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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

MONDAY, 19 JUNE 2000 


Today:  Moonstruck

In Today's Daily Reckoning:
*** Big drop in the Dow on Friday...but bonds rose 
(recession ahead)
*** Cash is drying up
*** Why can't the English master the rules of grammar?

*** Not much time to write. Like figures in a comic strip, 
we made our way to the train this morning. The husband 
laden down like a beast of burden. The wife walking 
sprightly ahead, carrying a hat box. We were off to Windsor 
Castle for Garter Day...about which more tomorrow.

*** The Dow fell 265 points on Friday. The Nasdaq rose 14 

*** For the week, the Dow lost 1.5%. The Nasdaq was just 
about even.

*** But the broad market, as measured by the 
Advance/Decline ratio, showed improvement. 1898 stocks 
advanced; 1445 declined. 203 hit new highs; 159 hit new 

*** This is a market that can't make up its mind which way 
to go - or wants to give that impression. 

*** Bonds rose on Friday. Bond investors seem to be 
anticipating a recession. Autos and homebuilding are both 
down. The auto makers are closing down assembly lines, to 
give inventories a chance to lighten up. And building 
permits were down for the 4th month in a row in May. 

*** MZM, which measures the amount of cash in the system, 
keeps going down. This cash, by the way, is what is needed 
to feed the debt meter. Looking back, we can see how a tide 
of cash served to float the Great Bull Market of 1982 - 
1998 into Mania-land. The LTCM bust, and the currency 
implosion in the Far East in '98 induced central bankers - 
notably Alan Greenspan - to boost liquidity (that is, make 
more cash available). Then, in late '99, another flood of 
cash was released - in anticipation of Y2k problems. But 
now the cash is drying up. MZM is increasing at less than 
7.5% annually. 

*** "Inflate or Die" says Richard Russell. Either Greenspan 
puts a lot more cash in the system...allowing debtors to 
feed their meters...or the boom ends. 

*** But credit bubbles don't end in consumer price 
inflation, says Dr. Kurt Richebacher. They always end in 
deflation... We will see.

*** Gold fell 90 cents. Oil is still over $32. 

*** The Internet and other very modern innovations are 
impressive, but not as impressive as electrification, 
refrigeration, the internal combustion engine and inside 
plumbing. "[C]ompare our current roster of new technologies 
with the transforming technologies of the late 19th and 
early 20th century," suggests economist Paul Krugman, "and 
[you will] find our latest gizmos relatively trivial by 

*** Front page headline in The Times: "England face threat 
of expulsion." The article begins: "England were threatened 
with expulsion from Euro 2000" and explained how hooligans 
may drive Britain out of soccer tournaments. But the point 
I am making is this: If the English want to be part of the 
English-speaking world, they're going to have to learn to 
speak the language.

*** Ralph Nader, one of America's leading humbugs, owns 
$1.2 million worth of stock in Cisco. Mr. Nader is slightly 
embarrassed by his riches. I predict that he will be less 
embarrassed in a few months.

*** 60 years ago yesterday, Charles de Gaulle issued his 
"appel" from London rallying the French to fight on against 
the German invaders. De Gaulle looms large in a new gallery 
in the Invalides museum. 

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It was paradise out at Ouzilly this weekend. Summer has 
arrived there too. But instead of pretty women, the roses, 
Linden trees, and flowers are in full bloom. 

Nature is so alive this time of year; the Linden tree next 
to the house hums. In C minor, I believe. I did not know 
that trees could hum. But this one sounds like an 
electrical power station. 

The source of the noise is not the tree itself, but the 
swarm of bees taking advantage of the Linden blossoms. All 
day long they buzz around the tree - thousands of them.

Elizabeth did not come down this weekend. So, the older 
children and I were able to work without the interruption 
of social obligations. By evening, we were worn out, as the 
bees must have been.

But it is hard to sleep on a beautiful night. The moon was 
so full and so bright, I felt that if I looked hard enough 
I'd be able to see the American flag on it. 

I opened the windows wide, inviting the moonlight into the 
bedroom. Too much moonlight is supposed to make you crazy. 
But I decided to take a chance. Live a little.

Meanwhile, on the other side of the world are a whole race 
of people graced by neither summer sun nor the light of the 
moon. They live, if you believe the press, in total 
darkness. And they deserve it.

For somehow, the Japanese - who were the world's smartest 
business people just a dozen years ago - are now the 
biggest numbskulls on the planet. And not just the Japanese 
- the entire Orient is now populated by losers...people too 
dumb to enter the New Era...too slow and backwards to goose 
up their economies with loose credit policies and too 
uptight to spend money.

As evidence, I give you a group of stocks from the dark 
side of the planet, suggested by Marc Faber and George 

Take Sampoerna, for example. The company sells for 
approximately 7 times year 2000 earnings. It makes Kretek 
cigarettes - which don't exactly have the appeal of 
Marlboros...but Marc says they are good smokes. But it is 
something else they lack that makes Kretek cigarettes 
especially interesting - litigation. Philip Morris is as 
cheap as Sampoerna. The North Carolina tobacco company is 
being pursued all over the world by lawyers. The Indonesia 
cigarettes, on the other hand, rarely suffer lawyers, 
gladly or otherwise, because cigarette taxes are the 
government's largest and most reliable source or revenue. 

Here's another example: remember Pohang Steel? It is one of 
the world's largest and most efficient steel makers. Every 
product ordered via Internet is delivered in a truck made 
of steel. But while Internet companies sell for 200 times 
earnings, Pohang Steel, the South Korean steel maker, can 
be bought for only about 6 times earnings. 

What is it that causes the light of the New Era sun to stop 
a few degrees east of Greenwich meridian? If the Internet 
did anything at all, you'd think it would spread the 
blessings of technological progress beyond the frontiers of 
NATO members. Yet it is as if some "iron curtain," to coin 
a phrase, had been drawn along the Urals. To the west, the 
Internet and related technological breakthroughs are 
thought to be producing staggering improvements in human 
progress - such that the old "metrics" for valuing 
investments no longer apply. And to the east, the old rules 
not only apply - they are enforced without mercy. 

Schott lists a Hong Kong Internet company as #1 on his 
roster of "Fair Values." E-New Media "provides billing and 
payment solutions for e-commerce and telemarketing..." Gee, 
you'd think this would be a big hit with TNT investors. 
Instead, it is selling below book value, at a P/E of 11, 
with 55% of the stock price representing net cash. 

Ng Fung Hong is another Hong Kong company - this one in the 
business of distributing livestock. Its earnings have grown 
17% per year since '94. How come the growth rule - the idea 
that a stock should sell for a P/E equal to its growth rate 
- does not apply here? You can buy Ng Fung Hong now at 7.5 
times earnings.

Midland Realty is the largest real estate broker in Hong 
Kong. It's available for 8 times earnings.

HM Sampoerna, mentioned above, is the second largest 
cigarette maker in Indonesia. Sales have recovered 
"smartly" since the crisis of '98. But, says Schott, it's 
"still trading at a crisis-level valuation." 

Another Indonesian company may be more familiar to you: 
Komatsu. You see the name on heavy equipment all over the 
world. Like everything else East of the Urals, Komatsu was 
hit hard by the currency crisis of '98. But it has 
recovered. Net current assets represent 55% of the stock 
price. This leaves the implied value of its core business 
selling for just two times earnings, before interest, 
taxes, debt and amortization. The current P/E ratio is just 

These stocks may be fair values now. But there's no law 
that says they won't be even fairer values in the future. 

Still, a fair value is better than a not-so-fair one. Or 
maybe I've had too much moonlight.

Your moonstruck correspondent...

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
advisory letter in the English language has consistently delivered
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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investment philosophy, "buy high and sell low." However, that has changed since I started religiously reading DR... I credit this reversal of fortune directly to The Daily Reckoning"

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Last modified: April 02, 2001

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