Rarely have investors seemed so determined to lose sight of reality

Rarely have investors seemed so determined to lose sight of reality.So is the Internet shares phenomenon a dangerous game of financial roulette, which is bound to end in tears, or is there more to it than that?One person who believes there might be is Mr Son, a 41-year-old financier and entrepreneur who, with foresight the rest of us can only dream of, managed to take big shareholdings at an early stage in a whole raft of today’s highest flying Internet companies. Individual Internet stocks have been known to change hands up to 10 times in a day, so frenzied is the level of trading, while it is not uncommon for the value of shares to yo-yo by 50 per cent in a single trading session.Some of the hottest Internet companies – Yahoo!, AOL and Amazon – have come to be valued, despite their insignificant profits, at more than Boeing and Disney.So convinced is one leading US economist of the bubble-like characteristics of the Internet craze that he has labelled it “Tulip “, after the great seventeenth century speculation in tulip bulbs. Everyone, that is, apart from those crazy Americans, who have taken to trading these stocks, generally on-line, as if this was a Saturday afternoon at the races; everyone, that is, apart from Masayoshi Son, or “Mr Internet” – the man who owns a quarter of cyberspace.There is no doubting the bubble-like characteristics of the phenomenon. Alan Greenspan, chairman of the US Federal Reserve, thinks investing in them is like buying a lottery ticket, and that most will fail. Bill Gates, of Microsoft, believes that these soar-away stocks should be trading on lower multiples than ordinary companies; he wouldn’t advise even his worst enemy to invest at these levels.
Rupert Murdoch thinks the phenomenon will destroy more businesses than it creates. And The Economist believes they are about to come “spectacularly crashing to Earth”.Everyone, it seems, is convinced the US craze for Internet companies is a financial bubble about to pop, and that when this happens, the consequences will be quite disastrous, not only for those who have invested in them at these apparently fanciful levels, but also for America’s vibrant Silicon Valley and quite possibly for the world economy, as well. In this sense, Brazil’s fate now lies with its political system, which is at least as volatile as its stock market Get ready for more nasty surprises..

State governors gorged themselves on this bonanza; the worst came to be known as “maharajas”…Brazil cannot restore its fortunes without ending such nonsense. But Cardoso has trouble mustering simple majorities; constitutional amendments require a two-thirds majority. Cardoso must persuade legislators to put the country’s interests before their own – not an easy job even in older democracies. Nonetheless, he “believes the time has come to gradually shift some financial assets into gold”.We suspect that you could do worse than consider Marc’s advice. For it is based largely on the contrast between the extraordinary complacency of investors, on the one hand and, on the other, a world economy increasingly susceptible to some grand, untoward event.And nothing is more comforting, he notes, than insurance that you end up not using.FortuneWhy Brazil is still a worry after the peso devolutionA KEY reason Brazil is saddled with such a huge deficit is that in 1993 the constitution transferred more than a fifth of federal income tax revenue to the states, while leaving responsibility for social programmes like health care, education and sanitation with the federal government. But if the euro gives the Europeans a competitive edge, the Nafta dollar may be inevitable.Wall St JournalJapan’s new get-tough plan to restructure its debt-laden banksEARLIER THIS month, Japan’s vice minister of finance, Eisuke Sakakibara (aka Mr Yen) made the highly publicized remark that Japan’s financial crisis would end “in the next week or two”.

That was yesterday and, despite Mr Sakakibara’s optimism, Japan’s nearly decade-long financial crisis is far from over.While the plan developed by the FRA may be a step in the right direction, it does not go nearly far enough to impose market discipline on Japan’s bloated banks. Neither does it address the fundamental problem plaguing Japan’s financial system: lack of profitability due to immature and inefficient capital markets.The government needs to “get tough” not only with banks, but also with other distortions in the Japanese economy – many of which the government itself has created.Barron’sHow gold couldbecome a valuablecommodityNOW, WE yield to no man in our conviction that gold is a perfect hedge against capital gains.But wise Marc Faber says that you ought to buy some of the stuff as insurance against a global financial accident.Marc is eager to confess that he’s neither “a gold bug or an expert on the gold market”. The US economy dwarfs its Nafta neighbours, unlike the European Union which brings together 15 relatively similar, densely populated, industrialised states. And pushing for a new unit to replace the dollar, already a global reserve currency, is apt to be an unwinnable political crusade in the US…Few in the Americas seem ready for a single currency.

The first step towards transatlantic open skies should be the lifting of restrictions on foreign ownership, currently more onerous in the US.Governments will have to acknowledge that good fares and service are more important than the flag on the tail.Indeed, there is no role for government in the airline industry beyond ensuring safety and competition.At a time when the motor, oil and pharmaceutical industries are consolidating, it is absurd that governments remain so determined to promote their national champions in the sky.Business WeekWhen the idea of currency union for the Americas might workNOW THAT the euro has had a successful debut, is it time to start thinking about a dollar bloc in the western hemisphere? A few brave policymakers are suggesting that North America Free Trade Agreement members – the US, Mexico and Canada – at least consider the idea.A North American version of the euro is unlikely, and probably unnecessary. That means allowing national champions to be taken over and old-fashioned plants to be shut; it also means fostering inward investment and unrestrained competition in retailing The example to learn from is the steel industry. European steel makers are more competitive today than they have been for three decades. Car makers should follow suit.Financial TimesOpen skies talks between Britain and theUnited StatesSIGNS THAT the US and the UK are ready to agree an open skies accord are to be welcomed, mainly because this could help open the door to a transatlantic open skies agreement between the US and EU. Firms may be able to make production runs of less than 100,000 cars economical, without investing in giant presses at all.The right way to encourage car makers to embrace such changes is for governments to get out of the way.

This kind of people power is infinitely more democratic than Clinton’s Soviet-style approach.The EconomistThe restructuring ofthe Europeancar industryTHESE INNOVATIONS will change the nature of the industry. Our economy will become as nimble and innovative as those of Western Europe. Forbes

Bill Clinton’s plans for
American pensionsTHE PRESIDENT proposes the feds invest social security surpluses in stocks, pumping in hundreds of billions of dollars in the next 15 years. The Berlin Wall may have fallen, the Soviet Union may have collapsed and China may welcome private foreign money, but the US government now wants to seminationalise American corporations. Not since the Clintons’ attempt to take over health care has there been such a Beltway power grab as this.