal contest" in
which he invites readers to send in examples that
illustrate the mania in the S.F. Bay area. As imagined,
"the hills are alive with deals that have rocked people
back on their heels." For example: "There's...a four-
bedroom house in Presidio Heights that was listed for
$2.4 million. It sold for $5 million."
*** Then there's: "A prominent local businessman, known
for his generous philanthropy, was at his Atherton home
one recent Friday when the doorbell rang. A real estate
agent was on the porch and said he had a client sitting
in the car at the curb. The client wanted to pay $25
million for the businessman's home. But the businessman
said he wasn't interested in selling, hadn't even thought
about selling. `Take the weekend to think it over,' said
the agent. When the agent returned on Monday, the offer
was $45 million."
*** The front page of "The Times" says that Bill Clinton
is considering returning to Oxford -- his old alma mater
-- to teach.
*** And Cherie Blair, the wife of the prime minister, was
rushed to the hospital yesterday. She is expecting a
child any day...the first prime minister's wife to have a
baby in 150 years.
+ + + + + +
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