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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  God's Fools

In Today's Daily Reckoning:
*** Boring day on Wall Street
*** Poor Bezos is struggling...
*** But something has definitely changed...

*** It was a dull day on Wall Street yesterday, as the pros 
and cons waited for the Fed to announce its latest discount 
rate policy. That announcement is expected today. And it is 
expected to be a declaration of contentment with the status 

*** The Dow fell a bit. The status quo is becoming less and 
less favorable to real economy businesses. After 6 rate 
hikes, and an oil price above $30, the expense side of 
business ledgers is beginning to get a little heavy.

*** Kaufman and Broad, for example, the nation's largest 
homebuilder warned that earnings will suffer. 
Transportation stocks have been hit hard. 

*** The Nasdaq did no better. The index was down 53 points. 
Celera dropped again yesterday. After announcing the 
completion of the genome map, and declaring its intention 
to give away the product it spent $150 million of 
investors' money to create, those self-same investors are 
asking: "how are you going to make any money?" Answer: no 
one knows.

*** Amazon bounced a little. But poor Bezos is struggling. 
"The party is over" said the Lehman Bros. analyst who 
reported Monday that Amazon was running out of cash. For 
every dollar in revenues, the company has raised 95 cents 
from the capital markets. It now has a pile of debt...and 
still a need for new cash. Even if it could somehow cut 
back to reduce costs and break even on operations, it still 
has to service the debt.

*** Where could Amazon raise more money? The Lehman analyst 
"carefully examines all the potential sources of funds - 
from banks and junk bonds through converts and equity," 
writes Alan Abelson in Barrons, "and finds not one that's 
likely to prove hospitable."

*** Readers may recall that Amazon, though ridiculed and 
calumnied in these letters, has been the sweetheart of 
investors for several years. Alas, with the heat of summer, 
ardent suitors are demanding that the company, so coy for 
so long, put out or get out. 

*** Gold dropped $2. Harry Schultz told me that the Gold 
Conference, which took place across town at the Inter-
Continental Hotel, should have been called the 'Anti-Gold 
Conference," so negative were the attendees.

*** The dollar fell yesterday. Remember, a steep drop in 
the dollar will mean the end of the whole thing - the 
bubble...the illusion of wealth...the summer of love...

*** Twenty new IPOs are scheduled for this week. It will be 
interesting so see how they fare.

*** Certainly something has changed. A few months ago, an 
entrepreneur could expect phone calls from venture 
capitalists eager to sponsor him for membership in the 
public markets. Now, I'm getting calls from entrepreneurs 
of companies looking for private financing. "Are 
you profitable," I ask. "Not yet," is the most common 

*** But the situation in the venture capital markets is 
creating some interesting opportunities. Entrepreneurs - 
fired up by the prospect of easy billions - have started 
thousands of projects, and now find venture capitalists 
won't talk to them. A few of these new projects, by dumb 
luck as much as anything, are decent businesses. See the 
advertisement below for how I hope to take advantage of 
this situation.

*** "I can't think of any time when two members of the 
Fed's Open Market Committee (FOMC) dismissed the Bureau of 
Labor Statistics (BLS) data as 'not credible.' " says Ray 
Devoe. The BLS calculates that Average Hourly Earnings were
rising at a relatively mild 3.4% annual rate, but says Ray: 
"in my area of the New Jersey Coast (the Irish Riviera) the 
local McDonalds has only four of the eight stations 
manned... because they cannot hire the people needed, even 
at wages well above the minimum. Anyone who recommends a 
person who is hired there receives a $100 gift 
certificate." (see: Something Is Wrong with the BLS Data

*** Stock options given to executives doubled between 1997 
and 1999. Non-option compensation remained the same. Is it 
any wonder "unlocking shareholder value" is the number one 
concern of American business leaders?

*** This is the anniversary of the assassination of the 
Archduke Ferdinand and his wife, Sofia. History, too, takes 
us in unexpected directions. The Archduke took a wrong turn 
on his short trip through Sarajevo, one which took him, by 
chance, within pistol range of his killer. Five years and 
millions of bodies later, on this very same day, the Treaty 
of Versailles was signed, formally ending the first world 
war and preparing the ground for the next one.

* * * * * * * * * Advertisement * * * * * * * * * * * * *
"In the room, in the deal...and an invitation to invest in 
some very exciting and potentially profitable deals..." 

Have you ever heard the expression in the room, in the 
deal? Well here's your chance to be involved in some very 
exciting and potentially profitable deals. More 
importantly, this is your chance to sit along side the 
"high rollers" and participate in deals that could make you 
a personal fortune. Read your personal invitation from
Bill Bonner at
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * 


"There's one born every minute," said P.T. Barnum. And yet, 
near the peak of a bull market, the one-per-minute estimate 
seems low. Everyone seems to be a fool.

"Things change," notes Richard Russell 
( in today's commentary. "A 
year ago the following four Internet stocks were considered 
the blue chips of the net, the stocks you could buy and put 
away for the kids. They were AOL, AMZN, YHOO and CMGI. I 
added together the peak prices for the four, and it came to 
621. At latest count the current price of the four adds up 
to 249. That's a decline of 59% from the highs... Reality 
has come to the Internet, and it's still coming."

"What am I trying to prove? I'm trying to prove that it's 
tough to make money in a bear market, even when you buy the 
most glamorous stocks in the hottest group. Of course, 
buying the most popular stocks in the hottest and most 
hyped groups is always a study of the `greater fool' 
thesis. And if you buy the hot stocks and the hot group and 
then you run out of greater fools, well horror of horrors, 
you wake up to find that it's YOU who are the greater 
fool." (see: The Demise of the Greater Fool

The idea of the greater fool concept is that no matter what 
price you pay for a stock, there is usually someone willing 
to pay a higher price. In a bull market - that is, a time 
of rising expectations and rising euphoria - there are 
plenty of fools, both great and small. But eventually, the 
greatest fool of all steps into the market. In the case of 
the Dow, the world's biggest fool was a buyer on January 
14, 2000. Since then, the fools have seen some shrinkage in 
their net worths. Four times, the Dow has rallied. And each 
time, the rally stalled at a lower point.

But as Mark Twain put it, "I may be a fool. But I am God's 
fool. And all His works deserve respect."

By all measures, the Dow at 11,722, was overpriced. Nobel 
prize-winning economist, James Tobin, developed something 
known as "q" to determine just how overpriced the market 
was. The idea is simple. A company should be worth what it 
would cost to replace it. This is something we think about 
in private business acquisitions. Instead of buying a 
company, we ask ourselves, what would it cost to recreate 

The market price of a stock should be the equivalent of its 
replacement cost. The q ratio, which has the market price 
as the numerator of a fraction and the replacement cost as 
the denominator, should, therefore, be 1. 

Andrew Smithers, a London investment advisor, and Stephen 
Wright, an economist at Cambridge, have written a book, 
"Valuing Wall Street: Protecting Wealth in Turbulent 
Markets." In it, they applied the concept of q to the 
entire stock market, and discovered that this market was 
and still is far higher now than either before the crash of 
'29 or the bear market of '73-'74. In fact, were the market 
to follow the pattern of post-'29, the Dow would have to 
fall below 2,000. If it merely follows the example of the 
'73-'74 bear market, it would fall below 4,000.

Either way, the dividends were so meager, and the threat of 
capital losses so great, that buying on January 14th - as, 
by the grace of God, I pointed out back then - had to be a 
foolish thing to do. And yet, God created plenty of fools 
ready, willing and eager to do so.


"There are three aspects to the human character," says my 
friend Francois, a man so out-of-step with modernity that 
he lives in a house in the Paris suburbs without a phone or 
central heating. "There is the rational aspect, the 
aesthetic aspect, and the spiritual aspect. But these days, 
people only consider one of them."

He refers to man's sense of reason. We are all rationalists 
now. Every one of the investors who bought the hottest 
stocks at their moments of most intense molecular activity 
- Amazon at 113 in December or the Dow on January 14th at 
11,722 - had a reasonable explanation: "These are 'must 
own' stocks for the New Era." ... "I'm a long-term, buy-
and-hold investor. I don't care if they go down in the 
short run." ... "Everyone's buying them. I heard someone on 
CNBC say Amazon was underpriced." (As reported here, 
someone calling himself an analyst and drawing a salary 
from a large brokerage thought Amazon should be trading at 

All of these rationalizations were "reasonable." And who 
knows, the Dow could have gone higher. And Amazon may yet 
hit $125. But reason might just as well have driven an 
investor to an opposite conclusion: that the stocks were 
too expensive. 

"I don't know what you see in that church service," 
complained my son Will, 21, after joining us last weekend 
at the church in Bourg Archambault. "You stand up. You sit 
down. You chant. What's the point?"

Neither Will's aesthetic sensibilities, nor his spiritual 
ones, were moved by the little Catholic service. He got no 
sense of exaltation, no connection to supernatural powers, 
no hint of God's purpose or His designs. No religious rush. 
The whole service might as well have been in a foreign 
language - which, of course, it was. Maybe had we gone to 
St. Peters, he would have been impressed by the gilt and 
frescoes - but in little Bourg Archambault there was not 
even that. 

The ability to reason peaks in the late teens and early 
20s. These are also the years in which people are most 
unreasonable. Everything is subjected to rational 
criticism. Going to church makes no sense to Will. It is 
neither entertaining, nor productive. It is not a 
reasonable thing to do. 

And yet, as someone once said of a crazy man: "all he had 
left was his sense of reason." He could add and subtract. 
Two plus two still equalled four. But he was insane - 
beyond the reach of ordinary conversation, like a space 
probe that overshoots its target and drifts into cosmic 

We are all God's fools. We reason. But it is not reason 
that causes us to buy stocks at crazy prices, or sell them 
at good prices. It is desire dressed up to sound 
reasonable. Eventually, desire will give way to fear and 
that will seem reasonable too.

Your faithful, foolish friend,

Bill Bonner

P.S. A few months ago, it seemed reasonable to buy Internet 
stocks at almost any price. These companies represented the 
wave of the future. Now they seem to be drowning in the 
surf. An e-mail message I received recently: 


Sites most likely to go belly-up, according to a popular 
web site: 

1 CDNow 






7 Napster 



10 eToys 
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...

"My small portfolio has followed true to my wife's description of my
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"

" Your Daily Reckoning is the best in business commentary... mixing
serious warnings and the state of the market with gentle humor"

"It is actually better than some of the newsletters that I pay to

"Your statements and philosophy have kept me from storming into the market and in fact [I'm] making some money in put options" (Frank)

Open your mind with the most stimulating e-mail newsletter that you'll ever read, The Daily Reckoning. To receive this free daily email newsletter click here now.

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Last modified: April 02, 2001

Published By Tulips and Bears LLC