Laughing my ars arf!!!
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Watch out below!
By
R Sivanithy
SINGAPORE - Looking at Wall Street's performance in the past few months, one can't help but be
reminded of Wily E Coyote in the Roadrunner cartoons. No, we're not talking about his resilience in
constantly coming back for more punishment despite being routinely crushed, mauled, pulverised,
flattened, burnt to a crisp and blown to bits in every episode.
We're talking about the image of him dashing off a cliff while chasing the elusive Roadrunner, legs
pumping madly to try and stay up, but eventually not only missing his prey completely but also ending
up plunging out of sight.
Such is the situation now in the US, where hapless investors are watching a market filled with crooks
and cheats try desperately to stave off a full-blown crash.
Despite encouraging noises in the past fortnight by president George W Bush and Fed chief Alan
Greenspan (think: legs pumping furiously until they form a blurred circle) the market hasn't responded
and in fact has gone into total reverse (think: Wily E. Coyote, arms and legs splayed, a grimace frozen
on his face, receding rapidly into the distance until only a tiny plume of smoke marks his landing spot).
Worse, on top of all the crooked accounting that padded the books in the past, we now find that future
earnings and the pace of economic growth aren't what the market thought they'd be.
In this connection, the words of fund manager Marc Faber, quoted in this column on Jan 28 this year,
spring readily to mind: "the American economy is a disaster waiting to happen. Greenspan's interest
rate cuts have supported consumption artificially and borrowed from the future. The so-called booms
in car sales and housing will come to a bitter end. Greenspan basically moved the bubble from Nasdaq
into other sectors of the economy and these bubbles will also burst".
The final nail on the coffin is that even with all the support provided by bogus book-keeping, there may
not have been any US earnings at all worth speaking of over the past decade. This was the chilling
conclusion reached by analysts Ben Stein and Philip Demuth in a July 15 article in Barron's.
While evoking stark Roadrunner imagery, the writers state "since peaking in the third quarter of 2000,
S&P 500 earnings have fallen more than 50 per cent. This is the greatest percentage drop since the
early 1930s. S&P profits have fallen to roughly the same level in 1993 - the longest period of no
growth since the decade of the 1930s".
"Profits of the 30 Dow stocks have fallen by 40 per cent since their peak in autumn 2000. Again, this
is the worst dive in Dow's earnings since the early '30s".
"In certain sectors, the story is even worse. Everyone knows that the electronics sector is weak. But
not everyone knows that its earnings have fallen from a positive US$23 billion annual rate in autumn of
1997 to a loss at an annual rate exceeding US$9 billion currently..the entire profits of the
manufacturing sector are running at about half what they were in mid-1997".
The authors conclude that "what we are witnessing in earnings in recent quarters is a Great
Depression in profits, a collapse in earnings as deep and frightening as anything we've seen since our
parents were scared for life".
As for the local market, the link with Wall Street remains as strong as ever and despite the occasional
disconnection in the past few weeks, it would be foolish to think otherwise. Traders should therefore
brace themselves for a rough week ahead in which the market's recent resilience will be tested to the
limit.
As for where the eventual landing site may be, what's worrying is that technicals may be useless at
the moment - chartists have been saying that because it is "heavily oversold" the US market is set for
a bounce for the past two weeks and yet the Dow has lost almost 15 per cent during that time.
Brokers and other commentators will no doubt try to keep a brave front and speak encouragingly of
"bargain hunting" and "major reversals" forming in the charts, all the while knowing that things are apt
to take a turn for a worse at the drop of a hat.
There will of course, be periods of calm during which short-covering will help push stock prices up and
for investors brave enough to try their luck and lucky enough to get the timing right, there is money to
be made.
But all bounces this year have been short-lived and investors would do well to remember this. After
all, it's a long way down and even when the bottom is reached, there may not be a bounce. Just ask
Wily E Coyote.
Copyright © 2002 Singapore Press Holdings Ltd. All rights reserved. |
