*** Biggest Nasdaq increase ever...
*** More IPOs for this week...for those with money to
lose
*** Is the correction over?
*** It was a rollicking, frolicking day on Wall Street
yesterday. Investors, brokers, fund managers and analysts
arrived back at their desks bright-eyed and bushy-tailed
after a three-day weekend spent in quiet contemplation of
the poor grunts who died in trenches, foxholes and bombed
out buildings.
*** Among those returning to work was Dan Niles, formerly
with Robertson Stephens and now with Lehman Brothers, who
announced that the average memory/box of business
computer systems would increase from 90 megabytes to 128
megabytes before the end of the year. What's more, he
predicted a shortage in the DRAM industry.
*** I love this tech talk. It makes me feel so modern, so
with it...so in-tune with all that is new and exciting.
*** Investors must have loved it, too. For they came into
the market yesterday with bulging wallets determined to
buy something...anything.
*** The Dow rose 227 points...or 2.2%. The Nasdaq posted
its biggest single-day increase in history -- rising 254
points or 8%.
*** More than twice as many stocks rose as fell on the
NYSE - 2,018 to 920.
*** The S&P lost 6.2% so far this year; its worst
performance for this period since 1984. And after four
straight weeks of falling prices -- on the Nasdaq and S&P
500 -- investors were ready for a little relief.
*** "People are over the shock of the Nasdaq's correction
and are ready to roll up their sleeves and put some money
to work," said a Warburg analyst.
*** Is the correction over? Or is it just beginning? Only
time will tell. But a rising market only increases the
odds of further rate hikes by the Fed. Bonds went down
last week -- probably in expectation. But rate hikes
alone probably won't deflate a bubble. What will? See
below...or check out "When Do Investment Bubbles Burst?"
*** Most likely, we've just witnessed another rally in a
major bear market. But there were so many hopes attached
to the bull market dream -- they won't be given up
easily...again, see the "Persistence of Dreams," below...
*** Ominously, a headline on a Reuters report tells us
that the "Dollar on Defensive Despite Wall St. Rally."
The euro has risen to 93 cents. Foreign money -- and
perhaps quite a bit of domestic money, too -- is
suspicious of America's financial future. A crash on Wall
Street will cause the dollar to collapse. A collapse of
the dollar will cause Wall Street to crash. Or is it the
other way around?
*** Volume remained fairly low -- despite the soaring
prices. This low volume is killing the e-brokers.
Ameritrade has fallen 82% in the last six weeks.
*** Yesterday's rally couldn't have come at a better time
for the eight companies scheduled for IPOs this week. Red
Herring reports: "...the smallest, Urban Cool Networks,
...still plans to raise $20 million by selling 2 million
shares at $10. The planned offering...would give Urban
Cool a cool $62 million market value. Urban Cool's Web
site calls itself `a leading Internet technology and new
media company.' So much for the hyperbole; now the
reality: the nine-person company's filing with the
Securities and Exchange Commission shows $12.6 million in
losses and no revenues during Urban Cool's two-year
operating history. At the end of March, the company was
down to its last $165,000 in cash and had negative $1.1
million in working capital, which includes such things as
accounts receivable, inventory and other current assets.
The last time a company with the word `cool' in its name
went public was May 19. Coolsavings.com (Nasdaq :CSAV)
priced at $7, hit a high of $7.12, and headed south,
settling at $4.50 on Friday."
*** Meanwhile, "Karl Marx championed the graduated income
tax," writes Bill King, "U.S. comrades perfected it.
Friday's "FT" reports the Russian cabinet approved a 13%
flat tax for Russians!!! The cabinet believes this will
increase tax collection, as tax evasion is a huge problem
there."
*** According to the BBC, people who run e-businesses in
England are being paid 40% more than their peers in the
"Old Economy." They are also "67% more likely to receive
general loans at low interest rates, 50% more likely to
receive car loans, 33% more likely to receive mortgage
subsidies and 20% more likely to get flexible benefits."
*** Mike Palmer of International Living
tells me the
Schiphol Airport in Amsterdam is going to get a great
deal friendlier soon. "One of Amsterdam's most popular
bordellos, the Yab Yum, is suing the Schiphol Airport for
the right to open up in the airport. Yab Yum wants to
provide hors d'oeuvres and 'massages' for travelers with
long layovers."
*** The Real France? Interested in knowing what it's
really like living, working and raising children in
France? Elizabeth, my wife, is jumping headlong into the
Internet age, and hosting a live forum this Saturday,
June 3rd a 1pm EST. By the way, there are still spots
available on the IL tour group that is staying at my
house the last week in June...
(http://www.internationalliving.com)
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A few years ago, Hillary Clinton proposed a "politics of
meaning." She was hoping that politics could give meaning
to your life and mine, as it has for her.
We, too, might be enlisted in the campaign to build a new
and better world. And, with such weighty cares and high-
minded visions before our eyes, we might be able to
ignore a few cattle trades.
In the `30s and `40s, there were few politicians anywhere
in the world who could resist the allure of the New Era.
The only question was which strain of this new hokum --
Nazi or communist -- they would choose.
"Next to Hitler, Mussolini and Stalin," wrote the Jesuit
scientist and philosopher, Teilhard de Chardin,
ecumenically, "don't you see that Churchill...[is]
grotesquely antiquated?...Personally, I stick to my idea
that we are watching the birth, more than the death, of a
World..."
It was hard to imagine an English victory over the
Germans in May 1940. What's more, to most intellectuals
of the time, such a victory was not even desirable --
because it would hold back the New Era for which they
dreamed.
Believing in an English triumph, wrote Teilhard de
Chardin, "is like someone who in 1900 had prophesied the
victory of China, with its mandarins in pigtails and jade
buttons, over the Europeans with their motors and
cannons..."
"Peace," he went on, "cannot mean anything but a HIGHER
PROCESS OF CONQUEST...The world is bound to belong to its
most active elements. Just now, the Germans deserve to
win because, however bad or mixed is their spirit, they
have more spirit than the rest of the world."
Those dreams of a dynamic new world were hard to stop.
They filled hollow lives with ersatz meaning. They
changed behavior -- thus, actually creating a new world.
But this new world was ghastly. Regimes in both the
Soviet Union and Germany were abominations. A few
intellectuals and contrarians resisted or fled. But the
New Era dreams persisted until they were utterly
exhausted. Germany had to be pulverized and practically
flattened -- by the combined efforts of the largest and
most heavily armed forces in history. And the Soviet
Union put up with malign communism for a period of seven
decades until the economy was so hollowed out, and the
military so weak, that the entire system simply
collapsed. Last week, by the way, marked the anniversary
of a small event which helped to bring down the entire
Soviet regime. Mathias Rust, a West German teenager, flew
a small plane from Finland all the way to Moscow --
landing on Red Square. His plane was never challenged by
Soviet air defenses. Mathias, who had done the Soviets an
immense service, spent nearly two years in jail.
Even today, as the book by Revel, "La Grande Parade,"
reveals -- apologists for Bolshevism try to keep the
dream alive -- arguing that a "pure form" of communism
could succeed, even though every attempt to apply it,
anywhere in the world, has been an appalling failure.
It is not logic, reason nor even observation that brings
a mania to a close -- it is exhaustion. A mania has to
run its course. It has to be obliterated, annihilated,
crushed and completely destroyed. People do not give up
on their dreams easily.
So how will the dream of the New Economy finally end?
Marc Faber takes up the question in a recent issue of his
"Gloom, Boom and Doom Report." There are two schools of
thought, he says, one "believes that it is only a matter
of time before money shifts back into the "Old Economy"
stocks, which could lead simultaneously to a decline of
the Nasdaq and a rise in the Dow."
"Another...holds a less sanguine view. A sharp break in
the Nasdaq would lead to widespread losses and have very
negative financial and economic ramifications. This
school holds that a Nasdaq crash would not only bring
down all high-tech stocks, but lead to lower stock prices
altogether."
Faber points out that "rising interest rates alone hardly
ever deflate bubbles." In fact, he argues that rising
rates can actually "fuel the bubble," as investors shift
money from low performing sectors to more promising ones.
"...[S]peculators will jump," he writes, "nervously, from
one group of stocks to another in the hope of maximizing
their gains...Furthermore, at the end of the bubble,
additional buying power is increasingly financed with
credit. (Margin debt in the United States increased by
$83 billion, or at an annual rate of over 130%, between
November 1999 and February 2000.)"
"What eventually pricks the bubble is not so much the
price of money as its availability," says Faber.
Until the money disappears -- that is, until the fuel is
exhausted, the mania continues. "Like a virus," Faber
suggests, a bubble is "extremely resilient...Frequently
they also mutate rapidly."
"Bubbles don't occur at the beginning of an economic
cycle," Faber explains, "but rather, at the end. In other
words, bubbles mark the climactic end of an expansion or
a trend that has been in place for a very long time.
Therefore, it takes much more than just moderately rising
interest rates to reverse people's expectations. Since
the boom or the trend has lasted for so long, it is
perceived as a permanent one. Confidence becomes very
hard to shake."
After the price of gold fell 50% in January 1980, faith
in the yellow metal remained so strong that investors
continued to see every subsequent drop as a buying
opportunity -- up until the late `90s!
Faith in gold, however, reached almost messianic levels
in the late `70s. But is faith in technology any less
strong?
(I noted with amusement that J. Taylor's newsletter -
"Gold and Technology Stocks" -- mentioned here yesterday,
used to be named "Gold and Gold Stocks.")
"Similarly," writes Faber, "the first decline in the
Japanese stock market in 1990 was perceived as a
correction and a great buying opportunity and accounted
for a strong rally in the spring of 1990."
Of course, the crash in 1929 was also seen by many as a
buying opportunity. The most celebrated American
economist of the time, Irving Fisher, wrote before the
crash, with more alliteration than accuracy, that the
U.S. economy had reached a "permanent plateau of
prosperity." After the crash, he still refused to give up
on the dream, writing that the "panic was technical in
its character and largely artificial."
"For the immediate future," wrote Fisher in the last
sentence in his book, "The Stock Market Crash -- and
After," which was written in November '29, "the outlook
is bright."
Dreams persist. But not forever. "In my opinion," Faber
concludes, "there is only one [thing]...that permanently
reverses investors' excessively optimistic
expectations...and that is `a meaningful and enduring
loss of capital for the majority of investors with no
hope of recovery.'"
Exhaustion. That is what we have to look forward to.
Bill Bonner
P.S. We're leaving for the country tonight. I found out
that Addison is a finish carpenter...so I invited him for
the holiday weekend. We'll write.
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