*** Forget the bottom...look for an exit! Nasdaq splits two
for one - half-price sale.
*** "Falling Income, More Jobless" - the economy gets
softer and softer...soon it will be mush
*** Those lucky Michael Murphy followers...yesterday's
biggest news...pulling the plug on the incubators...and
*** "People have stopped looking for a bottom," said John
Manly, equity strategists at Salomon Smith Barney, "and are
looking for an exit."
*** Thus, on this first day of December...the anxiety of
autumn seems to already be giving way to the despair of
deep winter. The Nasdaq slouched again - down 109 points,
or about 4%.
*** It was worse...at one point yesterday, the Nasdaq was
down almost 7% - nearly 50% below its March peak. In
effect, the entire Nasdaq has just about split, two for
one...the hard way. You can buy almost twice as many Nasdaq
shares today as you could back in March, for the same
amount of money.
*** "96 funds have lost more than 40% this year," declared
James Cramer on TheStreet.com. "The declines are
unfathomable to me...but everyone acts as if it is business
as usual...the strategists don't mention it." All you hear,
according to Cramer, is `buy and hold'...and `it always
*** Those lucky Michael Murphy investors. His `must own'
Big Tech stocks became more affordable. Microsoft lost more
than $7. Intel fell $4 and change. Cisco was down more than
$3. AOL is barely holding above $40. IBM...HP...almost all
the techs fell as investors began to doubt that Santa would
come this year.
*** Gateway was at the epicenter of the tech shock - after
it disclosed that computer sales were 30% below last year
in the post-Thanksgiving sale. Gateway stock fell 36%.
*** The Dow had a bad day too. The index was down 2% - 214
points, leaving it down 9% for the year. Retailers
Abercrombie and Fitch dropped 26%; Ann Taylor fell almost
*** "Falling income, More Jobless" explained a Reuters
headline. Jobless claims, it was revealed yesterday, rose
more than expected...and personal income fell 0.2 in
October, for the first time in almost 2 years.
*** Spending rose just 0.2% - less than expected.
"Consumers at the high end are starting to get concerned
about their wealth," explained an analyst in a Reuters
report, "and consumers at the lower end are going to be
squeezed by higher energy prices."
*** Instant Analysis & Gratuitous Comment: Incomes falling,
GDP growth slowing, spending still increasing, and the
leading Information Technology stocks selling at half price
- is this a `Transcession'...a brief interlude before we
all get rich? Or is it something more familiar - a bear
market and a coming recession?
*** The Nasdaq has fallen 20% just in the last 3 weeks -
erasing more than $3 trillion in paper wealth. And yet,
P/Es for the big techs are still above 100.
*** Abby Cohen appeared yesterday - trying to restore faith
in the fantasy that has so enriched her employer, Goldman
Sachs. In October, she said the S&P would end the year at
1575. It closed yesterday at 1314. Hmmm...anything is
possible, but face it, Abby, you can't predict the future
*** Ignoring that insight: if I were Mr. Bear I would be
enjoying this immensely. The big, furry beast got no notice
nor respect for years. Now his name is in the papers almost
every day. If I were he, I'd want to stretch this
out...enjoy it for as long as I could. So, I'd probably
take a little holiday rest - giving the pilgrims a chance
to forget about me for while.
*** Probably the biggest news yesterday got little more
than a footnote in the financial press: The euro rose 2%
against the dollar. When the dollar follows the Nasdaq down
- all of the illusions of `late, degenerate American
capitalism' of the 1990s will collapse...and the new
millennium can begin. (More on that as it develops...)
*** "Euro Gains Against Injured Dollar" observes the
Financial Times. The euro is at a 4-week high - at 87
cents/euro. My guess: we will not see an 85-cent euro again
for a long, long time.
*** Gold stirred yesterday like - rising $3.70. The gold
stocks rose too. Let's see...if people lose faith in stocks
and the U.S. dollar...where might their money go?
Another guess: we won't see Franco-Nevada at C$15 again for
a long time either.
*** Investors seemed to have pulled the plug on incubus, I
mean incubator, stocks. ICG is at $6.19...it was $212 a
year ago. CMGI lost $664 million in the last quarter;
shares are down from $163 to $11. Divine Interventures fell
from $12 to under $2. And Idealab raised $1 billion - but
then had to cancel it's IPO.
*** Wouldn't it be nice if you could create a successful
business that would create other successful businesses?
That was the incubu...er...incubators' idea - to leverage a
few easy insights and billions of dollars of other peoples'
money into a perpetual wealth machine. But it's not that
easy, dear reader, it's just not that easy.
*** The Champs Elysee is already decked out for the
holidays. The trees, which last year, were bagged in an odd
way...are strung with lights. The view down from the Arc de
Triomphe to the big Ferris wheel at the Place de la
Concorde is spectacular.
HARNESS THE STRATEGY THAT BUILT AMERICA'S LARGEST FORTUNES!
A small group of investors recently turned $100,000
investment into $6,700,000. A Canadian woman invested
$217,355 and watched it grow into a $41 million fortune.
Another investor group turned a $100,000 investment
into more than $193 million. There's a way you could turn
an investment of as little as $50,000 into $10 million, $20
million, or much more... to learn about your opportunity
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Earlier this week, at least in California, the "Greenspan
Put" was still in the money.
The investment logic behind it was the soul of
simplicity...with the sinew of experience. Ever since Alan
Greenspan took control of the Fed late in 1987 it has been
a safe bet that stocks would rise.
The security of this gamble was insured not merely by the
Information Technology or the New Paradigm - but by
something in which the players had a lot more faith: Mr.
Greenspan's readiness to pump liquidity when things started
to get a little dry. The Fed chairman's control of the
irrigation gear, in the parlance of Wall Street, kept
A put option is merely an agreement that gives you the
right to sell - to put - something to someone else at a
given price. Put options protect you in a falling market -
since they give you the right to sell shares (which you can
buy at the market price) at a higher agreed-upon price.
The "Greenspan Put" is the way traders describe the
protection against falling prices supposedly guaranteed by
If things ever really got bad, hydrologist Greenspan would
open the sluices - as he did when Long Term Capital
Management nearly dried up...and when the Asian Currency
crisis threatened world markets. Or, so investors thought.
Even people who wouldn't know a put option from a golf club
seemed to sense the security. If things got rough...Mr.
Greenspan would find a solution.
"Folks are immensely optimistic out here," reported Dan
Denning from the SF Bay Area earlier this week.
"At a dinner party...guests marveled that the Presidio
National Park (the former military base at the base of the
Golden Gate Bridge) is now the most valuable property in
the world... it must be true considering how high rents are
in the area."
San Francisco is a long way from Baltimore.
"I also talked to a young couple living in Berkeley (no one
can afford to live in San Francisco anymore, except the
homeless...) Anyway, both the husband and the wife work in
dot.coms and they have a four month old girl. The husband
works for a firm that does interface design for things like
palm pilots. The wife quit her job at Wells-Fargo bank to
work for a start-up because they `needed the money'."
"Wouldn't a job at the bank be safer?" asked Dan.
"Well," came the reply. "Maybe. But she works for a company
that is going to sell personal financial planning over the
web. Make it really easy for people."
"Don't most people like to meet their financial planner in
person? I mean isn't that why they go to one? [Because it
is personal]" Dan inquired.
"Good point," replied his interlocutor. "I guess we'll just
have to see. They may have the wrong model. She'll just get
another job though."
"That's what everyone around here seems to think,"
continued our reporter. "Even a close relative of mine. She
makes a modest salary, enough to live comfortably on. But
as we sat listening to hour after hour of terrible election
coverage (they're fascinated by it out here, giving away Al
Gore buttons on the street, although one elderly Asian man
had a sign that said: `Impeach Clinton, Twelve Galaxies
United'. On the back it said 'Made in Holland'."
"Anyway, as we sat watching the election coverage, she
checked her stocks. I asked how they were doing."
"Down 20% this year," she said. "But I'm not worried, they
always come back. Everyone knows that."
"She then asked me what were the symbols for Cisco and
Intel, the two stocks she's banking her retirement on. I
told her I thought she should be careful. But she said
these were clearly the safest companies out there, you had
to stay in them, everyone knows that."
Staying in them has been costly. So costly that the pros
are beginning to ask: `What happened to Mr. Greenspan's
put?' The Nasdaq has been cut in half...surely its time to
exercise the option...open the flood-gates and delight the
The Fed chairman is, of course, very familiar with the
hazards of moving too quickly. The main hazard is the moral
one. If investors see no risk of loss - they will make ever
more reckless bets.
He also understands the virtue of inscrutability. If his
responses are known in advance - the market discounts them.
The head of the European Central Bank, Wim Duisenberg, was
publicly ridiculed and practically hounded from his post
after he revealed the bank's strategy for defending the
euro. Greenspan does not want to make that mistake. Thus,
he would like the "Greenspan Put" - an implied
understanding of what the Fed will do - to disappear.
The Fed claimed it never `targeted the stock market' when
it set interest rate policies. That is probably both true
and insufficient. When the stock market went up - people
thought themselves wealthier and spent more freely. The
stock market created `wealth' - stock options, and
portfolio values - that competed with the offerings of the
Bureau of Printing and Engraving for the goods and services
of the world economy. The Fed couldn't ignore it.
And now that the stock market is destroying `wealth' - Alan
Greenspan will be unable to ignore that too. Eventually, he
will move to lower interest rates...but in the meantime, he
probably doesn't mind disappointing speculators.
And yesterday, St. Louis Fed governor, William Poole,
described when the Fed will exercise its Greenspan Put
"I would want to respond," he said, perhaps anticipating
the next Fed policy meeting on Dec. 19th, "if it looked like
the financial market events are feeding in to affect the
real economy in an adverse way."
That moment cannot be far off.
Your reporter, wishing he had bought puts...
P.S. And a very entertaining moment it promises to be.
Because, from California to Boston people still believe in
stocks. As James Cramer put it, the current decline is
"unfathomable." Investors can't believe that this downturn
will continue. Greenspan's put option - his ability to
strike the market with the equivalent of a monetary cattle
prod - is the device that is supposed to turn things
Cattle prods may work well on bulls...but I don't know if
it will work on a real bear. Japan has been prodding its
market for more than ten years. Interest rates were
reduced, as the FT put it, to "effectively zero."
Government spending - known in the post-Keynesian lingo as
`fiscal stimulus' - has hit records. And still - the stock
market lies as dead and inert as a used-up battery or a
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Last modified: April 01, 2001
Published By Tulips and Bears