"Got It"-Good And Hard

Over the weekend, the SEC fined MicroStrategy founder, Michael Saylor, $350,000. In addition, he and two other executives had to pony up $10 million worth of stock in order to resolve shareholder suits.

Saylor was one of those who `got it’. He knew, deep down, an inchoate, indescribable truth that the rest of us couldn’t quite fathom. As a result, he was, and still is I suppose, a Digital Man, one of the race of mutant Homo super-sapiens that was supposed to not merely inherit the world, but to take it over by adverse possession.

“The first person I knew who suggested that there was such a truth and that it could distinguish you from other people who didn’t know or accept this truth was Louis Rossetto,” writes Michael Wolff, in Forbes ASAP. “‘He just doesn’t get it,’ Louis would say, shaking his head in disgust when almost anybody disagreed with him. WIRED the magazine he founded was based on this notion that certain people understood something profound, while most did not.”

Saylor was one of those who understood something profound. The company he founded had a mission. According to its 1998 Annual Report, “MicroStrategy’s corporate culture is guided by a shared vision for changing the world – to promote universal intelligence by making information flow like water.”

Information certainly flowed. How much intelligence it conveyed is open to question. But the money was real. MicroStrategy hit a high of $333 a share on March 10, 2000. Then, it was revealed that the company’s numbers were the product of considerable ledgerdemain – for which the three top executives are now being punished. And the shareholders have taken a beating too. The stock is down 98% in the last 8 months. All of which merely proves my dictum: you don’t get what you expect on Wall Street, but what you deserve.

I bring this up, though, not merely to relish the fact that people get what’s coming to them. It is much better to dress up your base emotions with a veneer of intellectualism… which is just what Saylor and the other Digital Men did.

“Information wants to be free,” they said – as if it meant something. “Speed changes the meaning of information.” “Our goal is to achieve ubiquity.” It didn’t seem to matter what they said…they were the young, hip, plugged in tech guys…and they ‘got it’.

Like the hustlers and chutzpahs who sold modern art to Fortune 500 corporations, Saylor and others went right for the high ground.

Wolff describes what is like when the absurd pretensions of the New Era techies met feeble, empty-headed corporate America:

“I wish I could communicate, however guilty I feel about it now, the sheer joy of sitting in meetings with well- established businessmen representing billions of dollars of assets and multimillion-dollar profit streams and being able not only to high hand them because I got it and they didn’t, but also to be able to actually humble them, to flagrantly condescend to them, to treat them like children. On the basis of this knowingness, hundreds of billions of dollars have traded hands.”

Why didn’t the big money guys ‘get it’? Because there was nothing to get. The techies had no real knowledge. Just a pretense of knowledge. Big, hollow ideas…that in the end, meant nothing.

They had technology. But they had no more idea of what it might do or what it might mean than anyone else. Probably less – since they tended to have so little real experience. And even the technology they mastered was often shown to be ineffective, or quickly superseded by yet newer more fantastic technology of even less certain impact and importance.

Still, as they say, “you only make big money from people who are stupider than you.” The tech mongers figured this out early…and were fortunate in having such a big market. Everyone – from top corporate CEO’s to cab drivers – wanted to throw money their way.

But, now, finally the madness is almost over. MicroStrategy stock has fallen – along with almost every other dot.com. The tech stocks are not far behind. Finally, those who `got it’ are getting it – good and hard.

Your correspondent…cheerfully reporting the news, this Monday morning…

Bill Bonner Still In Baltimore, Maryland December 18, 2000

*** I stayed in town this weekend, working in the office but going downtown to do some Christmas shopping. I also paid a visit to my sister down in Charles County, an area that has become a redneck suburb of Washington.

*** My trip took me down `tobacco road’ – as they used to call route 301. Entrepreneurs used it to smuggle cigarettes from low-tax North Carolina to high-tax New York. There must be a million big, shiny pick-up trucks between Baltimore and Charles County. They are everywhere – overflowing from dealer lots and backed up by the dozens at every stop light. Those – and the ubiquitous SUVs – are the most visible debris of the great 18-year financial boom.

*** But the boom seems to be coming to an end. The Nasdaq is down 35% for the year. It is down 50% from its high.

*** The Dow is down too…almost 10% for the year…and will apparently end the year in the red for the first time in a decade.

*** Last week alone, the Dow lost more than 2% of its value. The Nasdaq lost 9%.

*** And on Friday, the Dow fell 240 points on very big volume. People seemed to want out. There were 1305 stocks making progress on the NYSE, while 1600 fell back. The Dow is below 10,500…can 10,000 be far behind?

*** The Nasdaq fell 74 points – also on big volume.

*** The entire national economy only produces about $10 trillion of goods and services each year. So, the $3 trillion or so that has been lost in stocks is a lot of money. It can’t help but depress consumer buying.

*** Company after company is coming forward to say that its sales/profits are softening – MSFT, Intel, Kodak, GM, Compaq, Chase Manhattan. Even UPS and Fedex have warned that they wouldn’t be able to deliver the profits they expected.

*** MSFT fell 11% on Friday. Cisco fell 5%. MSFT was $119 last December. Thanks to this season’s `half-off’ sale, you can get it for less than $50. Cisco and GE, too, are also priced below $50.

*** As mentioned above, there are so many unsold pickups and SUVs along route 301 that they are practically parking them on the streets. Many of these vehicles were leased out. Now that the leases are expiring they’re piling on car lots and weighing down resale prices.

*** What happened to the end-of-the-year rally? Is it still ahead? Has it already come and gone? We’ll see.

*** But investment advisors are still bullish – 55.6% of them. Only 26.9% expect falling prices.

*** And Wall Street is still looking for Santa’s Big Bottom: “This market has been anticipating somewhere between a hard landing and recession,” said Tony Dwyer, chief market strategist at Kirlin Holdings, quoted by Reuters, “which means your worst case scenario is probably already discounted in the stocks.”

*** Worst case scenario? With an average P/E for the S&P 500 of nearly 20? Dream on! The worst case scenario can’t even be imagined yet. It includes P/Es of 6 or 8…and a public that will turn its back on stocks…lose faith in Greenspan…stop spending and begin saving again.

*** Worst case? The weekend brought a report from Japan – where stocks peaked out more than 10 years ago at nearly 40,000. Now, the Tokyo index is around 15,000…and the Japan Times says that bankruptcies are rising at a 22% rate (annualized)…while corporate liabilities increase at an astounding 200%.

*** Meanwhile, back in the U.S.A., Barron’s consensus of corporate earnings expects a rise of only 5.7% next year. But maybe earnings won’t rise at all…maybe they’ll fall.

*** Investors’ Business Daily tracks leading mutual fund performance. Its index is down 16.2% for the year – which is probably about what most people have gotten from their stocks this year.

*** The current account deficit approaches 4.5% of GDP. Imports in the 3rd quarter rose 18% over last year. My brother in law just bought a new John Deere garden tractor. He reports that all the major brands are made in Japan – no matter what name they have on the hood.

*** Fannie Mae expanded its mortgage portfolio at a 25% annual rate in November. Freddie Mac’s “net retained mortgage portfolio” is growing rapidly too; it is expected to increase 15% to 20% in the next year.

*** The dollar is falling. The euro rose above 90 cents for the first time in 3 months. This is the most ominous event in the financial news – but no one seems to notice.

*** Doug Noland surveys the credit bubble on the Prudentbear.com: “For one, broad money supply, at almost $7 trillion, has surged $1.3 trillion, or 23%, since June 30th, 1998. Total mortgage debt has also increased about $1.3 trillion, or 23%, to $6.8 trillion. Total outstanding corporate bonds increased 23% to $4.9 trillion. Total liabilities of the U.S. commercial banks have increased 16% to $6.3 trillion… Money market fund assets have increased 36% to $1.7 trillion. Total GSE liabilities have expanded recklessly, surging 52% to almost $1.9 trillion.

“Outstanding asset-backed securities have increased 34% to $1.75 trillion. Finance company liabilities have increased 37% to $1.1 trillion, while total Securities Brokers and Dealers community liabilities have increased $263 billion, or 28%. Mutual fund holdings have increased 54% to $4.8 trillion, since 1998’s third quarter.

“And with credit excess fueling historic trade deficits,” Noland continues, “the accumulation of foreign liabilities has been nothing short of astounding (frightening). At the end of the third quarter, the ‘Rest of the World’ held $7 trillion of U.S. financial assets, having increased by 35% ($1.8 trillion) in just two years.”

*** Gold rose $1.40 on Friday. A group of pro-gold activists has sued Alan Greenspan and others to prevent them from manipulating the price of the metal. The gold bugs think Greenspan and others have conspired to hold down the gold price. I have never been able to understand this point of view. If anyone wants to sell me gold below the real market price – I am happy to take it.

*** Goldman downgraded Hewlett Packard. In a separate news item it was disclosed that an HWP employee had fallen from a company airplane. This is surely bad news – it is not a good sign when employees bail out without a parachute. Who can forget what happened to Bre-X after its geologist exited a helicopter hundreds of feet above the ground?

*** “Just to add some more fuel to your fire about the economy and falling stocks,” writes DR reader MGB, “as a professional business astrologer, I can tell you that astrology also shows the Bush administration in a very tough economy. Research showed the financial area of each President’s chart corresponded with the economy of the country during their presidency. Bush has a very tough financial area in his chart, no doubt expressed in part when he lost three oil companies. His Presidency is likely to reign over a recession. Clinton’s financial area of his chart is very expansive and quite good. And that is the type of economy we had.

“Astrology shows that 100% of the Presidents died in office when they were elected in years that coincided with Jupiter and Saturn coming together in the same earth sign. This has never failed. In 2000 these two planets came together in the sign of Taurus, an earth sign, so President Elect Bush will not leave office alive.”