One should not think that the market can't head further south.. That would require that the market be rational, and we all (who have been around for awhile) know better than that. I think however that the comments of people like Fleckenstine aside, the fact that the Fed could further take up rates, raising the cost of credit and slowing down the economy may hurt other sectors much more than ours. Ask yourself this: If the money leaves the stock market, where's it going to go? I submit the following:
The two darkest fears that anyone has is (1) a crash associated with a perceived speculative bubble in internet stocks, and (2) of a protracted bear market. Look at each in turn...
(1) The debate over and scrutiny of internet stocks has been going on day by day for months. The steady flow of information about them fails to reveal any true way to evaluate them, but the flow of information from quarter to quarter keeps prices moving and fails to knock them down. Furthermore (and let me say I personally have only ever owned two dot.com companies, and I sold one of them after 3 days - the calls on AOL that I own now is my other position) everyone knows the volatility associated with them, and I think a very tiny percentage of America's wealth (and particularly retirement money) is tied up in companies like that. I think most fund managers with a fiduciary responsibility to their clients would not touch these firms, but let me say that I'm not sure about this and have no numbers in front of me. However, I think its understood by all and sundry that if you buy an internet stock up 10 times off of its IPO offer price and that baby tanks, well shit happens. My point is that even were a crash to take place as a result of the perceived internet bubble, while some people would lose their asses, America's wealth would not be in danger, the economy would be largely unaffected, and the market would sail on. The internet bubble problem is vastly overrated, even if it were true, and that is in no way clear.
(2) The Protracted Bear Market: CANNOT happen again, ala the decade long trauma that was the stock market in the 1960s. The reason is the flow of information. The 1960s and investing was an absolute dark ages with respect to the flow of information. Now, with the very technology that provides the service that you're all utilizing right now, more people than ever are figuring out (a) how professionals analyze stock values, (b) alternative measures of price to earnings, price to cash flow, sector pricing factors and anomalies, how the market prices growth, the effects of growth rates in sales and order flow (witness the market reactions to the book-to-bill numbers in the semiconductor sector) etc. The point is, if valuations approach absurdly low levels, investors pick it up and start to buy the assets for the cash flow characteristics they represent. There was absolutely nothing like this kind of flow of information 30 or 40 years ago. With people this alert, they do not leave buckets of money (be the cash flows in the future) laying around for decades anymore.
Now all of this is not to say that there can't be a gambling crazed mentality at work that drives prices away from fundamentals in absurd ways. But now let me ask, where is that taking place in the existing market? The Dow? The S&P? Small caps? The answer: NASDAQ!
We keep coming back to the internet sector. While the jury is still out with respect to dot.com commercial ventures that use the web as their business medium, no one in their right mind has any doubt about the web itself being the killer application of our time. The play is still, and always has been, to buy the companies that make the internet work. The internet infrastructure companies. Has that changed? Not at all. Does everybody know that? Maybe not, but they are starting to figure it out. I really don't even fear a meltdown in dot.coms that much, in that I think that money might also find its way towards our sector, although there would be momentary pain for everyone.
And finally, a few words about Fleckenstine.. He makes a living (as far as I can tell) shorting stocks. What do you think he's going to say? A personal anecdote about old Bill.. Two or three years ago, when I was hanging out on the Cymer thread, it came to our attention that Bill was recommending shorting Cymer, which was around $14 I think, at the time. It did go a bit lower, to around $12 I think.
His comment at the time was "its a firm that makes light bulbs, and now it has a competitor." The stock closed Friday, down over $3 at $54 9/16. The light bulbs are eximer lasers used to etch silicon chips, and Cymer has a near lock on that market niche. Fleckenstine makes money when stocks tank, whether what he says is true or not. I just wonder how many people listen to idiots like him anymore. For the time, I think the market is waking up to the scare mongering that goes on to drive prices down. Fleckenstine and people like him do at least as much as people willing to pay $100s for internet stocks to increase market volatility. Oh well, that's all for now. jb. |
