*** Quick...hold up a cross...drive a stake through its
heart...the Big Techs refuse to die...
*** Soft landing gets softer...'new orders' slip for 4th
month in a row...
*** The euro gets airborne, investors 'clueless'... Bernie
Ebbers' stock gets hammered...Cramer expects 'the positive'
to happen...the wind howls and the cows bellow...
*** Tech stocks came back to life on Tuesday...but quick-
thinking investors drove a stake through their heart less
than a day later.
*** Wednesday, two things came out. First, Bernie Ebbers of
Worldcom provided the stake - by announcing that sales were
weakening. Then, the National Association of Purchasing
Management produced the hammer - reporting its monthly
figure for the manufacturing sector. For the 3rd month in a
row, the index was down. Only once in 53 years has the
index diverged from the rest of the economy, says Caroline
Baum, a columnist on Bloomberg.com. "As manufacturing
goes," she says, "so goes the nation."
*** The NAPM said that new orders slipped for the 4th
consecutive month. And "even high tech isn't growing as
strongly as everybody thinks," said Norbert Ore of the NAPM
group.
*** So the 'soft landing' is believed to be getting even
softer. The Fed's Beige Book said it sees "slowing growth
in some areas." The typical investor thinks he can feel the
tires on the runway. He's ready to get up, stretch his
legs...and get back to the business of growing at a
'sustainable rate,' as the Fed puts it.
*** If it were only that easy! How nice it would be if we
could all just ease off on the pedal of life a little and
go on living forever. Wouldn't it be nice too, if the heat
of summer could just give way to the cool evenings of
autumn? Why does winter have come, too?
*** The Dow dropped 71 points yesterday. The Nasdaq fell
36.
*** Worldcom fell 20% to $18. As recently as July it was
over $50. Another telecom supplier, Altera, lost 19%. The
North American telecom index fell 4.5% yesterday.
*** You may remember that Worldcom's CEO, Bernie Ebbers,
received the 'margin call from hell' a few weeks ago.
Ebbers bought his own stock on margin...and then, when the
stock went down, had to sell shares in order to cover the
margin call. He seems to have made the same mistake as
IBM's directors. Though they bought what they knew best -
they forgot the cardinal rule of investing: but low, sell
high...not the other way around.
*** There were about the same number of stocks going up
yesterday as going down. And not much difference in new
highs/new lows either.
*** "We're closer to clueless than any other spot in the
knowledge spectrum," said Jim Weiss of State Street
Research, quoted by the NYTimes. Weiss refers to the
confusing indicators and stock market movements of the last
few days. But investors are almost always clueless. That is
why it is so important to stick to the basic rules of
ignorance: buy low, say please and thank you... and never
have an affair with an IRS agent's spouse.
*** AT&T lost another $1 to close at $22.
*** The current generation of investors seems to think it
invented technology...just as each new generation thinks it
discovered sex. And yet, writes Christopher Byron, "An
entire generation of companies that was once thought to
stand at the absolute pinnacle of technological achievement
and possibility are being consigned by Wall Street to the
ash heap of history."
*** Byron refers to companies such as Kodak, Xerox, AT&T
and Polaroid. Kodak is down a third since August...Xerox is
down 70% from a year ago, and Polaroid has half the market
cap it had in 1995. Polaroid's revenue is unchanged from 10
years ago...and it's trading at less than 7 times earnings.
Good companies? Cheap? Maybe.
*** "You can hardly have $6 billion in revenues and do
worse than Eastman Kodak has lately," writes Lynn
Carpenter. Kodak is a "don't-touch-it-with-a-10-foot-pole
stock" says Lynn, which "naturally, piques our contrarian
interest." Since writing about the company for the November
issue of Fleet Street Letter - just last week - the stock
has already jumped 20% to $43. But, "you could buy this
stock all the way up to $53 and still have room for double
digit returns." Kodak is selling at a P/E of 6.9... and
pays a dividend of 4.8%...and has recently been placed on
the buy list of a big, institutional value player. (see: It's A Kodak Moment: Snap It Up)
*** Well, the 'flightly' euro seemed to take the air
yesterday - rising 1.5%. The steadfast dollar seemed loaded
with too much freight - the dollar index dropped sharply on
the NAPM news. Why does the dollar matter so much? And when
will investors meet their Waterloo? More below...
*** "As you know, [Amazon] has floated $2 billion (that's
US dollars) in bonds," says Jonathan Poe, at the META
Group, by way of Bethany McLean and Money.com. "The bond
market has been steadily bidding down the value of those
bonds such that the call value is now 52 cents to the
dollar, (very much junk status) which means that bond
traders think that Amazon will default on its bonds before
2008! The rate of return on Amazon bonds is currently
16.5%... if you are an investor, and believe what the bond
market is saying, you should sell your Amazon stock..."
*** The All Saints' service went as expected yesterday.
After the service, people went to the graveyard, as is
customary, to pay their respects to the dead. Cemeteries
are amusing, sentimental...even mauldlin places. Many of
the gravestones included photos of the dead, encased in
plastic or behind glass. One showed a man with a fishing
pole. Someone had placed a quote from a psalm on the tomb.
I did not stop to read it, but hoped it was something
appropriate, such as "Thy rod and thy staff comfort me."
Another sported a photo of a Byronesque young man who died
in 1931.
*** But the weather seems to get worse and worse. The wind
is howling this morning. It rains episodically. The cows
bellow as if they see a butcher creeping through the woods.
*** Red Herring reports that venture capital investors are
getting edgy too: "Underwriters have quietly begun entering
special provisions into company prospectuses that allow
insiders to sell a portion of their position in a company
prior to the standard 180-day lock-up period. This new
banking device is called an early lock-up release, and it's
popping up all over the place. Aclara Biosciences, via
Deutsche Banc; Avici Systems, via Morgan Stanley; and two
Goldman Sachs clients, ONI Systems and Sonus Networks, have
all recently structured pre-180-day lock-up provisions into
their Securities and Exchange Commission-required S-1
filings."
*** But James Cramer of TheStreet.com is still thinking
positive: "My thinking has been and remains that unless we
get an improvement in the fundamentals of tech or we get a
Fed bias to easing, we can't break out of these ranges that
are being established every day. If we get a further
deterioration of the fundamentals - as defined by slowing
PC growth, lower wireless sales, less capital spending by
telecoms, and no respite from the awful bond market - then
we could break to the downside.
"But if we get the fundamentals to stabilize and the Fed to
become more lenient, then we have a chance for a marvelous
break to the upside. You know me. One of my rules is that
with the market, what needs to happen positive tends to
happen. I am becoming more and more convinced that we are
on the right path for a breakout to the upside."
*** Yes, the positive tends to happen in a bull market...
but in a bear market what tends to happen is negative.
Several top geologists quit big firms, and start out on
their own. The new stock pays 100%-2,000% a year. But As
usual...
Nobody Notices The Good News Until It's Too Late.
Early investors make all the money before Wall Street even
gets wind of the deal. The pattern is repeated. Again, and
again. With the right tip you could have bet a whole lot
less than the ranch - and still made a killing. For
reliable hands-on intelligence - and your shot 1,000% gains
in stocks ignored by Wall Street:
(http://www.agora-inc.com/reports/CRIS/MakeMoneyinAsia)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Socialist President of France, Francois Mitterand,
describing, with contempt, how investments work
As recently as three months ago, it was widely believed -
including by your author - that the end of the Tech Bubble
would also mark the end of the broader illusion that you
can get rich without effort or sacrifice.
But instead of going down with the Nasdaq, in recent weeks,
the Dow has moved in the opposite direction. When the Techs
get hammered down...the Old Economy stocks tended to bounce
up. Ordinary investors are taking the destruction of
technology casually, as they did the destruction of the
previous market leaders - the dot.coms.
Why?
Apparently, the appeal of the stock market runs much deeper
than the dot.coms, the Big Techs or the Biotechs. Stock
after stock...sector after sector...may get killed. But
investors still have faith. Not just faith in the bright
shining star of stock market wealth...but in the whole
constellation that includes the Fed, the dollar, Alan
Greenspan, and the U.S. miracle economy.
When will the faith be destroyed? I asked Dr. Gary North
recently in an e-mail.
"Dow 2000." was his terse reply.
Of course, I don't know if the Dow will descend to 2000...
or not. And Gary may have been exaggerating to make his
point.
But investors will not give up on the dream of easy money
readily. They will only give up when the dream becomes so
expensive they can no longer afford it. When and how that
will happen is the subject of today's letter.
Collective thinking is remarkable in that it can turn
around in a second...but it can also be almost unbelievably
tenacious.
"Crowds identify themselves with one or several leaders,"
Marc Faber wrote in his October issue, "and with an idea."
In "The Greek Way of War," author Hansen explains that the
leader of a group of soldiers went into battle in front of
his men, rather than behind them, as is now the custom. The
leaders of the losing side almost always died in the
battle. And a Greek phalanx, seeing its leaders cut down,
was much more likely to break ranks and retreat. In just a
few moments, the psychology of the entire group would
change - from determination and optimism to complete
hopelessness.
The difference between the German army's collapse in 1918
and its fight to the bitter end in 1945 was essentially a
difference in leadership. Sigmund Freud argued that the
German masses were emotionally connected to Hitler,
Goebbels and the rest of the Nazi leadership in a way they
never were to the Kaiser. When the going got tough in 1918
- the Germans did the reasonable thing, they gave up and
made peace. But when the going got very tough in 1945, the
Germans just kept fighting - even though the situation was
hopeless.
Technology has been the stock market leader. Perhaps some
investors are emotionally attached to it and disheartened
by the setbacks it has received. More likely, most
investors have their eyes on a different leader: the dream
of getting rich in stocks. 'Technology' is merely a
conveniently vague rationalization for why it is possible.
As noted above, technology has been with Homo Sapiens from
the very beginning. But the current generation of investors
thinks it discovered it for the first time.
Now that the Big Techs are getting under fire, investors
are beginning to get nervous. They're asking questions. But
the questions only seem to go so far - wondering what the
tech companies really do, how many computers the world
really needs, how many miles of cable, how much a company
can afford to pay for a wireless license, how long an
investor should wait for a company to be profitable.
So far, I've seen no one question the fundamental belief
that all New Era investors share: that you can get rich on
stocks just by being 'in the market'. Historically, the
real rate of return from stocks is only about 5%. You can't
get rich at 5% - unless you live to be very old. Investors
believe they can do far better than that - with or without
technology.
So, the techs can blow up in their Silicon Valley
bunkers...and still investors will cling to the hope of
getting rich in stocks. It is the idea that they are
faithful to, not the current market leaders.
Which brings us back to what will ultimately destroy their
faith. Already, most investors - especially tech investors
- have taken losses. Many of those losses are just 'paper
losses' of course - because the wealth destroyed was only
on paper too. As one investor put it, "I've been investing
in technology since 1995 - I may have lost money in the
last 6 months, but overall, I'm way ahead of the game."
The game, however, is not over. My guess is that Mr. Bear
has not yet sent in his best players. Right now, out in the
bullpen, I can almost see one of his most under-rated
rookies warming up. Could it be? The euro? He wouldn't put
this green, farm league loser into such a big game, would
he?
Ah yes, dear reader, I tried to warn you. Once again, I am
going to air my view that the dream of easy wealth in the
stock market rests on a footing of dollar bills. That
footing, contrary to mass thinking on the subject, is much
less steadfast than people believe.
"It remains our conviction," writes Dr. Kurt Richebacher,
unintentionally speaking for both of us, "that the greatest
threat to world economic and financial stability is the
dollar's impending collapse." (see: The Secret Fear)
And more on that tomorrow...
Your steadfast correspondent,
Bill Bonner
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Last modified: April 01, 2001
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