September 2000, Part I
Brian Trumbore
President/Editor, StocksandNews.com

We are approaching a key market anniversary, Sept. 1, 2000. Now you might be thinking, "Why is this so important? I thought the market peaked in the spring of that year?" Technically, you're right, but what most forget is that the major averages rallied back strongly in the summer. Granted, it was more of a Nifty 50 rebound, as many of the Internet highflyers continued to collapse, but investors were given one last chance to get out before true disaster struck. Following this date, the averages wouldn't hit bottom until two years later, Oct. 2002.

Well it just so happens I have some pretty good archives for that period in the form of my "Week in Review" columns so I thought we'd spend the next two weeks just looking at the events of this time, particularly as they pertained to the financial markets. Much of what I was writing on the international scene had to do with Russia's conflict in Chechnya and our relations with China. Plus remember we had a presidential campaign in full swing.

I have selected a few comments from each review. Admittedly, not a heck of a lot was going on following the chaos of the early spring, as in the week of April 9 when the Nasdaq lost 25%, yes, 25% to close at 3320.

The debate in the markets was mostly over the strength in the economy and the impact of high oil prices, then around $30. In many respects a slowdown was inevitable and the Federal Reserve was attempting to engineer a soft landing. Recession would come, but as we learned it would be the shallowest one in modern times. I also have to admit I was talking of a real estate bubble. Let's just say I got that one wrong?by 4-5 years.

*All comments in [?]s are my editor's notes of today.

Key figures?all-time highs

Dow Jones?11722 [1/14/00]
S&P 500??.1527 [3/24/00]
Nasdaq???5048 [3/10/00]

September 1, 2000

Dow Jones?.11238
S&P 500??..1520
Nasdaq???.4234

---

5/27/00

"This is the kind of party where the guests, if deprived of the host's refreshment, whip out their pocket flasks and gather round the piano to sing another round of 'Brother, can you spare a dime?' They are rude and undisciplined, and they won't go home."
--Thomas Donlan / Barron's

Donlan is referring to the last Nasdaq bulls?or rather the shills you see on television. But they are a rapidly dying breed and, in the perverse ways of Wall Street, normally you would call this a positive, since excessive pessimism tends to be a sign that everyone has sold that wanted to and one spark (like the Fed's first interest rate cut in August 1982) could send stocks soaring anew.

--Outside of a brief flurry of positive karma?it was another slow, tortuous week. The Nasdaq slide has now reached 37%, the steepest decline in the average since 1976. And at 3205, it is off 21% for the year.

--Web companies are shedding employees at an increasingly rapid clip (if they aren't going out of business altogether).

6/3/00

The long anticipated economic slowdown has arrived. Whether it was manufacturing, housing, retail sales, auto sales, or employment, the numbers this week bore that out?.

For stocks it was nirvana. The Nasdaq had its best week ever, up 19% in just 4 days, and has now recovered to the 3813 level. The Russell 2000 also registered its best weekly performance, up 12%. [The Dow rallied almost 5% to 10794} And as I write this Friday evening, Louis Rukeyser is ripping us bears in his oh so smug way?.

If you have been reading my reports for the last year or so, you know my problem has always been valuations. With the vicious bear market in the Nasdaq, some rationality was beginning to return and, despite the rally of this week, there is no doubt that a large part of the action in the Nasdaq between November and March of this year was a Ponzi scheme. That bubble in Internet and biotech stocks has burst and you will not see all-time highs in the vast majority of those stocks for years?.

What we saw this week was a spectacular return to a Nifty 50 type environment, led by the traditional leaders; Cisco, Oracle and Sun Micro. And folks, after this week we are heading right back into trouble. At $64, Cisco is once again at a 100 multiple based on 2001 earnings estimates?plus now you have an economy that is slowing.

So yes, it's also back to Value vs. Growth / Momentum investing, with momentum players having carried the day last week. However, we will not see the all-time high of 5048 in the Nasdaq again this year?.

Finally, how can you respect a market where baseball slugger Jose Canseco appears on CNBC Friday morning, shows the world how ignorant he is, and then bubblevision chimes in at the opening, "China.com is up. You heard Jose Canseco talk about it!"

[Note: The yield curve was inverted back then?2-year Treasury 6.51%...10-year, 6.15%]

Former Columbia professor Jacques Barzum, now 92, has written a book, "From Dawn to Decadence: 500 years of Western Cultural Life." Its premise is that our current culture has become "particularly restless, for it sees no clear lines of advance."

Returns for the week 5/29-6/2?amazing

Dow Jones +4.8%
S&P 500 +7.2%
S&P MidCap +9.7%
Russell 2000 +12.2%
Nasdaq +19.0%

6/9/00

[Quiet week?compared to the prior one. Nasdaq did rise another 1.6% to 3874.]

Watch the $66 level for Cisco. It's having trouble getting through it.

George Bush leads Al Gore 44-40.

6/17/00

[Another quiet week.]

Economic data for the week continued to foretell a slowdown in the economy as figures for retail sales and housing starts were down.

Syria's Hafez al-Assad died.

6/24/00

The media would have you believe the situation in the oil patch today is of crisis proportions. Ha! You want to see a crisis? [Crude closed at $32.25.] ?

I've said it before but it bears repeating. We are one spoiled nation and, regarding the prices at the pump, we have only ourselves to blame?.

?if the world economy continues to crank, $30 could easily be the average for some time to come?.

While Gore, Clinton and the rest of the administration whine and moan, the American people should be pointing the finger at them for a failed national energy policy?.

Back to stocks, the market continues to be priced for perfection. But by mid-week, with the Nasdaq back over 4000, something a little different began to occur. As market bellwethers like Cisco, Oracle and Sun Micro approached levels not seen in months, suddenly a few analysts began to act rationally. "Sure Oracle is a great story but it is awful pricey." And so the generals backed off by week's end.

--Amazon fell to $34, off its all-time high of $112. EBay hit $54, off its high of $127.

[NBC News / Wall Street Journal had Bush with a 49-41 lead over Gore.]

Tiger Woods won the U.S. Open by 15 strokes! "(What he did) is sort of like winning a presidential election with 90% of the popular vote." -John Feinstein

According to the Pew Research Council, 56% of Americans don't know who Alan Greenspan is.

7/1/00

[All this time, there was much talk on the Microsoft anti-trust case and, this particular week, the mapping of the human genome.]

For the 4th straight week, the Dow Jones finished with less than a 2% move, up or down, as it closed at 10447. The Nasdaq closed at 3966.

The Federal Reserve, as largely expected, held the line on interest rates and, in their statement, said that signs of a true economic slowdown were still "tentative."

--Amazon.com's Jeff Bezos was all over the airwaves, trying to reassure investors that Amazon wasn't about to run out of cash. [The title of an article in Business Week was "Can Amazon Make It?"]

--It's now been exactly a year since the Fed started hiking interest rates. Since then the Dow has lost 5%. Nasdaq has soared 48%.

[I noted an article by the Wall Street Journal's Daniel Pearl on Saudi Arabia. Pearl would later be killed in Pakistan.]

--In Kenya, elementary school students rioted, stormed a beer truck and drank all the beer. [Source: New York Times]

7/8/00

Times are good right now in America. If you are a regular reader, then you shouldn't be surprised that I also feel this is the quiet before?The Perfect Storm.

It's possible we may be able to slide by for another few years before we are faced with a real foreign policy crisis. But, in the grand scheme of things, what does it matter if we have 2, 4 or even 6 more years of relative peace and tranquility? We will eventually have to pay the piper unless some outstanding diplomats emerge.

Anti-Americanism is spreading?and rapidly?.

Increasingly, foreigners see us as an unchecked, runaway power.

[A lot of this commentary had to do with the debate over a national missile defense.]

The Dow Jones has been stuck in a narrow trading range of 10300 to 10700, while Nasdaq really hasn't moved much since that big 19% move six weeks ago.

For the 5th straight week the Dow finished up or down less than 2%, this time up 1.8% to close at 10635. The Nasdaq finished up 1.4% and now sits back atop the 4000 level, at 4023.

French farmer Jose Bove inflicted $110,000 of damage on a McDonald's.

President Clinton has never gone before the American people to explain why the U.S. and Britain have been bombing Iraq for the past 18 months. We are masking the fact that it has now been almost 20 months since we had inspectors on the ground there. So we participate in this shell game, thinking we can keep Saddam on the run. Sometimes it works. But you'd think we'd have learned our lesson by now. There is no substitute for Humint (human intelligence) on the ground.

7/15/00

Announced earnings came in strong and there is no reason to believe that what we will see on this front the next few weeks won't be positive as well?.

?technology shares got a huge boost from Yahoo! when the company reported earnings that were 2 cents better-than- expected. The stock had traded as low as $100 on Tuesday but closed the week at $128. [Earnings estimates by one analyst were raised to 60 cents a share for 2001. You do the math, re: P/E.]

JDS Uniphase purchased fellow fiber producer SDL for $41 billion. [This proved to be one of the worst deals in history.]

It's now been 3 months since that terrible Friday in April (the 14th) when the Dow Jones closed down 617 points and the Nasdaq lost 355 (9.7% for the day).

Since then the Dow has risen from 10305 to 10812 (5%) while Nasdaq has gained 28% in climbing from 3320 to 4246.

So let's look at some selective Nasdaq issues and see where they stand compared to their all-time highs. The first number is the record mark. The second, Friday's close.

Cisco ($82-$68)
Sun Micro (106-95)
Oracle (90-76)
Intel (145-146) *Intel hit a new high of $147, intraday, on Friday.

Qualcomm (200-63)
CMGI (163-46)
Commerce One (165-70)
FreeMarkets (370-55)

Amazon.com (112-43)
eBay (127-61)
Yahoo! (250-128)

The point is, leaders like Cisco and Sun have recovered nicely. But most of the highflyers that will go down in history as being part of the great bubble of '99-'00 have a long way to go before seeing their highs again. And, in all seriousness, we should be encouraged that the carnage of the spring did serve a useful purpose, that of instilling some form of rational behavior?.

Meanwhile, at weeks' end the bond market was not as excited as their equity brethren. They focused more on the fact that retail sales were stronger-than-expected, as well as the surprise pickup in consumer confidence?.

--First line in an AP story this week: "Creative accounting techniques are adding to the difficulty of evaluating the financial health of technology companies, analysts say." Just as long as XYZ beats consensus by one penny, that's all that matters.

--?CNN's "Moneyline" reported on Thursday that a Salomon analyst received death threats for downgrading some semiconductor issues.

[I had been writing a ton about energy this particular year.]

Even energy bulls like me want the price to retreat to the mid-20s so we can start to develop some stability. If the price stays in the $30 range, eventually it would begin to impact world economic growth and Federal Reserve policy in this country.

Rick Lazio and Hillary Clinton were locked in a dead heat for the New York senate, 45-45.

---

We'll continue the story next time. And in two weeks?the story of Bre-X.

Brian Trumbore

BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy. Any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. The securities mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy and past performance is no guarantee of future results. The opinions expressed above are not necessarily those of BUYandHOLD, its officers, directors or its affiliates.