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September
2000, Part III
Brian
Trumbore
President/Editor, StocksandNews.com
Wrapping up our look at the fifth anniversary
of a major market top, Sept. 1, 2000, we continue
with selections from my "Week in Review" archives
that help capture the mood of the times.
The
markets embarked on a five-week winning streak before
peaking on 9/1, at which point it was all down hill
until Oct. 2002.
[Reminder:
What follows are all quotes from the pieces I was
writing at the time. Sometimes I got it right, sometimes
I didn't.]
8/5/00
"The
biggest question in my mind is whether the market
opportunity in electronic commerce is as large as
we all thought."
--Internet Analyst Henry Blodgett
This
bombshell was in the July 31 issue of Barron's and
it could very well be the statement of the year, or
decade. Blodgett is, after all, a poster boy for all
things Webish?.
I
am certainly one who has doubted some of the ecommerce
projections we all read about. But I won't pile on.
Suffice it to say, though, that the choice of Amazon
Chairman Jeff Bezos as Time's "Person of the Year"
for 1999 is looking more foolish by the day.
Meanwhile,
it was a solid?and volatile?week for the Street. The
Dow Jones rose 2.4%, its best performance in 2 months,
to close at 10767. And the Nasdaq staged an impressive
turnaround to tack on 3.4%, with the average now at
3787?.Big cap names like Cisco, Sun Micro and Oracle
rose 10-15% from their Thursday morning lows, just
when it looked as if the leaders were totally breaking
down. Cisco, in particular, was dropping because of
rumors next week's earnings report would be a little
on the light side. I imagine they'll once again do
just fine, but the day that Cisco does finally fall
short is one no technology investor ever wants to
see.
Lazlo
Birinyi has been as good a market forecaster as there
has been during the past 10 years. And, unlike Abby
Cohen who just inches her targets up a little at a
time, Birinyi deserves credit for having set bold
ones, and then being right.
So
when Lazlo talks, you all should listen. This week,
on a CNBC appearance, he turned decidedly cautious,
calling for a "subdued bull market," i.e., the easy
money has been made for some time to come?.he also
brought up a fascinating statistic.
For
those of you who follow the market during the course
of the day, how many times have you seen big early
moves, followed by lethargy for the balance of the
trading session? Well, Birinyi has done a study quantifying
this trend which shows that if you took out the first
half hour in the Dow Jones, the index would be 35%
lower! ....
Now
there are good reasons for this, the chief one probably
being the influence of foreign investors who place
their orders at the first opportunity, as well as
our own institutional money managers who act based
on their cash flows from the preceding day. And lastly
you have the influence of momentum players.
8/12/00
Frankly,
the news scene has been a little light but there were
some rumblings from overseas that warrant concern?
This
past spring there was some cause for optimism in Iran
as reformers won a parliamentary majority in an election
that appeared to be remarkably free of major fraud.
I said, though, that it wasn't time to pull out the
party streamers and, sure enough, there was some troubling
news this week as the Islamic hard-liners who are
still in real control shut down the last reform newspaper,
making it 23 such publications since April that have
suffered this fate?.
Saddam
emerged from one of his bunkers this week to blow
off some steam against the leadership of the Arab
world and, second, to welcome Venezuelan President
Chavez.
I
warned long ago that Hugo Chavez was bad news. Now
everyone else knows. Chavez became the first democratically
elected leader to visit Iraq since the Gulf War. Saddam
jumped for joy. Two dirtballs in the desert.
---
The
Dow Jones busted through the upper end of its trading
range in impressive fashion this week, closing above
the 11000 mark (11027) for the first time since April
25. Strong figures for productivity and a tame report
on producer prices solidified the case of the soft-landing
adherents once again, and most experts are in agreement
that the Federal Reserve will hold the line on interest
rates when they convene August 22?.
The
bond market lapped it up, on the longer end of the
curve, as the yield on the benchmark 10-year U.S.
Treasury bond hit 5.78%. Since mortgages are pegged
to this rate, it could signal a revival in homebuilding?.
Cisco
Systems and Applied Materials could not have been
more bullish in their comments following earnings
reports which beat the Street. But their stocks, after
an initial bump up, fell back. Pray tell, whassup?
Rational behavior?
It
certainly appears that way. Cisco's glowing report
on future prospects had some analysts raising 2001
earnings estimates to $0.74. Cisco ended the week
at $64. At $74, the P/E is 100? on next year's earnings.
And it's that realization that is undoubtedly holding
some investors back.
And
then there was Dell, falling short of its revenue
target while beating the Street's earnings forecast
by a penny. The market slammed it to the tune of $4
on Friday.
Yes,
when you have a market priced for perfection, and
perfection is seen to have its limits, it's tough
for the Nasdaq to find legitimate reasons why it should
rise to new highs. It sits at 3789, 25% off its record
of 5048.
[Ed.
note: I was writing a lot about energy these days
and for the record, presidential candidate Al Gore
was slamming Republicans, as in the following assessment
of their convention.]
"Behind
the flashing video wall is an agenda of rising gas
prices and smog-filled skies that is of Big Oil, by
Big Oil, and for Big Oil."
Go
back to your economics textbooks, Mr. Vice President.
It's called supply and demand. And seriously, this
administration has done nothing to raise fuel efficiency
standards on SUVs for 8 years.
8/19/00
[Ed.
note: How a world leader handled tragedy this week.]
"When
it is a matter of life and death, admirals, generals
and state officials simply must not lie, cheat and
think about their careers?it is blasphemy."
--Russian newspaper editorial
It
was a horrible week for Russian President Vladimir
Putin and, most importantly, the Russian people.
The
Russian submarine Kursk went down last Saturday, the
military didn't announce the fact until the next day,
and Putin didn't interrupt his vacation to say one
word about the tragedy until Wednesday.
From
another Russian editorial:
"Why
on earth did (Putin) think it was possible to keep
mum for 5 days, when the entire nation has spent those
days consumed by only one thought - will they be saved
or won't they?"
Putin
was more concerned with saving face than saving lives.
---
Wall
Street
I'm
not going to create news where there was none. It
was dullsville on the Street. And I don't care where
you live, you know the feeling. It's easier to find
parking spots, the lines at the barber shop are shorter,
it's vacation time.
--Some
Internet issues like Amazon and eBay rallied this
week for no real apparent reason. Amazon's Jeff Bezos
ran around showing Wall Street analysts that he really
did have some cash left in his wallet. That seemed
to reassure some investors. I prefer to think of the
rally as a dead cache bounce.
--Microsoft's
Windows 2000 or ME?is officially being rolled out
in September. It is not a "must-have" upgrade.
Technology
Debate
From
the 8/28 issue of Business Week, here are some opinions
from two tech titans.
Cisco
CEO John Chambers: "There will be nothing in the 10-
year window (10 years from now) except e-companies?click-
and-mortar will become the only means to survival."
Intel
Chairman Andy Grove
Q:
Are we in the midst of a second Industrial Revolution
that will lead to vast changes in the way companies
are managed?
Grove:
I don't think we are seeing a phase transition like
ice turning to water?It would (be useful) to go back
and ask if the railroads changed the world.
Q:
Many believe that the speed of transactions will radically
change the way we do business.
Grove:
This business about speed has its limits. Brains don't
speed up?you can reach people around the clock, but
they won't think any better or any faster just because
you've reached them faster.
8/25/00?posted
a little early
If
you're an oil trader, you probably got nauseous this
week from all of the ups and downs. And whereas last
spring and early summer I mocked those who complained
about paying a few extra bucks at the pump?just one
year after record low gasoline prices?and I also said
that it would have little impact on the overall economy?today,
I'm not so sure about the impact in the future.
Folks,
let's see if I can sum up the dilemma. If the world
economy continues to grow, that very growth could
eventually be stopped right in its tracks by stubbornly
high, or soaring, energy prices.
This
week President Clinton made the statement that, gosh
darnit, oil should be in the low $20s.
Well,
gee, Mr. President. How do you accomplish that?
Why,
Mr. Trumbore, you should know that the way you bring
the price down is to increase supply.
But
where are you going to find the extra supply?
Why
Saudi Arabia, of course.
But
they are facing all kinds of internal pressure from
within OPEC not to help us. And even if they do come
through, who else then?
Ahhh?.
[Ed.
note: Yes, it was a different pricing environment
five years ago, but the essential debate hasn't changed.]
---
What
I am watching are some of the technology bellwethers.
At $67, Cisco is still well off of its all-time high
of $82 set last spring. And at its current price,
it still trades at a 90 multiple based on 2001 earnings
estimates.
But
while Cisco stumbles, Sun Microsystems has been on
an incredible roll, and at $127 now carries a 97 P/E
on 2001 estimates (which were recently jacked up).
It bears repeating; no one is questioning the quality
of these corporations. I just can't build a case for
issues with these valuations, especially if, as some
of the economic indicators of the week proposed, the
economy is truly slowing?.If earnings continue to
decelerate, it's awfully tough to label these stocks
screaming "buys." And yes, Virginia, this past spring
proved valuation matters.
---
Iraq:
The new U.N. weapons inspection team is almost ready
to go in. Unlike the previous ones, which were dominated
by U.S. and British inspectors, this one has representatives
from 19 nations, all accountable to Secretary General
Kofi Annan.
So
we all know the drill. Saddam won't cooperate and
then the U.N. Security Council will have to decide
how to respond. I imagine the will to fight is virtually
non-existent. But we have an election coming up in
this country. What will Bill do? What will he do?
---
Post-Democratic
Convention polls:
Newsweek,
48-42 Gore
CNN / USA Today, 47-46 Gore
Voter.com / Battleground, 45-40 Gore
ABC / Washington Post, 46-44 Gore
Reuters / Zogby, 44-41 Gore
[Just
two weeks earlier, Bush was leading the same polls
by anywhere from 6 to 19 percent?.many American women
seemed to love "the kiss."]
But,
unlike many of the polls and pundits, I have consistently
maintained this race is going down to the wire and
it's going to be won or lost, state by state.
[Ed.
note: Not bad, eh?]
9/4/00
[Ed.
note: I was in Ireland this particular week.]
You
have to forgive me for being very brief?I didn't have
much time to track down Wall Street stories, but the
wealth effect is clearly being felt worldwide.
While
the Dow Jones rallied 0.4% to close at 11238, Nasdaq
continued its remarkable comeback, gaining 4.7% to
end the week at 4234. Nasdaq is now back into positive
territory for the year.
The
news on the economic front was good, again, if you
are from the soft landing crowd. Manufacturing activity
has slowed considerably with factory orders in July
plummeting. The latest employment report showed a
decline in non-farm payrolls and consumer confidence
slipped. Most market players are now convinced the
Federal Reserve is finished raising interest rates
for the balance of the year. I say, not too fast,
mainly because of stubbornly high oil. To be fair,
however, rising oil does act as a tax which helps
to reduce consumption. And that's what the Fed wants.
And
suddenly, valuation figures on many Nasdaq issues
are approaching levels last seen in the bubble of
this past spring.
And
then there is the case of Emulex and the hoax of Friday,
August 25. 23-year-old Mark Jakob has been arrested
for issuing a bogus press release saying Emulex's
profits would tumble. Wire services willingly picked
up on the story and the stock fell 60% in a matter
of minutes. Jakob was short the stock, sold his position
when it tumbled, and then had the gall to buy on the
upswing, as the SEC reinstated the initial share price
when it discovered the release was fake. Jakob supposedly
cleared about $250,000 for his efforts. Now he could
receive up to 15 years in prison.
George
Bush was struggling. Some quotes:
"Will
the highways on the Internet become more few?"
"We
ought to make the pie higher."
--Osama
bin Laden was behind a plot to blow up a nuclear reactor
in Sydney during the Olympics. Australian police say
not to worry when it comes to security at the Games.
-------
And
that was the end of the winning streak and a key top
was in.
September
1, 2000
Dow
Jones?.11238
S&P 500??..1520
Nasdaq???.4234
What
have we learned since then? First and foremost, valuation
matters. The next week, ending 9/8/00, the Nasdaq
fell 6%, with Oracle losing $6, Cisco over $4, Intel
$8, and high-flyer Juniper Networks $24. It was the
beginning of the end.
Wall
Street History returns next week?.the story of Bre-X.
Brian
Trumbore
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