Hi Joelle--after this week I have no energy for personal battles, I think we should ignore those who we dislike, and just work together to be prepared for next week. Over on Voltaire's porch people were pretty nice last night. Are you sitting out the market in cash already, or? Here's an interesting article:
Broken Rules, Shattered Expectations
By Laurel Kenner and Victor
Niederhoffer Columnists
04/15/2000 9:34 AM
If you can meet with triumph and
disaster
And treat those two imposters just the
same,
You'll be a Man, my son!
-- Rudyard Kipling
Every rule on the stock market was
broken last week.
Buying after panics didn't work.
Buying on interest-rate declines didn't
work.
Buying on a Friday to play the odds for a
favorable government economic report
didn't work.
Buying at resistance levels didn't work.
Buying good stocks didn't work.
The one rule that was not broken this
week was the principle of ever-changing
cycles invented by Robert L. Bacon. In
Secrets of Professional Turf Betting,
Bacon wrote:
"The crazy gambling urge and speculative
hysteria that overcomes most players
(makes losses) an certainty. But if the
public play ever did get wise to the facts
of life, the principle of ever-changing
cycles of results would move the form
away from the public immediately."
Bacon was talking about betting on
horses, but the principle is even truer for
stocks. When you get accustomed to
making money a single way, too many
people barrel in. They bull stocks up to
unprecedented, unjustified levels, and
when they run for the exits, the devil take
the hindmost.
That said, we don't share the glee of the
bears. We found their snarls on Friday
horrible and unseemly. As one veteran
bond trader said: "The economic gurus are
even now calling for a 50-basis-point rise.
We think it's psychic revenge for having
missed for themselves and their clients the
biggest bull market in history."
What hideous joy abounded on Friday:
punishment had finally come to the upstart
innovators. How dared the 20-somethings
attempt to make millions on good ideas,
the Warren Buffetts asked in their
computer-less offices. And how dared
those who couldn't meet the minimum for
opening a white-shoe brokerage account
presume to trade stocks in their little
online accounts?
The old regime has had its ugly laugh. We
hope it doesn't last. And may all of us
come out of this month wiser as well as
poorer.
As Christy Mathewson, whose three
shutouts for the New York Giants in the
1905 World Series still stand as a record,
said: "You can learn little from victory.
You can learn everything from defeat."
It Had to Happen
From the armchair of perspective, it had to
happen. People were too comfortable after
the miraculous rally at 1 p.m. on April 4,
when the Nasdaq rebounded from a
575-point loss. When the market retested
those lows today, it created panic. And
then trend followers, delta hedgers,
margin liquidators, chart watchers and
fearful ones just joined the stampede.
Because no brokers were around to stem
the online exodus, this became another
chapter in the book on New Economy
investing, wrote reader Mark M. McNabb,
Ph.D.
The net result: A week of five consecutive
declines for both the Nasdaq and the
Standard & Poor's 500 Index. The
Nasdaq's 25% drop this week was the
greatest weekly loss in its 29-year history.
The Dow's 618-point loss was the worst
point decline of all time. The S&P 500
ended the week 10.5% lower.
Just two weeks ago, at the end of March,
the Nasdaq 100 June futures touched a
high of 4,488. That was 47% above a close
of 3,050 on Nov. 30, before the December
run-up. The contract's close of 3,217 on
Friday, 65 points above the day's low of
3,150, gave up the entire 47% gain.
Stocks that had traded above $200 in
March closed below $100 on Friday.
Xclera.com (XLA: Amex), Commerce
One (CMRC: Nasdaq) and Human
Genome Sciences (HGSI: Nasdaq) are just
a few examples.
No Other Time Like This One
There's hardly a precedent for this.
If we use 1987 as a guide, the wealth's
disappearance may affect the economy, at
least in New York. In Manhattan, streets
were emptier than usual last night, and it
was unusually easy to find a table at a
restaurant. People spoke of their tax bills
and their stocks in the same breath.
"I owe $8,000 on my estimated tax, but
now I can't sell my stocks, so I'm in
trouble," a young woman said as she
walked along Broadway on the city's tony
Upper Westside. People shopping for
apartments asked sellers whether the
market crash would affect real estate
values, as happened after the 1987 crash.
The decline has already affected
individuals' lives. A friend who made a
million by carefully picking biotech stocks
says he'll have to look for a day job now.
People who bought on margin are in even
worse shape, he added. "Spoke to a friend
from New York City who had to borrow
from his life insurance policy and is still
$75,000 short."
Buying Opportunity?
Even if the vicious cycle isn't over, it's a
good time to recall that 1987 was a great
time to buy stocks.
The question is when and how.
The Chicago Board Options Exchange's
Volatility Index, which measures
expectations for changes in options prices,
closed at 39.33 Friday, the highest level
since the above-40 readings in October
1998, when Russia's debt default brought
the world's financial system perilously
close to collapse. For the past few years, a
reading of above 30 has been a buy signal.
But in this new market, the reliability of
the indicator is untested.
Looking at individual stocks that showed
strength amid Friday's decline yields few
insights. All but 13 of the S&P 500 fell.
And four of the winners were gold stocks,
a phenomenon that since the inflationary
1970s is seen only in times of the greatest
fear.
Today's carnage was too great for two
people to extract the full monty of
meaning, but our readers weighed in with
great wisdom.
Paul Lewis of San Francisco responded
with Churchillian grandeur to the assault
of the bears. "I sold my GE (GE: NYSE)
and Goldman Sachs (GS: NYSE) today...
to hell with the financials. I live and die
with tech," he wrote Friday morning. "It is
MY business. I bought a TON of SUN
(SUNW: Nasdaq) at dawn, and if that sun
sets, then my whole game falls where the
sun doesn't shine."
He added: "I made a bunch by buying
The Day After in October 1987. I will be
buying by this quarter's end, and living to
jig, not hobble, again. Take that to the
streets."
(For the record: General Electric closed
3.7% lower on Friday and Goldman fell
13%. Sun Microsystems fell 1.6%.)
We found some sustaining thoughts in the
Rudyard Kipling poem If. A search
engine yielded 16 different Web sites
where this poem is posted. Here is one:
newtrix.com. |
