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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.

---

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.

---

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.]

---

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.

---

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?

---

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.

-------

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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-09/09/2005-      
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Wall Street History

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.

---

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.

---

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.]

---

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.

---

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?

---

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.

-------

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