The Daily Reckoning Weekend Edition

August 12-13, 2000

Paris, France

By Addison Wiggin

MARKET REVIEW: Dow Above 11,000 for the First Time Since
April 25

The Dow ended a seemingly uneventful week with a 119-point
surge… to close above 11,000 for the first time since April
25. For the week, the home of the blue-chip was up a healthy
260 points – closing at 11,027. On the NYSE, advancing issues
trounced decliners 1998 to 853.

Market optimism spread to the S&P 500, too… as that index
closed up 11 1/2 to 1,471. But for the most part market mavens
were not impressed. An analyst in Reuters: “The market is kind
of directionless… People seem to be grasping, looking for some
fundamental issue to hang their hat on.”

Fundamental… hmmmnnn… inflation, perhaps? According to
Labor Department number crunchers the PPI remained steady in
July – keeping pace with June’s 5.1% boost. And consumer
spending increased more than was expected… still the numbers
are not enough to give investors a clue what the Fed is likely to do
on the 22nd. Ahhh, the summer of love continues.

Meanwhile, the Nasdaq continued to suffer the fate of the big
techs. While the index overcame an early loss to rise 29 and
close at 3,789.47… earnings fears held that great harbinger
of the new era to just 2 points for the week. Tech’s biggest
loser? Dell down 4… to 37 and change.

On Friday, Phillip Morris was up $2 to $31 after Goldman Sachs
issued a report stating lawsuits were probably already priced into
the stock. Dan Denning speaking about big tobacco in May:”If
you’re a true contrarian, you’ll want to buy these
three… they’re the most ridiculously undervalued reviled –
and profitable – companies in all of America.” Goldman also
reported they expect the stock will rise 50%-60% this year.
Phillip Morris was trading as low of 19 in mid-February…

As for the broader indicators… the Russell 2000 small cap
rose a little more than 8 to close at 510. And the Wilshire
5000 – the broadest measure of ’em all – up 11 to 807.

Prices on August 12, 2000:

Gold: $280.50, up $2.70

Silver: $4.94, up $.02

Crude Oil: $31.00, down $0.32

Natural Gas: $4.47, up $.007

CRB Index: 220.80, up .15

Dollar Index: 111.06, up 0.32

Yen: $.0092, up a little

Euro: $.90, down a little less

British Pound: $1.50, up .005

MARKETS: The Electricity Crisis Gets A Boost

“California’s electricity shortage has produced the
requisite backlash from busybodies in government: blame the
free market.

One of five commissioners at the California Public Utility
Commission issued a plan Friday that would cut rates for
some users and penalize heavy usage by others. That will
end the crisis they say.

We predict a different outcome: the longer politicians balk
on allowing the free market to operate, the longer the
shortage will last. Which is – ironically – good news for
us.

We’ve got 5 stocks that are directly benefiting from the
crisis. They’re in electricity, coal (56% of our power
comes from coal), and natural gas (fastest-growing power
fuel in the world).”

Dan Ferris

Real Asset Investor

HOT PICK OF THE WEEK: 186% in 24 hours…on Verizon.

– from The Contrarian Speculator (again… go Lynn!)

“This week, we figured the news from Verizon’s management
was gilded pretty thinly. Take the strike and the recent
expensive acquisitions and the price increase earlier this
week looked like so much uninformed bottom fishing. So we
bought an August 40 put on Wednesday. We sold it for +186%
on Thursday.”

FLOTSAM AND JETSAM: Dot-commies and the
Twinkie Business

– from Lynn Carpenter

All week I’ve been wondering where the communists went.
Politics is really dull without them. Most of my life, the
goldless (that’s a Freudian non-slip: not only are they
Godless, but they’re really goldless, too) communists
inspired loudmouths everywhere. They made dusty old budgets
and important battlegrounds. And they gave the boys in the
Pentagon an excuse to buy new toys that went bang.

In the twenties, voters had the drink taken to get people
riled. In the 30’s and 40’s Hitler was an inspiration to us
all (Lord, I hope no one quotes that sentence out of
context). But now what? Welfare mothers just didn’t have
the juice. Here in Maryland, the top item on the political
slate seems to be urban sprawl, which the governor is
combating with smart growth.

How’s that for a yawner?

But San Francisco shows the way. It’s war on geeks. Silicon
Valley dot-com workers have driven rents and real estate so
high the slums are threatened. Activists are right now
collecting support for a ballot initiative to ban
dot-com development in the Mission district where a lot of
underpaid Latinos make their home. Mayor Willie Brown has
his own plans to restrict or ban dot-com growth in key
neighborhoods. Pretty soon it will be “Save Our
Welfare Mothers” bumper stickers. Imagine the Republican
Party dealing with that. I can hardly wait to hear one of
the Bushes tackle this.

The communists, along with socialists, anarchists, free-
lovers and suffragettes used to believe the rich exploited
the poor on purpose. Capitalists said no such thing. But
even though I’m a capitalist, I knew very well the
capitalists were lying. Of course the rich exploit the
poor. How do you think Baron von Somebody’s mighty great
grandfather got his loot? It is capitalists’ great-great-
great grandchildren who get squeamish about exploitation.
The original aristocrats made his peasants feed him and his
knights fight for him, largely at their own expense. What
the poor need to do is figure out how to exploit the rich
in turn.

Sometimes they do. In the 1840s the California Gold Rush
drove prices up as wildly as the dot-com rush is today. So
Levi Strauss sold the poor gold-fevered fools the things
they forgot to pack – picks, shovels and dungarees.

Instead of banning dot-com workers and businesses in
formerly poor places, the poor ought to welcome them ashore
just like New England pirates welcomed ships to their doom
long ago. They should figure out nice legal ways to take
advantage of the rich. Obviously some have – realtors and
landlords. Starbucks, too. There wouldn’t be any $3 cups of
coffee without dot-commies crazy enough to pay for it. Why
not tee shirts that say “I’m with brilliant?” Put the label
on the outside and make the geeks pay $40 bucks for a $4
Hanes Beefy Tee all gussied up.

What do geeks buy that they forget to pack or can’t make
themselves? My friends in Seattle say a lot of pot, but
that doesn’t seems to be an option. Coffee’s been
discovered already.

Of course the reverse side of that question’s useful to
investors also. Why is Interstate Bakeries such a dud?
Wonder Bread, Twinkies, Ding Dongs…they ought to have
boomed with Silicon fever. Instead, they continue to sell
Twinkies – like Twinkies. The stock has gone from $10 in
1995 to $15 this year. While geek pocket money went up a
thousand-fold, Interstate shares went up 50% over 5 years.
Then it suddenly went semi-vertical, reaching $18.

Has Interstate developed a gourmet $5 Twinkie?

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“The worst crime against working people is a company which
fails to operate at a profit.”

Samuel Gompers

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