Wall Street History

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Wall Street History

07/26/2002

The Bubble, Part III

Continuing with our memories of the Bubble, we pick up the
story in June 2000. The next few months would be slow for
news. Consider this a break before things heat up again. All
comments are taken directly from my “Week in Review”
columns and quotes, unless otherwise noted, are mine. [The date
listed is that of the column.]

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6/9/00 – Dow Jones 10614 Nasdaq 3874

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

Regarding the New Jersey Senate race and candidate Jon
Corzine, I write, “What bothers me is Corzine dishing out $20-
$30k for every little county organization in existence to buy
votes.”

According to a Bloomberg News poll, 56% said they live
paycheck-to-paycheck. And 9 out of 10 couldn’t give an
approximate level for the Dow Jones.

6/17/00 – Dow 10449 Nasdaq 3860

First Call projecting second quarter earnings growth of 22% in
the S&P 500. Regional banks are beginning to talk of possible
problems in their loan portfolios.

Commentary from Ian Campbell on the current investment
environment:

“When an asset bubble builds it can defy conventional
analysis Only after they deflate are they easily analyzed. The
effects are pervasive and often take years to overcome.
Consumers and companies suddenly find they are less wealthy,
and cut spending. Growth falls and unemployment rises.
Property prices tend to fall. Property owners may find that their
homes are worth less than their mortgages. Debt imposes a
burden that many can not bear.”

Treasury Secretary Lawrence Summers:

“An information-based world is one in which more of the goods
that are produced will have the character of pharmaceuticals or
books or records, in that they involve very large fixed costs and
much smaller marginal costs. [i.e., it costs a lot to write software
but not much to make an extra copy.] (This) means that the
only incentive to produce anything is the possession of
temporary monopoly power – because without that power the
high initial fixed costs can not be recouped. So the constant
pursuit of that monopoly power becomes the central driving
thrust of the New Economy.”

Support for the British royal family is at an all-time low.

The average first year salary for a Harvard MBA grad will be
$140,000.

I’m blasting networks for shallow news coverage.

6/24/00 – Dow 10404 Nasdaq 3845

Gasoline consumption has risen 25% since 1990. Candidate
Gore is scared of the political impact of $32.25 oil.

Barton Biggs says the economic boom has been too long with too
many excesses for there not to be a hard landing.

Layoffs beginning to cascade in dot.com world. A human
resources consultant said, “Business ethics have gone down the
toilet” in terms of the way many Internet employers are treating
their employees - employers promising the world to a
prospective hire, knowing they have two months of cash left.

According to a Pew Research Council poll, 56% of Americans
don’t know who Alan Greenspan is.

7/1/00 – Dow 10447 Nasdaq 3966

The big story of the week was the unveiling of the first rough
map of the human genome. New York Times columnist Gail
Collins wrote the following:

“We’re going to use the genome map to slow down the aging
process so the next generation has the opportunity to live to be
150. Unfortunately, all the diseases we thought were wiped out
decades ago will come back in new supercharged form, so
everybody succumbs to dysentery at 23.”

Fed held the line on interest rates, calling signs of an economic
slowdown “tentative.” It’s been exactly one year since the Fed
started hiking interest rates and since then, the Dow has lost 5%,
but Nasdaq has gained 48%.

I noted an article by the Journal’s Daniel Pearl on Saudi Arabia
and endemic poverty in its urban areas.

In Kenya, elementary school students rioted, stormed a beer
truck and drank all the beer.

7/8/00 – Dow 10635 Nasdaq 4023

The Dow is stuck in a trading range from 10300 to 10700 (later
expanded on the top to about 10850).

“ the New Economy has produced a win-at-all-cost mentality
with increasingly dark implications ” A backlash has been
developing. “There should be a backlash,” said tech guru
Geoffrey Moore. “Even most people involved in it have to throw
up at some point.” [Business Week]

Insider selling is picking up in a big way.

The average Silicon Valley home price has increased 25% in one
year.

7/15/00 – Dow 10812 Nasdaq 4246

Second quarter earnings coming in strong. Yahoo closed week at
$128.

JDS Uniphase purchased fellow fiber producer SDL for $41
billion. [This would later be written off to virtually zero.]

From an AP story: “Creative accounting techniques are adding to
the difficulty of evaluating the financial health of technology
companies, analysts say.”

7/22/00 – Dow 10733 Nasdaq 4093

CDNow, once trading at $35, receives a takeover offer for $3.

Incidentally, I was writing ad nauseum about missile defense
during this time.

Former UNSCOM chairman Richard Butler said Saddam had
rebuilt his chemical and biological capability.

Half the world subsists on less than $2 a day.

7/29/00 – Dow 10511 Nasdaq 3663

Brutal week for tech, Nasdaq lost 10.5%, despite Q2 GDP
coming in at 5.2%. Amazon, Nokia (25% in one day) and
WorldCom get shelled as companies warn.

“ back to analysts. Their day is largely over. [Oh, don’t worry
if your son or daughter is one. Their day will return but not for
a while.] Probably the biggest change we’ve seen in the past
month or so is that when an influential one issues a bullish
statement, investors are increasingly sneering, ‘Yeah, heard that
before.’”

Commenting on the bombing of the Sudanese pharmaceutical
plant in August 1998 (which was back in the news the week of
7/29/00), I wrote:

“ we stupidly bomb a plant in a nation that is already a hotbed
for terrorism and then we wonder why we are a target. And it’s
also why every time I pass through the World Trade Center, I’m
looking for briefcases propped up against the wall.”

A Business Week / Harris survey found that 76% had no clue
who GE’s Jack Welch was. 99% knew Bill Gates.

8/5/00 – Dow 10767 Nasdaq 3787

[I started out this particular week’s review, thusly.]

“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

I then wrote:

“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 e-commerce
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.”

Lazlo Birinyi turned decidedly cautious, easy money having been
made for some time to come, in his opinion.

Corporate credit downgrades bested upgrades by a 2-1 margin in
the first half of 2000, the highest ratio since 1991. “Thus, it
could get real ugly, quickly, if the economy were to slow
considerably.

“But for now, it’s going to take a lot to severely shake investors
confidence. Which is why I spend so much time on the
international scene the wild cards.”

8/12/00 – Dow 11027 Nasdaq 3789

Saddam welcomed Venezuela’s Hugo Chavez. “Two dirtballs in
the desert.”

10-year Treasury hit 5.78%, signaling a new round of refinancing
and homebuilding.

Despite bullish comments on earnings, both Cisco and Applied
Materials saw their shares fall back. “Rational behavior?”

Dell fell $4 after falling short of revenue target.

Bridgestone / Firestone debacle is the big story in the national
news.

AOL launched AOL / Latin America, or AOLA. The IPO was a
dud, and, as you’d expect, management was forced to utter what
has become the clich of the year. “It’s a marathon, not a
sprint.”

“After my lead statement of last week, Merrill’s Internet analyst
Henry Blodgett proceeded to downgrade a number of Internet
issues on Monday. The fact that many of these were already
down 80-90% made it a rather ridiculous call. Wall Street
yawned.”

Eli Lilly got creamed (to the tune of $30 in one day) when the
courts ruled that Lilly could no longer prevent generic
alternatives for its flagship Prozac drug.

The SEC approves Regulation FD or fair disclosure meaning
that corporations are now supposed to release the same pertinent
information to the public that they give to selected analysts.

8/19/00 – Dow 11046 Nasdaq 3930

“I’m not going to create news where there was none. It was
dullsville on the Street.”

“Microsoft’s Windows 2000 or ME is officially being rolled out
in September. It is not a ‘must-have’ upgrade.”

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: 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.

New Jersey Senate candidate Jon Corzine. “Democrats are
interested in people.” I wrote, “Corzine’s going to win. Pity us.”

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Memories of the Bubble continues next week.

Brian Trumbore

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