*** The Rise and Fall of Big Tech - NY TIMES
*** 5 straight weeks of falling Nasdaq prices...and
they're still falling. But now it's official - we're in
"bear mode."
*** Heating oil supplies on East Coast - "scary"
*** "Run out and get yourself fully invested in
technology stocks right now-today," advises an e-mail
promotional message from Michael Murphy. "This time
around you'll be kicking your profits all the way to the
bank!"
*** Elsewhere, economist Paul Krugman, calls the U.S. a
"miracle economy" where "the good news keeps on rolling
in."
*** And Ed Hyman reports that equity fund managers are
still as fully invested as ever.
*** The theory of a tech-led, eternal bull market is
still intact. But the experience of most investors is
another story.
*** I'm even beginning to feel sorry for lame-brained Ms.
Wu. Stocks in South Korea fell by another 4% this
morning. Damage was widespread in Asia - with the index
in Taipei also falling nearly 4%.
*** U.S. investors didn't do much better. The Nasdaq
tried to rally, after 5 straight weeks of falling prices,
but Mr. Bear was on the floor...and at the end of the day
prices were down 72 points.
*** The Nasdaq is now, more or less officially, in a bear
market. It is down 36% from its high - representing a
capital loss of more than $2 trillion. Wealth effect...
where are you?
*** Yes, finally, Reuters reported the words of an
analyst who admitted, "we're in bear mode," as the Nasdaq
came to rest just 4 points above its May 23rd low of
3,164.
*** And now that the bear has been officially greeted, he
is expected to grab his hat and coat and leave. "We are
close to the bottom," said Fred Wilson of Flatiron
Partners, a leading tech and dot.com venture capital
firm. Mr. Wilson also described why Fortune 500 companies
were not increasing their spending on the world wide web
in classic terms: "they don't get it."
*** Those poor corporate execs - upon whom the Promethean
light of the New Era never shines! The Dow went down with
the Nasdaq yesterday...everyone suffered, New Economy,
Old Economy...saint and sinner...those who 'get it' and
those who don't.
*** The Dow lost 110 points. Declining stocks outpaced
advancing ones, 2 to 1. The ratio on the Nasdaq was even
greater. And the number of new highs on the NYSE was only
one-fifth the number of new lows.
*** On Wednesday, when it reached its low for 2000, the
Nasdaq was down 22% for the year. The Dow was down 9%.
*** "The bear market that began last spring is now on the
verge of breaking wide open," writes William
Fleckenstein. Maybe. But 'never underestimate the power
of denial' says Fleckenstein.
*** Qualcomm lost $9. Yahoo! was down $17! And Amazon -
down $2 5/8ths to close at $27 and change.
*** GE is worth more than half a trillion dollars. It,
too, fell yesterday - after meeting expected earnings
numbers, but not exceeding them. GE is still trading at
about 50 times earnings. It yields less than 1% and has
been growing at about 14% per year for the last 5 years.
GE may be a great company - but why would you pay 50
times earnings for such a huge company, with so little
growth? It doesn't make sense.
*** Motorola, the world's largest cell phone manufacturer
fell 19% - after announcing slower growth. Could it be
that everyone who wants a cell phone already has one? Or,
that cell phones are no longer a status symbol? My friend
Greg reports that he was at a funeral where, at the
dramatic climax, as the preacher's voice was wrapping
around the "ashes to ashes, dust to dust" lines like boa
around a swamp rat, the mourning was interrupted by
someone's cell phone. In another episode, Greg was
enjoying a private tour of Buckingham Palace with a small
group... which again, was interrupted by cell phones.
Maybe people have had enough.
*** I don't even own a cell phone. If you want to talk to
me, come down to the Paradis bar...
*** Daily Reckoning readers may remember that at least 6
months ago I called the Big Techs the "worst place" for
your money. Now this from the NY TIMES: "Many investors,
and many mutual funds," says an article titled The Rise
and Fall of Big Tech, "entered this year with their
largest investment in some of the stocks that have done
the worst." For example, "Janus Capital, the mutual fund
company, made headlines in January when it bought an
entire secondary offering of Healtheon WebMD, since
renamed webMD, paying $62 a shares. Yesterday, with the
stock under $10 a share, Janus disclosed that it had sold
most of the shares." (see: 5 Big Tech Time Bombs You May
Own - And Not Even Know It!)
*** The price of oil fell a little in NY yesterday, and
then rose a little in Asia overnight. Or was it the other
way around? Experts say there is 51% less heating oil in
stock on the East Coast than there was a year ago.
*** "The American Petroleum Institute (API) reported
yesterday," writes David Tice, "that U.S. distillate
inventories (including diesel and home heating oil)
actually declined over 3 million barrels to 113 million.
This was the largest drop since February." "Scary" said
an analyst quoted by Bloomberg. Last year was an
unusually mild winter. We may not be so lucky this time.
*** The currency markets, meanwhile, have been fairly
calm. But there is bound to be excitement ahead. Colin
Negrych, as reported by William Fleckenstein:
"The U.S. has $65.5 billion in reserves to defend the
dollar. This is a pittance relative to the value of U.S.
assets held by foreigners, both securities and business
interests. When the dollar starts to fall against the
euro, as it has been doing for years against the yen, the
"dollar crisis" mentality will take hold. The U.S.
macroeconomic imbalances make a 25- to 40-percent
adjustment in the dollar the most likely outcome. This
event will be resisted in every way possible, but the
efforts will fail.
"The U.S. has sucked in massive amounts of foreign
capital with captivating tales of high returns and low
risk bolstered by high growth and low inflation, all made
possible by a surge in productivity resulting from the
application of technology. There is now plenty of
evidence the foregoing is a fatal fiction."
*** Last year, "there was a bunch of money, but it was a
bunch of dumb money," said one ad exec on ZDnet News,
referring to dot.com advertising budgets. "We are not
going to see 17 dot.com advertising on the SuperBowl,"
said another. Yahoo! and a host of other Internet portal
sites are feeling the pinch during this Autumn of
Anxiety... Yahoo! shares fell 21% yesterday.
*** Kevin Klombies: "When oil prices fall, the drillers
and service companies get clobbered; when the tech cycle
ends we find the main customers for almost every one of
these companies are... other tech companies. Incestuous?
Absolutely. A pyramid scheme. Quite probably."
*** "Don't worry about coal going away for one minute."
says Dan Ferris. In fact, you can expect just the
opposite. "The electricity crisis could be solved
overnight. The generating capacity - 85,000 megawatts,
almost double the capacity of the entire state of
California's 46,000MW - is available now just by pushing
existing coal plants."
*** According to Ferris, existing plants use between the
65% - 70% of their capacity. But they can operate up to
85%... That extra demand could account for another 150
million to 200 million tons of coal demand... on top of
the one billion tons we're currently using. Bottom line?
Coal demand will continue to track electricity demand.
A Textbook Model for Making Money on Energy Stocks in the
"New Economy":
- 65% of US households heat with gas...
- Supplies are 15% below last year's level...
- High demand + tight supply = skyrocketing prices
Natural gas is right on the heels of oil. Here's how you
can cash in on next "energy commodity" to shoot higher
than expected in a very short amount of time:
(http://www.agora-inc.com/reports/RASS/EnergyProfits)
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"Oh, it's not the fall
That hurts you at all
It's the sudden stop."
Walking Out
By Percy Sledge
"Contrary to my friend Marc Faber," writes Jim Davidson,
recently born again as a New Era believer, "I do not
believe that the High Tech investment boom will soon
sputter to an end...For those who believe the New Economy
is just hype, I can only advise you to fasten your
seatbelt."
Fastening ones seatbelt sounds like good advice. But, the
protection may be more useful against a sudden decline of
the tech sector than the rapid acceleration that Jim
imagines.
The theory of the New Era is that information technology
has overcome the boom/bust cycle... or that Metcalfe,
Moore and the Lambda Factor have overpowered Graham and
Dodd. Value no longer matters. What matters is having the
right technology. And don't worry about greed and
fear...or inflation. Anyone who pulls out of tech
investments now is just a 'scaredy cat,' says Michael
Murphy. These 'Profit Rockets' as another tech promotion
calls them, are headed for the heart of the cosmos.
Despite the theory, the world's experience with
extraordinary market lift-offs of all sorts - as I
described a couple of days ago - is that they never
escape the gravity of the boom/bust cycle. They go up;
then they go down. And they usually come to rest at about
where they began. If that is the case this time...that
is, if experience trumps the new era theory...what can
you expect?
Applying theory will give you any answer you want.
Clairvoyant Jeff Bezos describes Amazon in 10 years. And
Al Gore, who invented meteorology, describes the North
Pole in 50 years. Neither has any clue what will happen
in such distant future.
But experience gives us a hint of what might happen in
the near future:
"Assume that sometime in the future," says Marc Faber,
speaking of the Nasdaq, "it will give back at least five
years of previous capital gains (the average period that
bear markets in the US have given back). Again assuming
that we saw the peak in the Nasdaq in March (as I
believe), this would take the index down to around
1,000."
A fall in the Nasdaq will almost certainly be accompanied
by a fall in the Dow. Bears are not that choosy.
So what do you do? How can you protect yourself? Where
can you invest your money?
"I would expect," writes Faber, "under almost any
circumstances, an out-performance of value and emerging
economy stocks compared to major US indexes such as the
S&P 500 and Nasdaq." (see: Contrarian Profits
http://www.dailyreckoning.com/body_headline.cfm?id=587)
While 'the good news keeps rolling in' for the miraculous
U.S. economy...many other parts of the world have had
nothing but bad press. Untouched by the Promethean light
of the new era, their stock markets have been festering
in darkness...rocked by the booms and busts of investors
who "don't get it."
"Generally, every year several stock markets tumble off
their peaks by at least 50%," writes Edward Bozaan of
Waterford Partners, courtesy of Marc Faber. "In the last
two years, there have been more declines in the 70% to
90% range than ever previously recorded."
Why do these markets collapse? Bozaan offers the usual
analog explanations: war, government, currency markets
and so forth.
"Sri Lanka is a prime example..." he says, "now down 75%
off its peak. The government's war with the Tamil Tigers
is now in its 15th year. President Chandrika
Bandarankaike, whose life is under constant threat, has
survived two suicide attacks in the last year alone. In
one, she was severely injured and partially blinded, and
several dozen others were killed."
Could darned cheap Sri Lankan stocks now be worth buying
- as a counterbalance to the darned expensive ones on the
Nasdaq? Maybe.
Just as every extraordinary market boom seems to lead to
an equal and opposite extraordinary market bust...
Newton's law seems to work in reverse. "For example,"
Bozaan explains, "12 months after hitting bottom, most of
the emerging markets shown below bounced back, with the
average one gaining 75.8%. Some rose as high as 700%. And
24 months after their lowest point, many returned with
remarkable agility and strength: the average one rose
148.7%, and several rose as high as 1,000%.
Okay. Mr. Bozaan has caught my interest, and I hope
yours. Tomorrow, I will give you some of Mr. Bozaan's
recommendations in the world's most despised stock
markets.
Your very humble servant, still searching for the
switch...to turn on the Promethean Light...
Bill Bonner
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