| THE LAMBDA FACTOR THE DAILY RECKONING PARIS, FRANCE TUESDAY, 3 OCTOBER 2000 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *** Smart money still leaving the techs…looking for
earnings and safety in the Dow and utilities *** Oil up…euro stable… *** Doubts about the CPI…will the next Congress have to
raise the debt ceiling?…Gore's planet in retrograde. * * * * * * * * * * Advertisement * * * * * * * * * * * * YOU COULD'VE MADE 91% IN ONE DAY! - or as one fellow investor put it: "Lynn, I wanted to
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the Nasdaq and moved over to the Dow. The Dow rose 49
points. The Nasdaq fell 104; it is now at its lowest
point since May 31. *** Remember, this is the Autumn of Anxiety. And you
don't have to look very far to find a reason for jitters.
There are still the 4 E's to worry about, for example -
and none of them improved yesterday. *** After Apple, Intel, Kodak and others…along came
Xerox last night and announced that it would lose money
this quarter. The confession was made after closing time
on Wall Street. But stocks in the Far East were hit by
selling this morning. In Japan, for example, stocks fell
on "tech weakness," according to the Financial Times,
even though the Tankan report of business sentiment
revealed the highest level of confidence in 3 years. *** The euro went down a little yesterday. But not much.
It is still about 88 cents. *** Oil rose in price - by $1.28/bl. This was blamed on
"tension" in the Mid-east. *** And, finally, the economy didn't look any better at
the close of business than it did when the doors opened.
In fact, it looked a bit worse. People are beginning to
notice the gap between the abstract, collective knowledge
given to us by the Bureau of Labor Statistics - and their
real, first-hand experiences. The BLS admitted an error
last week and adjusted its inflation rate estimate to
3.4%. But when you go to buy something - a house, a
gallon of gas, for example - you discover that the price
is 20% to 50% higher than it was a year ago. *** At the least, people are beginning to suspect that
the BLS inflation rate is understated. Perhaps that is
why the Treasury's inflation indexed bonds rose against
the non-indexed bonds yesterday… *** Alan Abelson in Barrons, refers to Charles Peabody of
Mitchell Securities: "For openers, he says, it means that…real rates of
interest are thus are not as high as thought. Monetary
policy, in other words, may be even more accommodative
than it has seemed. More to the point, it reinforces
Charlie's view that inflation is running at over a 4%
rate, which implies that P/E multiples…will come under
severe pressure." *** P/Es will come under pressure, most likely, where
pressure is now least apparent - in the high altitudes of
the Big Techs. Yesterday, for example, Intel and Apple
both lost about a buck and a half. *** "Given the recent campaign rhetoric in which both
major parties are advocating legislative programs that
would tap into the ever-growing budget surplus," comments
William V. Sullivan Jr, money-market economist at Morgan
Stanley Dean Witter, "most voters would no doubt be
surprised to find out that the federal government's
overall debt loan continues to expand. Indeed, despite
huge liquidations of outstanding securities in the
secondary market, total indebtedness remains on an upward
trajectory as non-marketable issuance continues to soar." *** The passage above is from a column in the Financial
Times, written by James Grant. "The facts are in the
public domain," Grant continues. "The big government
trust funds - notably, the social security trust fund -
currently take in more than they pay out. However, the
government relieves them of this surplus and spends it,
courteously leaving behind a marker, the aforementioned
non-marketables. As these claims are not negotiable
outside government channels, they constitute no visible
burden on the public markets. Out of sight, out of mind." *** Investors regard, or rather fail to regard, these
invisible federal borrowings much in the same way that
they fail to regard Cisco's deteriorating operating
margins…that is, rather like a French woman regards her
husband's mistress: she would rather not know. *** Yet, sooner or later, the man is dead and the other
woman shows up at the funeral - as happened when ex-
president Mitterand was officially cast off on his one-
way voyage to eternity. The woman was there - dressed in
black and making the appropriate sobs. At some point in
the future - Grant believes it may be during the next
presidential administration - a curious scene may take
place in the twin theatres of Congress. While the
politicians are strutting and puffing with pride over
their budget surpluses, they may be forced to take notice
of a huge figure dressed in black…lurking among the
federal books of account, and feeding herself
continuously to assuage her grief. Like a freakishly fat
person who has let herself go to the point where she is
unable to make it out of her bedroom door… it may be
necessary to raise the legal debt ceiling to accommodate
her. *** As you may have gathered, from my frequent citations,
I am a fan of Grant's work. So, I'm especially pleased
that we were able to make a deal with Grant's Interest
Rate Observer to carry some of its articles on our Daily
Reckoning website. *** "Thirty-seven Wall Street analysts rate Ariba Inc. a
'buy'," writes Grant's colleague Eric Fry. "But to judge
from the actions of company insiders and numerous other
investors close to this 'Interprise' software company,
Ariba is an outright sell. Everyone seems to love this
thing, except the guys who run the show. Consider the
numbers. Since Ariba became a public company on June 23,
1999, insiders have filed to unload about 13.2 million
shares of stock, to realize about $1.8 billion."
(see: Ariba, And All That Jazz ) *** "The Semiconductor Industry Association says the
latest 'integrated circuits' have as many as 21 million
transistors on a single wafer of silicon," writes Dan
Ferris. "They run at a speed of 400 megahertz on 90 watts
of power. Within 10 years, those chips will run at 1,800
megahertz and contain 1,400 million transistors. Instead
of 90 watts, they'll draw 175 watts, almost double the
power. Bigger chips, more juice." And potential profits
for investors in electricity producers. (see: The Internet's Dirty Secret, Part II ) *** The nice thing about democracy, most would say, is
that it eliminates the need for coup d'etats or even
civil wars to remove one hand from the public till and
replace it with another. The Great Debates…and the
ballot box…have replaced the guillotine in the public
square or the grenade lobbed into the presidential
palace. But reading about the upcoming contest between
Bush and Gore makes me wonder if it was a good bargain.
The two contestants will flail away at each other with
clich?s and slogans…desperately trying to draw blood to
delight the mob of viewers. Bloody force has been
replaced by a bloody farce.
(see: Campaign 2000 vs. The Sovereign Individual) *** Cheryl Lee Terry, who must be the official ELLE
magazine astrologer, is credited - at least by herself -
with having "called the crashes of '87 and '89." I don't
recall that there was a crash in 1989. But perhaps she
called the crashes of 1998, 1999 and 2000 too - as I did.
Anyway, she recently announced that Bush would win the
November election. "Gore's planet, Saturn, is in
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most people only dream about. Click here to find out more. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * THE LAMBDA FACTOR Computers are everywhere. Even the ticket clerk in the little Montmorillon train
station uses a computer to write tickets. He punches keys
slowly, carefully, deliberately. He waits. He watches. He
peers at the screen over his reading glasses…and
occasionally hits another button. He twitches his long,
bristling mustache. Minutes go by. Customers, on the rare
occasion when the plural is appropriate, begin to get
restless. They look at the clock. They look at their
watches. They wonder if the train will arrive before the
ticket. Finally, the ticket clerk lifts up an ancient dog-earned
manual from under the table. His fingers find the right
page and then trace the city of destination, Paris, over
to the little city of departure…Montmorillon. He taps a
few more keys. Then, after another couple of minutes,
just when you think the ticket machine is finally ready
to give birth…the phone rings. The ticket clerk takes
off his hat, and answers the phone. Thanks to the Lambda Factor, this time-wasting will soon
be history. At least, that is the promise of Jim
Davidson's latest article. "Within a few years, you'll have essentially free
telephone service across the planet as well as across the
street. You'll have the equivalent of 80,000 channels of
television from which to choose. You'll be able to listen
to any radio station in the world…See any sports event,
anywhere, with interactive, three-dimensional viewing
capability which will give you the choice of turning
third person spectator events into first person
challenges…" But the benefits of the Lambda Factor do not stop there.
"You'll be able to talk to your appliances." I already
talk to my tools, such as when I hit my thumb with the
hammer. But Jim has something else in mind: "Tell the
stove when to bake a loaf of bread or heat up your stew;
tell the vacuum cleaner to dust the antique books in the
library…" I set myself too modest a goal in these Daily Reckoning
readers: chronicling the most thundering examples of
human lunacy. My targets are too easy: people who pay
hundreds of thousands of dollars for a doodle by a
sensationalist artist…or those who buy Big Tech stocks
selling at such high prices they will have to wait until
the polar ice caps melt to get their money back (if all
goes well). The bar is so low, I don't have to jump over
it…I trip over it without trying. Jim Davidson, Porter Stansberry and George Gilder, by
contrast, are doing the dangerous work. Like interviewing
the detainees in an asylum, they try to figure out which
of the lunatics might actually be an unrecognized
genius…rather than merely stark, raving mad. "A new economy is emerging," says Gilder in his book,
Telecosm, "based on a new sphere of cornucopian radiance
- reality unmassed and unmasked, leaving only the
promethean light." That sentence may mean something; I don't know. But I can
find nothing in my personal experience to make sense of
it. So…I will just push on… Moore's law - the insight, or prediction, that computer
power would double every 18 years - is old news. Cheap,
abundant microprocessing has changed the way the world
does business. Even the train station in Montmorillon is
hip to computers. Metcalfe's law is the recognition that each node in a
collective system becomes more valuable as the system
expands. The simplest illustration of this is the
telephone. One phone has no value. As more and more
people get phones…each one becomes more useful. And now the Lambda Factor offers to throw both of these
laws ahead a warp speed. Lambda is "a measure of a unit of wavelength," writes
Davidson, "which will be key to the next optical phase of
the Technology Revolution. If you missed the opportunity
to ride Moore's Laqw to riches in the early day of the
personal computer, stay tuned. The Lambda Factor gives
you another chance to capture gaudy wealth by betting on
an ascendant technology in an ascendant market." The Lambda Factor refers to the exponential growth of
bandwidth, made possible by advances in photonic data
transmission. When you download a photograph on your
computer, it takes times. But when the Lambda Factor gets
limbered up, it will be possible for you to have almost
instantaneous access to any data you want, anytime. "You
will be able to watch any movie ever made at any time you
want," Davidson reports. If I had three magic wishes, "being able to watch any
movie I want at any time I want" or "being able to talk
to my refrigerator" would not be one of them. But perhaps
among the people who will cast ballots in this fall's
election there are millions who will jump at this kind of
service - and pay good money for it. I don't know. But Davidson and Gilder see this innovation in an
entirely different, well…promethean, light. Davidson
likens it to the Industrial Revolution, which "made an
anachronism of Malthusian economics." Or, perhaps it is
more like "the huge volcanic eruption in the Krakatoa
region of the Sunda Straights of Indonesia in February
535," he says. "That explosion darkened the sky as far
away as Beijing and created a close approximation of
nuclear winter which destroyed the political remnants of
the ancient world by dimming the sun for 18 months." Again, nothing in my personal experience…and nothing
that I can infer from the experiences of others…helps
me to understand how an explosion of data, information
and entertainment would be anything more than a minor
convenience. But then, I think small… "The answer is that only faith enables us to make this
kind of leap," says Gilder. Yes, I thought so. Bill Bonner P.S. I'm on my way to Las Vegas this afternoon. I'll be
sure to write, but I don't know how our schedule will
work out. | 
