-->The Next Killer Ap

The Daily Reckoning

Paris, France

Tuesday, 25 March 2003

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*** Whoa...what happened to that Post-War Rally?

*** Chicken longs...oil and natural gas?
Shakespearean drama?

*** Insiders OVERWHELMINGLY short...'shock and
awe'...liquidation...and more!


Were investors right on Friday...or on Monday?

Last week, American troops advanced against the enemy...and
stocks rose. People say they hate war, but last week, what
was there not to like about it?

Then, all of a sudden, the people we were trying to kill
began to defend themselves...and whoops...stocks fell more
than 300 points before you know it.

That's what happened on Monday. Investors panicked. Last
week, they were panicking into stocks; they were afraid
they might miss the post-war rally even before the war
began. But yesterday, they began to wonder if the post-war
rally hadn't already ended.

According to tenured professors of finance, investors were
right on Friday as well as Monday. They are always right,
say the intelligentsia; the market is always right - it
reflects the will of the majority...the votes of the vast
lumpeninvestoriat.

As Alan Greenspan explained in June of '99:

"Bubbles generally are perceptible only after the fact. To
spot a bubble in advance requires a judgment that hundreds
of thousands of informed investors have it all wrong."

According to the Efficient Market Hypothesis, EMH, and the
Theory of Democracy, TOD, the heaving masses can't have it
all wrong. In open markets as in democratic political
systems, there is no higher authority than your nitwit
neighbors. If the majority thinks mountain hooch is as good
as Dom Perignan...it IS as good. If they think a war is
honorable, it must be so. And if they believe that one
dollar's worth of earnings will be worth more when Saddam's
body reaches room temperature...well, they must be right
about that too.

The trouble is that something inevitably goes wrong, and
the poor schmucks change their minds!

What could be going wrong with the post-war rally? We have
said it so often that the word is beginning to sound odd.
Like a man who thinks too hard when he walks down a flight
of stairs...we stumble over it. Dde..uh..bbbbb...dt. There!

What is this strange 4-letter word that threatens to stain
the U.S. currency in its hour of glory? Debt. Debits.
Obligations. Mortgages. Credit card bills. Deficits.

"My instincts, refined by fifty years of experience in
finance," explains Leon Levy in his marvelous memoir, The
Mind of Wall Street,"tell me that we are in but the third
act of a five-act Shakespearean drama that portends a bad
ending. Stock prices may have plummeted from their dizzying
heights, but neither consumers not investors have yet
realized the perils of the suffocating pall of debt hanging
over the financial world."

Cannot the voters just cast their ballots and make the
smoke go away? All $20 trillion of it? If they all join
hands and buy an SUV, as Fed. governor McTeer suggested,
couldn't they stimulate sales and business investment
despite it? If they buy stocks, wouldn't that cause a new
bull market, no matter how much ddddebt is in the system?
And if they all reassure each other that what their troops
are doing in Iraq will make the world a safer, better place
- will it not be so?

Oh, dear reader, if only it were so! We were not present at
the Creation...and no one asked our opinion. Perhaps we
would have suggested an adjustment: a world in which the
majority gets what it wants, rather than what it has
coming.

Helas...that is not the way things usually work. And, while
we still have not mastered the trick of being able to look
into the future, we advise readers to exercise caution.

Over to you, Eric...

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Eric Fry, reporting from New York...

- The Dow followed up its best one-week performance in 20
years with its worst one-day sell-off in six months. The
blue chips tumbled 307 points to 8,215, as all 30 of the
Dow stocks fell by at least 1 percent. The Nasdaq composite
fell 3.6% to 1,370.

- The rout in the stock market sent investors scurrying
back to the perceived safety of U.S. Treasury bonds. The
benchmark 10-year note jumped 1-4/32 points, pushing its
yield down to 3.96%. Oil and gold also attracted safe-haven
buying. Crude soared $1.69 to $28.60 a barrel, while the
yellow metal gained $3.40 to $329.50 an ounce.

-"Volatile" does not adequately describe the trading
action in the stock market these days. Eight straight
winning sessions added nearly 1,000 points to the Dow Jones
Industrial Average, which emboldened the bulls on Wall
Street to emerge from their bunkers and sound the all-
clear. Then, suddenly, a barrage of sell orders rained down
from the sky to inflict heavy casualties on the major
averages.

- Most investors have no idea whether to run and hide or
keep on fighting the fight. Hiding out in cash and missing
a major rally is no fun. On the other hand, jumping in to
buy expensive stocks, simply because they have rallied for
a few days, doesn't seem terribly prudent. What's an
investor to do? Hiding out is not a bad choice. No less an
investment luminary than Warren Buffet suggests exactly
that course of inaction at the moment. He advises a sort of
tactical sloth."Occasionally, successful investing
requires inactivity," says the Oracle of Omaha.

- We would agree with Mr. Buffett. And yet, there may be
one or two"chicken longs" in the stock market worth
considering. A chicken long, loosely defined, is a stock
that is likely to deliver some respectable gains if the
general market continues to rally, but is unlikely to
inflict sizeable losses if the general market drifts lower
once again.

- Many U.S. oil and gas stocks seem like reasonable
candidates for chicken longs...or at least that's the
informed opinion of Greg Weldon, editor of Resource Trader
Alert. Most energy shares have not kept pace with either the
general stock market trend or, more importantly, the strongly
bullish oil and gas price trends. As a result, the stocks
seem very cheap relative to their likely earnings prospects
for 2003 and beyond. For this reason, Weldon currently
recommends several selected energy stocks, and recently
added Valero Energy to the list [Editor's note: for details
on Weldon's strategy, see: Resource Trader Alert
http://www.agora-inc.com/reports/RTA/ClickHereNow/ ].

- It seems that Weldon has some expert company in the
person of Tom Petrie, chief executive of Petrie Parkman, an
investment bank specializing in energy. In this week's
issue of Barron's, Petrie not only echoed Weldon's bullish
view of the energy sector, but also named Valero Energy,
specifically, as a good stock to consider.

-"Over long periods, the shares of oil and gas producers
tend to shadow trends in the underlying commodities," the
Barron's story observes."Yet since early last year, energy
stocks and oil prices have gone their separate ways. Oil
prices doubled to nearly $40 a barrel on expectations of
war in the Middle East and disruptions to oil supplies. But
the shares of U.S. integrated oil and gas concerns fell
about 15% in 2002..."

- Therein may lie an opportunity."Petrie expects oil
prices to average $25 to $30 a barrel this year," Barron's
notes,"with the high end of that range more likely. The
war will disrupt oil fields and supply lines in the Middle
East, he notes, even as the giant fields in Alaska and the
North Sea mature. Moreover, global inventories of crude and
refined products are low, while demand worldwide is
growing.

-"Natural-gas prices, which tend to fluctuate with crude,
also are likely to exceed current market expectations of $3
to $3.50 per million British thermal units. Petrie sees gas
prices of $3.50 to $4.50 per MMBtu, rising to $4-$7 over
the coming decade."

- Petrie's predictions would be great news for exploration
and production companies. But he also likes refiners like
Valero, a stock that Petrie dubs the"gold standard" of
refiners."Gasoline fundamentals, in general, are stacking
up in the refiners' favor," the Barron's story notes."U.S.
gasoline inventories are approaching an eight-year low,
while demand is nearing an eight-year high. That's because
summer vacation in the U.S. is apt to mean a road trip in
this year of global unrest, and what's on the road - a
fleet of giant sport-utility vehicles - is guzzling more
gas than ever."

- Despite the bullish outlook for gasoline-refining
margins, however, Petrie says that refining stocks are
trading for only about seven times Petrie Parkman's 2003
estimated earnings.

- Hmmm...that seems like a bet that even a chicken might
take.

------------

Back in Old Europe...

*** What are the insiders up to? Barron's reports the
officers and directors of the 10 leading tech companies -
firms such as Microsoft, Intel, Qualcomm, Dell and Oracle -
are remarkably bearish. While the investoriat buys tech
stocks, the people who know the industry best are
unloading."Since the start of this year," continues the
Barron's report,"in the aggregate, there has been a
single, solitary purchase of 3,600 shares by those
insiders. However, over the same stretch, those worthies
were responsible for 112 sales, in the process dumping 33.9
million shares of their own stock. Put another way, the
ratio of shares sold to shares bought by the so-called
smart money in the 10 biggest tech and growth companies
works out to a staggering 9,407 to 1."

*** While U.S. troops use force in the Middle East, fraud
is the weapon of choice for the homeland front. Reporters
are not supposed to call the war against Iraq a war against
Iraq. Nor are they supposed to mention an 'invasion' of
Iraq. It is not a war or an invasion, of course, because
that would require a declaration of war from Congress!
Instead of fighting a war against Iraq, U.S. troops are
merely trying to 'disarm' the country and bring liberty to
its people.

There is nothing so entertaining in politics as bald-faced
lying. Clinton was a master. But this Bush bunch are not
bad either.

*** 'Shock and awe' is a jolly little fraud. The Bush team
did well to avoid the common term: blitzkrieg; the krauts
gave it a bad name.

And here, we dip into military history, dear reader, with
an ample warning: history does not repeat itself. That
would be too easy. In an historical example, any
resemblance to any person living or dead, is pure
coincidence. And, as the SEC reminds us, past results may
not equal future results. But here at the Daily Reckoning,
we like history they way we like a good stripper. She
teases us...even haunts us a bit...revealing just enough to
be provocative.

The Wehrmacht's first 'shock and awe' campaign against
France went better than anyone expected - especially the
French. Encouraged, Hitler turned to the East and launched
his blitzkrieg against the Soviet Union. Attacking forces
had a large technological superiority...and also believed
that the enemy would give up. The Soviet Union, in 1939,
was run by a monster worse than Saddam, who was responsible
for the deaths of millions of his own countrymen. Surely,
the Russians would not fight to protect him, said the
Wehrmacht's penseurs.

Hitler's shock and awe campaign, led by Friedrich von
Paulus, well at first. But in Stalingrad, the 'awe' went
out of it. Blitzkrieg didn't work in cities. Soviet troops
had to be routed out of each and every building...at
terrible cost. Finally, while the Germans were busy
exterminating enemy soldiers block by block, Soviet troops
surrounded the entire city. Von Paulus' 300,000 troops
found themselves cut off from supplies; they were forced to
surrender and most were exterminated.

*** American forces cannot lose in Iraq. But they are
expected to win so easily...that if they get bogged down in
Baghdad, it will be a defeat of sorts. Trillions of dollars
- held hostage by friends and foe alike - might be
liquidated.

The Daily Reckoning PRESENTS: In light of the great tech
crash of 2000, are any new startups really worth their
salt? Penny Stock Fortunes' James Boric, fresh from the
Bahamas retreat of the Supper Club, certainly thinks so. In
fact, he's identified a class of companies - and one in
particular - that,"as an investor, you can't afford to
ignore"...


THE NEXT KILLER AP
by James Boric

Last week, I was in the Bahamas. The temperature never
dipped below 70 degrees. The ocean was crystal clear. The
sun was shining. And the people were as friendly as could
be. Life was great.

But I wasn't there to tan, to sit on the beach or vacation.
I was there to attend a gathering of the Supper Club: a
collection of some of the hungriest, smartest and most
creative businessmen and women in the world.

CEOs, CFOs and directors from five start-up companies came
to the Bahamas to wow a group of accredited investors in
hopes of receiving financial backing for their businesses.
They came equipped with an arsenal of new products and
technologies that could revolutionize everything from the
way we access the Internet to the way we run our cars. It
was an exciting couple of days.

Over the course of the conference, I got a rare glimpse
into the future. I was introduced to technologies and ideas
that could change the way we live in the next couple of
years. I saw products that few people in the world have
seen to date.

One of the most intriguing companies I saw has invented a
product that could make Wi-Fi technology as mainstream as
the Internet itself. In case you're wondering, Wi-Fi
technology is the hardware installed in thousands of
computers that allows users to access the Net wirelessly.
With Wi-Fi technology installed in your PC or laptop, you
can access the Internet or your e-mail from anywhere -
without having to physically plug in to a network. You just
open your computer, log on and surf the Net.

It's certainly a sexy idea. And with Wi-Fi capability, you
would never have to worry about carrying all those pesky
wires, plugs and adapters around. Who would miss
that...except maybe the people who make the wires and
adapters?

But there is a problem with Wi-Fi technology. There is a
reason it isn't mainstream already.

Wireless access to the Net isn't secure. Any hacker with a
high-powered antenna and amplifier could get into your
local Wi-Fi network. That's because there is no way to
authenticate who is using a given Wi-Fi network. It's like
giving everyone in the world access to all the data on the
Net and telling them not to look at anyone else's
information.

Let's face it. There are quite a few bad apples out
there...and it doesn't pay to be too trusting. Because of
this security problem, some government agencies and high-
tech companies have banned the use of Wi-Fi in their
offices. For instance, Lawrence Livermore National
Laboratory (a nuclear weapons research company) in
California has banned the use of Wi-Fi networks on its
facilities.

The reason is simple. Any hacker with ties to a terrorist
group could in theory sabotage the nuclear weapons research
Lawrence Livermore is doing. And the last thing the United
States needs is to give nuclear weapons secrets to our
enemies.

Until recently, there hasn't been a viable solution to fix
the security problem. But one company I saw in the Bahamas
could change all of that in the near term. Koolspan, an
early stage, private company based in Bethesda, Maryland,
has developed a highly secure, easy-to-use, scalable
solution that could solve the security problem on all Wi-Fi
networks.

This company has developed something called Subscriber
Identification Modules. They are tamper-resistant, physical
tokens registered to a Wi-Fi network that enable users to
connect to the Web securely and safely.

The tokens are essentially your keys to the Net. One key is
about the size of a small radio. It has two antennae and
can dock in your home or office. This is the hub, if you
will. The other"key" is a small chip that plugs right into
your PC or laptop. Together, these keys create an
unbreakable code that secures your specific Wi-Fi network.
That means everything you look at online and any
information you download is secure and hacker-proof.

Right now, Koolspan is getting ready to beta test its new
Wi-Fi technology. If it is successful, the company could
make a push to enter the public market. And there's no
telling how much interest it would generate among
investors.

Of course, no one knows if Koolspan will be successful or
not. Only time will tell. But as an investor, you can't
afford to ignore companies like Koolspan.

It is the small companies on the market, private and
public, that are forced to look outside the proverbial box
to come up with the next great invention. It's the only way
they can create their own niche in a huge market. No small
company in its right mind would try to come up with a new
software program to rival Microsoft...or a computer chip to
rival Intel's. They will lose that battle every time.

Instead, start-up companies have to take risks. They have
to develop products, technologies and ideas that no one
else has thought of. They have to dream big and make those
dreams a reality. Inevitably, a lot of companies will fail.

But it's the handful of companies that do succeed that will
lead us into the next bull market. Maybe Wi-Fi technology
will be the killer app of the 21st century. Maybe it will
be something else. But I can assure you of one thing. It
won't be the Microsofts, the Intels, the Sun Microsystems
and the Cienas of the market that dominate once stocks
start to rise again. They've had their run. They were the
Koolspans of the 1980s and `90s. And most investors could
kick themselves for missing out on those opportunities.

Now it's time to move onto the next generation of
innovative and hungry companies. It's time to look at the
new products and technologies in the pipeline. And it's
time to start investing in these companies while they are
cheap and unknown.

Whether you are a public or private investor, there will be
myriad lucrative opportunities around the corner. Don't
miss out.


Yours,

James Boric
For the Daily Reckoning