Five months since my last
letter. A lot has happened since July. For one thing, the
NASDAQ is still skulking like a whipped dog since the crash, I mean, correction
in April. Back in July, CNBC and most of the financial press predicted
a quick recovery. So would I if my income depended on consecutive
re-runs of the U.S. Stock Market Mania Show. I'd be grinning ear
to ear and backing toward the door. In fact, the NASDAQ has returned
to its pre-uberbubble October 1999 size when it was merely a big bubble.
The defection of hoards of greater fools buried NASDAQ stock holders' wealth
fantasy in $2 trillion of losses. Never one to miss a chance to say
"I told you so," I'll point out we said on March 6 We're
Almost There... and after the crash on April 5 A
Bear Market is Born. Ok, so maybe we were lucky. I offer
the following side-by-side comparison of a much earlier prediction versus
the actuals. We predicted nearly two years ago during January 1999
in a comparison
of the 1960s tech stock mania and the modernized Internet version that
the average Internet stock was destined fall 87% from peak price after
the bubble burst. The actual number is available thanks to the VTO
Report in the 215 Internet stocks that comprise their cheerfully monikered
Wasteland
Index. Turns out our prediction was optimistic: the average stock
is now off more than 90%. I expect this theme to resound over the
coming years as reality reveals even our more dire prognostications as
Pollyanna dreams.
In the past week Fred has come out to tell us to not freak out, that
he's got things firmly under control. Fred is the name we plan to
use from now on here at iTulip.com to refer to all Fed mouthpieces individually
and collectively. We're trying to do our small part to mitigate the
disaster that awaits a world financial system built upon a cult of central
banking personality in the name of Alan Greenspan. A central banker
is meant to be an obscure technocrat, the man we're not to notice pulling
the levers behind the curtain, the high priest of money who rarely descends
from the temple to give a sermon in his Latin-like econo-speak. But this
one appears regularly on the public stage. I half expect to see him
interviewed on Larry King or David Letterman. The over-exposure
of the man engenders public association of recent periods of financial
stability with personality rather than policy, raising the risk of a confidence
crisis should the man err, become ill or lose his mind.
Actually, I'm almost certain he lost his mind in 1996. Beginning
in 1994 with his February 4 attempt to "prick the bubble in the equity
markets"1 and ending with his famous "irrational
exuberance" speech in 1996, Greenspan tried to control the stock market
bubble but mysteriously abandoned the project, resorting to weak, pre-owned
arguments to justify of inaction.. To wit:
| "But bubbles generally are perceptible only after the fact. To
spot a bubble in advance requires a judgment that hundreds of thousands
of informed investors have it all wrong."
Testimony of Chairman Alan Greenspan
Before the Joint Economic Committee, U.S. Congress
June 1999
"[T]he consensus of judgment of millions whose valuations function
on that admirable market... is that stocks are not at present over-valued.
Where is that group of men with the all-embracing wisdom which will entitle
them toveto the judgment of this intelligent multitude?"
Professor Lawrence, Princeton University
September 1929 |
But I digress. To calm our nerves, on Tuesday Fred intoned, "...the
overall situation is nowhere near as bad as during the height of the Asian
financial crisis in 1998," a phrase many owners of telco company junk bonds
must have repeated to themselves over and over to get to sleep that night.
The next day, Fred informed us "...the U.S. central bank must be equally
alert to the risk of an excessive slowdown and that of an economic overheating,
signaling the Fed has moved to a balanced view of the main economic dangers
facing the United States." The inescapable logic does not reassure.
Fred admits the U.S. economy may either explode or implode, is thus unstable,
but we may rest easy knowing Fred is all over this, is keeping an eagle
eye out for either possibility, ready to crank rates up or down or perhaps
to oscillate them, as conditions require. Whatever.
We expect a continued string of verbal secour from Fred over the coming
months. That's part of Fred's job. But keep a close eye on
him. If he starts to issue statements to the effect that the financial
system is "fundamentally sound" the moment has arrived for prudent owners
of capital to remove their money from said "fundamentally sound" financial
system and bury it in coffee jars in the back yard. The remaining
68% of U.S. citizens who are not owners of capital, who are in fact one
or two paychecks away from insolvency and therefor have no money to bury,
can perhaps quickly take out one last home equity loan and bury the proceeds
of the transaction in coffee jars in the back yard. Why not?
You're already in trouble and so are most of the banks that have practiced
this sort of lending.2 Gather up a few
of the tens of credit card offers you get each week for a rainy day when
you need them. Saving credit card offers for a rainy day. Now
that's funny.
While the loss of trillions of stock market fantasy wealth has only
moderately dampened the enthusiasm of U.S. consumers, a string of earnings
warnings informs us that corporate buyers are not so sanguine on the cap
ex front. Capital spending is off significantly and not only in the
U.S. Following a long line of earnings warnings over the past few
weeks, Intel's Chief Financial Officer, Andy Bryant, said Thursday night,
"What we believe is happening is a worldwide economic slowdown. It's every
place in the world, and it's nearly every product we sell."
It's my contention since April that Fred has blown it again. The
first signs showed up right after the crash in April, as discussed in Recession
2000. This is typical of Fred. He's done this before.
No, I take that back. He does it every time. First Fred allows
an economic bubble to grow to gargantuan proportions, as he did in the
U.S. in the 1920s and Fred-san did in Japan in the 1980s. Then, just
as in the 1929 and 1990, he pokes a couple of supposedly tiny holes in
it to attempt to bring it down gently. Here is an amusing recording
of Fred explaining in lay person's terms back in May of this year why he
raised interest rates to slow the economy:
The
Great Ship U.S.A.
To continue with Fred's analogy, the economic ship appears to have overshot
the dock and slammed into a moored freighter, but not before Fred allowed
the hull to fill with debt. Those of you who know a little about
either boats or physics know that a boat with lots of water in the hull
looks on the outside much like a boat with the water primarily on the outside,
except the water filled boat is prone to roll over with only a minor impetuous,
such as a wave of demand reduction due to evaporating stock market wealth
and falling real estate values. That's what I believe Fred's ship
is doing now.
What does this bode for iTulip.com? In response to anxious letters
we've received from our visitors we issued a press release earlier this
week announcing that iTulip.com is not about to go the way of Priceline.com.
It's entire staff is still in place. What few bills there are get
paid, and owing to an almost complete lack of liabilities, the company
remains solvent. We have allowed our contract with investment bank
Bigg, Fees and Howe to expire. We figured we not see much of them
anyway -- the SEC is starting to sniff around their commission books as
with CSFB. Our potential Series B investor Porcine Capital Partners
is using all hands to bail water out of its sinking portfolio. We
figure by the time they're done and have time for us we won't need their
money anyway.
You see, there's a new game in town. It has the same objective
-- gaining market share -- but the method is opposite. Rather than
outspending your competitors by raising more VC, you under spend them instead.
You gain majority market share simply by surviving your competitors.
Last dot com standing is a very inexpensive road to taking the lead in
a market. Doesn't do much for the ad agencies, PR agencies and others
who have been living off the largess of the VCs, who have been living off
the largess of the pension funds, who have been living off the largess
of the stock market, which has been living off the largess of our dear
friend Fred. Now all is reversed. Where once there was a mad
river of money, now only a trickle. Where once there was inflation
in the money supply and a frenetic rush to participate in private placements
before prices went up, now there is deflation and a dentist office waiting
room atmosphere of hanging out for prices to fall more and more and more.
Well, as usual I've rambled on too long. We at iTulip.com are
off for a few weeks for the holidays. We got family coming over and
company Christmas parties to go to. And anyway we need a break.
We shall return in a couple of weeks.
Best wishes from the iTulip.com crew. We hope you have an enjoyable
holiday.
Arnold Greenspatz
Prez and CEO
iTulip.com
1 Federal
Open Market Committee meeting, March 22, 1994
2 On
dangerous ground -- many use equity loans to increase debt instead of paying
it down, Bankrate.com, September 1, 2000)
