| ANOTHER MILLION DOLLAR INTERNET IDEA THE DAILY RECKONING OUZILLY, FRANCE
FRIDAY, 5 NOVEMEBER 1999 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
In Today's Daily Reckoning: *** European interest rates rise *** Bill Clinton begins second Poverty Tour *** The Dow edges up * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * **** The European Central bank raised rates half a percent…to 3%. The move was
expected. Central banks all over the world have a tightening bias. As predicted,
the Bank of England raised rates by a quarter point. *** But so far, markets have generally shrugged off the news of higher rates.
Stock markets in Europe edged higher. Of course, with an underlying inflation
rate of about 2% in Europe…the real rate is still very low. It's very low in
Japan too -- "effectively zero," as the "Financial Times" put it. *** The Dow edged up, too…rising 30 points yesterday. The Nasdaq went up, too.
Still waiting for something to happen… *** The Internet average rose nicely…up 5.89. Even the dollar rose. *** Trying to outsmart Mr. Market is a losing game. Just concentrate on finding
good investments at good prices…and hold them until the prices are no longer
good. Sell to the momentum investors…the trend followers… *** Bill Clinton is off on another Poverty Tour, the press tagging along.
Probably not a soul in the entire group has any real interest or insight into
poverty. Reports from the last magical mystery tour blamed poverty on everything
from "rumpled" terrain…bad roads…lack of clean water…bad education (always
a favorite), to "the need for democratic institutions." Don't they hold elections
in the Mississippi Delta? *** "The Roaring Zeros," Jack Wheeler calls them. That's his prediction for the
next decade. "Talk of bubbles and predictions of crashes and a Second Great
Depression is utter and complete nonsense," says Jack. Instead, he expects a
continuation of the "Long Boom" that began when Ronald Reagan took office. For more information on "Jack Wheeler's Strategic Intelligence," call 1-800-433-
1528 and ask for code 3459. *** One of my favorite politicians was old Senator Bill Scott from Virginia. He
was named the Dumbest Member of Congress by a Washington magazine and held a
press conference to dispute the charge…thus confirming it in most people's
minds. But Scott voted against most of the dopey legislation that came his way.
To quote a politically incorrect source from my youth, Uncle Remus, "there's them
that's smart…and there's them that's good." Scott was good. *** My idea to choose representatives by lottery actually has a precedent. One DR
reader points out that it's how the Coptic Christians have always selected their
leaders. Candidates for "Pope of the Seat of Alexandria, the Papacy of the
Christian Church of Egypt, the Oldest Church in the world" do not feel worthy of
the post. So they let fate, rather than their own ambition, lift them to it. *** The director of a zoo was trampled to death near Bordeaux a few days ago. A
hippo charged through a fence in an attempt to mate with a garden tractor. The
director was on a bicycle in his path. *** I've been enjoying a week of semi-holiday here in the country. The kids had
another Halloween party…which I managed to avoid. I ricked up enough firewood
to see me through the dark days and nights of a Y2K power failure, repaired a
couple broken windows, cleaned a few gutters…and the week is over. Back to
Paris on Monday…and then back to Baltimore. Why am I telling you this? I don't
know… * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
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ANOTHER INTERNET IDEA
Buried treasure. About 15 years ago, the lure of it had people digging holes all
over England. They were trying to find a golden, jewel-encrusted rabbit that had
been hidden by writer and illustrator Kit Williams. Williams wrote a book in
which he provided clues to the whereabouts of the treasure…which, as I recall,
was worth $20,000 or so. The book sold spectacularly well. People enjoyed trying to decipher the clues…which were included both in the
text of the story as well as the illustrations. And, of course, they were
attracted by the hope of money. That recollection is the source of my second, million- dollar Internet
suggestion, to which I will return in a moment. About my first…the Internet-based Christmas shop…I have already had a number
of interesting comments from readers. Some favorable. Some not. No one…as
yet…has said they were going to drop their career or put the kids into day care
so they could devote themselves to it. But even Harry Warner thought that talking
pictures would never catch on. And he should have known. So anyone who thinks he
can say what will work on the Internet is probably a bigger fool than I am. So much has been written about the Internet that it seems unnecessary to add to
it. Yet I begin this reflection with the hope of reducing the volume of
it…rather like a trash compactor reduces a load of beer cans to a manageable
mass. One source of confusion and profusion…if not delusion…is the distinction
between the Internet as a business and communications tool…and the Internet as
the source of a New Paradigm. The Internet is a useful tool for all sorts of
things. But like any tool, its effect on productivity is easy to measure. One
merely subtracts the costs from the revenues…amortizing the capital
expenses…and voila -- you see quickly how useful the tool is. Many
companies…if not every company…are trying to figure out how to use the
Internet tool. Many have already figured it out…and are making money from it.
Others are merely spending money and wasting their time. Nothing really
revolutionary about this…no need to wreck the churches, guillotine the
aristocracy or run the bourgeoisie out of the country. But many people claim the Internet is truly a revolutionary technology. They say
that it changes the rules of business and commerce so fundamentally that the old
measures of value no longer apply. It is a new world, they say, where the gravity
of profits and book value no longer weighs so heavily on business performance or
stock values. This I believe is an error, at best. And I just saw a business plan for an
Internet company that shows how error can soon become fraud. In the normal course
of market events…gross sales are not necessarily an advantage. They must
produce a profit. Then that profit is multiplied by some number…reflecting Mr.
Market's views on how reliable it is and how it may grow in the future…to give
a capital value for the business. But in the Internet world, profits are often
non-existent. You can't multiply zeros…so investors look to gross sales, hits,
eyeballs and the like. They sell the "story," rather than the net revenues…just
as promoters do with exploration stocks during a mining sector boom. In the
business plan for the Internet company I saw, it was estimated that stock market
investors would multiply gross revenues by as many as 10 times to come up with a
capital value. Thus the plan called for the acquisition of gross revenues…in
ways that would otherwise make no sense. They proposed to lose, like Amazon, as
much as $1 on every $1 of revenues. But why not? Each dollar thus acquired would
be worth as much as $10 in the public markets…for a gain of $8 to the company. This kind of thinking has infected the entire Internet sector. There is too much
money available. And now the business plans only make sense as long as investors
are willing to continue throwing money at them. But sooner or later, the money
will stop coming. The stocks will fall. And investors will wish they'd exercised
a little more care in selecting their stocks. The interesting thing is that this isn't the same as saying there is no new
paradigm. The Internet is both an obnoxious "Digital Dumpster," which like
television and CB radio is a waste of time for most serious people most of the
time…and it is a revolutionary technology that will produce unforeseen results.
The printing press, telephone, TV and railroads all produced effects that no one
could anticipate. So will the Internet. It is a revolutionary innovation of
unknown power and consequence. A few of today's Internet companies may turn out to be worth the prices. But not
many. Most are more likely to be victims of the new technology, not
beneficiaries. This is worthy of more than a couple of paragraphs…so I will have to take it up
later. The Internet marks the beginning of the Post-Capitalist period, in which,
at the margin, Cottage Capitalism replaces the old-fashioned kind Marx described.
But all of that requires more explanation…which I will defer until next week. For now, let me return to an idea which is consistent with the Cottage Capitalist
age. It is simple. You set up a quest for the golden rabbit…on the Internet. "Bury"
a golden rabbit somewhere on the Internet. Create a website. Give all the clues a
person would need to find it on the site. Then…add new clues every day. There
are hundreds of thousands of people who like games, puzzles, contests and
sweepstakes. With the whole world as a potential market, you would only be
constrained by your imagination in constructing the quest and drawing attention
to it. You could then make money by selling ads. Or by asking for a small fee to
play the game. Or perhaps just charging for the final clues… I can imagine how this could be fun for the right person. It does not require a
lot of investment…though the prize would have to be substantial enough to
attract attention. And I have no idea about the legalities of it. Enjoy the weekend… Your Partner, Bill Bonner
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