October 14-15, 2000

Paris, France

By Addison Wiggin

MARKET REVIEW: Friday the 13th and a Full Moon in
October... Big Waves and a Turbulent Ride for all the
Major Indexes...

Boy...what a week. Like a huge swell marking the arrival
of a storm at sea, the Nasdaq rolled tech investors high
above the surf on Friday - climbing over 7.8%. By day's
end the Nasdaq had closed up 242 to 3,316.

Still, Friday's gains couldn't cover up earnings troubles
that have been plaguing the index for weeks. The Nasdaq
was down 45 for the week - and 32% off its March high.

Friday's rebound of 157 brought the Dow back to close at
10,192. But chez Blue Chip, too, was looking mighty
weathered after (or before?) the storm. Thanks largely to
Thursday's 379 point drubbing and six straight losing
sessions - the index closed down 404 for the week...

The S&P 500 also caught some of Friday's bargain-hunting
optimism closing up 44 at 1,374. But both the Nasdaq and
the S&P 500 saw lows for the year on Thursday. Up and
down... up and down... it's enough to make you queasy.

A quick note on the economy...the BLS released PPI numbers
early Friday morning. They signal annualized prices
increases of over 10% at the wholesale level. "The rise in
the PPI by itself is not a big reason for concern yet,"
says the Fleet Street Letter's Lynn Carpenter. "But the PPI
is rising faster than the CPI... what's that mean?
Companies are getting squeezed. Their costs are rising
faster than consumers are anteing up. It means lower profit
margins. And it means still more earnings shortfalls ahead.
I'm afraid Q3 2000 is not going to be the end of that
story."

The Russell 2000 lost 11 points this week sifting down to
480. The Wilshire Smallcap rose slightly, up 5 to 797.

PRICES FOR THE WEEK: Lots of Action in Gold, Oil and
Gas...

Gold: $278 up $7

Crude Oil: $34.99 up $4.13

Natural Gas: $5.53 up $.45 (Highest week-end close of the
year and the heating season's still to come...)

Platinum: $576 down $13

Palladium: $741 down $8

CRB Index: 230.85 up 4.85

Dollar Index: 115.86 up 1.86

Yen: $.009 (yawn)

The sad, sad Euro: $.85 down a penny

British Pound: $1.44 same

MARKET COMMENTS: The Inverted Yield Curve... Morgan
Stanley's Junk Bond Fiasco...

"In the global markets a perfect storm has arisen. The Fed
inverted the yield curve to slow the economy. A short-term
supply crisis sent oil prices skyrocketing. Dozens of blue
chip companies announced earnings surprises. The dot.com
sector collapsed. And now there's war in the Middle East.

"It could get worse. Morgan Stanley's high-yield
convertible bond portfolio, stuffed with fiber optic
network debt, is suffering under the inverted yield curve.
Of the 20 worst performing bonds issued since 1998, Morgan
underwrote 11. Concern over Morgan's bond portfolio, which
could be worth as much as $6.8 billion, has caused the
company's stock to fall more than 20% since last week.
Other over leveraged players could come out of the
woodwork next week, a la Long Term Capital Management.
Margin selling could escalate."

Porter Stansberry

That 70's Show... And Another Monday In October

"Traders who remembered the Yom Kipper War was the
launching pad for the 1973 Arab Oil Embargo pushed oil
briefly beyond $37 a barrel...institutions that remembered
the Oil Embargo precipitated high inflation, a
depreciating dollar, and double-digit interest rates
liquidated their positions, and drove the Dow Jones
Industrial Average down nearly 400....

"There was plenty of damage left after the week's trading
and there will be a lot of nervous investors sitting
around this weekend. Yikes... we're facing another Monday
in October."

John Myers

Real Asset Investor

* * * * * * * * * Advertisement * * * * * * * * * * *

The Day The Music Died

In the hubris of the Summer of '29, no one wanted to hear
warning signs. The flappers danced. The bootleggers drank.
The speakeasies were packed. Benny Goodman band hits
blared on RCA radios. And the party on Wall Street roared.

Late in October, Winston Churchill was visiting New York
City on a lecture tour... walking down Wall Street he
stopped to see the home of the 'eighth wonder of the
world' the longest bull market in history - the trading
floor of the New York Stock Exchange. Interestingly
enough, there was no panic on the floor that day...

click here

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THE DAILY RECKONING FREE INVESTOR'S LIBRARY

The Euro Crisis: Are Your US Investments in Danger?

The combined efforts of the world's central banks have
failed to prop up the euro... a slew of 'earnings-warnings'
blamed on weak demand in Europe... and an unshakeable
belief in the super-dollar. Too few realize how these
currencies and markets are intertwined... and why the
untouchable American market is in for a nasty surprise.

In this edition of the INVESTOR'S LIBRARY, former central
banker and esteemed Austrian economist Dr. Richebacher
examines the truth behind the euro crisis. To learn why the
dollar's supremacy is precarious at best... and what you
can do to position your portfolio for safety in the months
to come read this special report...

Your Free Report:
click here

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FLOTSAM AND JETSAM: Damned If They Do, Damned If They
Don't... What's A Central Banker To Do?

"This week's stumbling indexes are just a sign of the bear
cleaning the junk out of the market... junk stocks and junk
prices on good companies. But investors will do well to
remember "the market" is not "the economy."

The Fed doesn't want to ease rates to help the market, not
with oil going up. Even if they leave oil out of the core
CPI, they know it's there. High oil prices can do real
damage.

And according to First Union analysts Jay Bryson, David Orr
and Mark Vitner lowering rates could really, really hurt
the corporate bond market... I suspect they're right.

The spate of corporate 'earnings warnings' mean one thing:
there's enough trouble here already. Liquidity is drying up
for the less-than-AA to AAA segment of corporate America.
Only the squeaky clean are finding money when they need it.
Venture capitalists are in retreat. Bank losses on
corporate debt are way up.

So, what will the Fed do? Stick its head in the sand for
now. Just as well.

By the way... all of this is good news to someone: Robert
Half International (RHI:nyse). RHI is up 37% since we put
it in Fleet Street's 10-stocks-for-10-years portfolio in
April.

Those soon to be unemployed tech workers are much needed to
fill the temp assignments pouring in RHI's doors. The other
big winner in that ten-some is defense contractor Northrop
Grumman, up 65% since April, and having an excellent week
no matter what the rest of the market did."

Lynn Carpenter

Fleet Street Letter

The Rise and Fall of Big Tech... Plus, 5 Tech Stock Time
Bombs You May Own - and Not Even Know It

Unfortunately, "Many investors, and many mutual funds,"
says a NYTimes article titled The Rise and Fall of Tech
Stocks, "entered this year with their largest investment in
some of the stocks that have done the worst."

For example, "Janus Capital, the mutual fund company, made
headlines in January when it bought an entire secondary
offering of Healtheon WebMD, since renamed webMD, paying
$62 a shares. Yesterday, with the stock under $10 a share,
Janus disclosed that it had sold most of the shares."

For some, this week has been horrifying. Even with
yesterday's big gains, the Nasdaq has lost almost a 1/4 of
its value in less than two months... down over 8.5% the
week before last, another 3.6% Wednesday alone. As we
reported, Oracle's Larry Ellison lost $1.2 billion in one
day...

In a report called "Beyond the Internet" we released in
late August we warned readers to immediately sell MSFT,
ORCL, CSCO, INTC, and SUNW.

Since Labor day those stocks are down a combined 137%.

MSFT down 20%, SUNW down 18%,

ORCL down 30%, INTC down 47%

and CSCO down 22%.

But that's just the beginning. Long-time readers of the
Daily Reckoning are familiar with our position. Some of
these companies are good companies - but not at these
prices. They've got a long way to go... down.

The problem is, when a mega-fund like the Vanguard
Institutional Index is 96% invested in stocks - with more
than a third of those holdings in tech stocks - how can you
be sure your pension or mutual fund isn't at risk?

If you missed "Beyond the Internet" when I sent it to you
on Wednesday... well, that's what the Weekend Edition is
all about. I've re-posted the report here.

Take a moment. Review today's five most dangerous tech stocks,
and if they're in your portfolio - sell. With yesterday's Nasdaq
rebound you may have time to get out at a good price.

Your report "Beyond the Internet" also reveals some great
buying opportunities: 7 select "brick and mortar" companies
that we believe will prosper on the far side of the Big
Tech bubble - including Robert Half International, which
Lynn mentioned above.

These are the companies that operate on time-tested
business models. They provide the goods and services needed
during both good times and bad. And they go up... even
while the Nasdaq burns! So, take a look... enjoy the
read...and...

Have a great weekend,

Addison

P.S. For your copy of The Fleet Street Letter's special
release: "Beyond the Internet" - or as we've affectionately
re-titled to reflect this week's carnage - "While The
Nasdaq Burns..." simply click here.

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CONTRARIAN GLOSSARY: Bonner's Law

BONNER'S LAW: This one is eponymous. It describes the
interaction of Moore, Metcalfe and the process of creative
destruction. Moore and Metcalfe are used by Internet and
Tech investors to justify high prices. Why not pay a lot,
they say, when the whole industry is evolving at an
exponential rate? Bonner's Law predicts that the revved up
speeds of creative evolution in the Internet marketplace
will produce revved up rates of destruction too.

Moore + Metcalfe = Creative Destruction squared.

Investors may want to gamble on tech companies. But they
should pay very low prices, not high ones. Low prices
recognize the truth - that the company is most likely to
fail.

For more Contrarian Glossary entries click here .

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