Jack Perrine's RAP for Today March 7, 2000
(Snippets from the long article which follows)
"One of my long refrains in the Rap has been that stocks go down faster than they go up. I'm constantly getting email from people who say that isn't possible because look how fast they've gone up. Well, my warning to you is that is exactly the point."
“Technology and fantasy stocks continue to be where the action is. We will know that we are rapidly on our way to a crash as soon as these stocks reverse and start going down for real.”
“Today was another very serious shot across the bow, and folks who ignore it are going to regret having done so as we proceed down the road.”
"It's about time for people to become adults and stop talking about this fantasy..... It's my strong belief that what we saw on the back of the P&G (Proctor and Gamble) nanosecond panic was definitely a harbinger of things to come."
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Jack’s RAP for Today March 7, 2000
U4ians demonstrate strength of denial
As I mentioned yesterday, as jaded as I've become about Alan Greenspan and the Fed, I was shocked to read Greenspan's speech yesterday. I think that folks who are placing total confidence in him and assuming that he is perfect and will ensure their riches, are making a mistake.
As such, I have put together a piece, "Alan Greenspan, Friend or Foe" that illuminates some of his past foibles. It's an attempt to balance the deification of Greenspan by Wall Street, the press and Congress. Forewarned is forearmed.
(THE GREENSPAN ARTICLE POSTED SEPARATELY)
The first hour today was truly a sight to behold. Proctor and Gamble pre-announced that its earnings would be below expectations. The company cited such "old economy" problems as the prices of many raw materials up, like pulp and energy, and the stock wound up trading down about 35 percent in the first half an hour. The Dow was quickly smashed for about 300 points. Meanwhile, at the same time period, the Nasdaq was narrowly trading up to 5,000.
What happens when tech turns?... We had a brief period right after the Nasdaq touched 5,000 and the P&G news was being felt, where it was very clear how the market could potentially vapor lock when this starts happening to tech stocks. If Proctor and Gamble can get beat for that much overnight in one trade after it was already down some on the year, what do we think will happen to some of this techno trash when it turns? After all, Proctor and Gamble is a real business; most of this other nonsense is just pieces of paper.
One of my long refrains in the Rap has been that stocks go down faster than they go up. I'm constantly getting email from people who say that isn't possible because look how fast they've gone up. Well, my warning to you is that is exactly the point.
Time for return to (not virtual) reality...For those who think that there is really is a new economy-old economy story, and don't recognize that for the rationalization that it is, let me ask you this: Do you expect to be able to just log on to some Web site and be able to brush your teeth (for free, of course) or do you use a virtual Kleenex to blow your nose? Ladies and gentlemen, if Proctor and Gamble and every other "old economy" company are having problems, who do you think buys all this nonsense that goes into the "new economy?" It's about time for people to become adults and stop talking about this fantasy, and just recognize it for the rationalization that it is. It's my strong belief that what we saw on the back of the P&G nanosecond panic was definitely a harbinger of things to come.
Biotech just more of same... I'd like to point out is that I've had very little to say about biotech. I believe that it is an extension of the mania in all things optical, Internet related, etc., largely because there's a huge imagination component, which is what has been required to power stocks. Having said that, I've long preferred biotech to hardware tech because other than the burn rate issue, it's a much better business. After all, once you get a product through the FDA you've got the market more or less to yourself for a while. So there's really no point in commenting on the fact that biotech stocks are up even more than semiconductor stocks, as it's just an extension of the same nonsense.
As soon as the decline in P&G and the Dow was arrested, we had a violent rally in technology in no time at all. Some of the favorites were going crazy: Micron was up 10, ECM was up 10, Rambus was up 23 and the Sox was up 3 percent. Internet stocks were also firm, although they didn't quite have the luster that they had in the early going. All in all, the first couple of hours were truly ones for the record books.
U4ians unfazed... After we had the slingshot move up in tech, the Dow and S&P resumed their drifting. But for the better part of the day, the sell-off in that market was ignored as the u4ians, the rabid cousins of the bubbleonians, were heavily into denials. To quote the famous line from the movie "American Beauty," never underestimate the power of denial, which definitely is the u4ians' battle cry. (And not to be confused with the battle cry of the bubbleonians, which is "What me, worry?")
With about a half an hour to go, the Dow was down nearly 400 points and the Sox was still up a couple of percent on the back of Micron being up 9 and Rambus being up about 40. The day's sell-off ultimately weighed on the tech tape, as it came in going into the close and finished on its lower levels. But having said that, the Nasdaq composite was down a whopping 1.2 percent, the Sox was up a percent and a half, the Morgan Stanley High Tech index was barely down a percent, the Nasdaq 100 was down about a percent and a half. There were plenty of positive numbers all over the tape, not the least of which was Network Solutions' $14 billion stack of wampum. Of course, prosaic stocks were sold across the board - hard. For example, the bank stock index was hit for 4 percent.
Technology and fantasy stocks continue to be where the action is. We will know that we are rapidly on our way to a crash as soon as these stocks reverse and start going down for real. At some points, all of the bulletin board stocks will resemble Proctor and Gamble, only they will go down even more. Today was another very serious shot across the bow, and folks who ignore it are going to regret having done so as we proceed down the road.
In other action... In the early going, the Treasury came out and announced its long-awaited buyback; it's going to buy back a billion dollars worth of 30-year paper. Before you get too excited about this, that is the definition of a rounding error when you figure out that it's 2/10 of 1 percent of the national debt. It is a step in the right direction, however.
No stopping the insanity... As the stock turmoil started to heat up this morning, the metals caught a bid. On the day, silver was about flat but gold was up a couple of percent. Oil continued to go nuts, up $1.95, closing at a little over $34. As oil went bonkers today, Bubba couldn't help getting on the tape and blamed artificial decisions for boosting the crude price, which is a complete joke. The reality of the situation is, the plan to reinflate the world has gone haywire, and now the White House, the Treasury and the Fed have no idea how to stop the insanity. The "artificial decisions" were made by the G-20 in flooding the world with worthless paper in the last 18 months.
Bonds in waiting... The bond market was fairly sanguine about this action, mostly because bond geeks are betting on a stock market crash. I guess one of the questions before the house is, will the bond geeks get paid on their stock market crash bet, or do bonds have to get wailed on a bit more first? We will have to see.
In the mania chronicles... My friend Colin Negrych sent me this email this morning:
"I just went downstairs for a smoke and was approached by the uniformed doorman at the Takashimaya Department Store. He wanted to know if he should stay with the Janus Fund or pick his own biotech stocks because he was concerned Janus might be too conservative, given he has only $1,800 a year to invest and only five years until retirement."
The most amazing chronicle ever?... A reader sent in what just might possibly be the most sensational mania chronicle so far, although it's really hard to find the actual, number-one showstopper:
"A friend of mine who is a computer software consultant has decided not to pay his quarterly taxes to the Feds and put it in the market instead. He says the penalty is only 9 percent and he can beat that easily in the stock market. He has it all in Rambus. Should be an interesting ride from now to April 15. Wonder how many other people are doing this?"
Please be sure you've read "What is the Market Rap?" before you send me e-mail. As highlighted in this outline, there are certain questions to which I am unable to respond.
William A. Fleckenstein, special to Silicon Investor.
Disclaimer:
William Fleckenstein periodically publishes columns expressing his personal views regarding particular securities, securities market conditions and personal and institutional investing in general, as well as related subjects.
Mr. Fleckenstein is the President of Fleckenstein Capital, which manages a hedge fund in Seattle, Washington. This fund regularly buys, sells, or holds securities that are the subject of his columns, or options with respect to those securities, and regularly holds positions in such securities or options as of the date those columns are published. In particular, this fund regularly holds short positions in such securities as of the date those columns are published. The views and opinions expressed in Mr. Fleckenstein's columns are not intended to constitute a description of the securities bought, sold, or held by the fund. The views and opinions expressed in Mr. Fleckenstein's columns are also not an indication of any intention to buy, sell, or hold any security on behalf of the fund, and investment decisions made on behalf of the fund may change at any time and for any reason. Mr. Fleckenstein's columns are not intended to constitute investment advice or a recommendation to buy, sell, or hold any security.
Mr. Fleckenstein is also a Director of Go2Net. The views and opinions expressed in Mr. Fleckenstein's columns are his alone and not those of Go2Net or of its subsidiary, Silicon Investor. Go2Net and Silicon Investor disclaim all responsibility for Mr. Fleckenstein's views and opinions.
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Index Close Change
Dow9,796.03 -374.47
S & P 500 1,355.62 -35.66
Nasdaq Composite 4,847.84 -57.01
Nasdaq 100 4,390.83 -66.35
Russell 2000 595.46 -6.18
Morgan Stanley Index 422.65 -23.71
Sox Index 1,263.74 +19.95
Bank Index 654.79 -22.45
XAU Gold & Silver Index 62.79 +3.97
Dow Transports 2,263.59 -112 1/2
Dow Utilities 279.99 -0.81
30-year Treasury Bond 6.14% 0
