For all to read,and what"s coming.I picked it from RB
Friday, April 14, 2000, 4:01 PM this guy is good!
by Harry Newton
At 3:58 PM this afternoon, I bought IBM, Qualcomm, Oracle and
JDS Uniphase. I tried to get Intel but missed.. I believe they'll be
bargains by the end of next week.
More money was lost on Wall Street this week than was made in
1999.
The Nasdaq Composite Index has now dropped 35% from its
record high close of 5,048 on March 10. Nasdaq is now down
19.6% year to date. The Dow is down 9.3%.
We're getting to the bottom. Monday morning will be awful. But
then things will start to look better. Read on.
Here's Technology Investor Magazine's take on what's
happening::
1. Margin calls drove the market today into free fall. As margin
loans were called and not met, brokerage firms dumped whatever
stocks their customers owned. They did this in a desperate
attempt to pay off the loans. The biggest margin loans were
always on technology stocks. Thus the Nasdaq selling. When the
Nasdaq stocks dropped so much, many people filled their margin
calls by selling NYSE stocks that hadn't fallen as much. Thus the
strong Dow selling. Today the Dow had its biggest point drop in
its history -- 618 points.
2. Tax selling hit with a vengeance. Many people made huge
profits on technology stocks last year. They delayed selling,
believing that gains in 2000 would pay their 1999 taxes. This
tactic worked until recent days when tax selling got panicky. Many
people have had to sell to raise cash. They sold indiscriminately.
Tax selling is now over. Tomorrow, Saturday is April 15.
3. Today's inflation figures were not wonderful. The jump in
consumer prices spooked investors. The Consumer Price Index
rose 0.7% in March, the biggest monthly increase since April,
1999. For the first quarter, inflation was up 5.8% -- more than
double the 2.7% of first quarter 1999. The Core CPI, which
excludes food and energy, was up 0.4% in March -- double what
economists expected.
Investors fear that inflation will undermine the value of their
assets. They also worry it will encourage the Federal Reserve,
which is obsessed with curbing inflation, to slow it by raising
interest rates and thus slow economic growth. Speculation is now
marginally rampant that the Fed will raise rates half a percent
(0.5%), instead of the expected (i.e. hoped for) quarter of one
percent.
Given the cratering of today's market, this fear may be
overblown. The "Wealth Effect" no longer exists. Removing the
wealth effect should be sufficient to slow down the economy and
the inflation. We'd be very surprised to see any rate increase by
the Feds at their next meeting, which is on May 16.
4. Several market "gurus" toned down their enthusiasm for
technology stocks. They recommended less of one's portfolio in
technology. In a turnaround, these gurus are now publicly stating
their long-term enthusiasm for technology stocks, e.g Abby
Joseph Cohen. She's on CNBC tonight at 7 PM EST. Watch her.
5. Microsoft, Motorola, RIMM and other technology
"disappointments" occurred before the good news of this
earnings season could counter balance. We've had excellent
earnings reports from Advanced Micro Devices, Ariba, Altera,
Sun and Gateway. They will continue and, in fact, accelerate next
week.
6. Most sophisticated investors have gone heavily to cash and
are holding back from jumping back in. They'll have to come back
in shortly. You can't achieve a reputation for being a great money
manager by sitting on cash forever. In fact, TrimTabs, a market
monitoring service, estimates that $10.1 billion dollars flowed into
US equity funds April 6, 7 and 10. That's a record for three days.
That means there's a lot of money sitting on the sidelines waiting
to be invested in equities.
Some (not many) money managers jumped back in at 3:50 PM
this afternoon. If you look at both the Nasdaq Composite Index
and the Dow Jones Industrial Average, you can see a big bounce
beginning at around 3.50 PM.
7. Recent market ups and downs have been a paradise for
daytraders, who have mercilessly hammered any weakness they
saw. These people trade through ECNs, bypassing "market
makers." Major firms like Morgan Stanley now make markets in
far fewer stocks than they did even a year ago. This adds to
volatility. When it tumbles, today's forces cause more tumbling. In
the old days, the "market makers" added some measure of
stability. No more. The daytraders now account for 35% of daily
volume on the Nasdaq and NYSE. That's a gigantic influence.
8. CNBC, CNNfn and newspapers have focused America's
attention on the markets, compounding the panic.. If you focus on
pain, it hurts more. CNBC now reaches 77 million homes and
offices. CNNfn another 12 million. That's an awful lot of panic.
Bars don't watch sports anymore. They watch the stock market.
9. Volume has been relatively light. Despite the little bit of "smart
money" at the very close today, smart money has stayed out. It's
waiting for some sign of "bottom" -- which, I believe, will be early
next week..
What now?
More immediate pain on Monday with more margin calls, few
buyers and lots of investors and institutions sitting on the edges
waiting for a sign that it's getting to an end.
Should you sell now? If you still have "junk" stocks, sell them.
They won't come back. "Junk" stocks are those that have a
problem or whose earnings have disappointed Wall Street. The
Street is increasingly merciless about stocks that disappoint. It is
also increasingly broad about its definition of what has
disappointed it. Microsoft, once highly venerated, now falls into
the widening "disappointed" category..
Stay with your quality. If you sell your quality now, you may miss
the turn. This is a very thin market. I know how thin it is. It was not
easy to buy a few shares at 3:55 PM this afternoon.
Should you buy now? If you have cash, grab the biggies. Applied
Materials, Cisco, IBM, Intel, HP, Nortel, Oracle, Qualcomm, Sun
and Texas Instruments -- what we call "Core" technology stocks.
In a week, today's prices will look cheap.
Above all, don't abandon technology. Don't flee to old economy
stocks. Old economy stocks are not a "safe haven." Warren
Buffet and Julian Robertson ignored technology, to their peril.
From January 1990 to now, technology stocks have done four
times better the S&P 500. Above on the right is a chart showing
the numbers.
Long-term, technology stocks do far better. They make far better
investments, because technology is where the real growth in our
economy is. How many more McDonalds can you open in
Dallas? How many more Gaps does New York need? (They just
closed one down across the road from my apartment. The store
couldn't make it. There are four others within one mile.)
Be diversified within technology. Technology is a continuum. At
one end are solid manufacturing companies with solid profits,
such as Cisco, Texas Instruments, IBM, etc.
At the other end are the totally speculative dot.com retailers and
sites that could never figure where their revenues would come
from (drkoop.com, about.com, etc.) and the free Internet music
companies -- ARTISTdirect (ARTD), NetRadio (NETR), CDNow
(CDNW) and MP3 (MPPP).
Too many junk "technology" and junk Internet companies
"e-tailers" have been financed in recent years. Most of these
companies are already down 90% and more. And deservedly so.
We've never written about them in the magazine -- and we never
will, except in jest. (I love our Closing Bid section at the back of
the magazine.)
In short, you can't lump technology into one basket. It's too big
and too complex for that.
This is why we publish so many portfolios of technology stocks
and technology mutual funds and why we label them -- core,
speculative, ultra-speculative, etc. It's also why we focus on
"Voyages of Discovery," so we can introduce you to more and
more interesting, solid technology with a serious future.
Be in the right industry sectors. This is not rocket science. As you
check out technology stocks, ask yourself: Will I buy this
company's product. Does it make sense? Next month we have a
"Telefonica Exotica" portfolio. They make sense. Overseas
telecom carriers are booming.
Technology is no different to any other product. If you enjoy your
new DVD player or your new GPS-equipped car, others will also.
You're not unique.
Reality and logic count. The technology stocks hit hardest in the
last few weeks have been flying high on heavy fantasy.
When the stock hits $170 and the first product is three years
away, you're on thin ice. Logic must eventually prevail. These
days it prevails very quickly.
Disappointments are death. Watch for them. Miss EPS by a
penny. Miss sales by a fraction. Bingo, the selling is merciless.
Get out fast. Do not hold a broken stock. I sold my few remaining
shares of RIMM a few days ago, saving myself the agony of
watching it fall further today. It deserved better than its recent
77% decline. But it didn't get it, because today's market is
merciless on disappointments, no matter how small.
Finally, don't watch TV. It only heightens your agita. TV reporters
have no idea what's going on, nor why. No one really does, of
course. My nine points above are my guess. I spoke to a zillion
people in the last few days. But this article is my best guess. My
reasons make sense to me. I will act on them with my own
money.
The TV reporters' job is not to explain, or to reassure. Their job is
to keep you watching. They do this by boiling your emotions.
Disasters are great for TV. Viewership goes up. They sell more
ads.
Best of all, the stock market is cheap to cover. You don't have to
send expensive camera crews to distant forlorn places. Every day
CNBC and CNNfn get dozens of phone calls from Wall Street
firms presenting their "gurus" as knowledgeable "talking heads."
Get yourself a PR firm. You too can get on TV.
For me, I'm trying to protect my and your portfolios with the best
advice I can muster. Stay tuned to this page and to the magazine.
Next week will be better, promise.
Email me on Harry_Newton@TechnologyInvestor.com with your
thoughts |
