Losing It

“Could September be a down month for the Web?” asked James Cramer in a recent column. “Is it possible that not only was there no natural lift to the Net come the fall, but it has ticked down?”

“Wouldn’t shock me,” he continues, “the Net has gone from being the most exciting thing in our lives to a giant drag in no time flat and everybody who’s involved with it knows this but refuses to admit it. We go right along staring at the Media Metrix numbers and page-view data and we pretend that everything’s just fine. But stocks don’t lie. The Net, for now, has had it.”

Just to remind you, James Cramer was one of the people who “got it” early. He founded a web-based financial service called “TheStreet.com.” Like most people, his enthusiasms followed his balance sheet. If I recall correctly, the Street, sans dot.com, once valued Mr. Cramer’s web business at more than a billion dollars.

Mr. Cramer was, understandably, very fond of the World Wide Web. There are two kinds of knowledge, as Nietzsche pointed out and I am fond of repeating. The first kind is the knowledge you get firsthand or that you infer from the experiences of others. Nietzsche called this erfahrung.

The second type of knowledge – what Nietzsche called wissen – is what you might pick up from presidential debates…or the editorial pages of newspapers…or you might gin up yourself with a little abstract thinking and time on yours hands. I’m going to use Nietzsche’s terms here in the Daily Reckoning in order to give it the vapor of pseudo-intellectualism that I strive for.

Cramer’s knowledge was an example of “wissen.” Though a big fan of the web last year, he began to notice that it did not work the way it was supposed to. With no profits, there was no way to determine what companies were worth. For a while, people thought you could make money on the web just by getting a lot of people to visit your site. So websites were valued on the basis of how many ‘eyeballs’ they had.

But in a now-famous remark which I reported to you at the time, Cramer wrote: “I’ve got news for you. They don’t take eyeballs at the bank. They take cash. They only take eyeballs at the eye bank.”

As time went on – Cramer found it harder and harder to make money on the web…and his stock price fell. But the web might soon get a big boost. An explosion of bandwidth, says James Davidson, “gives you another chance to capture gaudy wealth…”

“In fact,” Davidson writes, “I expect that the gigabit Ethernet will be just as disruptive as the personal computer…I expect exponential growth of bandwidth to dramatically improve productivity because it will significantly expand the capacity for the effective action by the ablest individuals.” People can listen to Brittany Spears all over the world.

Davidson’s point is that the explosion of bandwidth makes it possible for the stars in many other professions to develop worldwide audiences – as bandwidth and the web destroy borders.

“Who needs visas?” asks a headline in this week’s Forbes, making Davidson’s case. The article describes a company in Santa Clara, CA, that puts engineers, software programmers and other specialists on assignment. U.S. companies no longer have to settle for 2nd rate local engineers. Now they can get the Brittany Spears of engineers – from Bengladesh…or maybe Croatia – without worrying about immigration. The techies work via Internet.

Will this produce the explosion of “promethean light” that Gilder expects? Who knows? But if Cramer is right – a lot of people are getting bored with the Web…and it may be a huge commercial flop, too. Davidson didn’t “get it” until recently.

Meanwhile, Cramer seems to have lost it: “The great sums spent to make great [web]sites,” he writes, “look like colossal wastes if even the best of them, Amazon, is having trouble making money. (Is that even the intent of those guys? I can’t tell anymore.)

“For me, I’ve seen the absurd, ridiculous anomalies of the Web firsthand. You pay $3 a week for Time magazine, but it’s free on the Web, as though all those technology costs associated with publishing on the Web didn’t exist.

“So, the Net sinks as we all come to grips with the idea that this great medium, which is much faster and more alive than the print or the fax or the weekly version, is unpalatable as a place to get a return.”

Ever willing to go out on a limb on your behalf, dear reader, I predicted that the web would be the biggest breakthrough since the printing press…and the biggest flop since…well…Y2K…

It looks like I was right. Cramer: “The hope was that the organic growth of the Web would morph into something advertisers would clamor for even as readers refused to pay. The September figures show otherwise.

“It’s the Web’s endgame. Who would have thought it would have arrived so soon?”

Your correspondent in Las Vegas,

searching for the Promethean light…and never quite “getting it.”

Bill Bonner

October 4, 2000 Las Vegas, Nevada

*** This is great. I flew for 13 hours and I can still see the Eiffel tower out of my window. I’m not kidding. It’s right here in Las Vegas – a city lit up as if it were expecting to greet dignitaries from another galaxy…

*** Addison is writing the notes today from Paris…my letter is below… Bill.

*** Bonjour. Yesterday the Fed met… and did nothing.

*** For the third consecutive time Greenspan and Co. ended their meeting of the minds fully rested, content the last of its rate hikes in June had sufficiently stymied inflation.

*** “In other words,” reported the Wall Street Journal this morning “no hint of better days to come.” Once the announcement hit “the momentum turned” in the markets and “there was no stopping it. No one wanted to step in ahead of what appeared to be a pretty aggressive move to the downside.”

*** The Nasdaq, or “The Naz” – as you might see in a bulletin board populated by digital men – fell 165 points on the Fed decision… wiping out any early gains… ending the day down 3.2% at 3,455.

*** “The market has one, sick-looking tech sector on its hands…” began today’s market recap on the Microsoft Investor website…The Naz is 32% off its March high, down an aggregate 15% for the year, and “has given backall its summer gains.” (WSJ)

*** Microsoft and Apple have sunk to 52-week lows.

*** However, “old economy stalwarts” Dupont and Alcoa – producers of chemicals and aluminum – both had good days…and helped the Dow retain a positive close.

*** The Dow, which saw mid-day heights above 10,850, slumped down late in the day to finish just 19 points higher at 10,719.

*** “The inexorable rebalancing of portfolios” writes Bill King, “from grossly over-weighted in technology to a more equitable weighting will perpetuate for a while. Yes, that means more liquidation [and an end] to the ‘New Paradigm’ one-decision – always buy stocks.”

*** On the Big Board, as they say, 1330 stocks advanced, 1,554 fell back.

*** The S&P 500 barely moved… finishing the day at 1,426.

*** Goldman Sachs investment strategist Abby Joseph Cohen remains optimistic. The Journal reports she “expects [once third quarter earnings begin to be announced] the S&P 500 to hit 1575 by year’s end, again of about 10% from here.” That, Ms. Cohen explains in a letter to here clients, would reflect “our projected fair-value levels.”

*** The rumor yesterday, supposedly catching flight from internal reports at Merrill Lynch, was that IBM and Oracle might have to get in line behind Apple, Intel and Priceline.com and issue warnings they will not meet analysts expectations.

*** One wonders from which companies Ms. Cohen is awaiting Q3 earnings, anyway. Earnings have not necessarily played an important role in the new era momentum-stock paradigm… “Since Ariba became a public company on June 23, 1999,” writes Eric Fry “insiders have filed to unload about 13.2 million shares of stock, to realize about $1.8 billion. That’s not a bad haul for officers and associated muckety-mucks of a profitless company that has amassed less than $200 million in total revenues since its inception in 1996.”

*** The dollar index advanced to 114. Gold dropped $1.50 to $274.

*** And over a week after fatuous efforts by governments on both sides of the Atlantic…oil is still above $30 closing yesterday at $32.07… and the euro is still below $.90… slipping a skosch to $.87.

*** “The biggest reason for the euro’s rout” writes Steve Hanke in Forbes, “is the dollar’s role as the premier international currency.”

*** For example “The world prices 90% of its commodities in dollars – oil among them,” continues Hanke. “When the euro was launched, oil was trading at $13 per barrel. Now it is fetching $32, a 146% increase. For residents of euroland, that has translated into an unbearable 229% increase.

*** “Thanks to its stability, liquidity and low transaction costs,” Hanke glows, “the dollar occupies the commanding heights, a position that is fortified with each passing day.” Fortified that is, as long as foreigners – through direct investments – continue to encourage Americans to spend, consume and fritter… as I reported last weekend, American’s savings rate dropped in August to negative 0.4%… the lowest on record.

*** “While [foreign direct] investment flows rose 27.5% last year to $865 billion, that growth was far slower than the 43.5% rise of 1998,” reports the Wall Street Journal. “The U.S. was the largest recipient of foreign investment, as the tendency toward investing in developed countries over emerging markets continued.” A flight to value… it was called in the article.

*** Meanwhile, “you can own the best companies in Argentina right now for 68 cents on the dollar,” writes Steve Sjuggerud. “By buying the Argentina Fund… you get an underlying value of about $15 per share, priced at the market price closer to $10. A rise from $10 to $15 in this fund would mean a 50% gain for you and me, and the stock market doesn’t have to rise at all for that to happen. The current “discount’ to net asset value just has to go away.”

*** Today the news headlines are all a-glitter with news about Gore and Bush going “head-to-head” last night. Sounds painful. But maybe they ought to try more of this activity. Between the two of them they might find a brain.

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