February 3, 1999
                    Market Rap with Bill Fleckenstein
                    Speculators find anything online red-hot

                    In Japan, the JGBs traded to 2.44
                    percent before rallying, so that's
                    quite a long way from the 70 or so
                    basis points they traded at about
                    three months ago. The rest of Asia
                    also was weaker, although nothing
                    too terribly dramatic. 

                    Bad checks prompt bank run ...
                    In Taiwan, there was a bank run
                    caused by the brother of the
                    chairman of the Chinese bank.
                    Apparently Panhsin Bank of Taiwan
                    was forced to seek funds from the
                    Central Bank in Taiwan in order to keep the doors open, following a rush
                    by depositors to withdraw their funds. The commotion began when it was
                    revealed that the CEO's brother had written $100 million in bad checks.
                    That just adds to Taiwan's woes. 

                    Chinese credit crunch... Additionally, the Peoples Bank of China
                    apparently has been compiling a black list of unworthy creditors to be
                    circulated among provincial banks. Both corporations and individuals are
                    on the list, another sign of the credit crunch that's enveloping China. 

                    Speculators buoy brokerage firms... In today's speculation department,
                    we had a red-hot move in a bunch of small, out-of-the-way brokerage
                    firms that are pretending to do something online. Siebert (SIEB), which
                    about six months ago ran from $4 to $20 when it was going to split its $10
                    stock (I believe it was 4-to-1 at the time), ran from $10 to $50 in the last
                    few days. M. H. Meyerson (MHMY) has gone from $2 to $8. National
                    Discount Brokers (NDB) has moved from about $16 to $40 in the last
                    couple of days. And then there's JB Oxford
                    (JBOH), which has run from $2 to $12. I'm not
                    sure why all these online brokers are going crazy
                    since there have been so many online
                    brokerage-type problems, but nevertheless they
                    are. Morgan Stanley Dean Witter (MWD) also
                    was up a handful of points on the rumor that
                    Chase might take them out. 

                    With all this speculation going on, folks might
                    take a look at Ragen MacKenzie (RMG), a
                    brokerage house in the Northwest where I
                    happen to know a lot of the people and where
                    my sister also works. It's a very fine operation.
                    It's a $12 stock, right in everyone's price range,
                    and I believe that book value is around $8 bucks
                    a share - most of which is cash. It's selling at
                    about 11/2 times revenues and trading at about
                    12 times earnings. So if anybody wants to be a
                    good, old-fashioned investor in the brokerage
                    industry, here's one you might look at. I'm not
                    saying to do it and it's not a recommendation. I'm
                    personally not interested in buying brokerage
                    firms. But here's a well-run company with a smart
                    group of people, selling at a cheap price at the
                    same time everything else in the brokerage
                    industry is going nuts. 

                    When nothing means something... Europe
                    was soft this morning and the S&Ps were softer
                    overnight. We had a steady grind upward that
                    began after the first hour of trading. Stock market speculators went
                    positively nuts when the Fed shocked the world by doing nothing. Internet,
                    semiconductor and semiconductor equipment stocks all caught fire and
                    made enormous gains as speculators chased them. Of course, they had
                    been chasing online brokerage firms earlier in the day, so anything to do
                    with online today was red-hot and, by extension, tech stocks also were
                    hot. The bank stock index had a bit of a comeback, gaining about a
                    percent. 

                    Silver stays strong... Silver was strong once again. And while we're on
                    that subject, I've received some specific e-mails about Pan American
                    Silver, which I really can't get into for obvious reasons. Rather than ask
                    me, if folks want information, they should go to the company's Web site,
                    which is www.panamericansilver.com A mining company with a Web site
                    - now how can you beat that? 

                    Volume once again was very robust. The over-the-counter market traded
                    over a billion shares and the advance-decline line once again was very
                    feeble. So we continue to have this narrow advance and white-hot
                    speculation in whatever captures the imagination of the crowd. 

                    Shedding light on Cisco... The big news last night was Cisco's (CSCO)
                    earnings. Everybody was crowing about how it beat the number by a
                    penny, and they got all lathered up about that. Then the stock sold off,
                    ostensibly because it didn't split the stock - a cardinal sin for tech stocks
                    over $100. Maybe we'll see a delayed reaction like we did with IBM
                    (IBM) and Intel (INTC), where they come back and split it a couple of
                    days later. 

                    On the other hand, there is a remote possibility that somebody might be
                    looking at the numbers and how they're put together, and how the growth
                    rate of the numbers compares to the price of the stock. I'd like to submit a
                    commentary, put together following the Cisco conference call, by an
                    analyst who works with a friend of mine. These are his notes and I think
                    that they're very illuminating as to what's really going on. 

                    "They beat the number by $.01 a share, gave a bunch of product details,
                    Chambers gave his normal cautionary comments (which I believe were
                    appropriate), and analysts asked a bunch of questions that are not relevant
                    to the big picture. Ignore it all. Its sole purpose (along with Cisco's
                    crowded analyst meetings and presentations to the 100s of investors and
                    analysts) is to divert everyone from the fact that Cisco is running a
                    low-margin business whose earnings growth is slowing. 

                    "This quarter, like every other quarter, included write-offs of in-process
                    R&D from acquired companies. Of course, the street ignores this. If these
                    write-offs were included, earnings and margins this quarter would have
                    been substantially less. This best way to get a feel of the long-term effect
                    was.... Let's say they didn't ignore the write-offs related to these
                    acquisitions over time (which would be correct because it is normal
                    operating procedure for Cisco to acquire R&D vs. in-house
                    development); life-to-date (about 15 years) Cisco has earned only $2.95
                    per share ($4.952 in retained earnings/1.679B shares). This means Cisco
                    is selling at a 37 P/E on "TRAILING 15 YEARS" worth of earnings. This
                    is beyond ridiculous. 

                    "Now as far as growth goes, using Cisco's version of EPS (i.e., earnings
                    without any of the write-offs included) it is still slowing fast. 

                    EPS growth rates
                    1996 - 69 %
                    1997 - 49 %
                    1998 - 29%

                    Q2-1999 - 24%, which means CSCO is selling at three times its growth
                    rate, using its P/E of 74 (which is based on its inflated method of
                    accounting). And this stock is considered a conservative holding by
                    portfolio managers. 

                    "How much more ridiculous can things get?" 

                    Now, if Cisco's stock has sold off because people are starting to figure
                    some of these things out, that would be a first. My guess is the stock
                    probably sold off because the company didn't split its stock. But here are
                    the real numbers. You can see how absurdly priced even Cisco is, a
                    company that everyone is in love with. And if we did this same type of
                    analysis, we would find that many stocks have the same sort of problem. 

                    Bursting the bubble... There is an absolutely dopey article written by
                    Wayne Angel on the Wall Street Journal editorial page. Wayne is one of
                    these guys who likes to say that there have been no bubbles in history.
                    Instead, he believes that problems in the aftermath of what we see as
                    bubbles occurred because the authorities mishandled the bust. He tries to
                    make the claim that everything is really wonderful now, and those of us
                    who see bubbles really are wrong about the damage bubbles can do. He
                    adds that the damage done in the 1930s was bad monetary management
                    by the Fed, and that Japan's problems in the '90s stem from bad monetary
                    management. 

                    This is absolutely ridiculous. It's one of the most preposterous articles I've
                    ever read, and history will show that he has absolutely no understanding.
                    Busts come because of the bubbles that came before them. Monetary
                    management can make it slightly better, and also can definitely make it
                    worse. But the busts don't come simply because policy got screwed up -
                    they come from the bubbles and the irresponsible asset inflation that
                    precede them. He's another one of these guys who thinks that as long as
                    the CPI shows no inflation, you can't have a problem. 

                    As history demonstrates, the only time you can have a true financial asset
                    bubble is when you have no CPI inflation, because the authorities drop
                    their guard and they print too much money. The result is the insane bubble
                    that we have now and that we had in the '20s, and that Tokyo had in the
                    '80s. Read the article if you want to have steam coming out your ears. 

                    Life post-bubble... The New York Times had two good articles today.
                    One, which began on the front page, talked about the unemployment
                    problems in Japan. It's a very scary, sobering, heart-wrenching article
                    about life post-bubble. These kinds of things happen after bubbles, which
                    is why people like me who believe this is a bubble are so worried about
                    the ramifications. You can read that article and see that it's very similar to
                    what happened here in the '30s, and another reason why you don't want
                    to create a bubble because the aftermath is so terrible. 

                    On the New York Times editorial page, Floyd Norris had an article
                    discussing the bubble but sort of concluded that this one won't be so
                    terrible. Now I think Floyd is a good reporter and his article shows how
                    far we've come in the bubble: Now even people who recognize it are
                    afraid to say it will be bad and instead saying maybe it won't be so bad. I
                    don't harp on this because I want it to be bad; I'm afraid that the aftermath
                    will be, and that's why I choose to be vocal about it. 

                    Where is that surplus, anyway?... On the tape today, Bob Rubin said
                    we'll need to lift the debt ceiling in the year 2001. Don't you think it's kind
                    of interesting that we're running this surplus and we have to raise the debt
                    ceiling? It once again proves the point I've been making: There is no
                    surplus and the whole thing is an accounting charade. 

                    When online trading isn't... CNBC reported today that Egroup's
                    (EGRP) online trading system went down twice. Now this is something
                    that I think is guaranteed to happen. On some dark day when the market's
                    going down, one of these online trading firms or many of them are going to
                    go down. Then people are going to get trapped in stocks, and that will be
                    part of a panic we'll see. I wrote a piece about that a couple of weeks ago
                    and I continue to believe it will be a problem. Today was a precursor to
                    that.