The market's death seems somewhat exaggerated so far:
By ALEX BERENSON (NYT)
In Owings Mills, Md., Monday morning, T. Rowe Price prepared for a major accident. Expecting a flood of nervous phone calls, the mutual fund giant put 200 employees on standby to support its usual staff of 100 telephone representatives.
But by noon it was clear that the company was more nervous than its investors. Wayne O'Melia, president of the service operation, said that only about 50 of these extra hands were needed, because calling volume ran only about 10 percent above normal. "This is a nonevent compared with '87," O'Melia said.
Like O'Melia, financial professionals and individual investors everywhere Monday seemed to be awaiting a disaster that did not come. From the floor of the New York Stock Exchange to the headquarters of the National Association of Securities Dealers in Washington, the mood in the morning was tense.
But as investors who fled the market last week stepped up to buy again Monday afternoon, the weekend's awful warnings faded and Wall Street's naturally bullish bias returned -- at least for the moment. By day's end, many professionals were even saying that last week's plunge, although painful, might have done some good by ending a speculative bubble and clearing the way for a steady, but slower, advance.
"We are seeing a whole different side of the market that we didn't see Thursday or Friday," said Joseph Cangemi, a floor supervisor on the New York Stock Exchange with Francis P. Maglio & Co. "You are seeing a bounce off the bottom with the fresh money coming in."
"This is healthy," he added. "Today is a good reaction. There was a lot of excessive value in the market. It needed to self-correct, to even itself out. People can't keep buying so one-dimensionally and expect a return with no risk."
In Washington, Patrick Campbell, chief operating officer of the National Association of Securities Dealers, arrived Monday prepared for another rough day. Instead, the data flashing on more than a dozen video screens in the windowless room signaled an orderly morning on the Nasdaq.
The biggest scrum Campbell saw Monday was outside the NASD's Washington headquarters among people protesting against the World Bank and the International Monetary Fund. Inside the NASD building on K Street, away from the sirens and helicopters and police bullhorns, the "war room," where top NASD officials keep watch on the Nasdaq, was a relative oasis of calm, Campbell said.
Looking back later, Campbell said, "A lot of the first hour was the emotional part." But once the market absorbed selling by investors who had to raise cash to pay off loans used to buy stocks, buyers were lured back by the prospect of strong earnings reports and a fundamentally sound economy.
"I think things have stabilized here," he said.
Not that the morning went perfectly. At just past 10, James Raphalian, a stock trader for SG Cowen in Manhattan, suddenly found himself unable to do his job because of a computer problem -- on a day that many investors thought might set records for volatility.
Quickly, Cowen stopped making trades in many stocks, worried that it might lose money offering outdated prices in a fast-moving market. "Explain to me real carefully what in God's name is going on here," Raphalian said to a worried technician in the middle of Cowen's trading floor, a three-layered pit of voices and computer screens.
But the crisis did not last. Within minutes, Cowen had fixed its computers, and Raphalian could trade shares to his heart's content. And trade he did.
At T. Rowe Price, which manages $180 billion in eight million accounts, some callers did switch investments from the firm's science and technology mutual fund to less aggressive funds, and some asked that automatic investments taken from bank or from money market accounts be deferred this month.
But phone representatives also reported nearly as many bargain hunters as sellers, including one Texas man who bought T. Rowe Price's science and technology fund on Friday and eagerly did so again Monday. "A lot of people are just going to hold out -- hang in there," said April Blahut, a telephone representative who fielded a steady succession of calls with aplomb.
Relatively few people commented on the state of the market, Blahut said, while on Friday many callers had asked, "Hey, what's going on?" After handling about a dozen calls between 10:30 and 11:30, Blahut reported that just one customer cashed in shares. In contrast, Blahut said she had more than 25 redemptions during her Friday shift.
At the T. Rowe Price walk-up counter in a neighboring building, Derek Dry, manager of the investor center, said he expected about 225 customers Monday, about three times normal. But most people were setting up or adding to retirement accounts and the rest were split evenly between buyers of either stock funds or money market funds.
"Nobody's selling," Dry said.
Telephones were also relatively quiet at Baron Capital, a New York money management firm. And Morty Schaja, Baron's president, found himself less nervous than he had been after the 1987 crash, when the Dow Jones industrial average fell 22.6 percent in a single day.
"Unlike in 1987, I clearly didn't feel the world was coming to the end," he said.
The difference is that the United States economy is far stronger now than it was 13 years ago, Schaja said. "Now it's a valuation issue, it's an adjustment," he added.
In fact, Schaja expressed some relief at the recent declines, although his firm has not escaped losses. "All the attitude by the retail investor has been this new age, new world kind of investing," he said. "That psychology has to be broken. In the last year or so, we've been in a trader's environment."
The buying by individuals extended past mutual funds to stocks, according to Birinyi Associates, a Connecticut-based stock market research firm. Individuals put about $850 million into New York Stock Exchange stocks, while institutions added around $450 million, with most of that coming in the last half-hour of trading, Birinyi said.
That bullishness extended to the West Coast, where countless employees of new-economy companies have grown rich on the market's long boom. At a San Jose, Calif., office of Charles Schwab, the discount brokerage, few investors seemed worried.
"We're in it for the long run and we're holding everything," said Owen Delong, 34, a network engineer for Exodus Communications.
Nancy Coldwell, 49, vice president of marketing for Cohera, a start-up, said she had no plans to sell. "I think dumping out just makes it worse," Coldwell said. "And dumping out now, you're at the bottom, and I think that's just stupid. In 1987, I held, the same way that I am now."
In Seattle, John Keister, the president and co-founder of Go2Net, a network of Web sites, said he thought last week's sell-off would be "very healthy for the Internet industry."
Go2Net was hardly unscathed in the Nasdaq's tumble. Its shares plunged from $97 on March 27 to $47.875 on Friday, erasing more than $1.6 billion from its market valuation. But Keister said he believed his company would be able to handle a coming shakeout among Web sites, because unlike many young Internet companies, Go2Net is actually profitable on an operating basis. And Monday its stock bounced back to $55.25.
"A year ago, people were saying to us, 'Why did you turn a profit so early, why aren't you spending money like it's going out of style?"' Keister said. "But I think it's important to have a strong business model."
Keister was less optimistic about the future of his money-losing competitors. "Not everyone should be a winner here," he said. "A lot of companies were, and still are, overvalued."
Meanwhile, Internet chat rooms were filled with a blend of hype and insults, with bulls regaining their swagger as Internet favorites like JDS Uniphase turned sharply higher in afternoon trading. "Shorts hope for a sell-off -- it's over," a day trader called "Stimemarket" wrote. "My broker says buy."
As trading closed at 4 p.m. with the Nasdaq up more than 6.5 percent, Raphalian, the head of Nasdaq trading for SG Cowen, breathed a sigh of relief at the bad day that he -- and investors everywhere -- had dodged. "Money came back into the market," he said. "We're a lot better than how we started out."
"I am so tired," he added. "It was a long day, but a good one." |
