There
are times when the mass of onlookers regard the glass as being half
full.....there are times when the crowd peers at the glass and believes it
is half empty....and then there are those times like the present when the
giddy masses look at the glass and are convinced that it is full but has a
spill proof lid--and it is during these times that, in retrospect, the
safest course of action has always been to run for the hills.
As Y2K week dawns, the worries are few
and far in between, and with little on this week's economic calendar that
the stock market will pay heed to, the short term direction is likely to
be up, up, and away.
Although the short term is more likely
than not to be more of the same and the crowd's perception of the future
is bright indeed, cynics that we are, we're not quite convinced that the
lid on that glass is really spill proof.
The mass acceptance of the perceived
wisdom that today's market buoyancy is possessed of immortality (a
condition some may call witless euphoric complacency) heads up our list of
post holiday trepidations. Troubling not only because it makes the
unsuspecting open targets for the unexpected, but troubling also because
those unflappable believers are sitting on a record mound of margin debt.
Now, there are other things besides
euphoria which also bothered us as last week drew to a close, and which
even after a hearty holiday dinner of curmudgeon stew, still trouble us as
this week begins.
Friday's record close by the Dow
Industrials caused us to lose a few winks of sleep over the weekend.
We lost sleep over the new record not because we were too overcome with
euphoria to sleep, not because we were worried that the record close
occurred with 13 of the 30 Dow stocks in long term downtrends and 55% of
all stocks in long term slides, but rather we lost sleep because it was
the psychologically important Dow that made a new high--an event that we
have previously said could give consumer confidence the extra nudge it
needs to rise to new record highs...
...and with a resumption of soaring
consumer confidence in the future, our old friend the wealth effect will
be right back in the thick of things, driving the consumer's urge to
splurge to a new level, which in turn will move the final needed resting
place of interest rates in this rate hike cycle that much higher.
While the Dow Confidence Effect will not
show up in tomorrow's consumer confidence numbers (although the lesser
S&P500/NASDAQ Comp effect will give the numbers an upward shove), it
could make itself felt in next month's numbers--just in time for the
digestion of a Fed that has made an acceleration in demand Public Enemy
#1.
As the century dwindles to its final
days, our worries are unchanged from the summer: euphoric market
speculation amidst an unfavorable interest rate environment which is
unlikely to become more hospitable until consumer demand eases and labor
market conditions slacken.
Although blowoff tops and bouts of
speculative mania can carry valuation levels far higher than expected, and
last far longer than expected, as this epoch of mania has, eventually
their end is triggered....
....with that in mind and annual
prediction time at hand, and believing as we do that this bout of
irrational complacency is drawing to a close, we'll leave you today with
three stocks we feel could depreciate 50% by the time 2001 rolls around:
American Express, Goldman Sachs, and Yahoo.
In the case of Yahoo, the stock's chart
defines the word parabolic, and with the 200-day moving average sitting a
few hundred points below at 180, we feel that Yahoo's shares could come
under a little pressure if investors infatuation with the word growth
eases, and investors instead attempt to quantify that growth. The
stock's market cap briefly surpassed the combined market cap of General
Motors and Ford on Thursday--two companies that had a combined $332
billion in revenues and $12.6 billion in profits over the past month,
compared to Yahoo's $465 million in revenues and $58 million in
profits. Now maybe we're missing something, but even with the
current rosy growth projections for Yahoo, the company's business (as
opposed to its market cap) is unlikely to reach the size of either GM's or
Ford's any time soon.
In the case of Goldman Sachs, business
is great and the times are rosy now, but with the company trading at a
premium to its peers in an environment of rising interest rates, what
happens if the current IPO market euphoria dies down and merger mania is
dealt a blow by a severe market correction? Historically, the time to buy
the brokerage stocks has been when all appears lost and industry profits
are slipping, not when the stock market is setting daily records and
industry profits are at a peak.
In the case of Amex, it's that
inhospitable interest rate environment once again (not to mention the
stock's premium P/E ratio) that makes us leery. Call us old
fashioned in our thinking, but it seems to us that eventually rising
interest rates will take their toll on anyone who issues credit cards and
doesn't have the luxury of passing these increases along to their
customers. Bank One's First USA unit and other credit card issuers
can raise the rates charged to customers, but there is no annual APR on an
Amex Gold or Platinum card. American Express shares are standing in
the line of fire of a Fed intent on slowing the consumer.
