A Wicked World

Dying all the time

You lose your dreams and youth

You lose your mind

Life’s unkind.

Ruby Tuesday

The Rolling Stones

“Life sucks,” said a teenager on a TV show glimpsed by your editor yesterday.

I’m am sorry to be so blunt about it, dear reader. But he was right.

I say this not as a theoretical matter but merely as an observation. Just look around you. Everything you see is headed for correction.

That is true not only of today’s stock market prices, but of every edifice on the planet: Mr. Greenspan’s reputation, the Chrysler building, the world’s vast pyramid of credit and debt, the beautiful people as well as the ugly ones, motorcycles, the Internet…it is all a vain and arrogant excrescence on the surface of life, just waiting for destruction.

Down Atlantic Boulevard, in Delray Beach last night, an intermittent flow of Harley Davidson motorcycles disturbed our conversation with their full throated roar.

Were these the local Hell’s Angels – the wild, unbroken hooligans from the wrong side of the tracks, chucking beer cans alongside the road as they thundered by? Not a chance.

I was having dinner with a couple of friends at a sidewalk cafe. A couple of bikers pulled up to the hotel across the street, parked their bikes and dismounted. The bikes must have been the top of the line – covered in chrome and brightly painted. Powerful, shiny and new – the bikes still had a nostalgic look to them. These were ‘classic’ models, designed to recall something about the past…

But the bikers were contemporary from head to toe. They were middle-aged stock brokers, lawyers or accountants – who ride their motorcycles to chi-chi restaurants where they drink a glass of sauvignon blanc while discussing their latest real estate coup in Boca Raton.

Harley Davidson has made a business out of helping people to feel young and free again. It is an illusion, of course. The choppers, the chopper riders, and the chopper makers will all be cut down.

Let us face the facts: all of life must be cut down to make way for new life. That’s how it works.

“But most responsible scientists believe humans will soon be able to double their life span,” said my friend Mark last night.

“Do you know what that means?” he asked, not expecting an answer. “It means that everyone will be rich. Because the key to getting rich is time. Compound interest. If you live to be 120, there’s no reason not to be rich.”

Yes, by the time you are 50 or so – you recognize that you should have begun a regular savings program 30 years ago. But if you have another 70 years to live – no problem. You can still be a billionaire.

“It follows then,” wrote former biker Richard Russell recently, with a whiff of sarcasm, “that to die rich all you have to do is to continue to buy common stocks and presto – by the time you’re an old person, you’ll also be a rich old person.”

That is the problem with life, dear reader. By the time you are rich enough to afford one of these expensive Harley hogs you see on Atlantic Avenue, you’re also too old to ride it without looking pathetic.

Time can make you rich. But it also kills you – wearing down your body, little by little, until there’s nothing left. Eventually, the sight of a Harley or a beautiful woman comes like warm spring rain – falling upon roots too dull to stir.

Being an old person is bad enough. Still it’s better than the alternative. And if you’re going to be an old person – at least you might as well be a rich one. But how much nicer it would be to be a rich, young person.

But it is a world of sin and sorrow. As if the curse of time weren’t bad enough, the world is full of faithlessness:

“I tell you, Peter,” said Jesus of Nazareth on or about this day two millennia ago, “the rooster shall not crow this day before you will deny me three times.”

Yesterday’s news brought more evidence that faithlessness has not yet gone out of style:

“Insiders getting mulligans,” said a Red Herring headline. While investors suffer huge losses, the people running companies look out for themselves.

Amazon and Lante announced that they were repricing employee options. No offer was made to reprice shareholders’ stocks.

Priceline – another mega-loser in the stock market – said on Feb. 15th that it would exchange 8.9 million worthless options and forgive executive loans.

The New York Times reports that many companies have rescinded stock purchases by executives – taking back their own shares and refunding the purchase price, after the shares fell in value. No offer was made to rescind investors’ purchases.

And a study at UCLA found that company “CEOs manipulate the flow of information about their companies to maximize the value of stock options.”

“The only ones living with a company’s bad investment decisions,” concluded Red Herring, “are those not pulling a paycheck from the company.”

Oh what a wicked, wicked world.

To be continued…

Your man in Delray Beach…

Bill Bonner
Delray Beach, FL
April 4, 2001

*** Yesterday was a black day for investors – especially investors in technology. Wait a minute…wasn’t technology supposed to be resistant to economic downturns? Wasn’t ‘information’ supposed to eliminate inventory corrections? Wasn’t the new Information Economy immune from bear markets?

*** I guess not.

*** Several of the companies we’ve been following in these letters got hammered yesterday. Remember Ariba? The stock fell another 20% – to $4.44. Investors seemed to see the light about E.piphany also – it fell 26% to $7. And Inktomi got whacked for a 55% loss.

*** And Amazon? Another 47 cents was taken off the share price.

*** “Stocks Mauled as Bear Turns Vicious” is how TheStreet.com described yesterday’s market action. But what can you expect? April reminds us how cruel nature can be…more below…

*** Yahoo! is now selling at $11. Cisco at only $13. And even GE lost 5% of its value yesterday.

*** The Dow dropped 292 points. The Nasdaq lost 110. These losses were equivalent to a 3% cut in the former index and an 8% one for the latter. The Nasdaq, at a new low for the cycle, has now erased more than two and a half years of progress.

*** “If it was still in question-the bear has come out of hiding,” reads a missive from The Fleet Street Letter. “No more teasing. No more head- fakes. The bear is ready to rumble. And he’s rather indiscriminately reducing stock prices wherever he darn-well feels like it. We suggest staying out of his way…”

*** David Tice: “Just because stocks have fallen by 60% or more does not give them a constitutional right to resume their climb. Another 60-80% decline from reduced levels could still lie ahead.” (see: href=”https://www.dailyreckoning.com/body_headline.cfm?id=1020″>A Refresher Course In The Hazards Of A High P/E)

*** But nothing is falling faster than Mr. Greenspan’s demi-godlike status. “From New York to Tokyo to Frankfurt,” reports William Pesek on Bloomberg, “the talk is that Greenspan has lost his touch.” Isn’t nature nasty? You work all your life to inflate your own reputation…and then some pri…I mean something happens and it deflates suddenly.

*** “Suddenly, the critics are taking aim at Greenspan,” says the NY TIMES. “Chairman Greenspan is dangerously close to engineering a worldwide recession,” said William Rutherford. People who believed that Greenspan could find the magic interest rate are becoming disappointed.

*** “A bear market – supposedly forecasting a recession – may be assisting in bringing about the conditions it is anticipating,” writes Ray Devoe. “By lowering consumer confidence, expectations and spending, the bear market could contribute to bringing about a full-on recession.” (see: href=”http://www.dailyreckoning/body_headline.cfm?id=1019″>The “Tail Wagging The Dog” Effect)

*** Or worse. The Levy Institute believes the U.S. economy has entered a “contained depression.” The wealth effect has turned negative with potentially devastating consequences. Each drop of the stock market puts more and more pressure on consumers. What if they are forced to cut back?

*** “I’m in belt-tightening mode,” said Cathy Isaak to USA Today, illustrating my point. “We’ve lost so much in the stock market, I don’t feel I should be spending…”

*** But, so far, there is still no panic on Wall Street. Just disappointment, frustration, and worry.

*** John Crudele of the NY POST points out that first quarter earnings reports will be coming out soon – and they aren’t likely to be pretty. And even before that, 200-250 companies could issue profit warnings. S&P 500 earnings are expected to fall by 8% in the first 3 months of the year – the steepest drop since ’91.

*** And then, there is the economy. It grew only at 1% in the last quarter of 2000 and is likely to grow at a lower rate in Q1 of 2001. Crudele notes that inflation numbers are probably understated – perhaps by as much as 2%. After inflation is properly taken into account, the real growth rate could be negative, he says.

*** What’s ahead? “The low point is getting closer,” says the Financial Times, idiotically. The FT cites a study by UBS Asset Management which concluded that U.S. stocks are now “only 20% overvalued.” Hmmm…that implies a Dow of around 8,000. But, “we must watch for the possibility of a deceptively strong rally before the final plunge,” warns the FT.

*** “The Nasdaq could still decline to 1,200,” writes John Crudele. “The Dow would be fairly priced at 6,000.” Who knows. There is no law that says the Dow has to be fairly priced.

*** The Washington Post says that 22% of people entering college had a credit card in high school – a number that has doubled in the last 6 years. Credit card companies are now targeting teenagers. 120,000 people under 25 years old declared bankruptcy last year, says the Post.

*** The weather down here in Florida is nearly perfect. A great place for riding motorcycles. Every middle-aged man in S. Florida must own a Harley Davidson. Oh for the open road! And the feel of the wind in my thin, graying hair!

The Daily Reckoning