South Beach

“What if God were one of us?

Just a slob like one of us?

Just a stranger on the bus,

Trying to make his way home.”

Bob Dylan

South Beach is full of God-like candidates.

Curiously, the city attracts more than its share of Venuses and Adonises…and more than its share of slobs, too.

An art-deco slum in the 70s, the area was discovered by fashion photographers in the 80s…and finally reached the tipping point in the early 90s. Suddenly, everyone was talking about South Beach.

Now, people from all over North America and Europe seem to tumble down to this tip of the Florida peninsula as if they were loose change finding its way to the bottom of a drawer.

And though there are many handsome bodies promenading down Ocean Drive, bodies, like stock market P/Es tend to regress to the mean. And the mean is a slob.

There are probably more slobs, pound-per-pound, in a city such as Duluth or Gary, but they are usually at least partially hidden from sight, like crazy uncles and political contributions from tort lawyers. But sin, insanity and ugliness is right out in the open in South Beach.

You may remember, that according to those who ‘get it,” and George Gilder, in particular, mankind has lived in an age of darkness – until now. Thanks to an explosion of bandwidth (that is, an exponential decrease in the cost of transmitting data) we are about to be tanned by the “Promethean light” of unlimited, free knowledge.

My working hypothesis, dear reader, is that the past was neither so dark, nor the future so bright, as Gilder imagines. The extra bandwidth may increase the availability of information…but like ubiquitous pop music, and bared bodies, the extra data may not necessarily be a good thing.

One of the popular tee-shirts in South Beach is one with the familiar face of one of the world’s most successful rebels without a clue – Ernesto “Che” Guevara. Che, a rich kid with some imagination, made himself a romantic hero by getting himself executed on this day in 1967. It was probably, like Elvis’s heart attack a few years later, a good career move. Che must have felt that his discovery of communism was Promethean, too – an explosive insight into the way the world should work. But, like Elvis, communism only looked good from a great distance.

I feel a little god-like myself, here in South Beach. Looking at the near-naked, tanned bodies up close, I am like the one ‘from whom no secrets are hid.’

“Leave your brain behind,” says a TV ad for the area, “and come on down to South Beach.” A tanned body is de rigeur, but a brain is optional.

Even if you forget and bring your brain to South Beach, it probably won’t function very well. First, there is the heat. Then, there is the unrelenting pop music. Loew’s hotel is not a cheap flophouse. But even it cannot resist. In every public spot, bad music interferes with private thoughts.

A friend of mine got out of jail recently, after serving two years. He reported that the worst thing about being in prison was that you couldn’t escape the constant noise of radios.

At least they didn’t charge him for the room. Even in a $200-a-night hotel, it’s hard to get away from it.

Don’t think you can escape by going outside either. Even the plants are wired. And the flora of South Florida has no better taste in music than the fauna. Each clump of tropical greenery at Loew’s seems to sing along with Lee Greenwood. And as you make your way down Ocean Drive, each caf?, bar and eatery blares away – and each one with its own version of bad music. The whines and screeches are inescapable.

There is also constant danger of being rear-ended, so to speak, by someone on roller skates. A pair of muscle bound poofters nearly knocked me down, as they raced along the sidewalk holding hands. One had rings in both ears and on both nipples.

As I was having a scoop of ice cream at a sidewalk caf?, a retired couple came along. They wore madras shorts… and their mouths were open, gasping for air. They looked like they might fall down and die if they weren’t immediately seated and given water. But I am probably exaggerating the emergency. They sat down and seemed to have revived within a couple of minutes.

A little further down the street an older man with red socks and a matching tee-shirt, walked along with a bottle of water on his head. Another man said hello to everyone he met.

Abominations of the flesh are popular in South Beach. A woman with tattoos all over her sunburned body went by. So minimal was her outfit that it might have gone unnoticed…had it not been for the odd bluish color.

There are said to be 1500 professional models in the 20- or so block area known as South Beach. Many of the women I saw on the street were, by objective measures, beautiful. Yet, for the more average woman – the more she revealed, the less attractive she became.

I say that partly as an observation, and partly as a conclusion. It is not what you see that is most alluring. It’s what you don’t.

This is true of tech stocks as it is of women. The romance that investors began with the dot.coms is over. After they got to see a lot of each other, up close…and in the bright sunlight – the less besotted they became.

Investors moved on to the Big Techs. But now that relationship is in trouble, too. The techs have aged a bit. As they announce earnings and growth disappointments, investors notice the wrinkles and feel a little let down. They dump the techs and look for romance elsewhere – or swear off these paramours altogether.

The commentators and analysts you hear on CNBC are sure the techs are going to go back up. Like Al Frank, they think this is a buying opportunity.

But they don’t understand how romance works. Once the facts are all out in the open – the spell is broken and the thrill is gone, forever.

Bill Bonner

Miami, Florida October 9, 2000

P.S. Investments are “marked to market” on the basis of what “everybody knows.” It is what everybody doesn’t know…or refuses to see…that represents the potential for profit (or loss.) Even in the Information Age, it is what you don’t know that is important.

*** The Dow held steady last week. But the Big Techs in the Nasdaq got hit hard.

*** Friday alone saw a 3% drop in the Nasdaq, bringing the week’s losses to 8.49%.

*** CMGI, the Internet incubus, I mean incubator, fell to $19 a share – down 87% from its January high of $163.

*** Amazon, our River of No Returns stock, dropped $2 to close below $32. The company will surely achieve profitability at some level – but enough to service a $2.5 billion debt burden?

*** Intel is below $40 – almost split, the hard way, from its price a month ago.

*** fell to $5 and change – after having fetched as much as $104 in March.

*** 850 stocks rose on the NYSE exchange on Friday. 1977 declined. 50 hit new highs. 127 hit new lows.

*** So far this year, Nasdaq investors are down more than 17%. Dow investors are down almost 8%. Oh well, easy come easy go, right? No one actually bought the Big Techs last January, did they?

*** Certainly not readers of the Daily Reckoning. But a report in the L.A. Times tells of one sad case. Bernie Ebbers so loved his own stock that he bought millions of dollars worth of the shares on margin. But World Com proved that it could go down as well as up…and Ebbers got the call that all investors dread – the margin call from hell. This single call turned Ebbers from a buyer into a seller – he had to unload $79 million of his shares to cover his margin position.

*** There’s an old rule on Wall Street: never meet a margin call. When you get a margin call, it’s a wake-up call telling you that you were wrong. Don’t fight it. Take your losses and move on.

*** Leverage is an amazing thing. “Give me a lever long enough,” said Archimedes, “and a fulcrum in space, and I will lift the entire world.” But the farther out into space you go, the farther you have to move the end of the lever to get the earth to budge. Likewise, the more leverage you have in stocks – the more damage you will sustain when prices move against you.

*** Right now, most of America is out in space, leveraged with debt…and the world may be beginning to move against it. Throughout most of the post-WWII period, the ratio of debt to GDP was 1.4. That is, there was $1.40 in debt for every GDP dollar. Now, that ratio has almost doubled. And, most recently, it has taken as much as $4 in new debt to produce another $1 of output. That’s how credit-based expansions work – you have to borrow more and more to continue growing.

*** According to Kevin Klombies, The US has consumed $5.2 trillion in credit in the past 2 and 1/2 years.

*** The market for leveraged loans quadrupled in size between 1993 and 1999, rising to $626 billion from $150 billion. “Last month, the Office of the Comptroller of the Currency [reported]” says the NY Times, “that the problem loans on banks’ books had doubled in the last two years, to $100 billion, or 5.1 percent of all outstanding syndicated loans greater than $20 million.”

*** Most people don’t buy stock on margin, but they don’t mind taking out a home equity line to pay for a big vacation, rather than cash out of some of their tech stocks. They’ve been told that if they just ‘stay in the market,’ over the long run, they’ll make money.

*** And the financial press is still encouraging: “Companies that are going to drop bombs,” said one analyst to Reuters, “have already done so.” Another gave his optimistic view: “We are kind of hitting a climactic low.”

*** Goldman Sachs held two conference calls last week to support its position (bullish, of course) on the big techs.

*** But the real low may be far ahead and far more climactic. Dow Jones keeps a world stock market index. The index hit a high last March 24th at 260.28. Since then it dropped to 227 on May 24th. The Summer of Love produced 2 rallies in the world index – each one peaking out below 250. Most recently, the index hit 248 on Sept. 24th, and is now back at 227. Numerologists are invited to inspect the recurring 24s and 27s. What will Oct. 24th bring?

*** Oil rose 33 cents Friday. Gold fell $1.30. I began reading Peter Bernstein’s entertaining new book on gold on the plane from Las Vegas to Miami. I will have more to say about it soon.

*** GM is taking a page from the Japanese playbook – offering financing on new cars at zero percent over 5 years.

*** – London’s spectacular e-tail disaster story – is back in the news. is back in business, backed by a new partner. If reports I heard over the weekend are correct, Boo managed to spend more than $100 million to produce only about $600,000 in clothing sales. Maybe it will do better this time.

*** And here’s something interesting from the Sunday NY Times: “Pat McConnell, an accounting analyst at Bear, Stearns, estimates that earnings among the companies in the Standard & Poor’s 500 stock index were overstated by 6 percent, on average, last year because of generous option grants.”

But now that prices are falling, says the Times piece, “new-economy workers may begin to demand old-economy cash from their employers. That would drive up corporate costs among technology companies the biggest users of stock options at exactly the wrong moment, when their operations are slowing.” The article reports that “40% percent of options held by employees and at least 36 percent of those held by workers at Microsoft are now un-exercisable.”

*** “In Europe, banks are making almost 1/2 of all their loans to media, telephone, and computer companies – loaning $252 billion to telecommunications companies through the first nine months of this year,” writes Kevin Klombies. “With $150 billion in existing short-term loans in need of refinancing and an industry requiring $500 billion to finance acquisitions, licenses and the cost of building new networks – the banking system is almost as leveraged to the telecom story as the companies in that business.”

*** Unemployment dropped to 3.9% in September putting the Fed on alert to hike rates again.

*** “In 1980 you needed 25 barrels of oil to buy a single share of the Dow Jones Industrial Average,” John Myers told listeners at the Agora Wealth Symposium this weekend. “But by 1985, when oil prices fell to $12 a barrel you needed 125 barrels to buy a single share in the Dow. Today, even at $32 a bbl, you need 353 barrels to buy one share in the Dow.” Compared to equities, oil is cheap. *** Elizabeth reports that it has turned cold and rainy in France. They’re making fires in the fireplace. It’s hard to imagine cold weather here in Miami. It’s 8:15 AM and its already 85 degrees outside. From the top floor of Loew’s hotel in South Beach, steam rises from the streets below like smoke from a hot griddle. More below…

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