*** The thrill is gone...the romance is over...
*** Further down the river with Jeff Bezos...
*** Oil up, as a cold snap hits Baltimore...'Poofters'...
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* * * * * * * * * * * * * * * * * * * * * * * * * * * *
*** The Nasdaq was down 130 points early yesterday, after
having lost ground each of the last 5 weeks. Investors
are turning away from the Big Techs - just as they've
already turned away from the dot.coms.
*** Reality is meeting virtual reality. "Does everyone
who wants a computer already own one?" asked a headline
in the NYTimes. Investors are beginning to realize that
even tech companies cannot expand forever. And just
because a company has a neat technology does not mean
that investors can make any money on the stock.
*** But it is not an over-night process. Steve Sjuggerud
explained to me yesterday that big institutional holders
need months to unwind their positions. Once the romance
is over, in other words, breaking up is hard to do.
Prices work their way over several months.
*** Intel fell about a buck, yesterday...Cisco lost
$2.50. TheGlobe.com came out at $15 and rose to $90. Now
you can buy a share for 70 cents. And Amazon dropped to
$28...and then revived enough to close a little above the
$30 mark... more about the "River of No Returns," in just
a moment.
*** But while the live-in romance with the big techs
seems to be over...and investors pack up their socks and
prepare to move out...there's always a lot of talk about
making up and "working things out."
*** Many investment analysts think the Big Techs are just
too good to leave. Reuters quoted one who said, "We
really got oversold [last week]." Another thought stocks
were "too cheap."
*** This sentiment seemed to gain momentum about midday
on Monday...and Nasdaq came back to close just 5 points
down. The Internet index rose 1%...and Yahoo managed an
increase of $4.50.
*** But let's return to Amazon. Once the "must own" stock
of the New Era, the big muddy river is becoming a
piranha, I mean pariah. Analysts are turning against it.
"In July alone," writes Matt Berger in Upside Today,
"eight analysts downgraded Amazon in a storm of negative
projections about its cash reservoir. Monday, investment
bank Janney Montgomery Scott downgraded Amazon's stock to
"sell" from "hold."
Berger cites a report from Robertson Stephens:
"As (Amazon) expands well beyond its core products of
books, music and video, and into new categories such as
electronics, kitchen, lawn and patio, and tools and
hardware, we hypothesize that the exhaustive assortment
which has heretofore defined the company could actually
serve as a structural obstacle to achieving operating
efficiency."
*** A NYTimes report says that Amazon has quietly raised
prices - so much so that you can now find some books at
lower prices in bookstores.
*** And the current issue of Red Herring includes an
interview with the Amazon founder, entitled "The Fantasy
World of Jeff Bezos."
*** "To hear him describe it," begins the article, "Jeff
Bezos lives in a perfect world. A world where bad news
does not exist. It's as if the planet's greatest
optimists have been plucked, packed and shipped to
Seattle, then downloaded into one very smart, articulate
and charming person. But optimism is often a clever cover
for denial."
*** Time's Man of the Year just refuses to accept it:
it's over...the romance with investors, that is.
*** Meanwhile, the Dow fell 53 points yesterday. There
were 1206 stocks advancing, against 1562 retreating. 23
hit new highs. 87 hit new lows.
*** The weather has turned cold here in Baltimore. The
cold snap was blamed for the rising oil price. Oil closed
up a buck - to $31.86.
*** William Fleckenstein: "The Strategic Petroleum
Reserve release was a political outrage... 30 percent of
the oil went to folks who don't appear to have any real
chance of executing the contract as required...when all
is said and done, the amount of heating oil that's going
to be released from the SPR will satisfy the Northeast
for about 12 hours on a cold day."
(www.siliconinvestor.com)
*** "The scariest statistic of them all," writes Uncle
Harry Schultz, "and only reported in one newspaper (The
International Herald Tribune)... is that it is not true
OPEC raised oil production recently by 800,000 barrels.
The truth is oil 'quotas' were raised 800,000 bbls but
actual production was already 700,000 ahead of the
quotas, so the net increase was only 100,000 bbls."
(www.HSLetter.com)
*** High oil prices have been associated with three past
recessions: the oil shocks of 1974, 1979 and 1990.
According to Ed Yardeni, by way of Gary North, "Americans
are paying $161 billion more for their oil, and the price
worldwide is approaching $500 billion." That does not
include the increases we are all feeling in electricity
and natural gas. North: "It's as if someone increased our
corporate and personal income taxes by 15-20% almost
overnight."
*** And it's not just in the United States. Singapore,
France, Germany, Italy, Sweden, and the United Kingdom
all turned in lower numbers for the Purchasing Managers
Index, says North. "Every week I see more numbers
indicating the world economy has begun to slow down."
(see: Oil Induced Recession In 2001?
http://www.dailyreckoning.com/body_headline.cfm?id=598)
*** What's a poofter? A couple of readers have written to
ask what the word means. One suggested that I may be in
violation of incipient Hate Crimes Act, since "poofter,"
he noted, is British pejorative slang for homosexual. Uh,
oh.
*** "Poofter," is indeed slang for homosexual. But it is,
at least in my usage, more whimsical than pejorative. I
practice what might be called 'Comic Christian
Universalism' - I make fun of everyone...but I love even
the sinners. If that is a crime - well, put the cuffs on
me.
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"Every extraordinary capital market gain," said Jeremy
Grantham, courtesy of Marc Faber, "has retreated 100% -
or more."
Grantham, Mayo, Van Otterloo & Co. have prepared charts
that show what happened in various "extraordinary capital
markets."
The gold market was extraordinary, for example, in the
1970s. Reading the small type on the charts, I see that
the price of gold was about $40 per ounce in 1970. The
line spikes almost straight up to over $1,000 in real
terms in the late '80s. And then it comes right back down
in a near-vertical line to about where it started.
The chart for oil prices is very different. Yet, the
overall pattern is the same. From about $10 a barrel in
1962, oil rose to almost $70 a barrel (again, real
prices)...and then collapsed back to almost $10 again.
Similar charts for other commodities - nickel and cocoa -
- show the same pattern.
Today's Reuter's wire included the opinions of various
analysts and investors. In addition to the bullishness
about the future were descriptions of present market
sentiment.
"Panic and fear" was how one analyst described the
mentality on Wall Street. Many of the major dot.coms and
big techs have already taken stunning losses. Amazon, for
example, was at about $110 a share when Jeff Bezos's mug
was on the cover of TIME magazine in January.
Since then, his stock has fallen below $30...a loss of
more than 70%. The Nasdaq as a whole is down more than
15% for the year. And many of the dot.coms - such as
Theglobe, mentioned above, have lost as much as 99% of
their value.
And yet, most investors still have faith. If the B2C
stocks are out of favor, they switch to B2B. When B2B
loses its sensational appeal, they move to the
infrastructure plays...and when that romance ends, it's
on to the bio-techs, bandwidth, and so on.
October is the month for surprises in the stock market.
Often, there is a surprising explosion of prices to the
upside. That is what many investors expect this year too.
In their minds, the 'fear and panic' has been over-
done...stocks are oversold...and the short-sellers had
better watch out.
Who knows? Maybe they will be right. But the Big Surprise
is more likely to be the scope of the damage that lies
ahead. Fear? Panic? You ain't seen nothin' yet!
Grantham's charts of "extraordinary capital markets" show
what has happened in the currency markets. A chart of the
dollar from 1979 to 1992 shows the greenback almost
doubling in value on world markets - peaking in 1985 -
and then falling back to where it began. The UK pound and
Japanese yen charts show a more modest rise...but similar
decline.
In stocks, the S&P 500 soared in the '20s. The chart
looks like the Matterhorn. From the gentle piedmont of
the early '20s, the mountain rises sharply later in the
decade. Then, after August of '29, it falls
symmetrically. Ominously, however, the line falls well
below the starting point a decade earlier. The
'extraordinary market' gave back all of its gains - and
then some.
There is another chart of the S&P covering the years '46
to '84. This mountain looks more like an Appalachian peak
than an Alpine one. Again, what goes up comes down. Easy
come, easy go.
Then, there is an interesting chart of the Japanese
market relative to the world index, as measured by the
EAFE, '81 to '99. Here too, the extraordinary gain of the
'80s was erased in the '90s. But the bear didn't stop
there - he erased much of the gain from previous decades
too.
The final chart is of the S&P 500, '92 to '99. This
mountain is the most unusual of all - it has only one
side. You see one side of an Everest-like gain in stock
prices. The other side is shrouded by the mist of the
future. Will it be a geological anomaly, different from
any of the other 'extraordinary market gains' examined by
Grantham? Will there be an even higher peak than the one
registered in March of 2000? Or are we on the down slope
already?
We will see, dear reader, we will see.
But if the pattern of past extraordinary gains continues,
the valley on the other side will be much lower than most
people can now imagine.
"Until 1982," writes Marc Faber, describing the latest
and greatest market sensation, "the Nasdaq, which started
trading in 1971 with an index value of 100, never
exceeded 200. By 1990, it was still below 500. It touched
1,000 for the first time in 1995 and 2,000 in 1998. From
there it soared to over 5,100 in March of this year.
Never before in the history of financial markets has
there been such a highly priced large market (market cap.
of over $6 billion at its March peak) as the Nasdaq.
Based on current earnings of approximately $25 billion,
my estimate is that the Nasdaq will decline to anywhere
between 800 and 1,500."
"I base this forecast," he continues, "on Nasdaq earnings
either remaining at about the current level (no growth)
or rising to around $40 billion before major earnings
disappointments kick in and reduce the Nasdaq's P/E to
about 40."
We will see, dear reader, we will see.
Bill Bonner
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Last modified: April 01, 2001
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