THE DAILY RECKONING

BALTIMORE, MARYLAND

WEDNESDAY, NOVEMBER 10, 1999

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In Today's Daily Reckoning:

*** Amazon's big announcement
*** Dow down 101 points
*** Bill Clinton goes on the Internet

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*** Investors were sitting on the edges of their seats
yesterday…waiting for the news. What would Amazon do
next? What would justify the $5 to $6 billion in extra
value that investors had added to the stock on Monday?

*** Well…the company announced that it would sell
software! Hey…there's an idea. But wait…hadn't Bezos
already told us that he was going to sell "everything"? The
market was clearly disappointed…and took away half of
what it had given the day before. The stock fell 10%.

*** But the Internets only went down 3 points on the IIX.
It still looks like they're spiking up. Could this be the
spike that pops the bubble? Some thoughts below…

*** Actually, maybe nothing can pop this bubble anytime
soon. Greenspan is still increasing the money
supply…worried, perhaps, about Y2K problems. Foreign
investors seem to be moving funds to the United States,
too…where they think it will be safer from Y2K problems.

*** This cash could hold off any serious collapse until
after the New Year -- at least that's one hypothesis.

*** The Dow fell 101 points. Investors backed away from
many of the leading stocks. Today, the big news will be the
Producer Price Index. Investors seem to watch these things
with keen interest…even though they are only of passing
significance.

*** Franklin Roosevelt had his Fireside Chats. Kennedy had
his TV press conferences. Now, Bill Clinton makes history,
on Monday, with the first Internet "Town Meeting." Of
course, the Internet event bore no more resemblance to a
town meeting than Norman Schwarzkopf in full dress uniform
does to Julia Roberts stark naked. But it nicely
illustrated the power of the Internet to dispense folderol
in large quantities.

*** And entertainment, too. One site has gotten 1.2 million
visitors after someone took a site put up by a Turkish guy
named Mahir, who just wanted to meet girls, and made a
parody of it. This is the future of the Great Digital
Dumpster.

*** Asia seems to be on the mend, so commodities are
beginning to feel the pressure. Oil rose to $23 after the
International Energy Agency said oil supplies fell by 1.8
million barrels per day during September. This knocked the
Transports down, the index falling 41 points. It is helping
to concentrate attention on the PPI today, too.

*** Gold has been waiting for something to happen.
Evidently the move in oil stirred some spirits among gold
investors…the yellow metal rose $2.

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OH LORD WON'T YOU BUY ME…AN INTERNET IPO

"The whole people are mad," said the poet William
Wordsworth, writing in 1845. He was referring to the
railway mania, which had investors buying the most far-
fetched schemes at the most outrageous prices London had
seen in many years.

I am well acquainted with delusions…having worked with
writers and editors for many years. But the magnitude and
reach of the current Internet mania still astonishes me. I
gawk at the spectacle with a mixture of curiosity and
alarm…such as I might watch an extremely obese man eat an
eclair in a fancy restaurant.

Hardly had I pushed the "Send" button on my computer
yesterday…commenting on Internet stock prices…when a
madman came into my office. He was "mad" in the sense that
Wordsworth described…caught up in the excitement of an
investment mania…and eager to get rich along with
everyone else.

Actually, he came in accompanied by a couple of my old
friends…sober, reliable men with years of business and
investment experience. These are the kind of guys you can
count on…whether you're in a bar in a rough part of
town…or analyzing a business plan. You can be sure they
won't lose their heads or let you down.

But even they are hedging their bets. As the four of us
stood there, I realized that I alone among them did not
have an interest in a dot-com stock.

I must make amends, as Janis Joplin phrased it.
The madman told us about his company. It is a publishing
business, so I felt I would be on solid ground in trying to
understand the business model. But the more he described
it, the more I realized…the man was raving mad. The
business plan made no sense. It was not a business plan at
all…but a plan to sell an Internet stock to the public
market.

The underlying business was modest. It is a publication
that goes to investment professionals and sells for very
high prices. It provides investment recommendations…often
with several faxes per day.

The company grosses about $6 million. "And the net profit?"
I asked naively. The answer to this question was so vague
and distracted that I am unable to tell you if the business
makes money or not. My guess is that it does not.

What's a company like that worth? They are bought and sold
every day…at five to 10 times earnings. Sometimes they go
for as little as three times earnings. But if they don't
have earnings, you have to work a little harder and guess
about whether they might be made profitable. Still, they
could be quite valuable…but there are a lot of
"ifs"…and sellers rarely walk away rich. Still, I would
have considered paying a couple million for a business like
this…even then it might have troubled my sleep.

But this is the Internet era. And this company had set up a
website, added a dot-com to its name and was both selling
and delivering its product on the Web. The madman provided
a volcanic recitation of all the business deals with all
the big Internet players that were under
consideration…with every buzzword of the trade thrown in.
I couldn't make heads or tails of it. At the end of the
day, here was a small publishing business with a dubious
product and doubtful prospects. Yet, the Internet market
being what it is, this stock is worth…get this…$68
million!

"Between us boys," asked one of my friends, "what's it
really worth?"

The madman didn't even pause for breath. He offered the
same comparison given to us by our own richly-paid
consultants…looking at TheStreet.com which is valued by
the marketplace at 60 times sales (not profits). This would
make his stock worth not $68 million…but $360 million.
Indeed, he felt unfairly treated by stock investors. In my
mind's eye…I saw myself as the British actor, Terry
Thomas, saying to him "Why, you must be mad!"

He had come to see me not to sell his business, however,
but to build it up. He intends to spend millions of dollars
increasing the traffic at this site. Always trying to be
helpful…I suggested a couple of ways that wouldn't cost
him too much money. And he went on his way.

Then I took a look at the business plan for another
publishing dot-com project. I have never met the fellow who
runs this company…but I have it on good authority that
he, too, is stark raving mad. His company has revenues of
only half a million dollars. Profits? Who knows? But he has
a lively site…and gets a fair amount of traffic. And his
prospectus makes the same comparisons everyone else
makes…with some new ones. He looks at the number of
visitors to the site, and comparing himself to other public
companies, concludes that his site could be worth as much
as $700 million. Another measure puts the value of the
company…remember, this is a tiny, private business run by
an eccentric loner who recently needed a place to live (I
offered my guest house)…with total revenues, not profits,
equal to the price of an average home in Southern
California…at $5 billion!

But hey…what can I say? You make money by selling, not
buying. These guys are selling something people want badly
-- Internet stocks. And so far, the public markets have
rewarded madness.

"Count me in!" I said.

Regards,

Bill Bonner
…on the edge of madness…

P.S. Another dot-com promoter is coming to see me this
afternoon.

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