In Today's Daily Reckoning:
*** Amazon...down the river
*** Oil up...gold down...
*** The 'lost generation' and stock market bubbles...
*** Oh Amazon! You great, big, muddy river of no
returns...The big news on Friday was the breakdown in
shares of AMZN. The 'must own' stock of '99 has become the
'must dump' stock of 2000. Down, down, down, down...to $33.
*** The Dow managed a few points of profit Friday - rising
28 points. But AMZN led the Nasdaq lower - down 91 points.
*** "The growing sentiment," said one fund manager quoted
by Reuters, "is that the best times are behind us." But if
the best times are behind us...what is ahead of us?
*** There were 1221 advancing stocks, 1595 declining ones.
Only 25 stocks hit new highs. 62 hit new lows.
*** Tomorrow the Federal Open Market Committee meets. After
six rate hikes in 12 months, the overwhelming consensus
among bond traders is that Greenspan will not push through
another one. "Easy Al" believes in letting the street know
what he will do in advance, in order to avoid shocks. So,
the traders are probably right.
*** Oil rose $1.58. Eventually, oil price increases work
their way into CPI increases. Wall Street analysts worry
that even if the Fed does not hike rates this week - they
will probably do so later in the summer.
*** Gold fell $2.40. It is hard to reconcile gold price
movements with the inflation forecast. This leads many to
believe the gold markets are rigged. That is one of the
sub-themes entertaining conventioneers at the World Gold
Conference here in Paris this week.
*** I had lunch on Friday with Harry Schultz, who is in
town for the gold conference. Harry, Richard Russell and
Jim Dines are the Grand Old Men of the investment
newsletter business. They've survived bull markets and bear
markets...and a lot of markets in-between.
*** "The 1920's and today's bubbles," he writes in a recent
issue of his newsletter (www.HSLetter.com), "are both
symptoms of a crisis of faith."
*** Harry reminds us that the post-WWI generation was
termed the "lost generation," in Hemingway's The Sun Also
Rises. "I submit," he says, "that the irrational exuberance
which ended in 1929 was an attempt to find meaning in a
post-war age of cynicism and loss of life meaning. God
seemed an antiquated myth, and the promise of a better
world through 1920's technology was a pretty good
substitute..."
*** Another lost generation arose during the Vietnam War,
Harry maintains. This time it was a loss of faith in
secular institutions. "As of now," he continues, "the total
value of U.S. stocks is 200% of GDP, so logic also suggests
a crash imminent. World GDP is $41 trillion, but there is
$300 trillion in financial claims outstanding. Just as a
newly-divorced people drown their sense of betrayal/hurt in
excess, so a spiritually-bereft generation does with the
stock market."
*** "Mugabe is an institution" said a spokesman for
Zimbabwe's ruling party, explaining why "Comrade Bob" would
not step down even if his party were defeated in the
weekend election. Mugabe may or may not be an institution,
but he should definitely be institutionalized.
*** Sacre Dieu. And what a relief. The school year ends in
France this week. All of our children have passed into the
next grade. Each one followed a different strategy. Maria
studied intensely, but without really paying attention.
Sophia eschewed intense study in favor of dumb luck. Jules
calculated the minimum needed to get by and got by -
minimally. Henry relied on his charm. And Edward, who never
goes anywhere unarmed, must have threatened his teacher.
*** This is the anniversary of Kennedy's "Ich bin ein
Berliner" speech. A 'berliner' is a pastry.
*** It is also the anniversary of Pearl S. Buck's birth.
The author won the Nobel Prize in literature. According to
my usual unreliable sources, she is the only American who
was not an alcoholic to do so.
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The rabbit jumped out of the grass on the right side of the
road. I hit the brakes, and slowed enough so that he could
have gotten across the road safely. But, instead of darting
to the other side, he feinted to the left.
Rabbits do not run in a straight line to escape predators.
They are not as fast as wolves. Over many hundreds of
thousands of years, they learned to zig and zag, counting
on the momentum of their pursuers to cause them to miss the
turn. Those who could not learn to fake out the wolves,
were eaten. Unfortunately, the Renault Espace, loaded with
luggage, three adults and three children, did not take the
feint. Thousands of years of evolutionary programming had
failed to prepare the rabbit for the internal combustion
engine.
The internal combustion engine was a "first order"
innovation, according to Professor Gordon, to whom I
introduced you last week. It changed things in a
fundamental, revolutionary way. Before it came along, most
people lived on farms. Man and beast working together could
produce more food than they needed to support themselves.
Still, agriculture took up the efforts of 80% to 90% of the
working population.
Motorized farming and transportation changed everything.
Within a few years, whole populations were moved around -
with 90% of the people living in cities and suburbs, and
just 10% still on the farm.
In Russia, technology took the place of religion. Instead
of naming their children after saints, they named them
after farm equipment. Just as Stalin changed his name to
something in tune with the times - Stalin means "man of
steel" - farmers gave their children names like "tractor"
or maybe even "piston," but probably not "oil pump" or
"universal joint."
Real revolutions don't come along very often. When they do,
the instinctive behavior of hundreds or thousands of years
- the institutions that have evolved over the centuries -
may become a liability, rather than an asset. Revolutions
are dangerous.
The Internet looked like a revolutionary innovation when it
first appeared. But it is turning out to be, as Professor
Gordon, suggests, much less important than the internal
combustion engine. It is not really a "first order"
innovation, but a secondary one. The Internet is just an
evolved stage of the telecommunications revolution that
began with the construction of the French State Telegraph
system in May of 1794. It was later greatly improved by
Samuel F.B. Morse who officially inaugurated his system in
May 1844 when he sent his famous message from the Supreme
Court chambers in Washington to his assistant in Baltimore.
What God had wrought was a revolution. The Internet, by
contrast, is merely the latest twist in the revolutionary
saga.
One of the marks of a true revolution is that it destroys
the old ways of doing things. Like rabbits, whose genetic
code is unprepared for automobiles, the existing
institutions and habits are run down, crushed and
forgotten.
That is what was supposed to happen when the Internet
Revolution was announced. The newspapers were supposed to
go out of business, because the Internet would steal their
classified advertising - as well as their content.
The retailers were supposed to be doomed - because people
would do their shopping over the Internet.
The music industry, movies, books - all would be out of
business or radically transformed. Nothing would be able to
stand against the superior, revolutionary new innovation of
the World Wide Web!
Automobiles (who would need to commute?) would be hurt.
Salesmen could take a hike. Car dealerships would soon be
empty lots.
Businesses of all sorts would be ruined as profit margins
got thinner and thinner. Second tier manufacturers would be
destroyed. Malls would close. Office buildings would be
abandoned.
All of these businesses were supposed to end up as road
kill. They were thought to be the unavoidable casualties of
the Internet Revolution.
(http://www.fleetstreetletter.com/getwealthy5/)
And yet, the carcasses we are beginning to find on the road
are not those of traditional businesses - but those of the
new Internet companies! Amazon fell $8 Friday after an
analyst noticed that the company was running out of cash
and seemed unlikely to develop a 'category killer' business
in the next 12 months.
Barrons' reports that there are 50 Internet companies
scheduled to run out of money in the next 8 months - among
them some of the best known businesses in the industry:
drkoop.com, Juno Online, Beyond.com, Salon.com and Value
America.
The dot.coms are desperately trying to hold on to their
remaining cash, in a very traditional way: they are laying
off people. According to Bloomberg, APBnews.com, DEN.com,
and toysmart.com took this idea to it's logical extreme -
laying off 100% of their employees. If they can figure out
how to operate with no workers, even I will concede that
they have developed revolutionary business models.
Meanwhile, share prices continue to drop. Salon was over
$25 in January. And drkoop was over $15. Now both are below
$5 and trending towards zero. (see: The Demise of the Greater
Fool http://www.dailyreckoning.com/body_headline.cfm?id=205)
Overall, Internet stocks are about 50% down from their
peak. The industry had a market cap of $1.4 trillion
earlier this year... which is down to $693 billion today.
No Internet sector seems to be invulnerable. Just a few
months ago, the business-to-business companies enjoyed
great popularity, while the e-tailers were considered
yesterday's news. Now they've all become last week's news.
In a few months, you won't be able to find a single person
who ever thought Internet stocks were a good idea. They
will have made a full circle - from myth to news to myth
again.
The rabbits are safe.
Bill Bonner
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Last modified: April 02, 2001
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