THE DAILY RECKONING

PARIS, FRANCE

TUESDAY, 21 DECEMBER 1999

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In Today's Daily Reckoning:

*** Nasdaq hits new record…so what's new?

*** Many stocks become bargains

*** Teenagers game the Internet

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*** I'm not even going to give you the Advance/Decline
or New High/New Low numbers today. They have become
tediously familiar.

*** Day after day, the market gets mauled -- and the
techs and Nets go higher. The Dow fell 113 points
yesterday -- along with every major market from
Manhattan to Tokyo Bay. But the Nasdaq rose to a new
record.

*** Yahoo rose 19 points. CMGI added 10 points. AMZN
rose $2.

*** Of course, everyone now knows that AMZN's founder,
Jeff Bezos, is "Time's" Man of the Year. The "king of
cybercommerce" had this to say about Internet investors:
"People believe passionately in the future of the
Internet, so they're investing sort of commensurate with
that belief." AMZN will lose $350 million this year. But
Bezos says it will sort of be profitable in 2002.

*** Today is a big day for the markets. The Fed is
having a big powwow. Analysts expect the Fed to shift to
a "tightening bias" but leave rates unchanged.

*** Richard Russell calculates that the fall in the
Advance/Decline ratio implies a Dow of 6,500. If the Dow
had fallen proportionately, that's where it would be.

*** The bear market has been a fact of life for 20
months. Which means that a lot of stocks have been
driven down to the point that they are now good
bargains. These are not, typically, companies with
famous websites. A simple formula for contrarian
investing suggests itself -- look for companies that
have what most popular stocks have not; and lack what
the high-flyers have in abundance.

*** I've mentioned several in these pages. Here's
another one proposed by Jim Grant: The Genessee &
Wyoming railroad is about as far away from the net
bubble as you can imagine. Rather than shoot light or
electrons through tiny filaments, the GNWR hauls salt
and other pre-Internet materials in heavy steel cars
over heavy steel rails. But what it lacks in Internet
pretensions, it makes up for in value. You can buy the
whole railroad for less than $55 million. Or 4.8 times
trailing earnings. And .66 times book value. Could it be
that the best investment of the beginning of the century
is also the best for the end of it?

*** Internet companies are spending billions on
advertising -- half their revenues, in fact. Since
they're losing money, what they're really doing is
spending capital raised from investors. Better hope the
advertising works…because investors won't have much
else to show for their money.

*** Teenagers are finding ways to game the system.
Advertisers on the Internet will sometimes pay "per
click" -- that is, each person who visits the site. So,
to encourage people to visit the site, they've developed
software that allows visitors to share the revenue. Kids
set up their computers to automatically visit the
sites…and get a monthly check. Is this too insane to
be true?

*** Bill King reports that the First Family's annual
Christmas photo op was accompanied by a politicized
version of the "12 Days of Christmas," sung by a group
of 50 kids. Replacing milkmaids and leaping lords were
organic produce, solar power "and a world where people
are free."

*** Bill also tells us that Al Gore named Benjamin
Franklin as one of America's greatest presidents.

*** And from Zimbabwe comes this little tidbit:
Zimbabwean police on Monday assured the nation there
was no need to panic because it was not true that women
had died or vanished after being forced to breastfeed a
large frog. Rumors circulated that a man in a Mercedes
offered women lifts. As soon as the women were in the
car, he would pull a frog out of his briefcase and force
the women to breast-feed it. One victim, interviewed by
police, said she had suspected the driver had a frog in
his briefcase, but had not actually seen it.

*** I drove down to St. Mary's County before leaving
Maryland. The Amish down there go about their business
pretty much as they have done since they got stuck in
time a couple centuries ago. They make great tourist
props, dressed in their funny get-ups and driving their
buggies along the side of the road. They've missed the
biggest wealth explosion of all time…but do they care?
Who knows, maybe they're day trading Internet IPOs after
they come home from the farmers' markets.

*** My brother used to shoe horses in Charlottesville,
Va., where he still lives. He mentioned that William
Faulkner's daughter lives there. In fact, she got kicked
in the head by a horse when my brother was visiting.
Brother Jimmy saved her life; he found her on the ground
unconscious and suffocating in her own blood.

*** It's good to be back at home. I'm referring to the
farm at Ouzilly, France, which is home to us now. With
Elizabeth and me, five children, my mother and my aunt
dozing in front of the fire -- the house is alive with
family cheer. It is probably more convivial because we
are a bit isolated out here. We went out into the woods
and chopped down a Christmas tree yesterday. But it gets
dark so early…we brought it back by moonlight.

*** Speaking of which…look at the moon tomorrow night.
It's supposed to be brighter than it's been in 100 years
because of a coincidence of proximity to both the earth
and sun. Irrational behavior is said to increase under a
full moon…so this should be a doozy. This is not a
prediction, but wouldn't it be neat if the Internet
mania reached its lunatic zenith tomorrow?

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THE EDITORIAL PAGES

I read the editorial pages like some people read Stephen
King novels. I want to be shocked and horrified. I'm
rarely disappointed.

The editorial page is like an abandoned house on a
moonlit night -- it is where the monsters come out.
Headlines in the "International Herald Tribune" reveal
the fads and feeblemindedness that troubles these
writers' sleep.

Ellen Goodman frets that men are getting all the
attention from the "Man of the Year/Century/Millennium"
committees. She wants to recognize the anonymous woman,
Anonyma, for her contributions, whatever they may be.

Nearby, Jerome Groopman is disturbed that the fruits of
scientific advances may not be equally distributed. He
warns that "inequalities of the past" may threaten the
realization of greater longevity. Unlike Goodman, whose
point is silly, but obvious…Groopman's point is so
obscure I could not find it.

Here's another: "Defense Dreams Create Mistrust" -- in
which Jim Hoagland tells us that U.S. defense policy has
to be better explained to the allies. Why is he telling
me this, I wonder. I have nothing to do with it and no
capacity to influence it. It means absolutely nothing to
me.

Or how about this -- "Indonesia's New Regime Faces
Economic and Political Tests." Now there's a headline
that is bound to square with the future. I have little
doubt that Indonesia faces tests. But the punch line
comes when the writer, a minister of finance, explains
how the country will embrace every moronic policy ever
devised by the Western democracies. This is, of course,
what the IMF and World Bank want to hear. But it takes
some of the suspense out of the "test" metaphor. We
already know the outcome -- Indonesia will fail.

"Looking Back at Rwanda" is surely the best way to look
at it. One would not look forward to it. But the burden
of the piece is a familiar theme -- "the lack of
political will," which supposedly contributed to the
Rwandan massacres. On the contrary, it seems to me that
those doing the massacring suffered from no lack of
political willpower. In fact, a little less of it would
have been a good thing.

But my favorite is "Nourish Democracy to Restore Faith
in Its Institutions" -- in which a former nuclear arms
negotiator for the United States tells us that "the
democracies can create a moral authority, that, with any
hope, can prevent conflicts before they turn violent." I
can only suppose that he does not include Nazi Germany
or Fascist Italy on his list of democracies, though they
elected Hitler and Mussolini respectively.

The writer, Max Kampelman, sets a low hurdle for himself
in the article -- and then fails to clear it.
Apparently, restoring faith in democratic government is
a good thing. Why…he doesn't say. He questions
nothing. And answers nothing. He builds his argument as
if with Styrofoam. Nearly as light as air, with no
strength whatever, but well-insulated from the heat of
real controversy and the cold truth of real life.

The common denominator of these pieces -- and virtually
everything you read on the editorial pages, as well as
the other pages -- is the faith in and total absorption
by politics. Every problem is a political problem…and
every solution requires police power. Someone must be
told to do something.

And, without exception, it is something stupid.

Bill Bonner

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