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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

WEDNESDAY, 21 JUNE 2000 the longest day of the year (in the 
Northern Hemisphere) 


Today:  A Day At The Races

In Today's Daily Reckoning:
*** The Nasdaq is still flying...but losing power
*** "Two-tiered" market...good stocks fall, bad ones rise
*** Elmer Gantry of the Internet... 

*** The summer rally is a wretched one. News of a slowing 
economy is getting around. It is hitting the 'old economy' 
companies that actually make and sell products.

*** The Dow, for example, fell 122 points yesterday. Autos, 
restaurants, lumber, office equipment - they're all down 
nearly 20% in the last month.

*** But the Nasdaq rose back above the 4,000 mark 
yesterday. (Still, a long way from 5,000.) The logic of 
this "two-tiered market" is that an economic slowdown will 
depress earnings. But companies that have no earnings have 
nothing to worry about.

*** The idea is preposterous. It's just money, after all. A 
dollar will go wherever it can earn the highest rate of 
return. Companies without earnings are doomed. Either they 
get earnings - or they disappear. Unless they are 

*** "Whenever, following a powerful advance, the market's 
dynamics become less favourable," wrote Marc Faber in his 
Gloom, Boom, and Doom Letter, "it leads to 'churning,' with 
investors desperately jumping from one theme to another in 
the hope of achieving some short-term gains. This churning 
process is always characterized by high volume and extreme 

*** Almost every day a major company seems to get whacked 
after an 'earnings warning.' Yesterday, it was Carnival 
Cruises, which lost about 20% of its stockmarket value. The 
day before it was Honeywell. Even these big, institutional 
blue chips rest on shaky ground. Marginal changes in the 
market's perception cause them to crash suddenly.

*** 'Easy Al' Greenspan must notice how fragile stock 
values have become. For that reason alone he may not dare 
to raise rates again this month. What he most wants to 
avoid is the blame for a major crash and recession. 
Besides, he will reason that he can always cure inflation 
with tighter rate policies later, whereas the damage from a 
crash may be hard to correct. We'll see...

*** There were 1264 stocks advancing on the NYSE yesterday, 
against 1613 declining. 77 hit new highs. 67 hit new lows.

*** Oil rose $1.36. There was little action in gold or gold 

*** Morgan Stanley says that half of the 377 Internet 
stocks it follows are below their IPO prices. The IPO party 
seems to be over.

*** The Elmer Gantry of the New Economy was in the news 
again yesterday. Michael Saylor, CEO of MicroStrategy, is 
well known for his bombastic statements about the future of 
the Internet. He believes his company has a mission - to 
make information flow like water...and thus make the desert 
bloom. But, taking no chances, he decided to divert the 
stream of information to water his own back yard. He 
reported a profit of $12.6 million on revenues of $205 
million at a time when the company actually lost $33.7 
million on revenue of $151.3 million. 

*** But what is really amazing is that investors still buy 
the stock. While companies with earnings get hit hard when 
their earnings decline, those with no earnings, and little 
hope of ever having any, rise. Even the pros seem to be 
suffering from sunstroke. A private venture capital firm - 
Promethean Asset Management decided to chain itself to the 
barren rock of MicroStrategy - putting up $125 million of 
good money for a ridiculous 4% of the company. All of 
MicroStrategy is not worth $125 million. It may not be 
worth much of anything. Yet, investors have bid up the 
share price so high that Saylor's personal stake in this 
losing operation is worth nearly $2 billion. May vultures 
gnaw on all their intestines!

*** Meanwhile, Professor Robert Gordon joins me in 
questioning the real economic value of the Internet. He 
believes the internal combustion engine, telecommunications 
and electrical power were "first order" innovations. They 
changed life radically. But they were all invented in the 
late 19th century - and had saturated the Western economies 
by the early 1960s. The Internet may not be a first order 
invention. Instead, it is merely another step in the 
telecommunications revolution that began with the invention 
of the telegraph and proceeded through the telephone, radio 
and television. 

*** What's more, the Internet threatens to be a big waste 
of time - like television. The Economist reports that "web-
surfers tend to access entertainment sites more frequently 
at work than they do at home." The magazine cited a study 
showing that employees visit eBay and financial trading 
sites when they're supposed to be working and traffic on 
consumer-oriented sites peaks during working hours, not in 
the evening. Of course, I'm sure this doesn't happen in my 

*** And finally, on this the longest day of the year, the 
Evening Standard reports that "one of Britain's leading 
Druids...appealed for calm." Stonehenge, off limits to 
Druids as well as Presbyterians and vegetarians for the 
last 16 years, opened up to the public at 11:30 last night. 

*** I packed up my old grey suit, which was still as dumb 
as a Democrat and shapeless as a Republican, and Elizabeth 
and I left London last night. We boarded the Eurostar for 
the trip back to Paris. I think I've drunk enough champagne 
in the last two days to lift the share price of LVMH...but 
they offered me a glass on the train. "Avec plaisir," I 

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I will soon be on a first name basis with the Queen. I saw 
her again yesterday...and she waived to me. Or perhaps she 
just gestured to the crowd of thousands who doffed their 
top hats as she passed.

Economists have an expression: Everything happens at the 
margin. But in this crowd of thousands, I doubt her majesty 
noticed me.

"Everything happens at the margin" refers to the way that 
change occurs in economic systems. People don't all decide 
to suddenly do something different. Instead, only a few 
change their behavior - often with stunning consequences 
for everyone.

Most stockholders, for example, rarely look at their 
portfolios and rarely make changes. But the value of the 
portfolio is determined by the active buyers and sellers. 
More specifically, the price of every share is set by the 
last two people to trade it. 

I couldn't help notice that it also applies to almost 
everything else in life. The winning horse in the third 
race at Ascot was only a few feet ahead of his rivals. Yet, 
this small margin made all the difference. He was a winner. 
The rest were also-rans. I was a winner too - for I had bet 
on the horse.

At least one historian believes the crucial battle of the 
Civil War, Gettysburg, turned on the actions of a single 
soldier. A Union officer, who later became governor of the 
state of Maine, was in a critical place at a critical 
time...and in a critical situation too. His men were out of 
ammunition and about to be overrun by the advancing 
Confederates. But rather than retreat, as a sensible 
soldier should have, he ordered his men to fix bayonets and 
charge. They did and the Southerners retreated. The line 
held and the battle was won.

A few people, at the margin, have enormous impact.

The price for houses in an area may be fairly stable; there 
may be about as many buyers as sellers. But an influx of 
new buyers, at the margin, can drive prices up rapidly. 
They have to live they will raise their bids 
until housing is available to them. 

That is what has happened in London. The whole Southeast of 
England is booming. London is rich and lively; despite 
appalling weather, new residents seep in from all over the 
world, like water leaking into a basement. The London Times 
yesterday recorded the grim evidence - 58 people died 
trying to smuggle themselves into Britain in a cargo 
container. They suffocated. 

Property prices have soared. The hotels are so full, I 
overheard a man on the train say he was forced to go back 
to Paris for the night, because he could find no lodgings 
in London.

And nowhere was prosperity more in evidence than at the 
Ascot races yesterday. If you, dear reader, have not yet 
"done" the Ascot races, let me encourage you. It is a rare 
combination of tradition and modern hustle. It is another 
example of Britain's clever marketing of itself.

Moss Bros. has outlets all over London. They were as busy 
as the proverbial one-armed paper hanger on Tuesday. Media 
moguls from Dubai and entrepreneurs from Chelsea 
jockeyed with Baltimore newsletter publishers to rent the 
appropriate costume for Ascot -- a morning suit, with black 
or grey tails and a top hat. For about $100 you can wear 
this get-up for an entire day. For another $600 you can 
spend the night at Claridges. And for about $1,000 more you 
can rent a box at Ascot, from which you and a group of a 
half-dozen friends can once again (following Garter Day) 
gawk at the Royals who parade by in open carriages, wearing 
outfits similar to yours. Add the expense of cab fares, 
restaurants, drinks and shopping; it is no wonder London's 
economy is booming! 

Our party assembled in the lobby of Claridges yesterday 
morning. We were all enjoying looking at ourselves in the 
mirror. I had been in such a rush to get yesterday's letter 
to you...and then get myself ready to go out...that I had 
not even noticed my wife's new suit and new hat.

"How do I look?" I heard her voice ask. But I had a hard 
time connecting the words to the lips that spoke them. All 
I saw was a hat. I had to stoop down and peer under the 
brim in order to see her pretty face, lit by the pink light 
of the hat.

Anyway, if you were standing in Waterloo station yesterday, 
and you saw three swells in top hat and tails walking buy, 
one of whom was talking to a large, pinkish hat, it was 
probably us.

Of course, Elizabeth is always the most beautiful woman in 
any group. But she had some stiff competition yesterday. 
Our small band included a young woman from Australia with a 
stunning face...and the woman I mentioned to you 
yesterday... The latter woman, a delightful and intelligent 
companion, had on such a revealingly low cut leather suit 
that I was afraid she would be stopped at the gate and 
arrested for indecency. In my mind, I rehearsed how I would 
gallantly volunteer to accompany her into captivity, to 
help her call her lawyer.

Later in the day I found out something about this woman 
that seemed to answer a prayer...but perhaps I should keep 
you in suspense about that.

My subject today is margins, and how important things seem 
to happen at them. A quarter inch less fabric, that is to 
say a very marginal amount of cowhide, either on the top or 
the bottom of my friend's little suit, would have been 

So would a little teeny bit of selling in the stock 
market...or perhaps a tiny increase in interest rates...or 
maybe an itty-bitty decline in the dollar. Except in the 
case of women's clothes, you never know where the critical 
points are.

Everyone dresses up for Ascot. Men in their morning suits, 
often with cellphones clamped to their ears...and women in 
bright, exciting dresses and the kind of hats you only see 
at fancy weddings or in movies. It is a little like My Fair 
Lady's famous Ascot scene. Audrey Hepburn's day at the 
races improved upon the real thing. Now, Ascot revelers try 
to live up to the standards set by the movie.

They did a pretty good job of it this year. The stands were 
packed with people -- many of whom were stunning.

If you saw these people in everyday dress, you might find 
them attractive, but not stunning. The costumes helped. At 
the margin, they improved almost everyone.

I studied the people I passed. Rarely was a man so hopeless 
or a woman so homely that a marginal improvement couldn't 
produce nearly sensational results. I thought I should 
offer some advice: one woman merely needed to stand up 
straight. Another needed to smile. Still another needed a 
little exercise. But I kept my counsel to myself. Surely, I 
needed it, too.

Success in life happens at the margin too. "Ninety percent 
of genius," said Aristotle, "is habit." In the course of 
the ordinary day, the successful man may not accomplish 
much more than the unsuccessful one. These were successful 
men and women here at Ascot. The event draws a crowd very 
different than, say, the Worldwide Wrestling Federation. 

The wrestling fan, for example, may finish his work at 
5:30...while the Ascot aficionado continues for another 
hour or two. In any given day, the difference in results 
may not even be measurable. But over a lifetime, the small 
gains compound like the interest in a savings account. By 
the time the Ascot fan reaches my age, he typically has 
gained a lap or two on the WWF devotee. And so not only can 
he afford a night in an expensive hotel, he can also pay 
the credit card bill when his wife comes home with her 
hatbox. (For the benefit of those who have never attended, 
women do not wear fancy hats to heavy-weight wrestling 
events...they wear baseball caps with profound statements 
translated from the original Greek and Latin...such as "I'm 
with ***hole.")

But even the Ascot fan, like the WWF one, operates at the 
margin. When he is feeling expansive and positive about the 
future, he lets his credit card get more use. When he is 
feeling fearful, he tends to keep it in his wallet. Maybe 
he decides that he does not need to go to Ascot this year. 
Lines at Moss Bros. become shorter. Taxis and hotel rooms 
become easier to get. Property prices in London may even 
fall - as the marginal buyer begins to believe that his 
money will be more fruitfully employed elsewhere - perhaps 
on the other side of the planet, where the sun is just 
starting to shine again. 

Behavior changes at the margin - with often sensational 
results. We are now in what I believe will be the last 
summer of such positive, expansive sentiment for many years 
to come. The markets have already cracked. The dollar, the 
last holdout of the New Economy fantasy, seems to finally 
be in a bear trend. The turnaround in investor psychology 
that I warned you about, perhaps far too soon and far too 
often, may to be coming at last. 

Sincerely yours, 

Your starstruck, moonstruck, champagne-soaked
And completely marginal correspondent,

Bill Bonner

P.S. I did not forget. I promised to reveal what I 
discovered about my friend in the leather dress - about her 
underwear, actually. 

You remember those underwear ads in Paris that I told you 
about? They are so racy and so ubiquitous, that even a dull 
Episcopalian like me cannot fail to notice. Ms. X, it turns 
out, was a model for the La Perla underwear ads. 

I spent some time talking to the Australian woman and the 
La Perla mannequin, both of whom were as charming as they 
were pretty. A married man has to appear to be interested 
in these young beauties - even if he really has eyes only 
for his wife.

About The Daily Reckoning:
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Bill Bonner, recognized internationally as a brilliant writer, entrepreneur
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Bonner writes his email letter from Paris, France, each morning --
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For nearly 62 year, The Fleet Street Letter, the oldest investment
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Last modified: April 02, 2001

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