[Posted 7:15 AM]
Market History
September 1st 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 1st, 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. All 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!”
Street Bytes
–For the week the Dow Jones lost 4.5%, its worst week since
March, as the index closed below 10000…to 9949. The Nasdaq
lost 5.8%…to 1805. Both indexes are at their lowest levels since
April.
–U.S. Treasury Yields
1-yr. 3.34% 2-yr. 3.63% 10-yr. 4.84% 30-yr. 5.37%
–The European Central Bank finally lowered interest rates a 2nd
time this year, but its formal comments didn”t make one want to
bet the hacienda that they would move again anytime soon. And
in France the jobless rate hit a 5-year high.
–Energy: Gasoline inventories are suddenly down below levels
of a year ago, and the Citgo refinery fire of a few weeks ago is
wreaking havoc on supply, particularly in the Midwest where
prices at the pump are rising sharply. Citgo doesn”t think it will
be operational again until February. But on the positive side is
the fact that natural gas hit a 30-month low.
–82% of the world”s savings resides in the U.S. Uh oh. A small
shift out and it”s…Katy bar the door! I can”t, it blew off!
Swoosh! [The sound of cash flying out.]
–When the books on the bubble are published, they should
reserve a line for a mention of Lucent”s $4.5 billion purchase just
one year ago of an Israeli company, Chromatic Networks. This
week Lucent closed the operation down. Now that”s just awful
management, folks.
–Net Zero, the folks who brought you those scintillating NBA
halftime shows, reported revenue of $12 million for its recent
quarter versus $18.7 million a year earlier. For 2 points and a
chance to convert a free throw, was Net Zero”s ad campaign
worth it?
–Well, we said long ago the Microsoft antitrust case was far
from over. Now Microsoft has to deal with an expanding
European investigation.
–Ford announced that 6,000 top executives will not receive
bonuses this year. This same group received an average
$74,000 last year. So do you think these folks will rush around
at Christmastime and spend as much as they did in 2000?
And with regards to the Big Picture, the Ford move points out an
important fact about the current environment. Forget these
surveys showing wages are up for those who have a job. The
real deal is that while you may keep your job, most employees
will see a cut in their total compensation, and, as Ford shows
you, this phenomenon is not confined to Wall Street.
–Here”s a little market trivia for you. As I was preparing my
latest “Wall Street History” piece, I saw where the real all-time
low for the Dow Jones is 28, set back in May 1896. On July 8,
1932, the average was all of 41. [In between we had the
September 1929 high of 381.] Aren”t you glad I uncovered this
nugget?
–My portfolio: I sold one of my energy holdings this week for
the purposes of locking in a loss I needed to offset gains I took in
the sector earlier in the year. I then immediately purchased a
similar holding (which would profit from the rebound in natural
gas prices that I envision in the not too distant future). But I
didn”t purchase as much as I sold, thus my cash position is now
about 75% (including bonds), with 20% energy and 5% in those
pitiful Nasdaq QQQ”s (the trade that I feared long ago would
become an investment). Of course I wish I had been 100% cash
these past few weeks (or short).
–Friday”s factory orders report revealed that orders for plastics
were up. Which reminds me that it was almost 35 years ago
when a young Benjamin Braddock was pulled aside in the movie
“The Graduate” and given some sage advice. “I have one word
for you…plastics.”
International Affairs
Israel: The Israeli government has received much condemnation
for its policy of assassination. But I get a kick out of those in
this country who decry the killings, when I have to believe those
same folks would be screaming bloody murder if there were car
bombs going off in Washington and New York. That said, you
can debate whether assassinations such as this week”s on the
leader of a large Palestinian group are truly effective in the long
run. But those who condemn Israel never seem to comment in
the same breath on the Palestinian suicide bombers. Analyst
Fouad Ajami does in U.S. News.
“Bloodletting is a ruinous habit, a moral affliction that becomes
its own hell. Once a national movement takes to it, all is lost,
and it would appear that the Palestinians have arrived at that
cruel blind alley.”
And back to the issue of the moderate Arab governments, a
favorite topic of mine. Many pundits wrote this week that it is
easy for these governments to crack down on the hard-liners in
their countries. I would say that it certainly isn”t as easy as it
was in the past, as the people in the streets turn to groups like
Hamas and Islamic Jihad with increasing frequency. But with
regards to one of the moderates, Egypt, Defense News is
reporting a major concern of the Israeli military establishment,
that being the fact that Egypt, thanks to U.S. support and
weaponry, has greatly modernized its armed forces.
Remember that Arab leaders like Mubarak aren”t faced with term
limits rather it”s all about self-preservation. A nightmare
scenario in Israel is that given the right circumstances, the
Egyptian government could be swayed by popular opinion to use
its army. And another scenario that Israel fears is a massive
commando guerilla offensive which, because of geography,
could impede Israel”s ability to call up its reserve forces in an
emergency.
China / Taiwan: This was a highly significant week in terms of
relations between the two as Taiwan”s President Chen Shui-bian
accepted the advice of his advisors and officially sought to
expand economic ties with the mainland. The silent coup
continues. While Chen will release more details in a week or
two, Taiwan will for the first time officially allow Chinese
investment in Taiwan”s stock and real estate markets. But
Beijing, while on one hand welcoming the new thinking, insisted
that Taiwan still accede to the “one-China” principle. So while
Taiwan”s business leaders, already doing massive trade with the
mainland, have gained a victory, many of Taiwan”s political
leaders are leery of this new stance.
One of the reasons for the unease clearly has to be what has
happened in Hong Kong since China”s takeover. Beijing has
basically offered Taiwan the same “one-China, two-systems”
policy. But in Hong Kong, the issue of personal freedoms is
critical. Just last May I wrote of my experience there and my
observations concerning the Falun Gong movement. This week,
Falun Gong members were arrested for the first time in Hong
Kong for staging a “sit-in” outside a Chinese government office.
Meanwhile, Beijing was all over the board on the defense front.
They labeled missile proliferation talks with the U.S. “beneficial
and constructive,” while the U.S. said it wasn”t pleased by the
lack of progress. And the fact that China”s weapons buildup
across from Taiwan continues at a rapid pace also shouldn”t give
one a warm and fuzzy feeling. But soon StocksandNews will be
on the ground in Taipei. In two weeks I”m heading over there,
for a little better feel of the situation.
[Just a note on a China-related topic. The Journal reported on
Friday that the U.S. government is prepared to settle with
defense contractors Loral and Hughes Electronics over the
transfer of missile technology dating back to the mid-1990s. I
have long wondered whatever happened to this case, one that
involves Loral Chairman Bernard Schwartz (the leading donor to
the national Democratic Party at the time), as well as current
AT&T Chairman C. Michael Armstrong (then at Hughes). Both
Loral and Hughes will admit to some wrong-doing, but I”m
afraid the real truth will never come out.]
Japan: Prime Minister Koizumi has been on vacation the past
few weeks as the Land of the Setting Sun continues to bleed to
death. The Nikkei average closed the week at 10713, its lowest
level since October ”84. Consumer price deflation persists,
industrial production is abysmal, and the unemployment rate is
5.0%, the highest since post-World War II. Meanwhile,
government debt sits at $5.5 trillion, 130% of GDP. [The U.S.,
by comparison, has about $3 trillion, or 30%.] So with
Koizumi”s return, he better act fast on the reform front. Only
one problem. As we”ve mentioned going back to his election,
true reform could throw the world”s 2nd-largest economy into an
outright Depression. Solving the banks” bad debt problem would
throw 100s of thousands out of work and reducing government
spending would only add to the employment problem. So first
Koizumi has to stimulate the economy before tackling reforms.
Ergo, the prime minister”s honeymoon is over.
Separately, Koizumi sought to travel to South Korea and China
to apologize for his recent visit to the shrine honoring Japan”s
war dead (including war criminals). Both nations told him to get
lost.
Russia: Newsweek reports that President Putin is implicated in a
burgeoning money-laundering case going back to his days as
deputy mayor of St. Petersburg. Now this wouldn”t be good.
Australia: The government of Prime Minister John Howard is
getting some unneeded publicity over the issue of 430 asylum
seekers stranded on a Norwegian tanker. Howard refuses to let
them land and thus far he has public opinion behind him.
U.N. Conference on Racism: South African President Thabo
Mbeki gave an explosive speech to the gathering that I don”t
even want to quote from. Suffice it to say, Secretary of State
Powell made a smart choice in opting not to attend. Any
conference that fails to condemn Sudan, India”s caste system,
Robert Mugabe, and is viciously anti-Israel is not one we want to
attach our name to.
Random Musings
–Last week I commented a bit on the liberal bias in the media.
So this week my favorite columnist, Robert Samuelson, wrote a
piece in the Washington Post titled “A Liberal Bias.” Samuelson
was discussing the promotion of New York Times editorial page
editor, Howell Raines, to executive editor, where Raines now
oversees the Times” news staff of 1,200. As Samuelson asks,
“Does anyone believe that, in his new job, Raines will instantly
purge himself of (the views he took as editorial page
editor)?…because they are so public, Raines”s positions
compromise the Times” ability to act and appear fair-minded.”
Samuelson then cites the latest research, which reveals that
among the press, “only 6% identified themselves as
æconservative” and 4% as Republican. Among the public, the
figures were 35% and 28%.” So what”s the real problem? The
Times is read regularly by 80% of national editors and reporters,
compared to 56% for the Washington Post and 47% for the Wall
Street Journal. Personally, I read all three every day and, the
possessor of half a brain, I can ferret out the B.S. on my own.
The vast majority of the American public, though, I”m afraid are
incapable of this. That”s why the press and its positions matter.
–Follow-up: About two months ago I printed the address of a
fund sponsored by the New York Post, for the benefit of the
widows of 3 firefighters who died in a New York City blaze. For
your information they were each given checks for $500,000 this
week, and were overwhelmed by the generosity of total
strangers.
–Sometimes I bitch (to friends and family) about my work
schedule. But the other day I”m at my Korean dry cleaner and I
had to ask the man I”ve known 7 years or so, “Have you ever
taken a vacation?” He smiled and said, “17 years…no vacation.”
Not one day! The competition is too fierce and we all would go
bonkers if we couldn”t get our shirt on the day we wanted to.
Man, my heart goes out to the guy. And I”m going to think of
him this weekend as he drives 5 hours down to Washington to
visit his daughter on Sunday and drives back on Monday, in
some of the worst traffic of the year, so he can be in on time,
Tuesday. Of course in the old days, that”s the way it was for
many of our immigrant parents and grandparents. Did you ever
thank them? They did it all for you.
–Last week I wrote of the spread of West Nile Virus. I didn”t
realize it had also been found in Ontario. But perhaps a more
serious threat is making its way into the U.S., Dengue Fever,
another mosquito-borne health emergency, which has begun to
kill in Venezuela, where the caseload is exploding.
–We may already have our “StocksandNews Person(s) of the
Year,” those pilots who landed the Canadian airliner in the
Azores after being forced to glide for 18 minutes when the
engines shut off. No one was killed. With 306 on board, that”s a
miracle.
–If you”re a single-mom, former drug addict, and have thoughts
of marrying the future king of Norway, alas, you”re too late. A
woman fitting that description did just that last weekend.
–Heck, a convicted armed robber won Powerball!
–Time to dust off my manuscript, “Dow Zero.”
–Connie Chung, on why she insisted on asking Gary Condit the
same question over and over again concerning his affair with
Chandra. “I was so surprised at the answer and felt I needed to
pursue it, that before I knew it I looked up and it was 15
minutes.” What an airhead.
–North Carolina Senator John Edwards, when asked about the
Condit affair on “This Week.” “I haven”t followed it closely
enough to have an opinion.” This, my friends, is why we hate
politicians. Just say you don”t care to share your opinion,
Senator. Remember little episodes like this when Edwards runs
for president.
–So I”m reading this article on Exodus Corp. (the Web-hosting
company) when I come across this line concerning CEO Ellen
Hancock, “the silver-haired former IBM executive.” What the
hell does her hair color have to do with anything? [Mused the
rapidly graying editor.]
–The politicians are back in Washington this week. Aaghh!!
–I just had my best round of golf, at age 43. Pilsner Urquel on
me!
–Actor Sean Penn on globalization and the protesters. “I think it
would be an enormously patriotic movement to invest in the
possibility of revolution.” Is it any wonder why so many of us
despise Hollywood?
–Yak update: So I”m reading the latest issue of Smithsonian
magazine and there is an article on the search for the yeti, or
“migoi,” of Bhutan. While no one has ever proved the yeti
exists, other threats do in the mountainous terrain, such as
“Himalayan black bears (which) often kill unlucky yak herders.”
But the article doesn”t take it any further than this. Of course
what we all want to know is are the yaks setting up the bears?
Do bears do the actual killing or yetis…or yaks? And after all
I”ve said about our “noble” friends, can they themselves really be
trusted?
–Sharks: Last week I mentioned that bull sharks were
responsible for the deaths of 3 in the Matawan, NJ area back in
the summer of 1916. I should have said 4. But in Friday”s Wall
Street Journal, Michael Capuzzo wrote an op-ed piece on the
subject and claims a great white did the damage. [Capuzzo also
authored a book on the incident.] Wrong. I prefer to stick to the
opinion of my main man, author Richard Ellis, who has written
the definitive “Encyclopedia of the Sea.” In this sterling work,
Ellis says it was bull sharks (yes, plural) that killed the 4. Bull
sharks are known to be man-eaters, and were the culprits down in
Florida this summer. They also swim in fresh water (much more
than great whites are known to), which is where some of the
Matawan killings took place. Just another reason to read
StocksandNews, boys and girls, on a weekly basis.
–Finally, let”s face it, it hasn”t been a good week, public
relations wise, for the Bronx Little League team, the Dominican
Republic, Danny Almonte, and all the parents who love to break
the rules at the expense of their children. Almonte is the 31-
year-old former National League Cy Young award winner who
then tried to convince us he was only 12. Well, it turns out that
Danny is not only lying about his age (alright, he”s 14) but he
hasn”t spent a day in school since he”s been in this country. In
fact everybody in this story has been lying so much, they”re making
us all feel a little dirty. As for Danny”s future, though, I”d love
to see him on my Mets. He can replace John Franco as the lefty
set-up man in the pen.
Gold closed at $274
Oil, $27.20
Returns for the week, 8/27-8/31/01
Dow Jones -4.5% [9949]
S&P 500 -4.3%
S&P MidCap -2.0%
Russell 2000 -2.6%
Nasdaq -5.8%
Returns for the period, 1/1/01-8/31/01
Dow Jones -7.8%
S&P 500 -14.1%
S&P MidCap -4.5%
Russell 2000 -3.1%
Nasdaq -26.9%
Bulls 43.9%
Bears 30.6% [Source: Investors Intelligence]
Have a great week. I appreciate your support.
Brian Trumbore
