State of the Web: Banks Under Pressure
By James J. Cramer
2/27/00 10:00 AM ET
Where does the intersection of Wall Street and Main Street hit home?
Where does the decline in the New York Stock Exchange/S&P 500 names do the most damage? I think it might be the banks. Here's why: The bank stocks are under tremendous pressure. They go down pretty much every day. One look at the yields at Bank One (ONE:NYSE - news - boards) and First Union (FTU:NYSE - news - boards) -- both north of 6% -- even though they aren't losing money. This is extraordinary. We don't see yields like this except during times of extreme stress in the banking industry.
While neither of these companies has executed that well, it's no secret that they're being punished, along with the rest of the industry, for the boom time in the economy. The Fed has one instrument -- short-term rates -- to cool things off. And it wants to cool things off, regardless of the fabulous productivity and the tremendous gains in the economy that the Web has brought. Obviously, these gains can't be measured by the data the Fed is using because away from the New Economy, not only is there no inflation, there is terrible deflation.
If I were running a bank, I think I'd be faced with a difficult decision. I know I'd have just spent hundreds of millions of dollars to be Y2K compliant (why didn't IBM (IBM:NYSE - news - boards) or Unisys (UIS:NYSE - news - boards) tell me about this when I installed their stuff years ago? Did they create this problem to stimulate their own demand?). Now I would want to spend billions making sure that my company was the most Net-centric wireless Internet bank in the world. I would want secure access to my account from my customers' cell phones. And I would like to offer my customers banking and trading worldwide, both online and off.
Alas, however, my stock is tanking. I want to support my stock. So I'm faced with a terrible choice: Buy the tech I need, or buy back the stock I can't bear to see this low.
I know they're probably thinking the exact same thing at Merck (MRK:NYSE - news - boards) and Bristol-Myers (BMY:NYSE - news - boards) and Lilly (LLY:NYSE - news - boards). They see their stocks on the 52-week low list, too. They know they have bought back billions upon billions of dollars at much, much higher prices. Just as I have.
What do I do?
To me the choice is clear: You have to spend for the future. Otherwise, AOL (AOL:NYSE - news - boards) and Yahoo! (YHOO:Nasdaq - news - boards) and Nokia (NOK:NYSE - news - boards) will become the banks of the future. But will institutions sell my stock if I don't support it? Oddly, what Greenspan might be doing with his tightening is shifting my free cash flow from tech to the stock market to help my ailing securities.
That would be the true shame of the tightenings. But I know that's what is going to happen.
What a silly way to run an economy! |
