| A MILLION-DOLLAR INTERNET IDEA THE DAILY RECKONING OUZILLY, FRANCE
THURSDAY, 4 NOVEMBER 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning: *** Nothing happening on Wall Street
*** A new mayor in Baltimore…
*** Brute force in Chechnya * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
*** I'm waiting for something to happen. In the stock
market, that is. But nothing much does. *** Yesterday, the Nasdaq did close above 3,000. The S&P
and Dow rose slightly…but not enough to mention. *** All the activity is still in the techs and Nets. They
haven't peaked out yet…but when? How to make your own
Internet fortune…below…. *** Gold rose slightly, too. No clear direction there,
either. *** The dollar came closer to 100 yen yesterday…down to
103 before bouncing back to close at 105. *** The European Commission has given the French eight days
to drop their ban on English beef. *** Lynn Carpenter's "rubber meets the road" approach to
the Internet is paying off. Instead of investing in the
Internet companies themselves, she found a shipping company
she believed would benefit from the rise in e-commerce.
Unlike the Internets, the company had profits…and a
reasonable stock price. The stock was priced at $17 when
she recommended it. Now it's $30. And rumor has it that
Deutsche Post is about to try to buy it -- at $40 a share! For more information on Lynn's picks in "The Fleet Street
Letter," in the U.S. call 1-800-433-1528, or from outside
the U.S. call 410-234-0691. Ask for code 3472. Or visit
http://209.70.9.80/secure/form2.cfm?pubcode=fsus *** I'm constantly amazed by DR readers. One sent me his
Cartesian approach to market timing…reprinted below… *** Now it's official…Mike O'Malley has been elected
mayor of Baltimore…"the first white mayor in 12 years."
Why the color matters is anyone's guess. The city was just
as much of a dump under lily-white William Shaefer as coal-
black Kurt Schmoke. But O'Malley promises a "zero
tolerance" policy on crime. *** This would be a big improvement…but it recalls
previous moronic initiatives against crime in Baltimore.
One was the Gun Buy Back program…where the city created a
market in used handguns, which allowed the criminal world
to trade in its old, wornout models at inflated prices, so
that new, more powerful ones could be purchased. Another
was the Murder Free Day proclaimed by Mayor Schmoke a few
years ago…in which the City Fathers called on civic-
minded killers to control their homicidal tendencies for
one 24-hour period. As I recall, no decline in the murder
rate was detected. *** An interesting footnote in the intelligence and race
discussion. I've met both Schmoke and Shaefer. There's no
doubt in my mind that Schmoke, the Rhodes Scholar (what
would Cecil Rhodes have thought!), is more intelligent than
Shaefer, the ward heeler. Maybe 10 IQ points. Maybe more.
But come to think of it, most of the damage done in the
20th century can be traced to the dumb ideas put forward by
smart people: Freudianism, Marxism, Nazism, cubism,
bauhausism, Rooseveltism, suburbanism, welfare statism,
Barbara Streisandism…Intelligence seems to be no
protection against imbecility. On the contrary, it takes a
high IQ to appreciate and embrace many of the absurdities
of modern life. *** In Chechnya, meanwhile, the Russians have escalated
beyond lies to brute force. "Wasted any Chechens [?],"
responded one Russian pilot to a reporter's question,
"yeah…I blew away a lot of them…" It is a campaign of
"total annihilation" say the Russians. But it is being
conducted from the relative safety of the air. And there
are still believed to be between 8,000 to 40,000 armed,
determined Muslim troops in Grozny, waiting for the ground
war. What these fighters don't know about revenge and blood
feuds is not worth knowing. Somehow, they've missed the
spirit of Festivus in that part of the world.. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
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A CHRISTMAS STORY…HOW TO MAKE YOUR
OWN INTERNET FORTUNE Yesterday I promised you a way to become an Internet
millionaire. I was not kidding. In fact, I'll give you two
ways…either one of which could make you rich. I would
like to do them myself…and had hoped to do so. But time
is short. Most likely, I will never find the time to embark
on either venture. And who knows how much time is left in this mania? So, in keeping with the new cooperative age…I offer a
couple of ideas. One today…and one tomorrow. All I ask is
that you give me 10% of whatever you make from them. And if
this offer contravenes any rules, regulations, laws or
protocols of any state, local government, nation or other
political entity anywhere in the Milky Way…consider it
null and void. Otherwise, I will want my piece of the
action. Many readers have commented on my Internet remarks. They've
pointed out that I am wrong about this…or wrong about
that. I would like to take this opportunity to admit that I
am probably wrong about everything regarding the Internet.
Every photon, electron and quark. But I don't think it's something you can ever be right
about. It is too broad and subtle an issue. As with the
doctrine of infant damnation or an employment interview
question…you can only tell people what they want to hear.
People want to believe that they can get rich because of
the Internet…this is my contribution to that end. At least you, dear reader, are getting your opinions from a
qualified source. I have never made any money on the
Internet…neither in business nor in investments. And not
making money sharpens your critical faculties, just as not
eating sharpens your appetite. The last thing you want to
do is to pay attention to someone who's made millions
buying Internet stocks and believes he is an investment
genius. I have awoken as a fool often enough already…he
still has it to look forward to. The first idea is very simple. It recognizes that the
Internet really works…as a tool for doing business. The
idea is really nothing more than selling the accoutrements
of Christmas, online. A brief search showed a couple of
outfits beginning to do this…but none doing it well. The
idea is to make it easy and fun to prepare for Christmas.
The trouble with Christmas…as least when you have a large
family…is that you are so busy you have no time to enjoy
it. That has been my experience. We are always on the verge
of a complete breakdown…simply because of the logistics.
So much preparation…so many places to go…so much
shopping. Too much to do…and too little time to do it. The idea is to create a kind of quaint, country
store…devoted exclusively to Chrismas…on the Internet.
Customers come to the site…they get ideas…stories…
poems…recipes…music…all for free. But they also get
the opportunity to buy everything they need -- decorations,
wrapping paper and even a Christmas tree. The trees
themselves could be a big source of profit. It's a huge
market. And the price of a tree in the field is very low.
The price on the lot in Florida, by contrast, is rather
high…because so many middlemen have to be paid. This is where the Internet really should work. It should
make it easy and enjoyable for a customer in South Beach to
cut his own tree, via Internet, in Maine or Nova Scotia. In
just a few minutes time, he could get just about anything
he needs…including some holiday ideas and
inspiration…and have it delivered to his door. The key,
of course, is to make the experience satisfying to
customers…and to let prospective customers know about it.
But even a few thousand customers might produce a very
healthy business. This kind of business is ideal for the Internet in another
way. It is the sort of thing that is appropriate for a
post-capitalist world. An individual can do it…without a
lot of investment. Simplicity and honesty should pay off.
The whole idea is to recreate the low-pressure, old-
fashioned and personal ambiance that customers want. The
entire investment might be something on the order of
$50,000. It would be seasonal work too…allowing for long
vacations in the summer. But imagine that you could build up a customer base of just
10,000 people. And imagine that…selling wrapping paper,
trees, fruitcakes and the like…you could realize a profit
on each customer of $25. That is a gross profit of
$250,000. After expenses, it might be a profit of
$100,000…which should have a capital value of $1 million. These are modest numbers, I believe. But you won't know
until you get into the business. You might sell 100 times
more than I have imagined. And there would be little need
to stock things. In most cases, you would just be a
distributor for items stocked elsewhere (but that, too,
would have to be figured out.)
The key thing to remember is that this could be a real
business. There is no need to hype up an IPO and raise
millions of dollars from unsuspecting, greedy investors.
Instead, you're just trying to harness the power of the
Internet as a communication medium to do something that
would otherwise be rather marginal. There are, for example,
already Christmas shops. There is one in New York and one
in Florida. But they have to pay rent all year round. They
have rather high fixed expenses, even though their sales
are concentrated around the holiday season. Plus, they
reach relatively few people. The Internet makes a Christmas
shop a better commercial bet. One of the success stories of the Internet is the story of
W.W. Grainger. (Someone sent me an article on
Grainger…but I couldn't figure out the source.) Grainger
did not try to become an Internet company. It merely used
the Internet to do what it already did -- sell tools. It is
the sort of business that should have been run out of
business by the Internet. Because it is a middleman.
Customers should have been able to go directly to the
manufacturers to buy their tools. But by bringing tools
together from many different manufacturers…and by
simplifying the shopping process…the 72-year-old business
provides a valuable service. Indeed, it is even more
valuable with the convenience of the Internet as a
communication tool. Grainger already sells $140 million
worth of tools via Internet. It believes it will soon do
most of its sales that way. The Internet makes it easy to
keep track of stock…to speed orders…to make
comparisons. Customers like it. None of the jargon of the
Internet Era applies. Faces, hits, stickiness…Grainger
just keeps doing what it has always done…using the
Internet as its own tool. That is also the method behind the Chrismas.com concept (I
think, however, that that domain name is already taken).
You just create a reliable, convenient…and
Christmasy…way for people to prepare for the annual
holiday, using the Internet as a tool, not an end. Good luck. I'll tell you where to send my checks. And merry Christmas… Bill Bonner P.S…I'll give you my other idea tomorrow. It's a little
more complicated. But the profit potential may be much greater. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
A CARTESIAN MEDITATION [ON THE STOCK MARKET] Bill, I have read your newsletter with interest and amusement. I
share you bearish sentiments. I have always distrusted the
masses, so if everyone says the weather is nice, I feel
compelled to say that it isn't. Consequently, I needed to
determine if it wasn't just some misanthropic perversity
that compelled me to be bearish. Since I am an academician
by trade, I sat down, like a good Cartesian, to list what I
knew to be clearly and distinctly true. Well, this didn't
work, since there is nothing about the stock market that I
could claim to know with absolute certainty. Thus, I was
compelled to turn to Hume and the estimation of
probabilities in a probabilistic universe. I sat down and
listed the evidence that would indicate that we are, with a
high degree of probability, in the beginning of a major
bear market. Below is what I came up with: 1. Dow Theory, which has a 90% track record, flashed a
bear market signal a few weeks ago. 2. The collapse in the advance-decline ratio, and the
fact that, every time in the last 70 years the Dow's
advance-decline ratio has failed to hit a new high when the
Dow did, there was a bear market. 3. According to Elliott Wave theory, the Dow has
completed a fifth wave of a fifth wave. This signifies a
significant trend change. The decline from the high in the
Dow was a five-wave decline, which also usually indicates a
trend change. Thus, from this perspective, the Dow is in
the second-stage rally in a bear market, which is the
strongest bear-market rally and is a preparation for the
third-stage washout. The NASDQ is in the process of
completing its fifth wave. When it does, there will be a
significant first-wave decline in this market. 4. Stochastics has failed to confirm any of the tops in
1999. Each new top was met with lower stochastics. The head
and shoulders technical formation is still intact. This
projects a decline to 1,100 or lower in the Dow. 5. The money supply has declined. Real M3 hit a peak
last February. Peaks in money supply have been followed by
significant declines in the stock market in 1929, 1946,
1968, 1973 and 1987. There is an approximate six-month
period between the peak of M3 and when the market begins to
decline. The August highs in the market fit into this time
frame. 6. Credit is tightening. At its peak in the first
quarter of 1999, new credit was being churned out at the
yearly pace of $1.2 trillion. Now it's down 24%, to $942
billion per year. That's the worst quarterly decline in new
credit in six years. 7. The extremely high valuations in the stock market
from a historical perspective are reasons to be bearish.
According to the Fed, the market is over 50% overvalued. 8. The fact that the Fed perceives the market to be
extremely overvalued, and Greenspan has warned repeatedly
about "irrational exuberance" and the need to act before
the market becomes so intertwined with the rest of the
economy that, when it does fall, it brings the rest of the
economy with it. If the tail begins to wag the dog, then we
are all in serious trouble. 9. Gann found that there were many market peaks the
ninth year of a decade in an increasing stock market. In
this century, this occurred in 1929, 1939 and 1969 in the
United States and in 1989 in Japan. These declines are
especially significant when combined with the 70-, 60- and
30-year cycles, which saw declines in 1929, 1939 and 1969. [what happened to #10?…very un-Cartesian…] 11. Accounting manipulations are running rampant as
businesses attempt to maintain the appearance of continued
growth in order to draw in additional investments. Besides
all the manipulations that the Internet stocks use to
justify their valuations, more classical ones are also in
play. Mergers often are used to provide the appearance of
greater earnings so as to overstate them, and there has
certainly been a plethora of mergers lately. 12. Finally, one of my colleagues at the university is a
classical scholar who has lived in an ivory tower for over
30 years and who has traditionally raved against the
corruption of classical virtue by modern materialism. When
at a faculty meeting he started raving instead about his
stock market returns and began to give stock tips to
others, I knew that the party was soon to be over. This was
confirmed when my secretary, who has no background or
experience in investing, also started issuing stock tips to
the faculty in the department. Michael Green
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