Crazy? Or just the last gasp of the dying bulls
Dr Greenspan's rate cut euphoria only lasted a day last week.
By Brian Hale
American investors, traders and fund managers haven't gone completely crazy ... it just looks that way.
In four trading sessions in the new year they generated more movement in some indices than they once might have seen in an entire year.
Nasdaq's Composite opened the batting with another 7.2 per cent tumble; followed that with a record single-day rocket-shot gain of 14 per cent on record volume; dropped almost 2 per cent the next day and then fell away again on Friday to end with another tumble of 6.2 per cent that left it 2.6 per cent lower than at the start of the week.
Oh, and the Dow Jones Industrial Average tumbled 250 points (2.3 per cent) on Friday to end its week at 10,662.01 points - 1.1 per cent down from where it started the week after tracing a similar pattern to Nasdaq.
Put it all down to nerves and fear battling with greed. No-one wants to miss the bottom now that Nasdaq has more than halved from its glory days but no-one wants to ride any further down with it either. Depending on the day, and the time on that day, either possibility seems open. Nervousness also is compounded because some experts expect the Dow and S&P 500 to crack like Nasdaq before it's all over.
Picture Wall Street as the tiny scientist plaintively squeaking "Help me, help me" from the spider's web in the closing scene of The Fly. Or picture it as Oliver Twist asking Alan Greenspan for another helping of interest-rate-cut pudding.
Camelot returned briefly for a few hours after the Fed chairman unexpectedly slashed interest rates by half-a-per cent on Wednesday; then the fear and the hunger crept back because no-one was quite sure what the Fed saw that warranted such drastic action.
One theory was that it knew Friday's employment numbers would be a shocker so was getting first-mover advantage - enhanced by striking at lunch-time when Chicago's S&P 500 index futures and Nasdaq futures pits were thinly-staffed - thus guaranteeing the most impact.
At first look Friday, that theory dissolved. The jobs numbers didn't look too bad although behind the headlines the stronger-than-expected numbers (105,000 new non-farm jobs, unemployment stuck at 4 per cent, average hourly earnings up 0.4 per cent), didn't hold up to the light.
Half of the new jobs were in government, manufacturing lost another 62,000 jobs and workers spent less time at work - all consistent with the trail of evidence showing a rapidly braking economy but not one skidding enough to warrant another 50 basis point interest rate cut at the end of the month.
More to the point, not enough to have justified the Fed's panicky action mid-week not to mention its assurance that it will cut rates again nor the word going around that there will be another 50 basis point cut at the end of January possibly followed by another 50 basis point cut in March. It's not so long ago that the markets were hoping that the Fed wouldn't hoist interest rates again in the fourth-quarter.
Fear-motivated eyes then turned to the nation's largest bank, Bank of America. Trading in its shares had been halted pending news and everyone feared the worst. The bank warned a month ago that bad loans would cripple quarterly profits so the market fretted about the bank's loan exposure to troubled electric utilities in California or possible losses from trading euros.
The jitters spread across the banking sector and, as the whole market sagged, across the Atlantic to turn European exchanges negative too even though the Bank of America issued a statement denying all the speculative rumours, said it was "business as usual," insisted it hadn't lost its shirt (or even a cuff) in derivative or other trading activities, and said it was comfortable with its guidance for credit quality in 2001.
But it stayed under pressure with its share price falling 7.3 per cent, helping to take down rival JP Morgan Chase by almost as much, with some people still worrying about a credit crunch at the banks and fearing that the Fed move was a disguised bail-out for the financial sector.
Meanwhile, the Greenspan rate cut was beginning to look inadequate against the growing tide of earnings warnings - maybe tsunami would be a better word.
Technology stocks were supposed to go on rising for ever and ever but the warnings along with every hint of the economy growing less than expected is drowning hopes that lower interest rates will revive profits.
Cisco led the way downwards with another 12.4 per cent tumble Friday. The supplier of networking gear was the largest cap stock in the world for a while last year when it was worth $US570 billion. It's now worth half that.
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