*** "A real big day" on Wall Street...
*** But what happened to the dollar?
*** And gold! Glorious gold! Still alive...
*** You may recall, Friday morning I quoted an analyst
who said, in effect: 'If we get a good employment report
today we will have a real big day.' Well, he got a
'good' employment report, and the market had a 'real big
*** In fact the day was so big that you have no doubt
already heard all about it. The news on Thursday and
Friday was great -- less pressure on prices, less
pressure on the labor market. The economy is slowing
down, in other words. The news "blew away the cloud of
fear" hanging over the market, said one analyst quoted by
*** The teenaged tech and net stocks were especially
favored -- they seemed to enjoy a growth spurt just as
the news was announced.
*** On Friday morning, just after the market opened, the
Nasdaq 100 futures shot up 8%. Taking the week as a
whole, the Nasdaq grew more than any week in history --
*** By the way, the fad du jour in the TNT (tech, net and
telecom) set is for stocks that are "Internet
infrastructure" plays. These are companies that make the
picks and shovels for the Internet miners. Maybe the e-
tailers will fail. Maybe the B2B sector won't be as
great as we thought. Maybe AOL and MSFT have stopped
growing. But someone's going to make some money on the
Internet and these infrastructure companies are going
sell them the tools!
*** So Broadcom was up 42% by the end of the week. JDS
Uniphase rose 50%. And Network Solutions rose 52%.
*** And now that school is letting out...the teenaged
stocks are expected to enjoy a perfect summer: complete
with a huge stock market rally, the beginnings of which
we have just witnessed. We'll see.
*** Of course, 'Easy Al' Greenspan said he wasn't
targeting the stock market. He was just trying to head
off the inflation he saw forming up like an enemy armada
out beyond the harbor. So, he fired six volleys from his
rate hike cannon. And what happened? Well, some
inflation indicators may be sinking. But the results
have been mixed.
*** Bonds, for example, are rising -- on the evidence of
a slowing economy. Yields are falling. But most
disturbing...the speculative euphoria of Wall Street
seems to be running a few paces ahead of the Fed. Last
week's irrational exuberance alone added about $1.5
trillion to the nation's potential purchasing power. Of
course, easy come...easy go. That which the market has
given last week, may be taken back the next.
*** It was a very good week, of course, for stocks and
bonds. The Internet, newspapers, TV, radio, and even tin
cans linked by baler twine are reporting the news -- the
bear market is over. We've seen the bottom. Let the
good times roll -- again. More on that below...
*** What is really going on? Well, I don't know...but
bear markets are often marked by explosive
rallies...followed by long periods of grinding,
frustrating action, in which stocks give back all the
gains, and then some.
*** And while the media focus on the explosive rally,
there is very disturbing news about the dollar -- which
fell, both against the yen and the euro. The euro seems
to be staging a comeback. It is rising against a wall of
worry -- as I feared (because I pay my bills in French
francs, linked to the euro...I'd prefer a low euro and a
*** What's more, gold finally roused itself, got up and
advanced $8.90! (This is by the way, the anniversary of
the day the US went off the gold standard in 1933.) When
the dollar goes down...and gold goes up -- watch out.
Both the American economy...and its stock market...rest
on the willingness of foreigners to price the dollar at
more than it is really worth. When that goes -- it all
goes. And it could be a long time before it comes back.
*** Richard Russell reports that Patricia Dunn, CEO of
Barclay Global Investors, with $780 billion in assets
(bigger than Fidelity or Vanguard) was asked what she did
with her own money. "California munis are plenty
exciting for me," she replied.
*** Archeologists believe they have discovered the long
lost cities of Herakleion and Menouthis. The cities are
mentioned in the ancient records, often, but have never
been located. Now, divers in the Bay of Aboukir, off the
coast of Egypt, believe they have found ruins of the
submerged cities, dating from the 5th to 9th centuries
*** And here's something interesting -- reported with
perhaps a little too much smug pleasure by the French
press: The U.S., ranked 24th worldwide, has the lowest
life expectancy at birth of any industrialized nation.
France has the third highest ranking...after Japan and
Australia. A Japanese citizen, assuming he does not
throw himself in front of a moving train, can expect to
live 74 years and 6 months.
*** Speaking of Japan, during the heyday of the 80s, few
sectors of the hot economy were as hot as the golf course
industry. 2,400 courses were built, charging membership
fees as high as $200,000. But according to the report in
the NY TIMES, 1,700 of those golf courses are now in
financial trouble or bankrupt. Ten years after its bear
market began, the nation faces an estimated $1.2 trillion
in bad loans -- of which 20% are thought to be related to
the golf-course crisis.
*** Today is also the anniversary of Adam Smith's
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"From a psychological point of view, stubborn optimism is
more a sign of a market top than a market bottom."
Jerry Garcia's pulse stopped many years ago. Even in
Minnesota, where the labor market is so tight almost
anyone could get a job, Jerry is unemployable. There
have been, at least to my knowledge, no sightings of him
entertaining in Minnesota bars. He has not been reported
living incognito in another country or on another planet.
He is stone, cold dead...as dead as a defunct laptop
And yet, the Deadheads -- fans of Garcia's band, the
Grateful Dead -- still turn out by the thousands to see
the band play...and many still follow the group on
concert tours. Stubbornly optimistic, the 'Deadheads,'
seem to hope that one night, Garcia will be raised from
the dead and walk on the stage, maybe in a tie-dyed,
I have this on good authority. My new assistant,
Addison, admits to having been a 'Dead' fan himself.
Perhaps he was not actually a 'Deadhead' -- but for a
time he followed the band more or less faithfully,
selling beer for $2 a can out of an old VW bus, with
neither a liquor license nor a W-2 form.
Finally, Addison tired of the 'Dead." He determined to
get a real life...to enter the real world, of real
employment, for real wages.
Failing that, he joined me in Paris.
It was a pleasure having Addison visit over the holiday
weekend. We did our work, and in the evening, pulled out
guitars. Addison knows the Grateful Dead songs...
But what is astonishing is the tenacity with which the
'Deadheads' stick to their dreams. Not unlike tech, net,
and telecom investors.
"I have no idea whether a major bear market is on its
way," wrote my old friend Mark Hulbert in his recent
newsletter. But Hulbert is sure that "what we witnessed
in late March and early April wasn't one." At least, not
the bottom of one.
"I say this with such confidence," he continues, because
a bear market is, above all else, a psychological
phenomenon -- and none of the psychological
characteristics of a bear market have even begun to
"At the bottom of a bear market," Hulbert clarifies,
"virtually no one is willing to buy. Yet in mid April,
at which time the Nasdaq Composite was more than 30% off
its high, many investors eagerly were declaring that it
was a buying opportunity."
Garcia lives. Well, maybe not...but the bull market has
yet to be pronounced dead. And judging from last week's
action -- it may be a long time before it is officially
laid to rest. The fans still believe.
Mark Hulbert tracks the performance of newsletter
advisory services, including some of ours. He watches,
among other things, how many of the services are bullish
or bearish. As the market collapsed in March and April,
you might have expected that the number of advisors that
were bullish would have collapsed too. Well, it did go
down. But not much. And currently, sentiment remains
In fact, so far for this year, the advisors in this group
were considerably more bullish than they were in 1999.
This, of course, is in line with our contrarian analysis.
The more bullish the advisors, the more of their money
(and their followers' money) is likely to be already
invested. As money pours into a market, prices rise --
obviously. Higher prices mean that each stock is more
expensive...so a given amount of investment capital will
buy proportionately fewer shares. As prices go
higher...it takes more and more money to drive prices
higher, since each share costs more. You reach a point
where there is not enough buying pressure to push shares
higher -- and they begin to fall.
At market extremes, you want to be invested against the
prevailing sentiment. Because that is where the
potential for gains is. A market that cannot go higher -
- will not.
Hulbert explains: "Contrarians know that, because bull
and bear markets are psychological phenomena, the market
often confounds the majority. Bull markets like to climb
a wall of worry, just as bear markets descend a wall of
Investors today face a monumental wall of hope. Every
fantasy of the New Era, New Technology, The Internet and
the New Economy is cause for hope. It will take a lot of
losses until these dreams are exhausted.
In the bear market of '73-'74 we have an example of how
stubborn investors' optimism can be. After a long period
-- from '66 in fact -- of up and down, trading range
prices...a bear market finally began in '73. It cut the
NYSE in half and the AMEX by 90%.
But all along the way, investors -- remembering the go-go
years of the '60s -- kept thinking that 'the worst is
over.' "By the summer of 1974," Hulbert reports, "the
average stock's P/E ratio had dropped to around
7...[investors thought it] surely couldn't drop any
further, the market must already have bottomed -- and
that therefore it was time to buy."
But the market continued to drop. It fell to an average
P/E of 6 and then to an unbelievable 5. "The low didn't
finally occur,' Hulbert writes, "until late in 1974 when,
according to the Value Line Investment Survey, the median
P/E of all stocks they followed fell to 4.8."
Today, we are a long way from a bottom. Investors are
still cyclically bullish. They follow the news -- and
buy every dip that looks promising. Investment advisors
are tellingly bullish. The media is amateurishly
bullish. And the financial community is always
There is a wall of hope so high, with so many
indentations and footholds -- it may take years to
Then again, investors might suddenly lose their grip.
P.S. Mark Hulbert also has a piece in today's Herald
Tribune -- reporting on new research on the long term
returns from stocks. More on that tomorrow.
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Last modified: April 02, 2001
Published By Tulips and Bears