MARK TO MARKET: Not Everyone Has Joined The Parade
05 Mar 07:35
By Jim Murphy
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--"MURPHY! You better GET WITH THE PROGRAM!"
That's what my drill instructor, Sgt. Paul, told me at basic training at Ft.
Benning, GA, in October of 1967. And November. And December.
But, of course, I never did.
Thirty five or so years later, many professional observers of Wall Street
also have yet to get with the program.
Like me, they looked at the sharp gains in the major stock indexes on Monday,
which came on top of the hefty advances on Friday, and exclaimed, "Hey, what
was that all about?"
Current price-to-earnings ratios of many of the component stocks of the major
indexes are still richer than Sacher torte when placed in an historical
context, these gimlet-eyed observers say.
We've so far seen only the merest fraction of companies that will be forced
by Enron fallout to abandon Mojo accounting and to come clean on their lack of
earnings, these observers say.
I like to think of myself as crusty and cynical. But Colin, who manages money
across the Hudson River, makes me look like Julie Andrews in "The Sound of
Music."
Here's Colin's latest take:
"It stupefies me to see the politicians at the Treasury and the Fed talking
up the economy's prospects when they should realize that this will lead to
stock valuations even higher than the current obscenely high levels - and
higher interest rates. Both these developments will undermine a true recovery
and lay the foundation for a serious asset problem in the future. Lower stock
prices and lower long-term interest rates would be in the direction of a
normalization of economic/financial balance. Sad."
I'm with you, Colin. And Blair the Bear from up North is also in full
agreement. But perhaps I agree only because I've suffered since birth from acid
reflux of the mind.
Maybe hundreds and hundreds of P/E's aren't bloated. Maybe they'reanother
new paradigm of the new economy. (Columnist jumps on desk, begins dancing, and
breaks into solipsist's theme song, "As long as I need me/I know just where
I'll be ...")
PREDICTION: The major U.S. stock averages will contract Tuesday by 1.2% to
2.1%.
REASON: Profit-taking.
It's Going To Be A Stretch
The Institute for Supply Management's "non-manufacturing business activity
index" for February is poised this morning to punch through 50 - the index for
January was 49.6 - just as its huger, older brother (or sister, if you prefer),
ISM's manufacturing activity index did on Friday.
For the non-manufacturing index, as for ISM's manufacturing activity index
(MAI), 50 is the demarcation line between contraction in the sector being
scrutinized and expansion.
ISM'a service sector index hasn't even been around for two full years -
nowhere near long enough to merit the respect accorded to the MAI, even if the
U.S. is now much more a services economy than a manufacturing economy.
Why, some economists don't even refer to ISM's monthly non-manufacturing
index on a regular basis.
Be that as it may, ISM's non-manufacturing index will be reported - at 10:00
a.m. EST - to have burst through 50 in February, just as the February MAI was
reported to have done on Friday.
The news will come as no surprise.
The surprise will be if the non-manufacturing index propels the major stock
averages as high as the MAI did on Friday.
Also, the MAI topped 50 in February for the first time in 18 months whereas
we've recently had a plus-50 service sector barometer - the exceedingly modest
50.1 reported for December of 2001.
That's When I Woke Up
At 4:01 a.m. EST, don't ask me why, Costco Wholesale Corp. of Issaquah, WA,
reported net income for the second fiscal quarter of 41 cents a diluted share,
thereby matching the Thomson Financial/First Call consensus estimate of
analysts who follow the company.
Costco said it will discuss the results with analysts and civilians in a
conference call at 11:00 a.m. EST.
(Jim Murphy can be reached at (201) 938-2145 or
By e-mail at Jim.Murphy@DowJones.Com)
(END) DOW JONES NEWS 03-05-02
07:35 AM |
