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<nettime> from the dotcom observatory, part II
geert lovink on Mon, 13 Aug 2001 13:29:15 +0200 (CEST)

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<nettime> from the dotcom observatory, part II

(Besides a few more dotcoms filing for bankrupcy, attention is now
shifting to the world of consultants and analysts that talked up the tech
stocks. Some of them are in the petty crime category such as Morgan
Stanleys Mary Meeker who's got a few law suits running against her. But
more of interest for the nettimers is perhaps the way in which George
Gilder is trying to talk himself out of mysery. His motto, as to be
expected from liberatarian fundamentalists: blame it on the government.
Not everyone is buying this story anymore (unlike the happy days of Wired
when Kevin Kelly could print enough Gilder interviews). There are cracks
in the free marketeer sects and the response of an analyst at
metamarkets.com is interesting to have a look at. Metamarkets.com is a New
Economy investment fund losely tied to Schwartz, Leyden and Hyatt, the
writers of dotcom bible The Long Boom, A Vision for the Coming Age of
Prosperity (1999). Enjoy. Geert)


(From Metamarkets.com Weekly Metamemo for August 9, 2001)

    This past Monday, Telecosm and free-market guru George Gilder
    penned a Wall Street Journal editorial in which he puts the blame
    for the "telechasm" (the implosion of the communications and
    networking sectors) squarely on the shoulders of government.
    Monetary policy, in the form of runaway deflation, tax blunders,
    and anti-monopolistic regulation have teamed up to destroy any
    incentive to complete the build-out of the Telecosm. MetaMarkets
    Sean Donovan agrees that the government has made its share of
    blunders, but says let's not pin everything on Uncle Sam. Don
    Luskin replied to Gilder in the next day's Trading Desk Diary,
    agreeing with all of Gilder's points, but expressing his concern
    that the editorial will do more harm than good to Gilder's
    reputation. Why? Because Gilder's editorial reads like an excuse
    for the poor performance of Gilder's portfolio of Telecosm stocks.
    In investing, notes Don, there are never any excuses. Think Tank
    members David Gitlitz and Nicholas Negroponte agree that Gilder
    correctly fingers the guilty party, but Reuven Brenner thinks
    that the Telecosm's stumble has more to do with high prices for
    energy, and with the Internet's novelty wearing off. Washington-
    insider and Polyconomics chief Jude Wanniski thinks most of us
    won't be able to appreciate Gilder's insights for another ten
    years, when we've finally caught up with him. But the final word
    belongs to none other than George Gilder himself, who turns up to
    personally reply to his fans and critics. Gilder, Negroponte,
    Wanniski, Brenner, and Gitlitz. All together, in two threads, on
    the MetaMarkets boards:




Wall Street Journal 08.06.01

Tumbling Into the Telechasm
By George Gilder. Mr. Gilder, editor of the Gilder Technology Report, is
author of "Telecosm: How Infinite Bandwidth Will Change Our World" (Free
Press, 2000). He may own stock in the companies mentioned in this article.

When Bill Clinton assumed office nine years ago, I predicted he would enjoy
one of the greatest economic booms in the history of the world. Impelled by
the spread of the Internet, the onset of fiber optics, and a tenfold
increase in venture capital -- unleashed by the lower tax rates and
deregulation of the Reagan administration -- the Clinton economy had it
made. Moreover, until the election year of 2000, Mr. Clinton actually pushed
the economy along with beneficent trade policy, an astonishing opposition to
Internet taxes and restrictions, and a 30% capital-gains tax cut that
yielded hugely more revenues than projected by demand-side models.

Devastating Crunch

The Bush economy, unfortunately, not only possesses no such immunity to bad
policy, but also is gravely vulnerable to policy mistakes accumulating by
the end of the Clinton term. A high-tech depression is under way, driven by
a long siege of deflationary monetary policy and obtuse regulation that has
shriveled hundreds of debt-laden telecom companies and brought Internet
expansion to a halt.

The entire telecom sector -- what I term the telecosm -- is engaged in a
heroic capital-intensive buildout of a communications infrastructure
thousands of times more cost-effective than today's. Promising to make
interactive video as pervasive as voice telephony today, such infrastructure
projects create demands for funds that outreach the resources of venture
capital. Just as some $200 billion of junk bonds from Drexel Burnham and
others sustained the previous hybrid build-out of optics, cable and
cellular, similar debt issues are crucial to the new infrastructure of
all-optical networking. But there ends the similarity with the previous
build-out, which emerged during a time of real supply-side tax cuts, OPEC
tax collapse, deregulation, and general monetary stability, and was
vindicated by soaring cash flows and equity valuations. By contrast, the far
more promising new infrastructure is withering in the face of monetary, tax
and regulatory blunders.

For debt-burdened companies, nothing is so oppressive as deflation -- a
dearth of money -- which inflicts soaring real interest burdens, sinking
asset values, and collapsing growth. The leaders of the telecosm have to pay
off debt in appreciating dollars while cash flow and collateral declines,
and banks deny the kinds of rollovers that saved the likes of MCI in the
1980s. Real interest rates are now drifting upward faster than the Federal
Reserve can reduce them. Monetary economists prattle about too many dollars
while the dollar soars against deflated currencies, such as the yen, with
its interest rate near zero. From industrial staples such as steel (down 42%
in four years) to the monetary tocsin of gold (down 40% in four years),
commodity prices lie in a deep trough.

Meanwhile, the Bush "tax cut" degenerates into a ten-year gantlet of
meaningless shifts and shuffles, the OPEC tax hike persists in its wanton
gouge, and regulations strangle the broadband Internet.

Essential to the Internet economy is the expectation of a steady increase in
the speed and capacity of connections. Nearly every dot-com was betting on
it. The glitches and delays of dial-up modems abort 70% of all intended
Internet transactions and bar the business plans of thousands of dot-coms
and Internet service providers, not to mention vendors of streaming video,
distance learning, video telecommunications and Internet malls.

The only reason for the so-called "fiber optics glut" is the near deliberate
starvation of connections to homes and small businesses. It is a classic
socialist famine, where the warehouses are full but the people are starving
for lack of market distribution systems. Part of this is because of a few
poor business decisions in the industry, but most of it comes down to
intrusive regulatory policy in an era of deflation.

Typical of bad regulation is a Federal Communications Commission policy
called Total Element Long Run Incremental Costs, or Telric, summed up simply
as a price cap on what telephone companies can charge for links to homes and
businesses. Designed in the late 1990s to prevent "monopoly rents," the cap
is based on an estimate of costs that would apply in a fully competitive
environment when bandwidth is a commodity.

But in dynamic technology markets such as Internet broadband, monopolies are
inevitable, virtuous and fleeting. Every innovation creates a monopoly at
the outset, and monopoly rents pay for financial risks and costs entailed in
bringing innovation to market. Like any price-control scheme, Telric choked
off supply, taking the profits out of the multibillion-dollar venture of
deploying new broadband pipes.

Compounding Telric were "open access" and "unbundling" rules that require
companies installing advanced Internet gear to share pipes with others. The
goal was to stop monopolies, but what regulators did was to bar Internet
investment by privatizing the risks and socializing the rewards. No
entrepreneurs will invest in risky, technically exacting new infrastructure
when they must share it with rivals. At first restricted to telcos, the
open-access rules have since been extended to cable, where they balked
Michael Armstrong's bold AT&T plan to compete with the Bell companies using
cable TV plant.

The absence of broadband local loops also withers the optical Internet. The
$44.8 billion write-off and $8 billion loss announced last week by JDS
Uniphase signals the devastation of the most promising communications
technology in the history of the planet. Treating JDS Uniphase as a budding
monopoly, the Federal Trade Commission permitted its merger with SDL only on
condition that it sell its Rushlikon pump laser facility to Nortel.

Some monopoly. Uniphase last week devalued its SDL pump laser acquisition by
some $35 billion. The write-off -- the largest in business history -- was
partly because of the collapse of last-mile traffic growth. But it was also
because an efflorescence of new laser and amplifier technologies -- from
such companies as NP Photonics and Princeton Optronics -- are already making
conventional pump lasers obsolete. Regulators can't keep up.

Before the FTC attack on Uniphase, regulators casually destroyed the
Internet strategy of WorldCom. Under Bernie Ebbers, Worldcom planned an
attack on the real telopolies around the globe through the use of Internet
for both data and voice. Suffering from mazes of conflicting connections,
with each data packet making some 17 hops between routers before reaching
its destination, today's Internet competes only fitfully with the telecom
establishment. But by purchasing and upgrading the Internet facilities of
MCI and Sprint, WorldCom planned to transform its portions of the Internet
into a coherent broadband system.

Instead, upholding the fantastical view that WorldCom was becoming an
Internet monopolist, U.S. regulators defended the existing monopolists
against the WorldCom challenge, forcing the sale of MCI's Internet facility
to Cable & Wireless in Britain and barring the acquisition of the Sprint
network. By upholding a false notion of competition -- one in which no one
can win or make any money -- the FTC largely wrecked WorldCom, the most
aggressive monopoly buster on the planet.

Internet Sclerosis

As difficult as it may be for Republicans to acknowledge, they have become
part of the Internet sclerosis. Led in Congress by regulation lovers such as
Sen. Ted Stevens of Alaska, pressed by Republican governors such as Nevada's
David Levitt to impose Internet taxes, and beset by conservatives who blame
the Internet for pornography (rather than prosecuting pornographers), the
party is imperiling the crucial expansion of the Internet economy.

Meanwhile, the president is preening for pollsters and junk science greens
while hundreds of telecommunications companies tumble into the telechasm,
choking on debt easily sustainable under favorable tax and regulatory
conditions, but now rendered devastating by a global deflation.



Aug. 7 2001 Trading Desk Diary    Post rated  (max 5)
By  Don Luskin (rating 3.83) on 08:07 08.07.01

George of the Bungle

George Gilder doesn't seem to realize that in investing, there are never any

Yesterday the Wall Street Journal ran an extraordinary op-ed piece by George
Gilder, called Tumbling into the Telechasm. In it, the celebrated author of
Telecosm and the publisher of the Gilder Technology Report lists all the
federal government's catastrophic policy blunders that led to today's
technology depression, a devastating bill of wrongs.

Gilder indicts deflationary monetary policy. He blasts socialistic
telecommunications regulatory policy. He savages Internet tax policy. He
eviscerates anticompetitive antitrust enforcement policy. And he's dead
right on all counts. These are all important truths that absolutely must be

The tragedy of it is that no one takes George Gilder's views on these
matters seriously. And so Gilder's brilliant counterblast is likely to sink
without leaving so much as a ripple.

Why? Well, as MetaMarkets analyst Sean Donovan wrote yesterday, "Mr.
Gilder's op-ed piece reads like an apology." Or perhaps, if not an apology,
then an excuse. According to Dick Sears' Gilder Technology Index website, in
the techwreck of 2000 -- when the largest number of investors had put their
faith in Gilder's "Telecosm" paradigm right at the top -- his recommended
list of techstocks lost 44%, compared to the NASDAQ's loss of 39%. In 2001,
so far, Gilder's stocks have lost 33%, compared to 16% for the NASDAQ.

Far be it from me to criticize George Gilder for losing money in technology
investing. I've done my share of that, and more. But George Gilder is a
special case. So let me admit that I live in a glass house, and now throw a
stone or two.

First, Gilder played the very public role of the Pied Piper of the late
great bull market. He used the seductive power of his florid prose to lead
investors up the high mountain of technology investing, promising them the
kingdoms of earth -- and then he marched them right off a cliff. To this day
his Reports read like epic poems, celebrating the heroic accomplishments of
the very technologies and the very companies that have been destroyed by the
forces of darkness that he decries in his Journal piece.

Second, Gilder has always wanted to have it both ways. He points out in his
Reports that he's not really writing about investing -- he's writing about
technology. But have you ever gotten the junk mail that Gilder's publisher
Forbes sends out to promote the Report? Touting the fabulous returns earned
by Gilder's early picks like Qualcomm and ignoring his more recent craters
like Avanex, they brag of a "Gilder effect" and invite potential subscribers
to "Grow rich on the coming technology revolution." Or go to Gilder's
website right now, and answer this tantalizing question: "Can you turn
$10,000 into $17,708,483?" All this from a man who says it's not about

And third, if the issues Gilder raises in his Journal piece are excuses,
then George Gilder of all people should not hide behind them. Long before
Gilder morphed into today's preeminent technoguru, he was a leading
conservative/libertarian/supply-sider political economist. His classic 1981
book Wealth and Poverty was one of the intellectual cornerstones of the
Reaganonomics revolution. He has known all along, and full well, the hazards
of political and regulatory interference with business. He should have seen
it coming.

The lesson for George Gilder -- and for me, and for you, and for all
investors -- is that, in investing, there are never any apologies and there
are never any excuses. There is nothing but responsibility for outcomes. We
are each of us responsible fully for the results we get, for whatever reason
we get them. Investing isn't just about understanding technology. Or
economics. Or technical analysis. Or any one particular thing. It is about
everything and anything that influences risks and returns.

I've often written about the same political and economic issues Gilder
raises in his Journal piece. I agree with him almost word for word -- he
speaks for me. And I know what it's like to be accused of using these issues
as excuses. Even when my ideas are offered as my best explanations of the
way the world works, and my best judgment.

But I know the difference between judgment and excuses. I'm not sure George
Gilder really does.


(From the Streamingmedia.com Newsletter)

WorldStream Shuts Down
By Josť Alvear
August 7, 2001

Provider of enterprise streaming solutions dismisses employees last week
after failing to get funding.

WorldStream Communications (www.worldstream.com) shut down last week, firing
almost all of its employees after failing to get new funding. Calls to
WorldStream were not returned as of press time and the main number only has
a recording.

According to sources, top company executives, including CEO Bill Malloy,
quit last Monday. By the end of the week, practically all employees (about
85) were let go except for a few key individuals looking to sell off assets.
Board member and general counsel Rich Thumann, is apparently still at the

Malloy, who was appointed CEO in October 2000, came from Peapod, a
Chicago-based Internet grocer, where he was president and CEO. Prior to
Peapod, he spent 11 years with McCaw Cellular Communications and AT&T
Wireless Services.

WorldStream, a privately-funded company was founded in 1998 by Ken Williams,
famous for starting and growing the game company, Sierra Online. It was
funded by Crosspoint Venture Partners, Polaris Venture Partners and
Williams, himself.

Williams originally wanted to start a company called TalkSpot, for online
talk radio shows. That vision turned into the company known as WorldStream,
which later created a mobile "Studio in a box" solution for webcasters. But
after that failed to take hold, WorldStream turned to corporate
communications, helping companies with announcements, interactive meetings
and other events. WorldStream could handle live audio or video, PowerPoint
slides, chat and other interactive features.


(From Thestandard.com Media Grok, August 7, 2001)

TheGlobe: An Unhappy Puppy

Excuse us? We're sorry, but we couldn't quite hear that. Ah,
TheGlobe.com is about to shut down its site. Born with a media bang,
TheGlobe is on it way out with a whimper.

Unable to make a profit, TheGlobe announced Friday that it is closing
its community site and Web-hosting biz on Aug. 15. The few outlets
that reported the announcement noted that it was made after the stock
market had closed, a move that made Grok wonder, why bother? When a
company's stock is trading at 13 cents, does it even have to bother
with such proprieties?

The site closing and resulting layoffs, however, weren't the only
news. TheGlobe also said everything else it owns, including game sites
such as Happy Puppy, is up for sale. Translation? The company is about
to shut down, at least according to AtNewYork's unnamed sources.

Aside from offering prepared statements, company execs were mum. So
reporters resorted to revisiting TheGlobe's chattier days. Scribes
favored a handful of modifiers that can be handily rolled into one
cliche-happy sentence: The onetime highflier, which experienced a 600
percent IPO pop, became a poster child for the Net's heyday. For those
who crave more details, Reuters' Eric Auchard's filing gave a lengthy
summary of TheGlobe's tortured history. Only AtNewYork's account
acknowledged the company's recent efforts to sustain itself, noting
that it had recently landed "big-name advertisers like Coca-Cola and
Orbitz" for its gaming sites.

Few other outlets detected a heartbeat. Maybe most felt that since
TheGlobe had been covered ad nauseum, there was little left to say. As
the New York Post anticlimactically wrote about the company's
co-founders, one has penned a memoir and the other "remains at the
company, without much money." No wonder they say "no comment." -
Deborah Asbrand

Theglobe Starts to Crumble

Theglobe to Close Site, Cut Staff (Reuters)

theglobe.com to Close Communities

Globe Staff Spinning From 50% Cuts

TheGlobe.com to cut staff, fold sites

Theglobe.com Spins To A Halt

Lack of Advertising Forces Theglobe.com to Shut Web Sites
(Registration required.)

Onetime Highflier theglobe.com To Trim Offerings, Cut More Jobs
(Paid subscription required.)


(From Thestandard.com Media Grok, August 3, 2001)

Don't Blame Me, I Listened to Mary Meeker

A new round of the analyst blame game began Wednesday, when Morgan
Stanley analyst Mary Meeker was hit with two lawsuits. Some investors
say Meeker "offered biased research and slanted investment advice
about eBay and Seattle-based Amazon as a way to secure lucrative
banking business for Morgan Stanley," according to Bloomberg. Amazon
and eBay, no strangers to lawsuits, are staying out of this one.

This isn't the first time analysts have been slammed for being too
bullish, possibly at the behest of investment banking clients, like,
say, Amazon and eBay. Nor is it the first time we've heard that
analysts get paid more for drumming up banking business for their
firms - this might explain Meeker's supposed 1999 pay of $15 million.
Analysts are under the microscope right now, and Merrill Lynch
recently settled arbitration against famous bull Henry Blodget. Unlike
the Blodget arbitration, the cases against Meeker and Morgan Stanley
are "designed to go to court," said the New York Daily News. Morgan
Stanley dismissed the suits as a publicity stunt, calling them "little
more than an attempt to grab headlines by naming a prominent figure as
a defendant."

It may not be a coincidence that these suits were filed the day after
a congressional hearing that gave analysts the what-for. The SEC
revealed that that 30 percent of analysts owned pre-IPO shares of
companies they covered. Plus, "only one of the nine major underwriting
firms was able to supply the SEC with a list of analysts who owned
pre-IPO shares," said the Motley Fool. "Several of the analysts who
held pre-IPO shares sold them while maintaining their 'buy' rating."
Not nice.

Testimony from TheStreet.com's Adam Lashinsky suggested that financial
journalists like himself aided and abetted analysts' wrongdoing. CNBC
always plugged stocks "because rising stocks meant greater
viewership," he said. TheStreet.com pointed out analyst conflicts,
Lashinsky said, but "at the same time we did our share to hype the
momentum stocks of the era." For obvious reasons, we don't expect to
see much coverage of this angle. TheStreet.com gets points for
publishing the testimony in full.

Another of Lashinsky's points, the inability of clueless investors to
properly analyze the analysts, was supported by a phone survey
conducted by investment groups. The AP reported on individual
investors' areas of ignorance, from margin calls to limit orders.
"Fewer than one in five investors polled knew there is no insurance to
cover stock market losses or losses from investment fraud," wrote the
AP's Marcy Gordon. "Nearly two in three respondents did not know what
to do first when they suspect they are dealing with a problem broker."
Other than filing lawsuits, no one seems to know how to handle problem
analysts, either. - Jen Muehlbauer

Morgan Stanley's Mary Meeker Is Named in Lawsuits (Reuters)

Lawsuit accuses brokerage, analyst of cheating Amazon, eBay investors

Analyst Meeker, Morgan Stanley sued by investors

Morgan Stanley's Tech Star Is Sued Over Her Bullish Calls
(Paid subscription required.)

Top Internet Analyst Sued

Hearings Expose Analysts' Abuses

Financial journalists take a licking

Telling Congress About the Rigged Research Game

Survey: Investors Lack Knowledge (AP)


(From Thestandard.com Media Grok, August 1, 2001)

Would the Last Free ISP Turn Out the BlueLight?

Attention, Kmart shoppers! BlueLight, the ISP and shopping service
that's majority-owned by Kmart, will end its free Net access plan on
Aug. 29. However, a new BlueLight plan will supply unlimited access
for about $15 per month less than AOL. Unlimited access will be $8.95
per month - for as long as BlueLight can afford it, anyway.

InternetNews.com said BlueLight is "yet again changing its monthly
access strategy in an effort to reach profitability." First it was
free, then it was free for 12 hours a month (or $9.95 for 100 hours),
and now it costs money. Customers who buy certain Kmart products can
earn free service, though. "Spend up to $99 and get one month of
service for free, spend $100 to $149 and get two months for free,"
explained the Detroit Free Press. Ninety-nine dollars a month - now
that's even more pricey than AOL.

InternetNews predicted that "the almost 7 million people who
registered for 12 hours of free Internet access a month at (BlueLight)
are going to be looking for another provider." But who is left to give
Net access away? The "last major players" are the soon-to-be-merged
NetZero and Juno, said the Wall Street Journal, and "even those two
companies have put strict caps on their free service to control
costs." The Free Press said only United Online, the new name for the
Juno-NetZero combo, would be left, while InternetNews dug up a few
more you've never heard of (dotNow, Address.com, StartFree.com and
Searfoss Promotions).

Reporters seem to have missed the curiosity of a BlueLight partnership
with MSN. An ad for MSN Internet Service ($21.95 per month) appears
right under BlueLight's plug for its own unlimited service, including
the lines "dare to compare our service with the rest" and "Earthlink
$21.95 a month." Maybe the higher-priced alternative is for those who
balk at BlueLight Unlimited's disclaimer: "Access may be limited or
slowed at peak usage times." And that's before the return of Code Red.
- Jen Muehlbauer

BlueLight.com drops free Net service (AP)

BlueLight.com to End Free Internet Offering
(Paid subscription required.)

BlueLight lowers access fees

No More Loitering At BlueLight.com

Profitless BlueLight to charge for access

BlueLight Unlimited

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