The Santa Claus Rally

Daily Reckoning Weekend Edition December 23-24, 2000 Waterloo, New Hampshire (Home for the Holidays) By Addison Wiggin

MARKET REVIEW: Who Is This Santa Claus And What’s He Doing In My Market?

The “Santa Claus” rally arrived early on Wall Street. Traditionally, the boost markets enjoy from holiday cheer is felt just after the Christmas break, but on Friday, the “beleaguered Nasdaq” (Reuter’s) got an early x-mas gift.

Up 176… or 7.5%… the Nasdaq closed with its strongest performance in more than a week and its fifth-largest percentage gain – ever. Still the rally couldn’t compensate for early-week woes: the tech-laden index fell 136 for the week – down 5.1%.

The Dow, on the other hand, ended the week 200 points higher at 10,635, following a 148 point gain Friday. The S&P 500 climbed 31 to 1,305, but was off for the week, by numbers so small they’d be difficult to pick up with a micro-video instrument.

Concerns about corporate earnings, which have been shadowing the market since Labor Day, were intensified this week… it’s looks as the ‘soft landing’ purportedly orchestrated by the Fed may be a little harder than analysts expected. The Federal intoned they would not cut rates for the holidays.

Markets Around The World… Japan’s Nikkei rose a mite… 0.03%. The German DAX index closed 0.8% higher, London’s ‘footsie’ fell 0.3%. The CAC-40 in Paris inched higher: + 0.4%.

The Russell 2000 index rose 15 on Friday to end the week at 462. The Wilshire 5000 closed out the week 11,981.

PRICES FOR THE WEEK:

Gold: $273 Crude Oil: $26.25 Natural Gas: $9.57 (We hit this one on the head!) CRB Index: 225 Dollar Index: 110 Esperanto zeuro: .92 British Pound: 1.47 Japanese Yen $.89

THIS WEEK in THE DAILY RECKONING By Bill Bonner

12/22/00 THE GHOST OF CHRISTMAS PRESENT

“…Ebenezer could barely suppress a “humbug.” For he knew there were advances coming in the biotech and microtechnical sectors that would cure cripples and blind people. He had seen the IPOs go up by 10 times. It was just a matter of time until all of life’s inconveniences were done away with. And anyone who cared to could be rich too – they just had to stop being so stupid and stubborn, like Bob. Get with the program, for Pete’s sake…”

12/21/00 THE GHOST OF CHRISTMAS PAST

“… “What are these chains you wear?” “They are the chains you forge for yourself. But instead of gold and silver, yours are laden with computer terminals, stock certificates, portfolio statements, the New Era… Amazon.com. You will be fettered not just for your life, but for eternity. And they grow heavier with each passing month. Unless, that is, you heed the ringing of these chains…” “I am here tonight to warn you,” the ghost went on, “that you may have a chance of escaping your fate. Rise and walk with me.” …”

12/20/00 IN IT TOGETHER

“…we have seen is that increases in the division of labor and knowledge seem to lead to collectivized stupidity. Unable to form an opinion on the quality of the meat they eat…nor on the quality of mortgage debt bought by Fannie Mae… they turn to the mass-marketed and most widely distributed ideas available. Uniformity, however, comes at a price. Vulnerability. When everyone is in the same boat, a single leak can sink them all…”

12/19/00 HEART OF TRUTH

“…People speak casually about the truth — as if it were something that they could look up in an encyclopedia and zap around the Internet. The “digital men” seemed to think that truth was the same as information…and that the key to success in life was having more of it than the next guy. And yet, even in the sciences, truth is unreliable…”

12/18/00 “GOT IT” – GOOD AND HARD

“…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…”

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * HEADLINES, NEWS and INSIGHT:

The Dangers of an Asymmetrical “Wealth Effect” by Raymond F. Devoe, Jr.

Very little in nature, or economics is completely symmetrical. Recent events made me wonder whether “the wealth effect” would be symmetrical on a market downturn, if people started actually losing money in stocks. What will happen to the economy as a whole?

The Stock Market: Look Out Below by Doug Casey

People rarely invest based on an ability to tear apart income statements and balance sheets, not to mention understand the business firsthand by not only interviewing management and employees, but suppliers and customers. They invest based on what are tantamount to tips and gut feeling. That’s why nobody was in the market in 1982 and why everybody has been in it for the last five years.

Lies, Damn Lies, Wall Street by Dr. Kurt Richebacher

If the old sages of capitalism used to say that there are no gains without pains, such as saving, investing and laboring, the message of this new Wall Street model makes, of course, much more cheerful reading: Consume and borrow as much as you can, and just buy stocks to get rich. This is an insult to economics.

The Dynamics Of Investment Booms by Dr. Marc Faber

Minor manias or bubbles don’t lead to any significant economic disruptions when they burst, because they are only based on a relatively small sector of the economy and are usually local in nature. Major manias, by contrast, are significant in the context of the whole economy and are very often of international dimensions and attract a large flow of foreign money.

Check Free (And Profitless) by Andrew Kashdan

Checkfree offers the truly future-looking concept of electronic billing and payment. But the company is struggling with some old fashioned concerns, such as net earnings and cash flow.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * FLOTSAM AND JETSAM: Casual Observations From Thom ‘Bomb’ Hickling, Part-time Writer, Full-time Friend and Blueshound

“It’s possible that in 10 or 20 years, we’ll look back on this period in the way that we now look at the Industrial Revolution.”

Henry Blodgett

Henry Blodgett has been downgraded. The Cyber-stock cheerleader from Merrill Lynch achieved guru status touting overvalued Internet stocks is finding it a hard sell now. And when he recently downgraded — no let me use his euphemism — “resetting the investment ratings” — on 11 of his Internet picks, no one was very happy. Perhaps it was because since recommendations on those tech stocks – they had fallen an average of 62.5%.

But even as he was “resetting the investment ratings” he was softening the blow by adding “we believe that that the stronger stocks may be near seasonal bottoms” and drew the conclusion that the turkeys we becoming “increasingly attractive.”

Since 10 of the 11 were well below the price he originally recommended them at… duped investors had little celebrate in the announcement. Pets.com, a company taken public with the help of Merrill Lynch and now 82% below it’s IPO price was just one of his dogs. The failed on-line toy seller e- toys fell 89% since Blodgett first recommended it.

But it didn’t start out so ugly. When Blodgett was at CIBC Oppenheimer and Amazon was selling for $200, he predicted that within 12 months it would double to $400. The next day, Amazon shot past the $300 mark and settled at $289. That very afternoon, Blodgett, clarified his forecast. He said it would hit 400 in 12 months, not one day.

As his star rose, Merrill Lynch picked him up as a senior Internet analyst.

When Blodgett talked people listened. But his magic touch has worn off. Although he’s sold a lot of stock for Merrill Lynch and is certainly cashing in personally, those newcomers who followed his advice have taken a beating.

He still believes in the Internet, but says that the field is overcrowded and that 75% of all dot.coms will fail in the coming years. Right now, about 5 are profitable, but he expects that number to double or triple in the next 3 – 5 years. But so far his recent recommendations are not doing any better for his clients.

On May 4 he reiterated buys on the following stocks:

Ariba ARBA – down from 76 to 47, Vertical Net; down from 50 to 4, Internet Capital Group ICGE down from 39 – 3; AOL down from 57 to 36; Amazon down from 55 to 15; Yahoo, down from 124 to 25 (Stats from May 4, to Dec 22, 2000.)

Wishing your family a Merry Christmas,

Addison Wiggin Daily Reckoning

P.S. Here’s a little Holiday diddy for you (also from Thom):

You’re A Mean One, Mister Bear

(Sung, as you might expect, to the tune of You’re A Mean One Mister Grinch)

You’re a mean one Mr. Bear You really are a heel You’re as evil as a margin call And as slippery as an eel

But, according to First Gartner Group You’re a trillion-dollar steal

You’re a monster, Mr. Bear Your hearts an exploding Cole Your brain is full of Spiders (XLB) You’ve got Barron’s in your soul, Mr. Bear

I wouldn’t touch you, with a 2,820 point post-election poll

You’re a vile one, Mr. Bear You have Crisco (PG:NYSE) in your smile You have all of the tender sweetness Of a Amazon (AMZN:Nasdaq) crocodile, Mr. Bear

Given a choice of rivers I’d have to pick da Nile

You’re a foul one, Mr. Bear You’re a ponzi, margined punk Your heart is full of cold-call brokers Your soul is full of chumps, Mr. Bear

The three words that describe you, Are, and I quote: “Shrink, Shrank, Junk.”

You’re a teaser, Mr. Bear You’re the death of bouncing cats Your breath’s a sad New Market burp of dot.com-tasting brats Mr. Bear

Your soul is a black pile of greed Overflowing with festering tulip bulbs, South sea bubbles and money dreams gone splat

You nauseate me, Mr. Bear With a nauseous CNBC television Pengiun dance of market outperform super-buy Crooked broker bonus Ethernet widget and porn

You’re a Wired Red Herring sandwich with DSL loops And cobalt rambus juice, Mr. Bear