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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter

FRIDAY, 25 MAY 2001 


Today:  Mt. Cisco

*** Unemployment up... cars sales, home sales down 

*** It was fun while it lasted...

*** Tom Wolfe...the `blight of progress'...Paris in full 
sun...and more!

Again, Eric Fry has watched the market for us today. Eric, 
editor of, will also be the guest host 
on CNN-FN next week, 9:30 - 11 E.S.T. My notes and letter 
follow, as usual.

From Eric: 

*** Stocks bounced a bit yesterday, with the Dow up 17 and 
the Nasdaq rising 38 points.

*** Vermont Sen. James Jeffords - the Independent trapped 
in a Republican Senator's body - decided to shed his 
Republican ectoderm and be his own man, whatever that is.
Now that this political side-show is all settled, the stock 
market can get back to doing what it does, whatever that 

*** "This period of sub-par economic growth is not yet 
over, and we are not free of the risk that economic 
weakness will be greater than currently anticipated," 
Greenspan warned yesterday. More interest rate cuts may be 
on the way, he hinted. The Chairman's message seemed 
surprisingly gloomy, given the sunny mood on Wall Street 

*** Greenspan feels he can't plop down onto the porch swing 
and sip iced-tea just yet. Two economic reports released 
yesterday - the weekly jobless claims report and the 
monthly new home sales - both reflect an economy that is 

*** Jobless claims for the week ending May 19 total 407,000 
- 15,000 more than the week before. The latest Manpower 
Inc. employment survey reveals the US companies are in no 
hurry to hire additional workers. In fact, "Companies have 
become as cautious about hiring employees as they were in 
1990 and 1991, when the US had its last major recession," 
the Wall Street Journal reports.

*** People without jobs make lousy homebuyers. Almost 10% 
fewer homes sold in April than in March. It has been four 
years since new home sales dropped so quickly in one month. 
A fluke? Unlikely, given the fact that both mortgage rates 
and unemployment rates are rising.

*** America's unemployed are not buying cars either. 
"Moody's analysts are not enthusiastic about the near-term 
prospects for motor vehicle sales," the rating agency 
writes. "This is a sector that could take a sudden turn for 
the worse to the potential disadvantage of the overall 
economy. Despite an improved pace compared to 2001's first 
four months, the production of motor vehicles in the US was 
off by nearly 10% from a year earlier during May's first 

*** Even as the US unemployment rate climbs, jobs are 
becoming more abundant in the Old World. Last week's report 
from Britain showed unemployment falling to a new low of 
3.2%. Job vacancy numbers are near all-time highs. Which 
leads one to wonder, "How do they accomplish such feats 
without Alan Greenspan? And without America's `dynamic 
labor market'...or its `information age' economy?"

*** The celebrated Manhattan steak house, Smith & 
Wollensky, may be a favorite of carnivorous New Yorkers, 
but its stock is no better than gristle on Wall Street. The 
restaurant company's shares, which listed on the NYSE 
Wednesday at $8.50 each, finished their first day of 
trading at $7.77.

And a few notes from Bill:

*** "It was fun while it lasted," said a middle-aged woman 
in Santa Fe. I was trying to find out how people really 
felt about stocks. Are they ready to jump back in with 
everything they have? Are they already fully invested? Or, 
once burned, are they twice shy?

*** "I was doubling my money every month for a while 
there," she continued. "I would watch CNBC...and when I 
heard about a stock that sounded interesting, I called my 
broker. It was easy. I had a great time. Of course, I lost 
most of the money when the Nasdaq fell. Now I'm sticking 
with the real companies - like Cisco and GE..."

*** "All of my friends are in about the same position," 
said a 48-year-old friend in Baltimore. "They all lost 
...I'd say, about 20% to 40% of their money last year. Now 
they want to make it back as quickly as possible."

*** You don't hear those sentiments at a major bottom. When 
stocks hit their lowest points, people don't want to talk 
about them at all; they have no interest in buying them and 
no hope of getting even.

*** Sy Harding elaborates: "I may be wrong, but the recent 
degree of willingness to jump back in, particularly into 
the same hot stocks that caused the problems in the first 
place, has been a confirming sign to me that, while I 
called for a significant rally, odds remain high that it's 
only a bear-market rally that will end as the market's 
unfavorable seasonal period takes over." More below...

*** What's an investor to do? "Most mutual funds are well-
near incompetent at picking stocks as a monkey throwing 
darts," writes my friend Lynn Carpenter. "John Bogle, 
creator of another Vanguard titan-the S&P 500 Index fund-
calculated - by looking at all the funds available in 1969 
and tracking them for the next 30 years - that you might as 
well throw darts-over your shoulder. Blindfolded." (see: 
The Pros Can't Beat The Monkeys)

*** Author Tom Wolfe was in Baltimore last week. Recently, 
Wolfe made the news by describing the three giants of 
American contemporary literature - Norman Mailer, John 
Irving and John Updike - as "the three stooges." Speaking 
at Johns Hopkins University, Wolfe explained that 
contemporary literature is "narcissistically introspective 
and self-obsessed." He also described what he called a 
"blight of progress:" 

"One reason that Jefferson, or for that matter Zola or 
Balzac or any of these great figures of the 18th and 19th 
centuries got so much done, so much more done than people 
today, is that they didn't have any time-saving or labor-
saving devices...If Jefferson were alive today....he'd 
never finish answering the email."

*** I arrived back in Paris a few minutes ago. It is warm, 
beautiful and swarming with tourists. The tables at the 
Paradis Caf‚ have spilled out into the street - and they 
are all full. If you're coming to Paris this summer, be 
sure to make your hotel reservations as soon as possible.

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"Amazon may be a `river of no returns'. But Cisco is solid 
as a rock. The dot.coms were crazy and everyone knows it. 
But that doesn't mean you can't make money in the stock 
market. Especially at these low prices. And with Greenspan 
cutting rates. I mean, the money has to go somewhere."

The speaker was no one in particular. But he probably 
expressed the views of millions of people.

They have discovered that following the heels of a greed-
obsessed mob leads nowhere they want to go. So, they've 
become `value' investors - looking for the real bargains 
amid the damaged goods and day-old bread of the post-bubble 

There are some values on Wall Street. I have mentioned a 
few `pretty darned cheap' stocks to you over the last few 
days. Lynn Carpenter hunts for them every day...and finds a 

But this approach requires something most investors lack - 
an ability to understand what a value investment is. In 
value investing, to quote Warren Buffett, value matters.
Cisco was considered a great value back at the end of 1999. 
"Without Cisco," said one analyst, "there would be no 
Internet." Fortune put a photo of Cisco's CEO on its cover 
with this rhetorical question: "Is John Chambers the best 
CEO on earth?"

In Cisco, you had a company with a lock on the Internet, 
and by extension, the entire Internet Age, with fat profit 
margins and run by a man who was arguably the best 
corporate manager who ever lived. How could you possible 
want more `value' than that?

Investors loved it. They bid the stock up 89,000% to the 
point where Cisco was the most valuable company in the 
world, worth $550 billion. 

But last year, Cisco earned only $2.7 billion. At that rate 
shareholders buying at the peak would have had to wait 237 
years to earn their money back. And that supposes that the 
world of well as the rest of the 
world...remained unchanged for more than two centuries.

One of the marvels of human consciousness is the ability to 
hold two contradictory ideas at once - believing in them 
equally. Thus it was that investors were able to imagine a 
world of constant technological upheaval on the one 
hand...and one in which a line of routers and switches 
remained as firmly and securely planted as the Cathedral of 
Notre Dame on the Ile de la Cite. Revolutions may come and 
go, but Cisco will still ring out the profits...they must 
have thought. 

Cisco, the company that promised growth rates of 30% to 50% 
per year as far ahead as the eye could see, turned out to 
be incredibly nearsighted. As recently as last October, 
Cisco said it would grow 30% this year. But 2 weeks ago, 
the company admitted that sales had fallen, not risen, by 
30%...and profits were down 75%. Cisco was forced to write 
off $2.2 billion worth of parts, products and supplies - 
which it now says it has no hope of selling. And CEO 
Chambers, says he has very little "visibility" into the 

What is astonishing about this story is how little 
pedagogic value it has had. The mountain has rumbled...ash 
has fallen...many investors have already been swept away in 
the lava flows. And yet, land prices on Mt. Cisco are 
rising. Cisco stock has gone up more than 40% in the last 6 

Every myth about Cisco has been discredited. Its CEO may be 
a visionary, but he cannot see around corners. He may be 
able, but he is no match for the credit cycle. "Real time" 
inventory monitoring systems did not prevent Cisco from 
over-stocking its shelves. Information technology did not 
prevent an economic slowdown. Productivity did not rise to 
a whole new magnitude. The demand for the Internet 
connections has not proven to be infinite. Economic life in 
the 21st century has turned out to be much like economic 
life in the last one. 

Values still matter. 

Your correspondent...always searching for the 
essentials...the real values...

Bill Bonner

P.S. Greenspan may cut the fed funds overnight loan rate. 
At 4% it is already only 7 tenths of one percent above the 
Consumer Price Index. Thus, the real interest rate to 
member banks is less than 1%. Two more 50 bps cuts and 
bankers will be borrowing money at a negative interest 
rate. The Fed will be paying them to take it. 

But that alone does not make Cisco a good investment. The 
real economy...and the real value of the companies listed 
on Wall Street...are not so easily manipulated. Cisco is 
surely a better value at $22 than it was at $60 or more. 
But earnings per share have gone negative... it has a long 
way to go before it is a value investment.

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About The Daily Reckoning:

Daily Reckoning author Bill Bonner

Bill Bonner is, in spite of himself, a natural born contrarian. Early each morning, Bill writes The Daily Reckoning—his take on the financial markets and what’s going on in the world—and sends it off by e-mail before most Americans’ alarm clocks have buzzed. Many readers say it's the first thing they want to read when they get up—not only because it's informative and thought provoking, but also it's inspiring, in its own quirky and provocative way.

Of course, there's much more to Bill than his daily market commentary. He's also the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies. Bill's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest . Since then, the company has grown to include dozens of newsletters focusing on health, travel, and finance. Bill has vigorously expanded from Agora's home base in Baltimore, Maryland since the early ’90s—opening offices in Florida, London, Paris, Ireland, and Germany.

Agora's publication subsidiaries include Pickering & Chatto, a prestigious academic press in London and Les Belles Lettres in Paris, best known as a publisher of classical literature in bilingual editions.


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Last modified: May 25, 2001

Published By Tulips and Bears LLC