| MAMMON'S CHRISTMAS THE DAILY RECKONING BALTIMORE, MARYLAND THURSDAY, DECEMBER 16, 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning: *** Profit taking ends *** Loss taking continues *** Pokemon out of stock! * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *** The bear market continues. The Dow rose 66 points
yesterday. Nasdaq was up 50. But the IIX, the Internet
average, fell. And so did most other stocks. *** Market pros refer to this as "declining breadth" or
bad breadth. It's what's been happening for the last 20
months. *** Yesterday, for example, even though the Dow rose and
the headline story on CNN was that "Profit Taking Ends,"
what really happened was that Loss Taking Continued!
Nearly 10 times as many stocks hit new lows as hit new
highs. *** The big news was that Bill Gates got richer when
MSFT rose $9. The apparent reason? The company announced
that its Windows 2000 version would be ready in
February. The real reason, guesses Bill King, is that
there was a massive play in the options market. Call
options were released, which squeezed the shorts. *** Red Hat, posing a long-term threat to MSFT with its
Linux system, also rose -- $26 bucks. *** But most stocks fell. And this bad breadth has been
going on for so long you'd think the bear would need a
rest. *** Ninety-six mills. That's all that separates a dollar
from a euro. Less than a penny. As predicted in this
space, the dollar has achieved parity with the euro.
What's ahead? Steve Hanke, writing in "Forbes," says,
"The only thing that can stop the euro's decline versus
the greenback is if it gets lucky and Wall Street takes
a dive." That's what I'm worried about. *** Crude oil is up over $26. Not to worry, the world
economy is less dependent on oil than it was in the
'70s. *** If oil means less…gold means almost nothing. The
world financial system seems to have forgotten its
romance with gold years ago…took the photo off the
mantel…threw away the letters… Gold? Who? But the
stuff rose $2.60 yesterday, in oblivion. *** And T-bond yields rose, too…as Geoffrey Moore's
Future Inflation Gauge rose to a four-year high. *** You may recall that my son Edward, age 6, was so
taken with Pikachu and the other Pokemon characters that
when asked what he wanted to be when he grew up he
replied, "Japanese!" So, I thought I'd pick up a couple
of toys while in the United States. Easier said than
done. They're sold out of many items. Even on E-Toys. *** Speaking of toys…Elizabeth asked me to get a toy
for Edward called a "knocker." I had no idea what that
was. "Just go up to the salesgirl," suggested Elizabeth
innocently, "and ask to see some knockers." I think I'll
try a different approach. *** Zimbabwe is in trouble. It has only a few days of
financial reserves. Inflation is running over 70%. Who
cares? I don't know…I just like to stay informed. *** PICT…Newbie…ASP…ColdFusion. There, just
thought I'd toss out a few irrelevant Net terms. *** Maybe it's harder to get a woman pregnant today than
it was when I was in college. I don't know why…but
pregnancies fell to their lowest level in 20 years in
1996. There were 6.2 million babies conceived; 1.3
million of them were killed by doctors. Some women
miscarried. There were 3.9 million births. *** In Europe, people are worried about the "Leap Year
Bug." Year 2000 is a leap year. Supposedly, the way
computers are programmed, they won't be able to
recognize it. Big problems on Feb. 29, they predict.
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MAMMON'S CHRISTMAS Everyone is getting rich. There is even a popular TV
show, I am told, called "Who Wants to be a Millionaire."
Just glancing over the magazines in the lobby, I notice
that almost every one has a headline implying that the
reader can get seriously rich. "Forbes" has a clever
parody of these covers on its current edition. The
headline says: "Everyone Ought to be Rich." But when you
look carefully, you see that it is a quote from John
Raskob, circa 1929. But apart from the occasional doubter, the rest of the
nation is ready for wealth and little else. "If not
now," as Jim Davidson asked me yesterday, "when?" All of America seems obsessed. Mad. Money crazy. And
yet, on Main Street as on Wall Street, it is only a very
few people who are actually getting rich. Those are the
people in the tech and Net sector. Most stocks do
poorly. Most businesses limp along. Most people earn
barely more this year than the last. But the money is moving from the old economy to the new
one. And if you are in the right one…you stand to get
rich. Microsoft alone is said to have about 8,000
employees who are millionaires, thanks to stock options. My advice to those lucky few, "take the money," forget
about it…enjoy the Christmas season. "On the eastern coast of the Caribbean island of
Barbados," writes Ray DeVoe, "is a large dish-shaped
antennae pointed at an orbiting synchronous satellite." "It is a joint venture between the government and
American Airlines that allowed the airline to close down
their Dallas/Ft. Worth billing and reservations
operations and hire Barbadians to do the job. Neither
American Airlines nor the Barbadian government will
disclose the wages and benefits paid, but knowing the
island, the cost in that region would be roughly a
quarter of what the airline would have to pay in wages
and benefits in Texas." This is the future of e-commerce -- moving expensive,
information-laden operations to low-cost places. You may remember that America used to manufacture things
like radios, televisions and cameras. But the industry
moved to places where labor is cheap. First, Japan…and
then the rest of Asia. This trend has gone to such an
extent that China recently recorded the highest trade
surplus with the United States of any country ever. They
make things in China. We buy them. And during the month
of September alone we bought $6.9 billion more from the
Chinese than we sold to them. Ray DeVoe chronicles how these Asian imports gained a
foothold in the U.S. market. Distributors and
manufacturers of American products were alarmed by the
aggressive discounting in stores such as Korvettes. So
they refused to sell to them, fearing Korvettes would
undermine their price structure elsewhere. Korvettes
turned to imported substitutes. Ray discovered Panasonic
radios, for example, because the RCA models were not
available in the discounters' stores. He tried the
Japanese model and found that it was not only just as
good -- it was better. It wasn't long after that the
American manufacturers were completely replaced by their
Asian competitors. E-tailers such as the E-Toys I visited last night claim
they are able to offer better service and lower prices
by cutting out the distributors. But they are
vulnerable, too. The E-Toys back office could have been
anywhere. If cost-saving is the name of the game, why
not set up shop in India? There are as many bright,
well-educated, English-speaking people in India as there
are in America. And they work for a whole lot less. I had dinner last night with Dan Denning -- who
discovered Pokemon as an investment opportunity more
than a year ago. Dan is researching Asian software
companies for the next "Fleet Street Letter" because he
believes that Asian entrepreneurs will do to e-commerce
and the software industry in the United States what they
did to manufacturing in the 1980s. They'll take the best
ideas and replicate them…operating faster and at lower
costs. And they'll take the whole e-tail industry to the next
level -- bypassing the giant e-tailers such as E-Toys
and Amazon…and connecting customers directly with what
they really want. The Internet is a great tool for exchanging information.
It does not seem to me to be a very good device for
shopping. When I discovered that the Pokemon that I was
looking for were not in stock…I did not browse around
the shop and see what else the boys might like. Maybe
other people do that…but I couldn't imagine being able
to make a selection based on the images and information
on the screen. I could only buy what I already knew I
wanted. It was just a means of ordering, not shopping. The "WSJ" carried an article about one of its reporters
who planned her whole wedding on the Internet. She
ordered everything sitting at a computer terminal. "How
sad," writes Ray. Planning a wedding is "supposed to be
savored, enjoyed and shared with others." This year, no doubt, people will organize their entire
Christmas celebrations on the Internet. Maybe they will
also sing carols while downloading the lyrics…and
looking at photos of shut-ins. And they will get frustrated…eager for the holiday to
be over so they can get back to the real world…of
getting rich in the new economy. But if the things people really want -- the toys, the
electronics, the clothes -- are manufactured in China
and other lower-cost places…which they are… And if the sales channels are streamlined to reduce the
importance of U.S. distributors, both traditional and
Internet…which I predict… …then you have to wonder what will be done in the
United States? Will we all "take in each other's
laundry," as Harold Wilson once asked? Getting rich in the new economy may not be as easy as
they think. Bill Bonner
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