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9/11:
A Look Back
Brian
Trumbore
President/Editor, StocksandNews.com
Note: I initially planned on doing
a piece on Walt Disney, then I realized it was 9/11
anniversary time. I'll get to Walt next week.
On
this five-year anniversary of the attacks, I thought
I'd take a look at some of the items I was covering
in the weeks leading up to 9/11, as well as my first
thoughts afterwards; all courtesy of my "Week in Review"
archives.
The
focus for this particular edition will be on the more
market- oriented commentary and outside of a few grammatical
changes, all of the text is as I wrote it then?warts
and all?including warnings on real estate that proved
to be over four years too soon!
---
"Week
in Review" 9/1/01
Market
History
September
1 marks the one-year anniversary of the real market
top. From this day in 2000, it was truly downhill.
The numbers tell the story.
12/31/99
Dow
Jones 11497 [DJ hits 11722 on 1/14/00]
Nasdaq 4069
The
indexes then diverge significantly.
3/10/00
Dow Jones 9928 [-15% from the 1/14 high]
Nasdaq 5048 [All-time high]
Then
the process reverses. Over the next five weeks the
Nasdaq swooned, culminating in a 25% decline for the
week of April 10. But the Dow rallied.
4/14/00
Dow
Jones 10305
Nasdaq 3320 [-34% from the 3/10 high]
I
hate to admit it, but it was at this point that I
made a mistake. I thought the drubbing in tech would
equate to reduced consumer spending (the wealth effect).
I have learned one of those lessons that make this
game of life (as well as the stock market) so challenging.
I would now say that barring an external shock (which
is why we still focus on wild cards around here),
it takes a year for the majority of investors to materially
change their consumption habits after a large market
move. And it was so ingrained in our psyche to buy
the dips last year, that folks adopted the Alfred
E. Neuman stance, "What? Me Worry?"
And
for a while they were right. Capped off by a 5-week
winning streak for both the Dow and Nasdaq, the averages
settled as follows one year ago.
9/1/00
Dow
Jones 11238
Nasdaq 4234
So
in the case of Nasdaq we had our first Crash in the
spring and we were about to have our second. Both
the Dow and Nasdaq embarked on a 6-week losing streak
from this point forward.
10/13/00
Dow
Jones 10193
Nasdaq 3316
While
the Dow then managed to rally back into the close
of the year, Nasdaq kept sliding.
12/31/00
Dow
Jones 10788
Nasdaq 2471 [-42% from 9/1/00]
And
now, to complete the year...
9/1/01
Dow
Jones 9949 [-11.5% for the period 9/1/00-9/1/01]
Nasdaq 1805 [-57.4%]
September
1, 2000 was also a key date for some big-name stocks.
The following either hit highs that week or slightly
thereafter.
Intel
- $76 (8/28/00)...today, $28
Corning - $113 (8/30/00)...$12
Oracle - $46 (9/1/00)...$12
Sun Micro - $65 (9/1/00)...$11
Nortel - $84 (9/1/00)...$6
EMC - $105 (9/25/00)...$15
Juniper Networks - $245 (10/16/00)...$14
Ciena - $151 (10/20/00)...$17
One
year later, if you bought these issues near the respective
highs, the realization may be sinking in that you
won't see the purchase price for a long, long time.
And that may be impacting your spending patterns.
Now
what? First off, so much for relaxing the last week
of summer. I was hoping to "mail this in," as they
say. Instead, the Street was in a surly mood and if
you had to pick just one culprit it was Sun Microsystems,
which issued another gloomy reading of today's economic
environment for technology, particularly as it pertained
to the weakening overseas picture. We're all desperate
for that little ray of sunshine that will foretell
a brightening profits outlook. But with the ongoing
overcapacity situation in techland, lack of pricing
power across all sectors, burgeoning layoffs, rising
bankruptcies, and falling portfolio values, it's no
wonder that consumer confidence appears to finally
be sliding for real.
In
about 10 days we will be entering the formal earnings
warning season for the 3rd quarter. The profits picture
looks just as bleak this go around as it did last
reporting period.
There
were a few positive sparks in some of the manufacturing
reports, but every week there is always something
to hang your hat on. The vast majority of the data,
however, is negative and what's most important is
investor psychology and consumer sentiment, or, more
specifically, real estate and consumer spending.
I
need to repeat something I wrote 7/7/01, as part of
my "Black Diamond" commentary.
"On
numerous occasions I have argued that we would avoid
recession, only as classically defined...but that
if housing ever truly cracked, we're talking Depression...yet
all of us have marveled at the strength of both housing
and the consumer during this increasingly wicked downturn.
But whether it's housing or consumer spending that
goes first, it really doesn't matter, for if one cracks
the other will surely follow."
This
week we had the first revision of second quarter GDP.
Many of us were worried the original 0.7% number would
be restated to below zero. Alas, it remained positive,
0.2%. [Though there is one last revision late September,
so it can still go negative.] Psychologically, a minus
sign would have made for even more depressing headlines,
on top of stories about the Dow collapsing below 10000.
I
found it necessary to rewind the above tape, if you
will, because suddenly every one and their brother
is talking about the real estate bubble; except, it
seems, the writer of a front page story in this week's
Wall Street Journal who held the opinion that current
real estate values in many parts of this country were
not a concern.
With
all due respect (long-time readers know what this
is code for), there comes a point with every product
or investment where you just have to stop and go,
"Is a 2-BR condo in Manhattan worth $2-$3 million?"
Of course not. "Did Juniper Networks at $245 and a
P/E of a grillion make sense?" Of course not. To say
otherwise is simply adopting the role of the village
idiot.
But
the real estate issue isn't just about value. If you
can afford the $18 million New Jersey estate I wrote
of last week, you have no reason to worry (or care).
No, it's the debt associated with the vast majority
of the real estate holdings many Americans have acquired
over the past 5 years in particular that is troublesome.
If the current economic slump were to continue much
longer, layoffs will gain momentum, the consumer will
keep pulling in his or her horns, and we will also
finally see a conclusion to the greater fool theory
when it comes to real estate. And IF it were to roll
over, with some homeowners - already loaded with consumer
debt - suddenly facing negative equity on their prized
asset, well then it wouldn't be inconceivable to envision
a day where we are all discussing something far worse
than a recession in manufacturing.
There
is still hope we can somehow pull this out, however.
While I have my doubts as to its relevance these days,
maybe the Fed rate cuts begin to have a more positive
effect (aside from on real estate), and maybe Japan
avoids its own D-Day, and maybe Europe's economies
stabilize, and maybe a real truce takes hold in the
Middle East, and maybe we won't have a flight out
of U.S. dollar assets, and maybe we will get real
leadership from our president.
Wow,
that's a lot of maybes. But sentiment is getting so
awful that it can be construed as a sign of a bottom.
So we'll end on an upbeat note, and I now ask Jesse
Jackson to help lead us all in a cheer.
"Keep
hope alive! Keep hope alive!"
---
"Week
in Review" 9/8/01
Nowhere
to run...nowhere to hide, part deux
Ah,
the trials of a weekly column. How to keep it fresh
and enlightening, when all the editor sees is the
same old doom, gloom, and despair. Forgive me for
injecting a bit of religion here, but I was in New
York this week and when I stopped in St. Patrick's
I lit a candle for President Bush and prayed he would
be granted some wisdom to help lead us out of this
mess.
Sure,
on one hand we are simply paying the price for what
will go down as the biggest bubble, ever, and it's
only natural that it would take years to work off
the excesses. But while I'm as guilty as the next
guy in spending as much time as I do on technology
and Nasdaq (because that's where all the money flows
were), we need to be reminded from time to time that
tech represents less than 10% of the overall U.S.
economy. There is another world out there, non-tech,
that could use a little shot of confidence. President
Bush should come up with a real stimulus program (not
the tinker toy tax cut we're receiving in the early
years of his first plan), demand national air time,
get out the Ross Perot charts (which were darn effective),
and appeal directly to all of us for our support.
But, alas, he's not the greatest messenger (as Friday
afternoon's hastily called 'state of the economy'
proved)...and then my votive candle died out.
No,
I certainly didn't see us retesting the spring lows
in our equity markets, but now, forget the spring,
the S&P 500 is at its lowest level since the Russian
/ Long-Term Capital crisis of October 1998. And it's
not just here in the U.S., all of Europe's major markets
are at lows going back to the same period, too, while
Tokyo's Nikkei index is chasing down the Dow like
a kamikaze pilot at the end of the Big One. As Archie
might have said, "Geezuz, Tojo, kill yourself in your
own country, don't take the rest of us with you."
On
the economic front, early in the week the equity markets
got a boost when the leading gauge of manufacturing
activity rose far more than expected, signaling that
inventories were successfully being worked down and
the pace of new orders was picking up. Good. Maybe
we're near a bottom, we all thought.
But
then the reading on non-manufacturing activity (i.e.,
the service sector, which has a far greater real-life
weighting than the manufacturing figures) unexpectedly
plunged. That set the tone for the rest of the week.
The
Dow closed at its lowest level since the spring, 9605,
while the Nasdaq lost another 6.5% to the 1687 level,
just 50 points from its April low. Even a blockbuster
merger between Hewlett-Packard and Compaq failed to
generate excitement; in fact, both stocks tanked.
And
anyone seeking a glimmer of hope on the earnings front
saw that dashed, with comments from the likes of Ericsson
(no recovery for the mobile phone maker in 2002),
Motorola (revised revenue estimates down, again),
and non-techs like Marriott (which said its own business
was plummeting).
Intel,
however, basically reaffirmed guidance for the current
quarter, but when you're now looking at $6.5 billion
in revenue, after you did $8.7 billion for the year
ago period, and your stock trades at a 50+ p/e multiple
based on future earnings expectations (which may still
be way too high), how much of a positive can it really
be? And it wasn't, as the stock went nowhere after
the news.
But
on Friday it was the employment report that really
shook things up. The unemployment rate shot from 4.5%
to 4.9%, the highest level in 4 years. This headline
grabbing event will do a number on consumer confidence,
just in time for the holiday season. [Psst...I've
decided I'm going to take some arts and crafts classes
and make my family and friends little boxes out of
popsicle sticks this year. I'll make it up to them
when the economy recovers. Just don't tell them I'm
doing this.]
Lastly,
there is this ever-present issue of debt. Individuals
and corporations are swimming in it. Forget the figures
for space junk you heard about this week, that doesn't
include all the paper that is floating around. For
example, Europe's telecoms and the $100 billion-plus
they spent on wireless licenses for a new generation
of product that is years away, by most sane estimates.
Or bringing it closer to home, mortgage delinquencies,
which are rising at an alarming rate.
It's
getting bleak. Lord knows we could all use a rally.
But the media now has its hands around this story.
It's like throwing chum to the sharks. We need leadership;
in Washington, Europe and Japan. Someone has to step
forward. I'm waiting.
---
"Week
in Review" 9/15/01
On
Tuesday morning I turned on the "Today Show" in my
hotel room in Sturbridge, Massachusetts, to find that
the lead story was the return of Michael Jordan. "This
is news?" I thought. "Heck, I had reported it the
day before in 'Bar Chat,' where it belonged."
I
was heading up to Wellesley for a long-planned golf
outing with my friend Dave. As I flipped the radio
dial while on the Mass Pike, I settled on a country
station. Within a minute the traffic reporter said
to the DJ, "Gee, I see that picture on your screen.
Is that the Trade Center?" "Something has happened,"
replied the DJ. "It appears a plane hit it." My immediate
thought was I knew it was a beautiful day in the New
York area and that this was no accident. It was a
terrorist attack.
I
was soon calling my parents so they could describe
what was being shown on television. Both Mom and Dad
were obviously shaken. Then, "Oh no, there has been
an explosion at the other tower!" I hung up with them,
sick to the stomach like every American that morning,
and proceeded to my friend's office. Shortly after
my arrival the first tower collapsed and I knew it
was time to go home. I wasn't angry, yet. I was scared?.
---
But
in listening to some of the comments discussing the
financial implications of the tragedy, I must say
I've been disgusted. Idiots (who will go nameless,
for now) are saying things like, "We're all going
to go out and buy a big ticket item to show the terrorists
they can't beat down our spirit," or, "It's a long-term
buying opportunity." This is nuts. We all want to
buy American, we all want to see the economy and the
markets rebound, but, now more than ever, as a people
we need to face the truth.
This
is going to be a long, drawn out war, with many tragic
moments, and our emotions (and the markets) may swoon
with each one. This week, for example, as 17,000 passengers
were diverted to Gander, Newfoundland, I immediately
thought of the December 1985 accident there, which
claimed 256 of our armed forces. There will be accidents,
there will be missions that may not succeed, there
will be more terrorist attacks around the world; the
point being that no one knows what the future holds.
As
for the economy, as you listen to those who are saying
the future is bright, remind yourself of the tremendous
dislocations taking place, not just in the U.S. today,
but around the world. The most obvious example is
the aviation industry. Midway, for starters, shut
down operations this week, throwing 1,700 out of work.
Every nation is going to be faced with the task of
bailing out their major carriers. The costs will be
$tens of billions.
And
you hear talk of the insurance industry and the losses
they face. One analyst came out yesterday and said,
however, this is a buying opportunity because once
they get through this (stupidly assuming Tuesday was
it!) these companies will be able to jack up their
premiums. What if that were, indeed, the case? Who
bears the cost? Corporate America, that's who, which
then passes it on, or, if not, sees reduced earnings.
Sure,
we're all going to go out and buy flags (and believe
me, I'm excited by this new burst of patriotism),
and security and defense companies should profit,
but those who say the American consumer will resume
his or her normal buying patterns simply don't deserve
one second of air time.
The
premise of StocksandNews was to remind you that wild
cards were important for one reason; they could shatter
consumer confidence. And the lowering of confidence
could also have a big impact on the average American's
#1 asset, real estate. Imagine what is going through
the minds of people in the New York area right now.
It's not just the high-end folks who have been impacted.
Those who died were from all walks of life. And it's
not just confidence in America that has been shattered,
it's the same story in Europe (where markets collapsed
for a second straight week), Canada, Mexico, and an
already crumbling Japan. As Morgan Stanley economist
Stephen Roach remarked "The (very) underpinnings of
globalization" are at risk.
We
have to deal with facts, and when it comes to Wall
Street the fact is that right now preservation of
capital is paramount. Don't look to pick a bottom.
Don't try to be a hero. Don't go out and "Buy American"
if you are already loaded up to your gills in debt
and run the risk of losing your job. Take care of
your family first, and let President Bush and our
military take care of the killers.
Volatility
is going to be the order of the day, but, again, ignore
those who would have you believe that times of crisis
are always buying opportunities. First, that isn't
the case. Second, we now face a situation unlike any
other in our history. We may go months with largely
positive news on the war front and then...bam!..another
attack that will drop spirits to new lows. Life has
changed, and not for the better.
As
to the war effort, there could be some exciting positive
developments. For starters, we have a tremendous opportunity
to forge a new relationship with Russia. The U.S.
needs its help and we have common interests in this
fight. The good work that President Bush has previously
done in creating a relationship with President Putin
appears to be paying off.
And
the U.S. has a tremendous ally in Great Britain. Anyone
who didn't cry when the "Star Spangled Banner" was
played at Buckingham Palace on Thursday clearly doesn't
have a clue.
But
while others like Germany and Italy will surely aid
our efforts, we're soon going to find out who our
real friends are, especially in the case of nations
like France, which it needs to be remembered hosted
Syrian President Assad just this past June. I know
the French people are behind us, let's see if the
government follows. And in the Middle East the Gulf
War coalition is a thing of the past. What real support
will Egypt, Jordan and Saudi Arabia give us as their
own leaders fear for their heads?
Yes,
in the months ahead we're all suddenly going to become
foreign policy experts. Just remember your editor
was there first. My challenge now is not just to be
different, but to add value to the debate.
---
"Week
in Review" 9/22/01
Getting
Back to Normal
Well,
this past Monday night was the first one where I didn't
dream of a chemical attack. Longtime readers will
remember, however, that I have often dreamt of North
Korean rockets slamming into Seoul, long before 9/11.
But after just one peaceful night I progressed to
dreaming of all things nuclear. On this I may not
have been alone.
I
also stopped crying this week, and I noticed a return
to some semblance of normalcy in the town where I
work, one that is still tallying up the dead. Life
goes on and I hope I don't offend anyone when I say
I'm ready for a little football.
But
patriotism and a back to work, can do, spirit are
one thing. Wall Street is quite another. And looking
back over the past week, no one could have offered
better advice than I did in my last review.
"We
have to deal with facts, and when it comes to Wall
Street, the fact is that right now, preservation of
capital is paramount. Don't look to pick a bottom.
Don't try to be a hero. Don't go out and 'Buy American'
if you are already loaded up to your gills in debt...Take
care of your family first."
Here
is just a sampling of some of the more idiotic statements
made either before trading resumed on the Street,
or during the week.
Senator
Joe Biden [Sunday night on "Larry King," forecasting
Monday's market action] "After an initial decline,
I predict the Dow will bounce back the same day, just
like Pearl Harbor." Ah, Senator, aside from the fact
that it is not your place to make market predictions,
you also have your history wrong.
Jack
Rivkin / Citigroup [On CNBC's "Squawk Box," before
Monday's open] "You're not going to make a lot of
money in your money market funds."
Suzie
Orman / self-made financial "guru" [Sunday on "Larry
King"] "I'm more optimistic than I was six months
ago."
Bill
O'Reilly [Commenting Thursday on the "Imus" program]
"If (stocks) go down, that's alright. I'll take the
hit because I don't want to give in to the terrorists."
Richard
Grasso / Chairman, New York Stock Exchange [At the
opening bell on Monday] "The long-term has never looked
brighter." This was one of Grasso's tamer remarks.
As
I made clear last week, what upsets me is that these
comments are coming from individuals (excluding O'Reilly
and Biden) who have a tremendous amount of influence
with the average investor. Again, it is time for truth,
just as President Bush laid out himself on Thursday.
Of
course we all believe in America, and capitalism,
but there is a way to address the 'present' with dignity,
as well as caution. Nasdaq Chairman Wick Simmons is
one such individual. He was a statesman this week.
And I apologize that most of you won't understand
why I'm attacking Richard Grasso, since many of you
don't get to see him during the day, but he not only
acts like a used-car salesman, his search for soaring
rhetoric (as if he is running for political office)
couldn't be more inappropriate at this time. Isn't
it amazing that Rudy Giuliani is receiving universal
praise, and there isn't one line you can remember
from all of his news conferences and interviews? The
mayor is the very personification of dignity, humility
and strength.
These
shills have performed a tremendous disservice. And
for some of them like O'Reilly, it's downright cruel
to say, "I'll take the hit," when you've got $millions
still in your bank account.
So
what did I do? I followed my own advice, of course.
It is a time to preserve capital.
While
the market was closed I kept thinking of my junk bond
position, which was substantial. I always told you
that while the economy was softening, and my net asset
value on the fund was slipping, on a total return
basis I was still confident as I awaited an eventual
economic rebound. But eking out positive growth in
the economy is far different from going negative,
given the handwriting that is now on the wall. The
only prudent thing to do was exchange my position
into the money market option, which I did at my first
opportunity, Monday. I knew I would take a hit to
the NAV as positions were marked down following the
4 days without trading, but I lost less than 1%. Since
my move, the fund declined an additional 2.5%. Other,
less conservative junk funds, lost far more. As of
Monday evening I was thus 75% cash, 25% equities.
On
Tuesday I sold my small California energy play, at
a nice profit, but due to lack of liquidity it wasn't
easy. At the end of the day I was then 85% cash. And
that's where I sit today, though because of further
depreciation in my remaining holdings it's closer
to 87%.
What
I'm left with is my Nasdaq QQQ position (about 4%)
and a natural gas play, 9%. This latter stock I first
sold last February at $63, bought it back a few weeks
ago at $26, and now it's $20. [For new readers, I
do not give individual names?QQQ is an index play.]
I am sticking with the oil stock come hell or high
water. I will unload the QQQ (purchased when Nasdaq
was around 1950) by yearend to book the loss.
Some
of you may have wondered why a patriotic rally didn't
unfold. The market hates uncertainty, and we have
it today in spades. Not only are we soon to be enveloped
by the "fog of war," but we also can't effectively
gauge the economic impact yet. The terrorists planned
the attack long before the economy was sliding. They
were originally out to kill innocent civilians. It
is not an overstatement to say they also killed the
global economy.
Nonetheless,
there are many responsible voices out on Wall Street
now proclaiming that after we have this severe decline
in economic activity, the economy will roar back,
largely because of all the economic stimulus that
will be handed out by Congress for the rebuilding
effort, as well as the massive amounts of liquidity
that the Federal Reserve has injected into the system?in
other words we may have a "V-shaped" recovery.
I
want to believe this, but it is far too early to tell.
There are so many moving parts, in both the war effort
as well as the global economy, that I must continue
to take my own advice. I can't pick the bottom and
I'm preserving capital as best as I can. If the market
rallies back at least my remaining equity positions
will participate. *And when I develop a sense that
the economy is close to rebounding, I will go right
back into the junk fund and add to my energy position.
We
all need some time to think, collect as much information
as possible, and then make rational decisions. It's
been difficult to do this these past two weeks. We're
all beat, tired, wrung out. Unfortunately, the markets
wait for no one; they have no timetable. Or, as Wick
Simmons said, "Markets will be markets." That's the
reality of it all.
Street
Bytes
--The
major market averages suffered declines not seen since
1933, in the case of the Dow Jones, off 14% and a
record 1,369 points (to 8235); 1987 for the S&P 500,
off 12%; and spring of 2000 for Nasdaq, off 16% (1423).
The big issue is how do you price individual equities
in this New World? Wave after wave of earnings warnings
hit the Street. And traders, the most impatient folks
in the world, want immediate gratification on the
war front.
---
Following
are the returns for the past two weeks. The first
figure for the stock returns is for the single day
of trading, 9/10?the second for last week.
Gold
closed at $280 (9/14) $291 (9/21)
Oil, $29.76 (9/14) $25.97 (9/21)
Returns
for the week, 9/10-9/14?9/17-9/21
Dow
Jones -0.0%?-14.3%
S&P 500 +0.6%?-11.6%
S&P MidCap -0.7%?-13.5%
Russell 2000 -1.0%?-14.0%
Nasdaq +0.5%?-16.1%
Returns
for the period, 1/1/01-9/21/01
Dow
Jones -23.7%
S&P 500 -26.9%
S&P MidCap -21.8%
Russell 2000 -21.6%
Nasdaq -42.4%
Bulls
39.6% (9/14) 35.7% (9/21)
Bears 36.5% (9/14) 37.6% (9/21)
---
Post-script:
As it turned out, while the markets began to rally
back strongly, the averages later resumed their swoon
and wouldn't bottom until one year later, Oct. 2002.
9/21/01
Dow
Jones?8235
S&P 500?965
Nasdaq?1423
10/4/02
Dow
Jones?7528
S&P 500?800?.officially bottomed on 10/9 at 776
Nasdaq?1139
Of
course in the fall of 2002 there was increased talk
of war against Iraq. It proved to be a good time to
buy, even if the war effort itself would falter badly
after the initial success.
---
Wall
Street History returns next week.
Brian
Trumbore
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