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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  A River Runs Through It

*** 50% level fails to hold...Greenspan's trap
*** Has the dollar finally topped out? Has gold bottomed?
*** People are traveling more.

*** Can the Dow hold above the critical 50% retracement 
level? No. The Dow fell 79 points yesterday, bringing it 
back down below 10,759. If it cannot climb back above that 
level, and stay there, it suggests (at least to Dow 
theorists) more falling prices ahead. 

*** Of course, more falling prices is what we expect 
anyway. Lacking any better explanation, we should assume we 
are working our way down from a very great financial 
height...with lots of dangerous cliffs, rock slides, and 
snowfields to cross. One way or another, we'll end up in 
the valley below. You just want to try to avoid losing your 
life savings in the descent. 

*** Every major bull market sector and indicator has topped 
out. The latest is the dollar itself, which seems to be 
falling against every major well as its non-
paper competitor, gold. The greenback, recently at over 7 
francs, bought 6.9 francs on Monday...and only 6.87 

*** The Nasdaq fell back yesterday, too - 65 points. The 
decline is being blamed on remarks by two separate Fed 
officials - Robert Parry in San Francisco, and Laurence 
Meyer speaking to the Boston Economic Club in Boston. Both 
officials warned that the Fed - after 6 hikes, and a total 
of 1.75% in increases - may not be finished.

*** I remembered Lord Rees-Mogg's comment in London last 
month. He said that the Fed was "locked in" to a course of 
action it could not alter. Greenspan considers dangerous 
inflation to be a level of price increases sufficient to 
change peoples' behavior. Though he says he's not targeting 
stock prices, it is precisely the bullish sentiments of 
investors - the persistent dreams and stubborn optimism 
that I have described in these letters - that cause them to 
be so carefree with their money. 

*** If you can borrow money at 8%...and make 15% (minimum) 
in stocks - what is the rational thing to do? Borrow. 
Spend. Invest in stocks. The Fed cannot reverse this 
bullish bias until it has crushed investors' exaggerated 

*** Meanwhile, bad news is good news. Every hint of a 
slowing economy...weaker sales...rising 
unemployment...lower cause for hope that the 
Fed may not need to tighten any further. 

*** Gold rose $3.60. But just as stock investors are 
stubbornly optimistic, gold investors are obstinately 
pessimistic. The gold producers barely move.

*** Despite lower indexes, 1521 stocks advanced yesterday, 
compared to only 1391 declining. 48 stocks hit new highs; 
only 30 hit new lows.

*** So, it was another crazy, mixed up day. 

*** "Despite far more sluggish economic growth and near-
zero interest rates in Japan," says Dr. Kurt Richebacher 
"the yen has rocketed back in the currency markets, even 
against the super-strong dollar." Foreign investors believe 
that Japan, ten years after the bubble burst, must surely 
be on the mend. Au contraire, Richebacher says... 

*** Kathleen Peddicord, Editor of International Living, is 
visiting. So she, Addison and I went out to the Brasserie 
Lipp on Blvd. St. Germain for dinner. The place - made 
famous by Hemingway - was full of Americans. They seem to 
be filling up every restaurant and caf� on the Left Bank. 

*** "People are traveling more," said Kathie. Why? Weren't 
electronic communications supposed to make travel less 
necessary? "The Internet has the funny effect," said its 
co-founder recently, "of increasing the amount of travel." 

*** The funny effect results from the need people have not 
merely to write to one another - but to communicate. 
Written expression is only a very narrow, limited part of 
communication. People need to see each other, to hear them 
speak, to see how they react, how they dress and how they 
sweat and stutter. They need to talk casually - and 
spontaneously. In the give and take of a real conversation, 
you learn things that you would have never thought to ask.

*** What else is worth reporting? Well, today is the 
anniversary of the crowning of Louis 14th, The Sun King of 
France, in 1654. More important, Anna Kournikova, the 
Aphrodite of the tennis courts, the Princess of 
Pulchritude, turns 19.

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Hedge fund hotshots and value gurus have been fleeing the 
market left and right. Which means, it's time to buy value
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A River Runs Through It

How much is really worth?

Analysts and investors have speculated about Amazon for 
years. The stock was thought to be worth $113 last 
December. Yesterday, investors seemed to think it was worth 
less than half that amount, down almost $4 from the 
previous day.

The value of a stock is determined, ultimately, by the 
stream of earnings it will produce. Even Internet stocks. 
"Valuing dot.coms," says a recent report by consultants at 
McKinsey & Co, "...the best to return to economic 
fundamentals with the [discounted cash flow] approach."

But Amazon, the great big river of Internet reverie, 
produces no stream of profits. Not even a trickle. It is 
hard to discount a flow of cash that doesn't exist.

And yet, it was the non-existence of cashflow that made 
AMZN and so many other Internet companies so attractive. 
Lacking facts, investors were left to use their 
imaginations. Cashflow could be anything you wanted it to 
be. This week, Barron's described how one analyst, Jamie 
Kiggen, with Donaldson, Lufkin & Jenrette, used his 
imagination to come up with a 'target price' for Amazon of 
$140 a share. Yet, as we will see, Jamie was not merely 
imagining - he must have been hallucinating.

I have written about Jeff Bezos' creation,, 
often. The company has moved through the entire landscape 
of InternetLand mania, like a man selling replacement 
windows through a poor neighborhood. From the glacial melt 
source...high in the Andes of technological innovation and 
speculative the murky depths of the 
Gildered Age and the absurd pretentions of the Cluetrain the bug-infested jungle of competition and 
creative the frauds of the first mover 
advantage and hedonic price the myths of the 
New Man, New Economy, New Metrics and New Era...right down 
to the delta of washed out dreams, where all these hyped-up 
humbugs eventually settle in the mud...

The great big, river of no returns, runs through 
it all. 

And never, during this entire spell of absurdity, inanity 
and chicanery, could anyone say with any assurance what the 
company was worth. In the place of a bottomline, which 
might be multiplied to produce a meaningful price 
comparison, AMZN had only a sinkhole.

"In the first three months of the year," writes Alan 
Abelson, "on sales of $574 million, it had a net loss of 
$308 million and an operating loss of $198 million." So, on 
a not-quite doubling of sales in this year's first quarter 
compared with last year's comparable span, Amazon's 
operating loss came close to quadrupling. We can understand 
why that disqualifies the company as a 'momentum story,' 
but we're a little puzzled how it qualifies it as a 'growth 

Abelson points out that AMZN has $1 billion in cash and 
securities. But against that, it has $2 billion in debt, an 
accumulated deficit of over $1 billion and only $25.6 
million in stockholders' equity. By the end of this month, 
that equity should have disappeared altogether.

Lacking the fulcrum of profits upon which to lever a 
reasonable price, a number of approaches have been used 
over the years to come up with an unreasonable one. 
Remember 'eyeballs'? The visual portals were once 
considered a means of establishing the value of an 
Internet stock. So was 'stickiness' - the amount of time 
the eyeballs stayed glued to the site. There was also the 
convention of merely multiplying the rate of sales growth.

But, finally, the confederacy of dunces that passes itself 
off as stock analysts is coming back to fundamentals. They 
are beginning to value Internet companies the same way 
publishers value a subscriber - in terms of lifetime value. 
Both publishing companies and Internet companies operate 
on the same basic premise: they spend money to bring in 
customers. Then, they expect a stream of income (sales, 
renewals, advertising) from each customer. The value of a 
company can be determined simply (or not so simply) 
calculating the net value of each customer over the 
lifetime of the relationship and multiplying by the number 
of customers.

Amazon has about 15 million customers. But how much is each 
one worth? Last February, Jamie Kiggen dreamt his way to a 
figure of $1,905. Hmmm...that sounds a little an 
industry noted for aggressive competition and razor-thin thin, in fact, that Amazon's margin is 
negative, minus 39%; it loses money on each sale. How could 
it possibly make nearly $2,000 per customer? It couldn't. 
The idea is preposterous. 

Interestingly, Kiggen subscribed to the idea of lifetime 
value analysis. The value of a company, he wrote in 1998, 
"is its ability to attract, retain and profitably service a 
set of customers." He even built a model to quantify these 
things. But, for whatever reason, probably because it 
showed how worthless Amazon really is, Kiggen seems to have 
abandoned his model.

Fortunately, Barron's found another analyst, Eric Von der 
Porten, of Leeward Investments, a California hedge fund, 
with less of an attachment to the big river. Von der Porten 
used Kiggen's own model, and figured the lifetime value of 
each customer at just $26. Multiply that by the number of 
customers and you get a capital value for the company of 
about $440 million - or a stock price of about $1.25. 

Then, Von der Porten made the same calculation but using 
his own model. This time, he came to a value of $35 per 
customer - putting a price target for the shares at about 
$1.60. Either way, it's a long way from Kiggen's target of 
$140, or even today's $50 price. A long way down, that is.

Jeff Bezos would argue that the models are wrong. He would 
say that it is too early to try to put a value on Amazon. 
Because he is not even trying to make a profit. As he 
explained to Playboy, "we are a customer store."

He does not mean that AMZN sells customers. He means that 
rather than focus on making a profit or even making a 
product, AMZN focuses on the customer. This, then, must be 
the final conceit of the Internet Age - that these 
companies put the customer on a higher plane, and perhaps 
on that basis alone, they deserve to be judged in a 
different light. 

And yet...

"I placed an order [from Amazon] for one book," writes my 
friend John Forde, "...two jazz cds (Coltrane and Davis), 
and one CD featuring Bossa Nova guitarist Joam Gilberto 
accompanied by Stan Getz. The Gilberto CD is apparently 
hard to find. Instead of telling me that, they held my 
whole order... for over a month now. When I wrote to ask 
them what the hold up was, I got an e-mail back from a 
customer service rep that very nearly blamed the
mishap on me for ordering something obscure. Since then, 
they've agreed to send me the balance of the order and hold 
the charges on the undelivered CD until it comes in. That 
was last Wed. It still hasn't arrived."

Your correspondent in Paris,

Bill Bonner
About 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 Reckoning.

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
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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 02, 2001

Published By Tulips and Bears LLC