Wall Street History

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Wall Street History

08/26/2005

September 2000, Part I

We are approaching a key market anniversary, Sept. 1, 2000.
Now you might be thinking, “Why is this so important? I
thought the market peaked in the spring of that year?”
Technically, you’re right, but what most forget is that the major
averages rallied back strongly in the summer. Granted, it was
more of a Nifty 50 rebound, as many of the Internet highflyers
continued to collapse, but investors were given one last chance to
get out before true disaster struck. Following this date, the
averages wouldn’t hit bottom until two years later, Oct. 2002.

Well it just so happens I have some pretty good archives for that
period in the form of my “Week in Review” columns so I
thought we’d spend the next two weeks just looking at the events
of this time, particularly as they pertained to the financial
markets. Much of what I was writing on the international scene
had to do with Russia’s conflict in Chechnya and our relations
with China. Plus remember we had a presidential campaign in
full swing.

I have selected a few comments from each review. Admittedly,
not a heck of a lot was going on following the chaos of the early
spring, as in the week of April 9 when the Nasdaq lost 25%, yes,
25% to close at 3320.

The debate in the markets was mostly over the strength in the
economy and the impact of high oil prices, then around $30. In
many respects a slowdown was inevitable and the Federal
Reserve was attempting to engineer a soft landing. Recession
would come, but as we learned it would be the shallowest one in
modern times. I also have to admit I was talking of a real estate
bubble. Let’s just say I got that one wrong by 4-5 years.

*All comments in [ ]s are my editor’s notes of today.

Key figures all-time highs

Dow Jones 11722 [1/14/00]
S&P 500 .1527 [3/24/00]
Nasdaq 5048 [3/10/00]

September 1, 2000

Dow Jones .11238
S&P 500 ..1520
Nasdaq .4234

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5/27/00

“This is the kind of party where the guests, if deprived of the
host’s refreshment, whip out their pocket flasks and gather round
the piano to sing another round of ‘Brother, can you spare a
dime?’ They are rude and undisciplined, and they won’t go
home.”
--Thomas Donlan / Barron’s

Donlan is referring to the last Nasdaq bulls or rather the shills
you see on television. But they are a rapidly dying breed and, in
the perverse ways of Wall Street, normally you would call this a
positive, since excessive pessimism tends to be a sign that
everyone has sold that wanted to and one spark (like the Fed’s
first interest rate cut in August 1982) could send stocks soaring
anew.

--Outside of a brief flurry of positive karma it was another
slow, tortuous week. The Nasdaq slide has now reached 37%,
the steepest decline in the average since 1976. And at 3205, it is
off 21% for the year.

--Web companies are shedding employees at an increasingly
rapid clip (if they aren’t going out of business altogether).

6/3/00

The long anticipated economic slowdown has arrived. Whether
it was manufacturing, housing, retail sales, auto sales, or
employment, the numbers this week bore that out .

For stocks it was nirvana. The Nasdaq had its best week ever, up
19% in just 4 days, and has now recovered to the 3813 level.
The Russell 2000 also registered its best weekly performance, up
12%. [The Dow rallied almost 5% to 10794} And as I write this
Friday evening, Louis Rukeyser is ripping us bears in his oh so
smug way .

If you have been reading my reports for the last year or so, you
know my problem has always been valuations. With the vicious
bear market in the Nasdaq, some rationality was beginning to
return and, despite the rally of this week, there is no doubt that a
large part of the action in the Nasdaq between November and
March of this year was a Ponzi scheme. That bubble in Internet
and biotech stocks has burst and you will not see all-time highs
in the vast majority of those stocks for years .

What we saw this week was a spectacular return to a Nifty 50
type environment, led by the traditional leaders; Cisco, Oracle
and Sun Micro. And folks, after this week we are heading right
back into trouble. At $64, Cisco is once again at a 100 multiple
based on 2001 earnings estimates plus now you have an
economy that is slowing.

So yes, it’s also back to Value vs. Growth / Momentum
investing, with momentum players having carried the day last
week. However, we will not see the all-time high of 5048 in the
Nasdaq again this year .

Finally, how can you respect a market where baseball slugger
Jose Canseco appears on CNBC Friday morning, shows the
world how ignorant he is, and then bubblevision chimes in at the
opening, “China.com is up. You heard Jose Canseco talk about
it!”

[Note: The yield curve was inverted back then 2-year Treasury
6.51%...10-year, 6.15%]

Former Columbia professor Jacques Barzum, now 92, has
written a book, “From Dawn to Decadence: 500 years of Western
Cultural Life.” Its premise is that our current culture has become
“particularly restless, for it sees no clear lines of advance.”

Returns for the week 5/29-6/2 amazing

Dow Jones +4.8%
S&P 500 +7.2%
S&P MidCap +9.7%
Russell 2000 +12.2%
Nasdaq +19.0%

6/9/00

[Quiet week compared to the prior one. Nasdaq did rise
another 1.6% to 3874.]

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

George Bush leads Al Gore 44-40.

6/17/00

[Another quiet week.]

Economic data for the week continued to foretell a slowdown in
the economy as figures for retail sales and housing starts were
down.

Syria’s Hafez al-Assad died.

6/24/00

The media would have you believe the situation in the oil patch
today is of crisis proportions. Ha! You want to see a crisis?
[Crude closed at $32.25.]

I’ve said it before but it bears repeating. We are one spoiled
nation and, regarding the prices at the pump, we have only
ourselves to blame .

if the world economy continues to crank, $30 could easily be
the average for some time to come .

While Gore, Clinton and the rest of the administration whine and
moan, the American people should be pointing the finger at them
for a failed national energy policy .

Back to stocks, the market continues to be priced for perfection.
But by mid-week, with the Nasdaq back over 4000, something a
little different began to occur. As market bellwethers like Cisco,
Oracle and Sun Micro approached levels not seen in months,
suddenly a few analysts began to act rationally. “Sure Oracle is a
great story but it is awful pricey.” And so the generals backed
off by week’s end.

--Amazon fell to $34, off its all-time high of $112. EBay hit
$54, off its high of $127.

[NBC News / Wall Street Journal had Bush with a 49-41 lead
over Gore.]

Tiger Woods won the U.S. Open by 15 strokes! “(What he did)
is sort of like winning a presidential election with 90% of the
popular vote.” –John Feinstein

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

7/1/00

[All this time, there was much talk on the Microsoft anti-trust
case and, this particular week, the mapping of the human
genome.]

For the 4th straight week, the Dow Jones finished with less than a
2% move, up or down, as it closed at 10447. The Nasdaq closed
at 3966.

The Federal Reserve, as largely expected, held the line on
interest rates and, in their statement, said that signs of a true
economic slowdown were still “tentative.”

--Amazon.com’s Jeff Bezos was all over the airwaves, trying to
reassure investors that Amazon wasn’t about to run out of cash.
[The title of an article in Business Week was “Can Amazon
Make It?”]

--It’s now been exactly a year since the Fed started hiking
interest rates. Since then the Dow has lost 5%. Nasdaq has
soared 48%.

[I noted an article by the Wall Street Journal’s Daniel Pearl on
Saudi Arabia. Pearl would later be killed in Pakistan.]

--In Kenya, elementary school students rioted, stormed a beer
truck and drank all the beer. [Source: New York Times]

7/8/00

Times are good right now in America. If you are a regular
reader, then you shouldn’t be surprised that I also feel this is the
quiet before The Perfect Storm.

It’s possible we may be able to slide by for another few years
before we are faced with a real foreign policy crisis. But, in the
grand scheme of things, what does it matter if we have 2, 4 or
even 6 more years of relative peace and tranquility? We will
eventually have to pay the piper unless some outstanding
diplomats emerge.

Anti-Americanism is spreading and rapidly .

Increasingly, foreigners see us as an unchecked, runaway power.

[A lot of this commentary had to do with the debate over a
national missile defense.]

The Dow Jones has been stuck in a narrow trading range of
10300 to 10700, while Nasdaq really hasn’t moved much since
that big 19% move six weeks ago.

For the 5th straight week the Dow finished up or down less than
2%, this time up 1.8% to close at 10635. The Nasdaq finished up
1.4% and now sits back atop the 4000 level, at 4023.

French farmer Jose Bove inflicted $110,000 of damage on a
McDonald’s.

President Clinton has never gone before the American people to
explain why the U.S. and Britain have been bombing Iraq for the
past 18 months. We are masking the fact that it has now been
almost 20 months since we had inspectors on the ground there.
So we participate in this shell game, thinking we can keep
Saddam on the run. Sometimes it works. But you’d think we’d
have learned our lesson by now. There is no substitute for
Humint (human intelligence) on the ground.

7/15/00

Announced earnings came in strong and there is no reason to
believe that what we will see on this front the next few weeks
won’t be positive as well .

technology shares got a huge boost from Yahoo! when the
company reported earnings that were 2 cents better-than-
expected. The stock had traded as low as $100 on Tuesday but
closed the week at $128. [Earnings estimates by one analyst were
raised to 60 cents a share for 2001. You do the math, re: P/E.]

JDS Uniphase purchased fellow fiber producer SDL for $41
billion. [This proved to be one of the worst deals in history.]

It’s now been 3 months since that terrible Friday in April (the
14th) when the Dow Jones closed down 617 points and the
Nasdaq lost 355 (9.7% for the day).

Since then the Dow has risen from 10305 to 10812 (5%) while
Nasdaq has gained 28% in climbing from 3320 to 4246.

So let’s look at some selective Nasdaq issues and see where they
stand compared to their all-time highs. The first number is the
record mark. The second, Friday’s close.

Cisco ($82-$68)
Sun Micro (106-95)
Oracle (90-76)
Intel (145-146) *Intel hit a new high of $147, intraday, on
Friday.

Qualcomm (200-63)
CMGI (163-46)
Commerce One (165-70)
FreeMarkets (370-55)

Amazon.com (112-43)
eBay (127-61)
Yahoo! (250-128)

The point is, leaders like Cisco and Sun have recovered nicely.
But most of the highflyers that will go down in history as being
part of the great bubble of ’99-’00 have a long way to go before
seeing their highs again. And, in all seriousness, we should be
encouraged that the carnage of the spring did serve a useful
purpose, that of instilling some form of rational behavior .

Meanwhile, at weeks’ end the bond market was not as excited as
their equity brethren. They focused more on the fact that retail
sales were stronger-than-expected, as well as the surprise pickup
in consumer confidence .

--First line in an AP story this week: “Creative accounting
techniques are adding to the difficulty of evaluating the financial
health of technology companies, analysts say.” Just as long as
XYZ beats consensus by one penny, that’s all that matters.

-- CNN’s “Moneyline” reported on Thursday that a Salomon
analyst received death threats for downgrading some
semiconductor issues.

[I had been writing a ton about energy this particular year.]

Even energy bulls like me want the price to retreat to the mid-20s
so we can start to develop some stability. If the price stays in the
$30 range, eventually it would begin to impact world economic
growth and Federal Reserve policy in this country.

Rick Lazio and Hillary Clinton were locked in a dead heat for the
New York senate, 45-45.

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We’ll continue the story next time. And in two weeks the story
of Bre-X.

Brian Trumbore

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