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2000
Brian
Trumbore
President/Editor, StocksandNews.com
This first quarter represents the 5-year
anniversary of the U.S. equity markets' all-time highs;
Dow Jones, S&P 500 and Nasdaq. For a look back at
the environment in 2000 there is no better source
than my own "Week in Review" columns. Following is
some of what I was writing then, both good and bad.
[Conveniently,
the respective indices all hit their records on a
Friday.]
---
1/15/2000?Dow
Jones closes at record 11722 on 1/14
"Two
companies who invented nothing but have a lot of stuff
combined their assets in the largest corporate merger
in history, that being AOL and Time Warner?.13 million
cable subscribers and 20 million AOL subscribers will
now be able to access, through various mediums, a
lot of stuff. And somehow we're supposed to find the
time to view it all.
"As
for the rest of the market, the news could not have
been rosier. Fed Chairman Alan Greenspan gave a speech
wherein he said the 'American economy has never exhibited
so remarkable a prosperity for at least the majority
of Americans.'?
"Corporate
profits are anticipated to have grown at about an
18% rate for the 4th quarter of '99 and, if Intel's
strong report of this week is any indication, this
earnings season could be awesome. Strong growth, low
inflation, what's not to love? So the markets rallied
and the Dow Jones hit another new all-time high, up
200 points to 11722. The Nasdaq and S&P 500 have now
climbed to just below their respective highs as well.
"But,
as is his custom, in the same speech Greenspan offered
a cautionary note or two. He said the stock market's
surge is pushing the economy beyond its limits (the
impact of the 'wealth effect'). And he urged Congress
to keep its grubby hands off the burgeoning federal
budget surplus.
"Well,
all this talk had the bond market bewitched, bothered
and bewildered, with the yield on the 30-year Treasury
climbing to the 6.69% level, the highest in about
2 ? years?.
"Personally,
I am continually amazed that wage pressures have yet
to appear. All I know is that the service I receive
at the stores I frequent gets worse and worse and
as for stocks, when I read that the average price
/ earnings ratio on the Nasdaq is 200 (trailing 12
months) I gasp?So I don't understand this new economy,
this new era, or these new valuations."
Elian
Gonzalez (remember him?) was a big story back in these
days. And the presidential campaign was heating up.
While the polls in New Hampshire reflected a deadheat
between Bush- McCain and Gore-Bradley, nationally
Gore led Bradley 59-30 and Bush swamped McCain 63-18.
Rudy Giuliani had a 49-40 lead over Hillary Clinton
in the New York senate race. I also noted the following.
"A
new study taken by the U.S. military shows that a
combination of cutting troop levels by a 1/3 and increasing
overseas deployments by 300% has 'created a profound
stress on the armed forces.'"
Gold
closed at $285
Oil, $28.02 [9-year high]
After
two weeks, the year-to-date returns looked like this.
Dow
Jones +2.0%
S&P 500 -0.3%
Nasdaq -0.1%...but not for long!
---
3/11/2000?Nasdaq
closes at record 5048 on 3/10
"I'm
so sick of 'Old Economy' vs. 'New Economy' that I
went to a long-lost friend, Mr. Roget Thesaurus, to
come up with a different way to describe the titanic
struggle taking place on Wall Street.
"Actually,
from past writings you know it's more like 'rational
vs. irrational.' And then on Friday, the lead column
in the Wall Street Journal blared 'Conservative Investors
Finally Are Saying: Maybe Tech Isn't A Fad.' ?
"Geezuz.
What are we, idiots? The hula hoop was a fad. The
slinky. Slot cars (sadly). Computers and wireless
communication aren't. All some of us are saying is,
why should Palm Inc. (the recent spin-off of 3Com
that manufactures hand- held devices) be worth more
than the whole U.S. airline industry put together?
"And
the big story in the 'hoary vs. immature' (thanks
again, Roget) market of this past week was Procter
& Gamble. Stock in the consumer goods giant plummeted
39% on dire earnings news. Well heck, the stock was
trading at a price / earnings multiple of 34 when
its shares traded at $87 on Monday. This for a company
that, in a good year, would grow around 10-12% (and
there's nothing wrong with that). Well now it's at
$53. It's not just a matter of 'venerable' companies
like P&G suffering from a lack of pricing power (due
to the Internet, over capacity, and other factors),
it's because the freakin' stocks are, or were, overpriced!
"And
don't you forget that what happened to P&G (and before
it Raytheon, Xerox, and others) can just as easily
happen to Cisco (great company but?) or JDS Uniphase?It's
just a matter of time?.
"By
the way, in case you didn't know it, we are currently
in a bear market by some measurements. One study showed
that 75% of the stocks in the S&P 500 are down 20%
from their recent highs."
And
I wrote this.
"The
American consumer keeps borrowing and borrowing, the
latest fad being 103% mortgages. Of course a lot of
the excess is finding its way into the stock market."
China's
admission to the WTO was a big topic of discussion
then, while Clinton was on a trip to Asia, including
Pakistan. I wrote this of Pakistan's General Musharraf.
"Of
course the fact that the general hasn't set a timetable
for restoring democracy, coupled with his government's
ties to terrorism (including Osama bin Laden), doesn't
seem to matter to Clinton."
Another
big event of this week was the flooding in Mozambique.
"U.S.
helicopters didn't get involved until Thursday, almost
two weeks since the disastrous flooding began. On
Monday, the Air Force general in charge said that
the Clinton administration did not give the Pentagon
the go ahead to participate in the aid effort until
two Fridays ago, some six days after the fact."
Interesting,
in light of today's tsunami relief effort.
Oil
closed at $31.75, after hitting $34 earlier in the
week, highest since 11/90.
YTD
returns, 1/1/00-3/10/00
Dow
Jones -13.6% [9928]
S&P 500 -5.1%
Nasdaq +24.1% [5048]
Just
an incredible divergence between the Dow and Nasdaq;
historic, as it proved to be.
---
3/25/2000?S&P
500 closes at record 1527 on 3/24
I
started off my review by quoting Robert Kagan and
William Kristol, authors of an important piece that
week.
"
'The world can grow perilous with astonishing speed?.
"Americans
must shape this (new international) order, for if
we refrain from doing so, we can be sure that others
will shape it in ways that reflect neither our interests
nor our values."
I
also can't help but note a rather prescient comment
of mine on the international affairs front.
"The
last thing India is about to do is give up their nuclear
weapons. And they shouldn't. After all, with a failed
nuclear state like Pakistan on one side and the confused
nation of China on the other, would you? But we hypocritically
keep asking them to disarm and sign treaties even
we haven't signed. No, India has huge problems but
they are a nation on the rise. Embrace them."
I
also made note of security on Clinton's trip.
"You
saw how his own people were scrambling to reshuffle
the schedule when a legitimate terrorist threat from
Osama bin Laden emerged. And they actually seemed
surprised?!"
Vladimir
Putin was about to be elected. I wondered "which Putin
will emerge? A swashbuckling democrat or a KGB operative?"
"There
are already signs that (Putin) is lacing his court
with all manner of spooks. Among his cryptic comments
of the week was 'We can pin hopes for a worthy future
only if we prove capable of combining the universal
principles of a market economy and democracy with
Russian realities.' One political commentator said
therein lies the danger. 'Putin will trample on citizens'
rights in the name of a powerful state.'"
As
for the financial markets?
"?it
was another stupendous week?with the Dow Jones finishing
up 517 points, closing at the 11112 mark. The two-
week gain is almost 1200. Throw in a colon in the
middle of those four digits and we can debate whether
it's 12 noon or 12 midnight."
I
noted some of the ranges in share price for a few
of the high- flyers garnering a lot of publicity almost
five years ago.
Protein
Design Labs (338-13)?52-week price range
Millennium Pharmaceuticals (316-29)
MicroStrategy (333-7)
"And
how about the valuation of two of the largest corporations
in the solar system, Cisco and Intel. There was some
amazing symmetry between the two at the close on Wednesday
and before Cisco shares split 2-for-1. Both closed
at about $144. Cisco then had a market cap of about
$500 billion, Intel $480 billion. Cisco's price /
earnings ratio was 200, Intel's 68. For the fiscal
year ending 7/01, Cisco is estimated to earn $1.31
(pre-split). Let's say they handily beat expectation
and earn $1.50. That's still a p/e of 96 on 7/01.
And Intel's multiple is for what had supposedly become
a more cyclical, as opposed to growth, issue. Oh,
you can go on and on. Or as the 3-card Monte dealers
say in New York, "$20 gets you $40."
Of
Fed Chairman Alan Greenspan, I wrote he "seems increasingly
irrelevant. For the fifth time since June of last
year the Fed raised interest rates and the markets
stuck it to him. In the old days, if the Fed raised
rates 3 times the adage was '3 steps and a stumble,'
meaning the market was due to tumble. Not
anymore. Now it must be '5 steps to prosperity.'"
Check
out the yield curve this week.
2-yr.
6.62% 10-yr. 6.19%
"Inflows
into mutual funds for the week ending Wednesday were
evidently at record levels. More rocket fuel."
"Shares
in Rambus closed Tuesday at $266. They opened the
next morning at $329. If you're playing these high-flyers,
don't ever put in an order to 'buy at the opening.'
The potential to get screwed is rather high."
"Barron's
had an excellent piece on the Internet segment and
the cash that many dot-coms are burning through, to
the point where the immediate survivability of some
is in question. In addition, insider selling is 'off
the charts.'"
Meanwhile,
"According to an automakers survey, the typical Suburban
household earns $94,700 compared to $54,000 for the
Taurus buyer."
And
on eBay, "The site displayed two of actor Jerry Orbach's
1958 contracts, complete with his Social Security
number! Orbach is suing?" [Hope he won this before
he passed away.]
YTD
returns, 1/1/00-3/24/00
Dow
Jones -3.3%
S&P 500 +4.0%
Nasdaq +22.0%
Bulls
55.7%
Bears 26.4% [Source: Investors Intelligence]
And
that's the way it was?before the Crash.
---
Brian
Trumbore
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