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Wall Street History
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09/09/2005
September 2000, Part III
Wrapping up our look at the fifth anniversary of a major market top, Sept. 1, 2000, we continue with selections from my “Week in Review” archives that help capture the mood of the times.
The markets embarked on a five-week winning streak before peaking on 9/1, at which point it was all down hill until Oct. 2002.
[Reminder: What follows are all quotes from the pieces I was writing at the time. Sometimes I got it right, sometimes I didn’t.]
8/5/00
“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
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 ecommerce 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.
Meanwhile, it was a solid and volatile week for the Street. The Dow Jones rose 2.4%, its best performance in 2 months, to close at 10767. And the Nasdaq staged an impressive turnaround to tack on 3.4%, with the average now at 3787 .Big cap names like Cisco, Sun Micro and Oracle rose 10-15% from their Thursday morning lows, just when it looked as if the leaders were totally breaking down. Cisco, in particular, was dropping because of rumors next week’s earnings report would be a little on the light side. I imagine they’ll once again do just fine, but the day that Cisco does finally fall short is one no technology investor ever wants to see.
Lazlo Birinyi has been as good a market forecaster as there has been during the past 10 years. And, unlike Abby Cohen who just inches her targets up a little at a time, Birinyi deserves credit for having set bold ones, and then being right.
So when Lazlo talks, you all should listen. This week, on a CNBC appearance, he turned decidedly cautious, calling for a “subdued bull market,” i.e., the easy money has been made for some time to come .he also brought up a fascinating statistic.
For those of you who follow the market during the course of the day, how many times have you seen big early moves, followed by lethargy for the balance of the trading session? Well, Birinyi has done a study quantifying this trend which shows that if you took out the first half hour in the Dow Jones, the index would be 35% lower! ....
Now there are good reasons for this, the chief one probably being the influence of foreign investors who place their orders at the first opportunity, as well as our own institutional money managers who act based on their cash flows from the preceding day. And lastly you have the influence of momentum players.
8/12/00
Frankly, the news scene has been a little light but there were some rumblings from overseas that warrant concern
This past spring there was some cause for optimism in Iran as reformers won a parliamentary majority in an election that appeared to be remarkably free of major fraud. I said, though, that it wasn’t time to pull out the party streamers and, sure enough, there was some troubling news this week as the Islamic hard-liners who are still in real control shut down the last reform newspaper, making it 23 such publications since April that have suffered this fate .
Saddam emerged from one of his bunkers this week to blow off some steam against the leadership of the Arab world and, second, to welcome Venezuelan President Chavez.
I warned long ago that Hugo Chavez was bad news. Now everyone else knows. Chavez became the first democratically elected leader to visit Iraq since the Gulf War. Saddam jumped for joy. Two dirtballs in the desert.
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The Dow Jones busted through the upper end of its trading range in impressive fashion this week, closing above the 11000 mark (11027) for the first time since April 25. Strong figures for productivity and a tame report on producer prices solidified the case of the soft-landing adherents once again, and most experts are in agreement that the Federal Reserve will hold the line on interest rates when they convene August 22 .
The bond market lapped it up, on the longer end of the curve, as the yield on the benchmark 10-year U.S. Treasury bond hit 5.78%. Since mortgages are pegged to this rate, it could signal a revival in homebuilding .
Cisco Systems and Applied Materials could not have been more bullish in their comments following earnings reports which beat the Street. But their stocks, after an initial bump up, fell back. Pray tell, whassup? Rational behavior?
It certainly appears that way. Cisco’s glowing report on future prospects had some analysts raising 2001 earnings estimates to $0.74. Cisco ended the week at $64. At $74, the P/E is 100 on next year’s earnings. And it’s that realization that is undoubtedly holding some investors back.
And then there was Dell, falling short of its revenue target while beating the Street’s earnings forecast by a penny. The market slammed it to the tune of $4 on Friday.
Yes, when you have a market priced for perfection, and perfection is seen to have its limits, it’s tough for the Nasdaq to find legitimate reasons why it should rise to new highs. It sits at 3789, 25% off its record of 5048.
[Ed. note: I was writing a lot about energy these days and for the record, presidential candidate Al Gore was slamming Republicans, as in the following assessment of their convention.]
“Behind the flashing video wall is an agenda of rising gas prices and smog-filled skies that is of Big Oil, by Big Oil, and for Big Oil.”
Go back to your economics textbooks, Mr. Vice President. It’s called supply and demand. And seriously, this administration has done nothing to raise fuel efficiency standards on SUVs for 8 years.
8/19/00
[Ed. note: How a world leader handled tragedy this week.]
“When it is a matter of life and death, admirals, generals and state officials simply must not lie, cheat and think about their careers it is blasphemy.” --Russian newspaper editorial
It was a horrible week for Russian President Vladimir Putin and, most importantly, the Russian people.
The Russian submarine Kursk went down last Saturday, the military didn’t announce the fact until the next day, and Putin didn’t interrupt his vacation to say one word about the tragedy until Wednesday.
From another Russian editorial:
“Why on earth did (Putin) think it was possible to keep mum for 5 days, when the entire nation has spent those days consumed by only one thought – will they be saved or won’t they?”
Putin was more concerned with saving face than saving lives.
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Wall Street
I’m not going to create news where there was none. It was dullsville on the Street. And I don’t care where you live, you know the feeling. It’s easier to find parking spots, the lines at the barber shop are shorter, it’s vacation time.
--Some Internet issues like Amazon and eBay rallied this week for no real apparent reason. Amazon’s Jeff Bezos ran around showing Wall Street analysts that he really did have some cash left in his wallet. That seemed to reassure some investors. I prefer to think of the rally as a dead cache bounce.
--Microsoft’s Windows 2000 or ME is officially being rolled out in September. It is not a “must-have” upgrade.
Technology Debate
From the 8/28 issue of Business Week, here are some opinions from two tech titans.
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: Are we in the midst of a second Industrial Revolution that will lead to vast changes in the way companies are managed?
Grove: I don’t think we are seeing a phase transition like ice turning to water It would (be useful) to go back and ask if the railroads changed the world.
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.
8/25/00 posted a little early
If you’re an oil trader, you probably got nauseous this week from all of the ups and downs. And whereas last spring and early summer I mocked those who complained about paying a few extra bucks at the pump just one year after record low gasoline prices and I also said that it would have little impact on the overall economy today, I’m not so sure about the impact in the future.
Folks, let’s see if I can sum up the dilemma. If the world economy continues to grow, that very growth could eventually be stopped right in its tracks by stubbornly high, or soaring, energy prices.
This week President Clinton made the statement that, gosh darnit, oil should be in the low $20s.
Well, gee, Mr. President. How do you accomplish that?
Why, Mr. Trumbore, you should know that the way you bring the price down is to increase supply.
But where are you going to find the extra supply?
Why Saudi Arabia, of course.
But they are facing all kinds of internal pressure from within OPEC not to help us. And even if they do come through, who else then?
Ahhh .
[Ed. note: Yes, it was a different pricing environment five years ago, but the essential debate hasn’t changed.]
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What I am watching are some of the technology bellwethers. At $67, Cisco is still well off of its all-time high of $82 set last spring. And at its current price, it still trades at a 90 multiple based on 2001 earnings estimates.
But while Cisco stumbles, Sun Microsystems has been on an incredible roll, and at $127 now carries a 97 P/E on 2001 estimates (which were recently jacked up). It bears repeating; no one is questioning the quality of these corporations. I just can’t build a case for issues with these valuations, especially if, as some of the economic indicators of the week proposed, the economy is truly slowing .If earnings continue to decelerate, it’s awfully tough to label these stocks screaming “buys.” And yes, Virginia, this past spring proved valuation matters.
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Iraq: The new U.N. weapons inspection team is almost ready to go in. Unlike the previous ones, which were dominated by U.S. and British inspectors, this one has representatives from 19 nations, all accountable to Secretary General Kofi Annan.
So we all know the drill. Saddam won’t cooperate and then the U.N. Security Council will have to decide how to respond. I imagine the will to fight is virtually non-existent. But we have an election coming up in this country. What will Bill do? What will he do?
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Post-Democratic Convention polls:
Newsweek, 48-42 Gore CNN / USA Today, 47-46 Gore Voter.com / Battleground, 45-40 Gore ABC / Washington Post, 46-44 Gore Reuters / Zogby, 44-41 Gore
[Just two weeks earlier, Bush was leading the same polls by anywhere from 6 to 19 percent .many American women seemed to love “the kiss.”]
But, unlike many of the polls and pundits, I have consistently maintained this race is going down to the wire and it’s going to be won or lost, state by state.
[Ed. note: Not bad, eh?]
9/4/00
[Ed. note: I was in Ireland this particular week.]
You have to forgive me for being very brief I didn’t have much time to track down Wall Street stories, but the wealth effect is clearly being felt worldwide.
While the Dow Jones rallied 0.4% to close at 11238, Nasdaq continued its remarkable comeback, gaining 4.7% to end the week at 4234. Nasdaq is now back into positive territory for the year.
The news on the economic front was good, again, if you are from the soft landing crowd. Manufacturing activity has slowed considerably with factory orders in July plummeting. The latest employment report showed a decline in non-farm payrolls and consumer confidence slipped. Most market players are now convinced the Federal Reserve is finished raising interest rates for the balance of the year. I say, not too fast, mainly because of stubbornly high oil. To be fair, however, rising oil does act as a tax which helps to reduce consumption. And that’s what the Fed wants.
And suddenly, valuation figures on many Nasdaq issues are approaching levels last seen in the bubble of this past spring.
And then there is the case of Emulex and the hoax of Friday, August 25. 23-year-old Mark Jakob has been arrested for issuing a bogus press release saying Emulex’s profits would tumble. Wire services willingly picked up on the story and the stock fell 60% in a matter of minutes. Jakob was short the stock, sold his position when it tumbled, and then had the gall to buy on the upswing, as the SEC reinstated the initial share price when it discovered the release was fake. Jakob supposedly cleared about $250,000 for his efforts. Now he could receive up to 15 years in prison.
George Bush was struggling. Some quotes:
“Will the highways on the Internet become more few?”
“We ought to make the pie higher.”
--Osama bin Laden was behind a plot to blow up a nuclear reactor in Sydney during the Olympics. Australian police say not to worry when it comes to security at the Games.
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And that was the end of the winning streak and a key top was in.
September 1, 2000
Dow Jones .11238 S&P 500 ..1520 Nasdaq .4234
What have we learned since then? First and foremost, valuation matters. The next week, ending 9/8/00, the Nasdaq fell 6%, with Oracle losing $6, Cisco over $4, Intel $8, and high-flyer Juniper Networks $24. It was the beginning of the end.
Wall Street History returns next week .the story of Bre-X.
Brian Trumbore
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