From Raging Bull:
By: jmootx
Thursday, 22 Feb 2001 at 7:46 PM >
The NASDAQ is about to break down to the worst decline not seen since 1929-1931. The reciprocal aftermath in the 1930's caused a run on the banks, an instant loss of wealth plus savings, leading to the Great Depression's liquidity trap. Well the good news is the banks are secure. But how many of us have savings in a bank?
Instead of a run on banks, we have a run on the internet economy. Yes, the pundits on Wall Street who valued 'new economy' stocks like Amazon at $400 just one year ago have run away from these companies and left them for broke. They funded them, took them to the IPO market, sold their holdings, then denied them any new cash to survive. Now 80% of the internet e-commerce is bankrupt. That is billions of dollars of lost market cap. So this market crash event is a 'run on business' rather than a run on the consumer.
Both scenarios are devastating. Sun Microsystems is in a rapid decline as the internet economy has collapsed. So is demand for fiber optics, and the like. As for that matter, so is everybody who rode their 401k's and stock holdings in technology. There is a top down effect going on. We depend on stock to base our savings and spending plans, and without the internet economy, technology stocks that supply the components to this area do not have the business to sustain their PE multiples. Just the reverse of what we saw in 1999. This is very dangerous. Alan Greenspan can not cut rates either with energy prices so high, otherwise 1970's stagflation threatens to re-emerge. The inside forecasts look very bad---many now see the NASDAQ hitting 1500. Remember the PE ratio on S&P 500 stocks is still at 25 times trailing earnings. In 1974, the PE bottomed at 5. We are in a 1929-1932 stock market liquidity trap again. Not that there won't be rallies, but we are a long way from resolution. DO NOT BOTTOM FISH THIS MARKET!!
John Moomau |
