>
>"GOT IT" - GOOD AND HARD
>THE DAILY RECKONING
>Still in BALTIMORE, MD
>MONDAY, 18 DECEMBER 2000
>* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
>*** Big drop in the Dow...but don't worry this MUST be the
>bottom!
>*** A trip down `tobacco road' - debts soar...
>*** More on dead presidents...another reason Bush should
>demand a recount
>* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
>*** I stayed in town this weekend, working in the office
>but going downtown to do some Christmas shopping. I also
>paid a visit to my sister down in Charles County, an area
>that has become a redneck suburb of Washington.
>*** My trip took me down `tobacco road' - as they used to
>call route 301. Entrepreneurs used it to smuggle cigarettes
>from low-tax North Carolina to high-tax New York. There
>must be a million big, shiny pick-up trucks between
>Baltimore and Charles County. They are everywhere -
>overflowing from dealer lots and backed up by the dozens at
>every stop light. Those - and the ubiquitous SUVs - are the
>most visible debris of the great 18-year financial boom.
>*** But the boom seems to be coming to an end. The Nasdaq
>is down 35% for the year. It is down 50% from its high.
>*** The Dow is down too...almost 10% for the year...and
>will apparently end the year in the red for the first time
>in a decade.
>*** Last week alone, the Dow lost more than 2% of its
>value. The Nasdaq lost 9%.
>*** And on Friday, the Dow fell 240 points on very big
>volume. People seemed to want out. There were 1305 stocks
>making progress on the NYSE, while 1600 fell back. The Dow
>is below 10,500...can 10,000 be far behind?
>*** The Nasdaq fell 74 points - also on big volume.
>*** The entire national economy only produces about $10
>trillion of goods and services each year. So, the $3
>trillion or so that has been lost in stocks is a lot of
>money. It can't help but depress consumer buying.
>*** Company after company is coming forward to say that its
>sales/profits are softening - MSFT, Intel, Kodak, GM,
>Compaq, Chase Manhattan. Even UPS and Fedex have warned
>that they wouldn't be able to deliver the profits they
>expected.
>*** MSFT fell 11% on Friday. Cisco fell 5%. MSFT was $119
>last December. Thanks to this season's `half-off' sale, you
>can get it for less than $50. Cisco and GE, too, are also
>priced below $50.
>*** As mentioned above, there are so many unsold pickups
>and SUVs along route 301 that they are practically parking
>them on the streets. Many of these vehicles were leased
>out. Now that the leases are expiring they're piling on car
>lots and weighing down resale prices.
>*** What happened to the end-of-the-year rally? Is it still
>ahead? Has it already come and gone? We'll see.
>*** But investment advisors are still bullish - 55.6% of
>them. Only 26.9% expect falling prices.
>*** And Wall Street is still looking for Santa's Big
>Bottom:"This market has been anticipating somewhere
>between a hard landing and recession," said Tony Dwyer,
>chief market strategist at Kirlin Holdings, quoted by
>Reuters,"which means your worst case scenario is probably
>already discounted in the stocks."
>*** Worst case scenario? With an average P/E for the S&P
>500 of nearly 20? Dream on! The worst case scenario can't
>even be imagined yet. It includes P/Es of 6 or 8...and a
>public that will turn its back on stocks...lose faith in
>Greenspan...stop spending and begin saving again.
>*** Worst case? The weekend brought a report from Japan -
>where stocks peaked out more than 10 years ago at nearly
>40,000. Now, the Tokyo index is around 15,000...and the
>Japan Times says that bankruptcies are rising at a 22% rate
>(annualized)...while corporate liabilities increase at an
>astounding 200%.
>*** Meanwhile, back in the U.S.A., Barron's consensus of
>corporate earnings expects a rise of only 5.7% next year.
>But maybe earnings won't rise at all...maybe they'll fall.
>*** Investors' Business Daily tracks leading mutual fund
>performance. Its index is down 16.2% for the year - which
>is probably about what most people have gotten from their
>stocks this year.
>*** The current account deficit approaches 4.5% of GDP.
>Imports in the 3rd quarter rose 18% over last year. My
>brother in law just bought a new John Deere garden tractor.
>He reports that all the major brands are made in Japan - no
>matter what name they have on the hood.
>*** Fannie Mae expanded its mortgage portfolio at a 25%
>annual rate in November. Freddie Mac's"net retained
>mortgage portfolio" is growing rapidly too; it is expected
>to increase 15% to 20% in the next year.
>*** The dollar is falling. The euro rose above 90 cents for
>the first time in 3 months. This is the most ominous event
>in the financial news - but no one seems to notice.
>*** Doug Noland surveys the credit bubble on the
>Prudentbear.com:"For one, broad money supply, at almost $7
>trillion, has surged $1.3 trillion, or 23%, since June 30th,
>1998. Total mortgage debt has also increased about $1.3
>trillion, or 23%, to $6.8 trillion. Total outstanding
>corporate bonds increased 23% to $4.9 trillion. Total
>liabilities of the U.S. commercial banks have increased 16%
>to $6.3 trillion... Money market fund assets have increased
>36% to $1.7 trillion. Total GSE liabilities have expanded
>recklessly, surging 52% to almost $1.9 trillion.
>"Outstanding asset-backed securities have increased 34% to
>$1.75 trillion. Finance company liabilities have increased
>37% to $1.1 trillion, while total Securities Brokers and
>Dealers community liabilities have increased $263 billion,
>or 28%. Mutual fund holdings have increased 54% to $4.8
>trillion, since 1998's third quarter.
>"And with credit excess fueling historic trade deficits,"
>Noland continues,"the accumulation of foreign liabilities
>has been nothing short of astounding (frightening). At the
>end of the third quarter, the 'Rest of the World' held $7
>trillion of U.S. financial assets, having increased by 35%
>($1.8 trillion) in just two years."
>*** Gold rose $1.40 on Friday. A group of pro-gold
>activists has sued Alan Greenspan and others to prevent
>them from manipulating the price of the metal. The gold
>bugs think Greenspan and others have conspired to hold down
>the gold price. I have never been able to understand this
>point of view. If anyone wants to sell me gold below the
>real market price - I am happy to take it.
>*** Goldman downgraded Hewlett Packard. In a separate news
>item it was disclosed that an HWP employee had fallen from
>a company airplane. This is surely bad news - it is not a
>good sign when employees bail out without a parachute. Who
>can forget what happened to Bre-X after its geologist
>exited a helicopter hundreds of feet above the ground?
>***"Just to add some more fuel to your fire about the
>economy and falling stocks," writes DR reader MGB,"as a
>professional business astrologer, I can tell you that
>astrology also shows the Bush administration in a very
>tough economy. Research showed the financial area of each
>President's chart corresponded with the economy
>of the country during their presidency. Bush has a very
>tough financial area in his chart, no doubt expressed in
>part when he lost three oil companies. His Presidency is
>likely to reign over a recession. Clinton's financial area
>of his chart is very expansive and quite good. And that is
>the type of economy we had.
>"Astrology shows that 100% of the Presidents died in
>office when they were elected in years that coincided with
>Jupiter and Saturn coming together in the same earth sign.
>This has never failed. In 2000 these two planets came
>together in the sign of Taurus, an earth sign,
>so President Elect Bush will not leave office alive."
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>* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
>"GOT IT" - GOOD AND HARD
>Over the weekend, the SEC fined MicroStrategy founder,
>Michael Saylor, $350,000. In addition, he and two other
>executives had to pony up $10 million worth of stock in
>order to resolve shareholder suits.
>Saylor was one of those who `got it'. He knew, deep down,
>an inchoate, indescribable truth that the rest of us
>couldn't quite fathom. As a result, he was, and still is I
>suppose, a Digital Man, one of the race of mutant Homo
>super-sapiens that was supposed to not merely inherit the
>world, but to take it over by adverse possession.
>"The first person I knew who suggested that there was such
>a truth and that it could distinguish you from other people
>who didn't know or accept this truth was Louis Rossetto,"
>writes Michael Wolff, in Forbes ASAP."'He just doesn't get
>it,' Louis would say, shaking his head in disgust when
>almost anybody disagreed with him. WIRED the magazine he
>founded was based on this notion that certain people
>understood something profound, while most did not."
>Saylor was one of those who understood something profound.
>The company he founded had a mission. According to its 1998
>Annual Report,"MicroStrategy's corporate culture is guided
>by a shared vision for changing the world - to promote
>universal intelligence by making information flow like
>water."
>Information certainly flowed. How much intelligence it
>conveyed is open to question. But the money was real.
>MicroStrategy hit a high of $333 a share on March 10, 2000.
>Then, it was revealed that the company's numbers were the
>product of considerable ledgerdemain - for which the three
>top executives are now being punished. And the shareholders
>have taken a beating too. The stock is down 98% in the last
>8 months. All of which merely proves my dictum: you don't
>get what you expect on Wall Street, but what you deserve.
>I bring this up, though, not merely to relish the fact that
>people get what's coming to them. It is much better to
>dress up your base emotions with a veneer of
>intellectualism... which is just what Saylor and the other
>Digital Men did.
>"Information wants to be free," they said - as if it meant
>something."Speed changes the meaning of information.""Our
>goal is to achieve ubiquity." It didn't seem to matter what
>they said...they were the young, hip, plugged in tech
>guys...and they 'got it'.
>Like the hustlers and chutzpahs who sold modern art to
>Fortune 500 corporations, Saylor and others went right for
>the high ground.
>Wolff describes what is like when the absurd pretensions of
>the New Era techies met feeble, empty-headed corporate
>America:
>"I wish I could communicate, however guilty I feel about it
>now, the sheer joy of sitting in meetings with well-
>established businessmen representing billions of dollars of
>assets and multimillion-dollar profit streams and being
>able not only to high hand them because I got it and they
>didn't, but also to be able to actually humble them, to
>flagrantly condescend to them, to treat them like children.
>On the basis of this knowingness, hundreds of billions of
>dollars have traded hands."
>Why didn't the big money guys 'get it'? Because there was
>nothing to get. The techies had no real knowledge. Just a
>pretense of knowledge. Big, hollow ideas...that in the end,
>meant nothing.
>They had technology. But they had no more idea of what it
>might do or what it might mean than anyone else. Probably
>less - since they tended to have so little real experience.
>And even the technology they mastered was often shown to be
>ineffective, or quickly superseded by yet newer more
>fantastic technology of even less certain impact and
>importance.
>Still, as they say,"you only make big money from people
>who are stupider than you." The tech mongers figured this
>out early...and were fortunate in having such a big market.
>Everyone - from top corporate CEO's to cab drivers - wanted
>to throw money their way.
>But, now, finally the madness is almost over. MicroStrategy
>stock has fallen - along with almost every other dot.com.
>The tech stocks are not far behind. Finally, those who `got
>it' are getting it - good and hard.
>Your correspondent...cheerfully reporting the news, this
>Monday morning...
>Bill Bonner
>Gruß
>Jan


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