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THE SCARIEST SCENARIO IMAGINABLE
By Steve Sjuggerud-[courtesy Gold Seek & Daily Reckoning]

I never thought we'd see the day...the day when wild speculation actually exceeded the excesses of the late 1990s. And I really didn't think it would just take four years to get there. But here we are...

Investors are actually borrowing money to buy Nasdaq stocks. In fact, more people are borrowing more money to buy stocks today than at any time in history, including the "Great Bubble" of early 2000.

The result? Just like in the days of the Great Bubble, the 'garbage' stocks have soared, while sounder stocks have struggled. A $10,000 investment a year ago in AskJeeves.com (do you know anyone on the planet that actually uses AskJeeves.com?) would be worth $220,000 today. Or how about NetEase.com? $10,000 invested a year ago would be worth even more than AskJeeves...

NetEase.com is valued in the stock market for over $2 billion (with a "b") dollars. Yet sales...yes, sales...over the last 12 months were only $27 million (with an "m") dollars. Who's buying this garbage at these prices? It appears to be individual investors at online brokers...

Trading activity at online brokers in the most recent quarter is up 40% from the same quarter last year. And this is clearly 'hot' money...speculative money... At online broker E-Trade, the level of margin debt in the latest quarter (ended June 30, 2003) among E-Trade customers rose by 31% over the previous quarter (ended March 31, 2003).

It's rampant speculation at its finest.

By contrast, look what corporate insiders - the 'smart money' - are up to. Obviously corporate insiders know more about their businesses than anyone else. Insiders are generally right, but a little early in their selling. Recently, they've been selling at a rate not seen since 1986. They were early back then...but they got out ahead of the Crash of 1987, when stocks fell 22.6% in one day.

Looking at the latest data, corporate insiders set a dollar record for the last decade...insiders sold $44.53 dollars of stock for every dollar of stock they bought. That is unbelievable.