In Today's Daily Reckoning:
*** Tech, tech and more tech...but the Big Techs are also
the "mother of all crowded trades..."
*** Another Darned Cheap Stock...
*** Al Gore on the difference between the sexes...and
more
*** It was tech, tech, tech yesterday. The big techs rose
- and took the indexes with them. The Nasdaq ended the
day up 79. The Dow, less sensitive to the big techs, rose
only 47 points.
*** "People are less concerned about interest rates going
up," said an analyst quoted by Reuters. 1552 stocks
advanced; 1264 fell back. The number of new highs was
once again impressive - 107, compared to just 32 new
lows.
*** The idea, forgive me for sounding like a nag, is to
buy low and sell high. It's hard to do precisely because
people tend to do the opposite - getting excited about
the latest technology or market trend...crowding into
positions that seem like 'sure things'...and bidding up
prices to the point where they are unsustainably high.
*** Right now, Ray DeVoe refers to the Big Techs as the
"mother of all crowded trades." Fred Hickey (High Tech
Strategist), meanwhile, calls the Big Techs the "Nifty
Techies." The 40 largest cap stocks on the Nasdaq, he
figures, are valued at $3.24 trillion, roughly a quarter
of the value of the entire U.S. stock market.
*** These "Nifty Techies" have an average P/E of 230 -
excluding the 8 companies for whom earnings represent
merely a hope for the future. Also excluded is Juniper,
priced at 1,354 times its earnings.
*** Jim Stack (InvesTech Research) reports that "only 39
stocks account for 50% of the Nasdaq index, with Cisco
and Dell making up 12% alone...The other 4,319 stocks
make up the other half of the index."
*** And back to Mr. Hickey: "On average, the 40 companies
sell for 35 times book value and 50 times sales." Is that
high or low? Well, it's about as high as the Japanese
companies that peaked in 1989. The Nikkei Dow hit a high
of more than 39,000 and fell by more than 2/3rds. It has
yet to recover - stocks in Tokyo still trade for less
than half their prices ten years ago.
*** Kozmo.com decided to delay its IPO. Instead, the
Internet company - which is one of the firms backed by
Amazon.com - laid off more than 30 employees and decided
to "pursue profitability."
*** Another IPO, though, went ahead. People's PC filed to
go public at $12 to $14. Instead, it came out at $10 on
Wednesday and shares have been trading below $7.
*** Oil rose again - to just below $32. Gold rose too, by
30 cents. Platinum, though, fell $5.40.
*** While the Big Techs sport price tags that scream
"Sell," the world is not without its little voices
whispering: "buy me." In the present case, the voice is
probably saying it in Spanish. Grant's mentions the Banco
Latinoamericano de Exportaciones, otherwise known as
Bladex. It has an ROE of 15.2%. And fewer than 1% of its
loans are nonperforming, while it has more than 5 times
the necessary reserves to cover them. Bladex is selling
for only 5.4 times trailing earnings, 0.76 times book
value (which has been growing at a compound rate of 12.8%
for the last 5 years), with a dividend yield of 4.8%.
*** The Big Techs are the pampers of the marketplace -
absorbing whatever liquidity is around. Meanwhile, stocks
south of the border are as arid as the desert - and
cheap. And so too are many small caps right here in the
U.S.A. Merrill Lynch reports that about 25% of all small-
cap stocks can be purchased for less than 10 times
trailing earnings.
*** Our digital presidential candidate, Al Gore, on the
sexes: "...men and women are equal, if not more so."
*** But my friend, Michel, reports from his vacation in
another sleepy corner of France: "For the last month, I
haven't met a single person who ever heard of the 'New
Economy.' Instead of dividing the world into those who
are digital and those who are analog, a more appropriate
division would be between those who know what the
analog/digital discussion is all about...those who have
no idea what you're talking about...and those who could
care less."
*** Kathie Peddicord reports from her new home town in
Ireland: "Two unarmed men robbed a bank in Waterford
yesterday. They hopped over the AIB Bank counter in the
city center at about 3 p.m. and snatched a bag containing
"several thousand pounds," according to the Irish
Independent. They fled on foot.
"Bank workers gave chase," she writes, "and caught one of
the men. In the commotion, the robber dropped the bag and
20-pound notes fluttered through the air. Nearby shoppers
picked up what they could. Bank Superintendent Michael
McGarry said most of the money was recovered at the
scene, and more was handed back by passers-by."
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"It's the end of the world as we know it, and I feel
fine..."
R.E.M.
My dreams were troubled last night. I was pursued by a
Terminator-like creature, with the body of Arnold
Schwarzenegger and the head of Al Gore.
Surely our days are numbered. We are losing our niche.
Digital Man is faster, stronger...and smarter. And now,
with the Internet at his side, he gets smarter every
day...the little Os and 1s of the digital information
stream are pumped into his arteries as though he were
wired to a Cray mainframe.
Can anything stop him? A mutant form - he is better
adapted to the Information Age than we are. While
information floods my e-mailbox...swamps my desk...and
nearly extinguishes the pathetic little flicker of
cerebral impulses that we analog folks call 'thinking,' -
Mr. Digital Man seems to lap it up.
The chemical makeup of tootsie rolls, the train schedule
for the Paris to Bordeaux line, the actual lyrics of the
1966 hit song, "Louie, Louie" - he's got it all.
Computing power doubles every 18 months, says Moore's
Law, and Digital Man thrives on it.
Mr. Digital Man is clearly superior. He can connect to
the Internet from anywhere...and knows how to program his
VCR so that he can watch his favorite programs - perhaps
reruns of Star Trek and the Jetsons - whenever he wants.
He can even hack into the White House computer system and
get all the latest porno films without paying for them.
What's more, he never makes the mistake of getting out of
the tech stocks. He knows that the 'New Economy' has made
the business cycle, the credit cycle, and maybe even the
wash and spin cycles obsolete. Unlike we Analog humans,
Homo Digitalis, never panics...never backs away...and
never sells and never gets his clothes dirty. So, he is
able to enjoy stock prices that go up and up, with only
the occasional setback caused by jittery analogs,
forever.
But it was good while it lasted. I refer to our time in
the sun, our run on the planet Earth. It's not every day
that a new race of man comes along. In fact, the last
time this happened was about 100,000 years ago. And the
new race back then was us. We were not necessarily any
smarter than the poor Neanderthals...but we must have had
some edge, maybe the ability to speak. Whatever it was,
it gave us a decisive advantage. Language made it
possible for us to share information with one another -
thus enabling us to collaborate at a higher level. While
the Neanderthals were locked within their range of grunts
and groans - rather like the programming on television on
an average evening - Homo Sapiens were able to organize
cooperative hunting parties...and pass along valuable
information about where to find honey and how to fish.
Within a few thousand years, the Neanderthals were
history. (Except that a few scientists now believe that
the Neanderthals interbred with Homo Sapiens to create
the species we all know and love so well.)
And now our time has come. Now a new race can communicate
better than we can. Using optic fiber, wireless
technology and Moore's law...Homo Digitalis has the high
ground.
But do you think Neanderthals knew when there time was
up? Did they sit around the fire, like a group of the
hacks on Sunday morning talk shows, trying to figure out
what went wrong...and why they were headed to extinction?
I don't know. But speaking for the race of Analog Humans
I think a little soul-searching wouldn't hurt. In this,
if nothing else, at least we have a small advantage over
our Digital competitors...we have souls.
So what could we have done differently? How could we have
avoided the fate of Neanderthals...Homo Robustus...the
first hominids...and Ross Perot?
The problem was, looking at the situation
philosophically, that we were the products of millions of
years of evolutionary development. From the tree-monkeys,
to the big apes...to the Australopithecus...and all the
homos that preceded us - homo erectus, homo habilus, homo
neanderthalis and all the cousins and distant relations -
I'm talking about the entire animal line, actually, going
back to point where the first bits of bacteria got
together and decided to collaborate - well...through this
whole time we've been, how shall I put it, well - moody.
Change is a feature of the world we live in, and like a
reflection, indeed a part, of that world - we products of
nature are changeable too. One day we are feeling
expansive, happy, optimistic and carefree. The next, we
are kvetching, rioting, and selling our stocks.
Yardeni is right - "fluctuations are wired into our
brains and collective behavior." It is feast or
famine...boom or bust...buy or sell...sin or
virtue...Saturday night or Sunday morning.
Give us a good investment opportunity - like the Nasdaq
in the early 90s...and we'll buy it until it is a bad
one. Give us a bad opportunity...like the Nifty Fifty in
the early 70s... and we'll sell it until it is a good
one. Always over-reacting, never satisfied, that's us.
Just look at what happened to Southern California. It was
a paradise 100 years ago. Even 50 years ago, it was a
veritable Eden compared to today. But we can't leave a
good thing alone. The place now is so crowded that you
can barely burn trash in your backyard without someone
complaining and almost every meteorite that falls kills
at least one vegetarian.
We probably could have learned to use the Internet, but
our instinct to over-do it, whatever 'it' is, has been
our fatal flaw. Like an unopened bottle of Jim Beam in
front of a dipsomaniac - it has been our undoing. And now
it has caught up with us.
Perhaps that is the big promise of the biotech sector. A
little adjustment of our DNA and, presto, we could all be
Digital Humans. We could all talk like Al Gore, invest
like Henry Blodgett and dress like Larry Ellison. We
could be Digital men...the new men of tomorrow.
Instead, we are done for. Has-beens. Relics. Soon, we
will be locked in glass cabinets in some dusty museum
funded by a bequest from Larry Ellison or some other
Digital type with a sense of humor. The cabinet will bear
an inscription:
Homo Analogiens, believed to have appeared 100,000 B.C.
Last survivor died bankrupt: 2032.
Surely this will be worth a cover of TIME magazine...and
maybe a farewell party with a chorus of Auld Lang Syne.
Speaking for the whole race of Homo Analogiens, I just
want to say - goodbye. I have no regrets. It was good
while it lasted. We did the best we could. Que sera sera.
Analog, and loving it,
Bill Bonner
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