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Wall Street History
https://www.gofundme.com/s3h2w8
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12/29/2000
The Bubble, Part I
With the archives I have through my "Week in Review"
columns, it only seemed natural that I chronicle the Great Tech
Bubble of 1999-2000. The next few pieces should be good
ones to save for you market junkies.
So following are comments taken from my pieces. The dates
listed represent the actual day the column was posted on my site
(in almost all cases Saturday).
I have chosen 6/25/99 as the start because this was shortly
before the Federal Reserve raised interest rates (6/30) for the
first of what would eventually be 6 increases.
6/25/99 - Dow Jones (10552), Nasdaq (2550).
"One-quarter point rise in short-term rates won''t slow this
economy down.pros are now looking for more of an increase,
probably August 24.so while we all know there isn''t any real
inflation, the Fed sees otherwise." [Trumbore]
I start discussing Y2K ad nauseam for the next six months. I
blew that one big time.
80% viewed Colin Powell favorably when it comes to moral
values and high standards, versus 15% for Bill Clinton.
Nymex Crude Oil is $18.39
7/3/99 - Federal Reserve hikes rates 25 basis points and adopts
a neutral stance on future increases. A survey of economists
sees 3-3.5% GDP growth for the third and fourth quarters of the
year. [Instead, we were to see 5.7 and 7.3 percent,
respectively.]
Dow Jones rockets 586 points, (5.6%), for its largest weekly
gain in history. The S&P 500 and Nasdaq are also at all-time
highs.
Maryanne Keller, top auto analyst, leaves Wall Street to become
the head of Priceline.com''s new auto-services unit, continuing
the "brain drain" phenomenon on the Street.
[1942: 126 million shares changed hands on the NYSE.for the
whole year!]
7/10/99 - Report issued on soaring retail sales. Dow closes at
11193. Noted strategist Ralph Acampora raises year-end target
to 12500-13000. S&P price/earnings ratio at 36.56 based on
trailing 12 months earnings.
Japanese Nikkei index closes at 17937 for its 6th straight weekly
advance.
Hillary vs. Rudy Giuliani poll shows Hillary ahead, 46-44.
Building collapse on West Bank, trapping construction workers,
brings spirit of cooperation between Israel and PLO.
7/17/99 - Microsoft market value tops $500 billion, the first
company to ever hit this level. This means that MSFT is worth
more than the entire economy of the Netherlands.
Nasdaq is at 2860.
7/24/99 - Nasdaq suffers worst weekly point loss, down 172, or
6%. IBM, Microsoft, Lucent all reported strong earnings yet
declined, primarily due to "the increasing realization that
valuations by any historical measurement are stretched to the
max." [Trumbore]
George W. Bush ahead of Al Gore, 55-38.
7/31/99 - Economic statistics show economy roaring ahead.
Internet stocks, such as AOL, Amazon, and eBay, in the midst
of a serious plunge over past 3 months. For example, Amazon
goes from $221 to $98.
I do my own research and find that of 560 possible ratings on
the 30 Dow stocks, only 13 had a moderate or strong "sell"
label.
Day trader Mark Barton goes berserk in Atlanta.
SEC cracking down on Web sites pitching "free stock."
Japanese fellow gets cremated with Van Gogh''s "Dr. Paul
Gachet," a painting he had acquired years earlier and worth
about $82 million.
8/7/99 - Net stocks continue to plummet. Many are off 70%
from their highs. I comment:
"It''s my job these days to look at Net companies and try and
understand their business models and I don''t see a lot of
winners out there. I imagine the true shake out may be
precipitated by the large overall market decline I see as
inevitable. Not simply because many of the Net stocks'' share
prices will be further collapsing, but some of their backers (will
be forced) to pull the plug."
Economy continues to soar.
8/14/99 - Dow, 10973. Nasdaq, 2637.
Federal Reserve states it prefers 2.5% growth.
Red Hat IPO priced at $14, finishes week at $85.
8/21/99 - Dow, 11100.
I say that after Labor Day, talk will turn to Y2K all day.
Planet Hollywood files for bankruptcy.
Bear Stearns banking analyst Sean Ryan chastised for going
negative on First Union; bad career move.
8/28/99 - "It''s not like stocks are beat up and we''re saying that
the real bad news has been discounted. People are behaving
like they''re totally drunk." -- Money manager William
Fleckenstein.
Fed raises rates another 25 basis points, the Dow races to all-
time high (but falls back to close at 11090). Fed says the
second rate increase "should markedly diminish the risk of
rising inflation going forward." Market participants take that to
mean the Fed is finished for the year.
But later in the week, Greenspan said the Fed needs to monitor
the wealth effect.
Strategist Ralph Acampora calls for 12500-13000 by sometime
in October.
Books are being rushed out with titles like "Dow 36,000" and
"Dow 100,000." Regarding the latter, the author is calling for
11% a year until 2020.so simply at the historic average return
since 1926. Big deal. I call for book titled "Dow 1 Billion,"
but, being a bear, start work on "Dow Zero."
3 people committed suicide in a 7-day stretch in Atlantic City
by hurling themselves off casino structures.
A 4-year-old boy survived the Turkish earthquake for 145
hours.
"An Internet company by the name of Bamboo.com went
public. The real estate concern''s share price soared. Obviously,
investors are forgetting that bamboo is the staple of the panda
bear, a species facing extinction." [Trumbore]
9/4/99 - On 9/3, Nasdaq register''s largest point gain ever, 108,
on the strength of a tame jobs report. [Nasdaq now at 2840.]
Optimism that Fed won''t raise rates the rest of the year.
Nobel Prizewinner Milton Friedman was quoted in a German
newspaper as saying the U.S. economy and stock market were
exhibiting classic signs of a bubble.
Perma-bear Jim Grant (I love this guy), interviews 14 equity
traders on Wall Street. Only one is able to identify where the
P/E is on the Dow. Most of the others said, "Not a clue. Don''t
care."
9/11/99 - Nasdaq, 2887. Dow, 11025.
Many folks feel corporations will keep spending on technology
beyond Y2K.
Net stocks rallying back but still 30-45% off of their highs.
Ed Yardeni says Dow should be trading at 8000 as the huge
growth in earnings we have witnessed is a thing of the past.
Oil climbs to $23.55, highest level in 3 years. This is tough for
the Fed to ignore.
Study shows that Americans are working harder than anyone
else in the world.
9/18/99 - Dow, 10804.
Only 8% of those polled anticipate major Y2K problems. Oil,
$24.73.
9/25/99 - Dow''s worst week in a year, off 4.9%, 10279.
Steve Ballmer, Microsoft president, told a group of business
journalists, "There''s such an overvaluation of technology
stocks, it''s absurd. And I''d put our company''s stock in that
category.(there is a) gold rush (mentality)." Ballmer also said
that this bubble in valuations was a "bad thing for the long-term
health of the economy."
Noted Wall Street author Burton Malkiel reviewed "Dow
36,000" for the Wall Street Journal, calling it a "dangerous book
that may lead some investors who can ill afford the significant
risks of equity investments to throw caution to the wind."
Commercial time for Super Bowl is already booked at $2
million for a 30-second spot, thanks to dot-coms.
Study shows that many e-commerce sites have a major service
problem, with only 33% of e-mails sent to a site receiving a
response, if at all, after 5 days!
I happen to walk by Hillary Clinton in New York this week and
she doesn''t even make eye contact. @#$%@!
Some Pokemon cards are selling for $50 or more.
10/2/99 - Dow, 10273; Nasdaq, 2736. It was the Dow''s 6th
straight weekly decline. The last time this occurred was
7/16/90-8/24/90.
On Tuesday, the Dow was below 10100 when Ralph Acampora
announced he was bearish, particularly if Dow broke 10000.
Abby Cohen said market was "modestly undervalued" at around
10300. Ed Yardeni sticking to 8000 target.
Consumer spending up sharply, fueling inflation concerns.
Gold rallied $28 dollars on Tuesday, biggest one-day rally in
almost 20 years. The European Central Bank announced it was
capping sales from its gold reserves.
China celebrates 50th anniversary of creation of Communist
State. The head of Time Warner gave Chinese President Jiang
Zemin a bust of Lincoln. I gag.
Survey says that 90% of Americans consider the entrepreneur a
figure of respect. But in Japan, only 8% respect people like Bill
Gates.
"I went to my first Internet conference this week. A big thing in
''Netland,'' I learned, is to use the code name ''Bill'' in your
presentations. Oh, everyone then nods in affirmation, he means
Bill Gates. Woww!" [Trumbore]
I mentioned Chad on 10/1/99 because they were about to
receive some debt relief, thereby making me one of the first to
note this word.
10/8/99 - *The following is how I started this week''s review,
verbatim.
"It''s not nice to fool with Alan Greenspan.
"Wall Street appeared to be walking right into a trap at week''s
end; a well-telegraphed one. The Federal Reserve could not
have made it more clear this week (as they have continually
done so, recently) that ''conditions in financial markets'' will also
help steer the central bank''s course. While the Fed, as
expected, left interest rates unchanged when they got together
on Tuesday, Greenspan & Company moved to a ''tightening''
from a ''neutral'' bias. Their statement read in part that while
trends in productivity have been favorable, ''the growth of
demand has continued to outpace that of supply.''
"The Fed also said that ''Committee members will need to be
especially alert in the months ahead to the potential for costs to
increase significantly in excess of productivity in a manner that
could contribute to inflation pressures and undermine the
impressive performance of the economy.''
"So how did Wall Street react to this warning shot which clearly
showed the Fed may raise rates at their November 16th meeting?
Blue chip stocks had their best overall week since early July.
The Dow closed up 3.7% to finish at 10649 (breaking the 6-
week losing streak), the S&P 500 climbed 4.2% and the Nasdaq
rose 5.5% to finish within a point of its all-time high (2887)."
Oil plummeted as rumors hit that OPEC was going to soften
production cuts. [Nymex crude back to $20.90]
10/16/99 - I made the following comment in discussing the
recent environment:
"Just as in 1987, interest rates began to climb while the stock
market rallied..It''s not supposed to work that way. The 30-
year Treasury was at 4.75% (one year ago). On Friday
morning, it was at 6.34% (before closing at 6.27%). The stock
market finally had some real competition (for the investment
dollar) this week and investors.didn''t like it.
"The Dow Jones dropped 630 points, 5.9%, to close at 10019.
It was the largest weekly point loss in history. Late Friday, the
average touched 9998, the first time it has been below 10000
since April. The S&P 500 had its worst week, off 6.6%, in 10
years. The Nasdaq lost 5.4% (to 2731). Both the Dow and S&P
are off more than 10% from their highs."
I then added the following as to what the market should be
worried about.
"The stock market falls.
leading to a loss in consumer confidence.
which would lead to a decrease in consumer spending.
meaning corporate earnings would come in lower than
expected."
Hey, so I was a year early!!!!!
Oil soared anew, back to $22.82 on a plunge in inventories.
Year-to-date performance as of 10/15/99:
Dow Jones +9.1%
S&P 500 +1.5%
Russell 2000 -1.7%
Nasdaq +24.6%
And this is the perfect place to break because the Nasdaq is
about to embark on a stupendous streak that will carry it through
the rest of 1999.11-straight weekly advances!
Next week, Part II of "The Bubble."
Brian Trumbore
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