Screenplays of the Wrasslin' Genre, or Faulkner and the Internet

THE DAILY RECKONING GREATEST HITS, 1999(First aired October 28th, 1999)

"I reckon I’ll be at the beck and call of people with money all my life," said Oxford, Mississippi’s most famous drunk, "but thank God I won’t be at the beck and call of every son of a bitch with 2 cents to buy a postage stamp."

William Faulkner worked for the post office in the days when communications still were put on paper, stuffed into envelopes and carried to your door. And the days when postmen could still be fired for failing to deliver the mail.

That is, in the days before e-mail. The comment above was his remark after he was fired for failing in his duty. But it was not necessarily rain, nor sleet, nor dark of night that kept him from his appointed rounds.

Today, I get more than 100 electronic messages every day. One Hundred is a key number, because if more than 100 pile up in my online mailbox, Compuserve sends them back…undeliverable. E-mail is a lot faster and more convenient. It is better. E-mail is so widely used that I rarely get a real letter anymore. And when I do…it is usually a disappointment…a form letter…or sometimes just a written confirmation of something that I had already received electronically.

There are those who say that the Internet will revolutionize life on earth and anyone who fails to invest in Internet companies is a fool. There are others, fewer in number, lesser in social standing and poorer, who say that it is just a lot of hoopla about nothing. It’s just a fad, like CB radio, they say. Except by a few cranky dinner companions, I had not seen this latter view expressed until I read "Silicon Snake Oil," by Clifford Stoll.

Stoll is a user…but a non- believer.

I will not hedge or wiggle…but will state my own prediction without so much as a soupcon of equivocation: Both views will turn out to be correct.

From an investment point of view, the Internet is now a bubble waiting to pop. My faith in this view was confirmed yesterday in a very curious phone call. Someone called to ask me to take out a big contract to place advertising on his website. Would the ads work? Would they be cost-effective? The discussion never reached this point. Like almost every other entrepreneur in Christendom, this fellow was preparing to take his website public. He was getting in line for an IPO. And what he needed was traffic…eyeballs…faces…and ad contracts. And if I would enter an ad contract, it didn’t matter if the ads worked or not…because he’d give me stock options. Investors would see the ad sales contract and believe that it was a business deal rather than a stock speculation. And we’d all make a killing. I declined.

Investors have much better odds in Las Vegas than in Internet shares. And they get free drinks. And a show. Even Barbara Streisand performs. If you have lost all your money…and are feeling suicidal…what better way to finish off an evening?

The Internet is an innovation that has captured the fancy of millions of people. But that doesn’t mean that it will have a direct, profound or beneficial effect. Maybe it really is similar to the invention of the printing press. Or maybe it is more like the invention of television. Probably it is a little of both.

The printing press did not change people’s lives quickly nor in a predictable way. Presses were first used for printing Bibles. The Bibles put the word of God into the hands of clergy and laymen who came up with their own interpretations of what it meant. It was not long before Europe was fighting religious wars…which lasted for three centuries.

Much later, moveable type, cheap paper and industrial processes made it possible to sell newspapers to the masses – at a profit. For the first time, people came to share a common language…a common view of events and trends…and a common narrative that defined them as a nation. The printing press thus enabled the creation of the nation state.

Also, it was the printing press that allowed explorers to share the information and excitement of their discoveries in the post-Columbus era. Other expeditions were mounted to the New World – which might have otherwise been ignored – resulting in the settlement of two new continents…as well as the importation of vast quantities of gold into Europe.

The price of gold plummeted.

The Internet definitely speeds up communications. E-mail is always urgent. But it is not necessarily important. And that which is done urgently is not necessarily worth doing. Or done well.

An interesting new study shows the effects of online investing. A pair of California-Davis economists watched a group of 1,607 investors. They found they outperformed the market by 2.4% per year, which is quite good, before they went online. Then when they went online to do their investing, they under-performed by 3.5% annually. A little bit of reflection might be a good idea.

TV was a big improvement. It proved so popular that the habits of the entire world have been altered. People now watch several hours of TV, on average, per day all over the globe.

Formerly, they spent that time in a number of ways. Who knows what they were doing. But they now prefer to watch television. The world has changed. But so what? You’d be hard pressed to show how it had changed for the better. At its debut, it was claimed that TV would revolutionize education…and that it would raise the level of popular culture. Analysts in `49 imagined viewers glued to their sets as the Royal Shakespeare Company presented "Coriolanus." They thought the TV would replace teachers, too…and make learning fun.

Actually, in 1922 Thomas Edison predicted that movies would make teachers obsolete. And now Al Gore predicts that connecting kids to the information highway will enable them to delve into the mysteries of the Library of Congress.

Of course, in the classroom, TVs became a minor distraction. At home they became a major one. Kids learned about new toys…and became current with popular gags and prejudices. But there were no literacy improvements attributed to TV or movies. And the number of teachers increased.

And the effect of TV and movies on popular culture may have been best described in the movie "Barton Fink," in which a character who is meant to represent William Faulkner during his Hollywood years is shown kneeling on a hankerchief in a seersucker suit, throwing up in a toilet. He rises, cleans himself up a bit and offers Barton a drink:

"No thanks," says Barton, "I never drink before noon."

"I do require a bit of the social lubricant from time to time," says the Faulkner character…taking a drink. Barton recognizes him as [Faulkner] and asks what he is working on in Hollywood.

"I’m writing a screenplay of the wrasslin’ genre," replies the great writer.

Bill Bonner

Paris, France August 3, 2000

*** Be warned… Bill is returning to France by slow ferry today. The following has been scripted by Addison, who’s holding down the fort in Paris.

*** The Dow climbed 80 points to 10,687, coming to rest firmly higher than its 50-day moving average of 10,599.

*** Still the index is down 7% for the year… remains below its 200-day moving average of 10,769… and has yet to reach Richard Russell’s 50% retracement level – the magical half-way point between January’s high and subsequent March low.

*** Russell: "One fact stands out. It’s now very hard to make money in the stock market. One reason is the sudden costly collapse of so many stocks. I check hundreds of stocks every day. And each day there are surprises. Today I see (surprise) DELL suddenly below 40 – gad, the stock was as high as 54 last month. And here’s Fannie Mae below 50, why the stock was 65 last April. Here’s GM at 57 today – but only four months ago, in May, GM was 93.

"These are all characteristics of grinding, toppy action. But the amazing phenomenon is that the public, the stock- buying public, remains so bullish on equities."

*** Par example… 1587 stocks advanced; 1269 declined on the NYSE… 88 stocks claimed new high ground and only 38 staked out a new low. Despite difficulties with investor profits, it wasn’t a bad ‘summer of love’ Wednesday on the Dow.

*** However, the picture wasn’t so creamy for big techs. The Nasdaq 100 – bastion of routers, switches and hardware – closed 30 points lower to 3049… down over 551 points since its July 14th high of 4041. Dell Computer and CSCO fell 2 and 2 1/4 respectively.

*** The broader Nasdaq index dropped 27 points to 3,658.46.

*** Year to date, the Nasdaq is down just over 10 percent. A quick look at this year’s chart reveals, despite "the amazing phenomenon" noted above… the Nasdaq, pregnant with downward momentum, is poised to challenge May’s lows. Bill King: "Now, even Wall St. brokers with big corporate chits among tech firms are calling for a retest [of the May lows]. Investors must now contemplate the possibility that the summer rally is over, and after one more tepid rally attempt in August, the fall classic – stock liquidation – will commence."

*** A non-rally on the S&P 500 held that broader market index in check… it remained steady at 1,438.

*** Also holding steady – the Index of Leading Economic Indicators. "If the forecast is accurate," says Reuter’s "the numbers would mean a break from rapid economic growth for the rest of 2000." If the forecast is accurate.

*** "C. Everett Koop sold off $915,000 of his stock a week and a half after [auditors filed a] warning with the SEC," reports Fleet Street Letter’s Ned Harper. A lawsuit filed by shareholders alleges officers of the corporation cashed in on the IPO, but failed to alert owners of the stock. " In fact, between February 15th and 18th, other officers and directors sold shares for a profit of over $7 million. Five other board members, including Nancy Snyderman (the ABC News health reporter) sold off shares – after the warning, of course – for a total haul of over $11 million."

*** While Internet stocks have proven themselves worthy of little more than these kind of shenanigans – and certainly worth a lot less to investors – the Internet itself is here to stay. But can we agree that it has made our lives better? More below…

*** Meanwhile, Bill King has also been following the growing electrical power shortage, which appears to be, in part, caused by massive demand created by Internet users and chip makers. King: "After days of record power demand in the West… due to scorching heat, five states and the feds have commenced an investigation into price gouging by electrical companies. Perhaps the electrical companies should cite BLS data that shows electrical cost declines…" Silicon Valley is so alarmed; they’ve begun to install their own power plants.

*** Also, regarding an opportunity to make 183% on Argentine bonds mentioned here last week, Steve Sjuggerud writes from Ecuador: "I’m in Ecuador, I haven’t had a chance to answer e-mails yet. I apologize to those of you who’ve tried to contact me." In the meantime, he suggested if you’re interested in buying the recommended bond "the CUSIP number to give your broker is P0450KAB9C. Otherwise, call Howard Goldstein at International Assets 800-432-0000 or 407-629-1400."

*** As I write beneath the mid-morning shadows of the medieval cathedral Saint Merry which sits across the square from our office, I’m struck by what a spectacularly beautiful day it is in Paris today…

Bill returns tomorrow…

Au revoir,

Addison