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Wall Street History
https://www.gofundme.com/s3h2w8
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01/21/2005
2000
This first quarter represents the 5-year anniversary of the U.S.
equity markets’ all-time highs; Dow Jones, S&P 500 and
Nasdaq. For a look back at the environment in 2000 there is no
better source than my own “Week in Review” columns.
Following is some of what I was writing then, both good and
bad.
[Conveniently, the respective indices all hit their records on a
Friday.]
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1/15/2000 Dow Jones closes at record 11722 on 1/14
“Two companies who invented nothing but have a lot of stuff
combined their assets in the largest corporate merger in history,
that being AOL and Time Warner .13 million cable subscribers
and 20 million AOL subscribers will now be able to access,
through various mediums, a lot of stuff. And somehow we’re
supposed to find the time to view it all.
“As for the rest of the market, the news could not have been
rosier. Fed Chairman Alan Greenspan gave a speech wherein he
said the ‘American economy has never exhibited so remarkable a
prosperity for at least the majority of Americans.’
“Corporate profits are anticipated to have grown at about an 18%
rate for the 4th quarter of ’99 and, if Intel’s strong report of this
week is any indication, this earnings season could be awesome.
Strong growth, low inflation, what’s not to love? So the markets
rallied and the Dow Jones hit another new all-time high, up 200
points to 11722. The Nasdaq and S&P 500 have now climbed to
just below their respective highs as well.
“But, as is his custom, in the same speech Greenspan offered a
cautionary note or two. He said the stock market’s surge is
pushing the economy beyond its limits (the impact of the ‘wealth
effect’). And he urged Congress to keep its grubby hands off the
burgeoning federal budget surplus.
“Well, all this talk had the bond market bewitched, bothered and
bewildered, with the yield on the 30-year Treasury climbing to
the 6.69% level, the highest in about 2 years .
“Personally, I am continually amazed that wage pressures have
yet to appear. All I know is that the service I receive at the stores
I frequent gets worse and worse and as for stocks, when I read
that the average price / earnings ratio on the Nasdaq is 200
(trailing 12 months) I gasp So I don’t understand this new
economy, this new era, or these new valuations.”
Elian Gonzalez (remember him?) was a big story back in these
days. And the presidential campaign was heating up. While the
polls in New Hampshire reflected a deadheat between Bush-
McCain and Gore-Bradley, nationally Gore led Bradley 59-30
and Bush swamped McCain 63-18. Rudy Giuliani had a 49-40
lead over Hillary Clinton in the New York senate race. I also
noted the following.
“A new study taken by the U.S. military shows that a
combination of cutting troop levels by a 1/3 and increasing
overseas deployments by 300% has ‘created a profound stress on
the armed forces.’”
Gold closed at $285
Oil, $28.02 [9-year high]
After two weeks, the year-to-date returns looked like this.
Dow Jones +2.0%
S&P 500 -0.3%
Nasdaq -0.1%...but not for long!
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3/11/2000 Nasdaq closes at record 5048 on 3/10
“I’m so sick of ‘Old Economy’ vs. ‘New Economy’ that I went
to a long-lost friend, Mr. Roget Thesaurus, to come up with a
different way to describe the titanic struggle taking place on Wall
Street.
“Actually, from past writings you know it’s more like ‘rational
vs. irrational.’ And then on Friday, the lead column in the Wall
Street Journal blared ‘Conservative Investors Finally Are
Saying: Maybe Tech Isn’t A Fad.’
“Geezuz. What are we, idiots? The hula hoop was a fad. The
slinky. Slot cars (sadly). Computers and wireless
communication aren’t. All some of us are saying is, why should
Palm Inc. (the recent spin-off of 3Com that manufactures hand-
held devices) be worth more than the whole U.S. airline industry
put together?
“And the big story in the ‘hoary vs. immature’ (thanks again,
Roget) market of this past week was Procter & Gamble. Stock in
the consumer goods giant plummeted 39% on dire earnings
news. Well heck, the stock was trading at a price / earnings
multiple of 34 when its shares traded at $87 on Monday. This
for a company that, in a good year, would grow around 10-12%
(and there’s nothing wrong with that). Well now it’s at $53. It’s
not just a matter of ‘venerable’ companies like P&G suffering
from a lack of pricing power (due to the Internet, over capacity,
and other factors), it’s because the freakin’ stocks are, or were,
overpriced!
“And don’t you forget that what happened to P&G (and before it
Raytheon, Xerox, and others) can just as easily happen to Cisco
(great company but ) or JDS Uniphase It’s just a matter of
time .
“By the way, in case you didn’t know it, we are currently in a
bear market by some measurements. One study showed that
75% of the stocks in the S&P 500 are down 20% from their
recent highs.”
And I wrote this.
“The American consumer keeps borrowing and borrowing, the
latest fad being 103% mortgages. Of course a lot of the excess is
finding its way into the stock market.”
China’s admission to the WTO was a big topic of discussion
then, while Clinton was on a trip to Asia, including Pakistan. I
wrote this of Pakistan’s General Musharraf.
“Of course the fact that the general hasn’t set a timetable for
restoring democracy, coupled with his government’s ties to
terrorism (including Osama bin Laden), doesn’t seem to matter
to Clinton.”
Another big event of this week was the flooding in Mozambique.
“U.S. helicopters didn’t get involved until Thursday, almost two
weeks since the disastrous flooding began. On Monday, the Air
Force general in charge said that the Clinton administration did
not give the Pentagon the go ahead to participate in the aid effort
until two Fridays ago, some six days after the fact.”
Interesting, in light of today’s tsunami relief effort.
Oil closed at $31.75, after hitting $34 earlier in the week, highest
since 11/90.
YTD returns, 1/1/00-3/10/00
Dow Jones -13.6% [9928]
S&P 500 -5.1%
Nasdaq +24.1% [5048]
Just an incredible divergence between the Dow and Nasdaq;
historic, as it proved to be.
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3/25/2000 S&P 500 closes at record 1527 on 3/24
I started off my review by quoting Robert Kagan and William
Kristol, authors of an important piece that week.
“ ‘The world can grow perilous with astonishing speed .
“Americans must shape this (new international) order, for if we
refrain from doing so, we can be sure that others will shape it in
ways that reflect neither our interests nor our values.”
I also can’t help but note a rather prescient comment of mine on
the international affairs front.
“The last thing India is about to do is give up their nuclear
weapons. And they shouldn’t. After all, with a failed nuclear
state like Pakistan on one side and the confused nation of China
on the other, would you? But we hypocritically keep asking
them to disarm and sign treaties even we haven’t signed. No,
India has huge problems but they are a nation on the rise.
Embrace them.”
I also made note of security on Clinton’s trip.
“You saw how his own people were scrambling to reshuffle the
schedule when a legitimate terrorist threat from Osama bin
Laden emerged. And they actually seemed surprised?!”
Vladimir Putin was about to be elected. I wondered “which
Putin will emerge? A swashbuckling democrat or a KGB
operative?”
“There are already signs that (Putin) is lacing his court with all
manner of spooks. Among his cryptic comments of the week
was ‘We can pin hopes for a worthy future only if we prove
capable of combining the universal principles of a market
economy and democracy with Russian realities.’ One political
commentator said therein lies the danger. ‘Putin will trample on
citizens’ rights in the name of a powerful state.’”
As for the financial markets
“ it was another stupendous week with the Dow Jones
finishing up 517 points, closing at the 11112 mark. The two-
week gain is almost 1200. Throw in a colon in the middle of
those four digits and we can debate whether it’s 12 noon or 12
midnight.”
I noted some of the ranges in share price for a few of the high-
flyers garnering a lot of publicity almost five years ago.
Protein Design Labs (338-13) 52-week price range
Millennium Pharmaceuticals (316-29)
MicroStrategy (333-7)
“And how about the valuation of two of the largest corporations
in the solar system, Cisco and Intel. There was some amazing
symmetry between the two at the close on Wednesday and before
Cisco shares split 2-for-1. Both closed at about $144. Cisco
then had a market cap of about $500 billion, Intel $480 billion.
Cisco’s price / earnings ratio was 200, Intel’s 68. For the fiscal
year ending 7/01, Cisco is estimated to earn $1.31 (pre-split).
Let’s say they handily beat expectation and earn $1.50. That’s
still a p/e of 96 on 7/01. And Intel’s multiple is for what had
supposedly become a more cyclical, as opposed to growth, issue.
Oh, you can go on and on. Or as the 3-card Monte dealers say in
New York, “$20 gets you $40.”
Of Fed Chairman Alan Greenspan, I wrote he “seems
increasingly irrelevant. For the fifth time since June of last year
the Fed raised interest rates and the markets stuck it to him. In
the old days, if the Fed raised rates 3 times the adage was ‘3
steps and a stumble,’ meaning the market was due to tumble.
Not anymore. Now it must be ‘5 steps to prosperity.’”
Check out the yield curve this week.
2-yr. 6.62% 10-yr. 6.19%
“Inflows into mutual funds for the week ending Wednesday were
evidently at record levels. More rocket fuel.”
“Shares in Rambus closed Tuesday at $266. They opened the
next morning at $329. If you’re playing these high-flyers, don’t
ever put in an order to ‘buy at the opening.’ The potential to get
screwed is rather high.”
“Barron’s had an excellent piece on the Internet segment and the
cash that many dot-coms are burning through, to the point where
the immediate survivability of some is in question. In addition,
insider selling is ‘off the charts.’”
Meanwhile, “According to an automakers survey, the typical
Suburban household earns $94,700 compared to $54,000 for the
Taurus buyer.”
And on eBay, “The site displayed two of actor Jerry Orbach’s
1958 contracts, complete with his Social Security number!
Orbach is suing ” [Hope he won this before he passed away.]
YTD returns, 1/1/00-3/24/00
Dow Jones -3.3%
S&P 500 +4.0%
Nasdaq +22.0%
Bulls 55.7%
Bears 26.4% [Source: Investors Intelligence]
And that’s the way it was before the Crash.
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Wall Street History returns January 28.
Brian Trumbore
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