From Harry Newton this morning.....
8:30 AM Tuesday, October 1, 2002: I hate being a bear. By nature, I'm optimistic. I'm an
entrepreneur. I believe in America. I believe we'll come through this with flying colors, as we
always have. But in the meantime, it's getting worse. Far worse.
As you know, the 1990s were a corporate capital expense boom. Capex spending teetered in
2000, got worse in 2001 and collapsed in 2002. What's held up the economy since then has been
the consumer, refinancing his mortgage and wildly spending the proceeds as if there were no
tomorrow.
The consumer is now abandoning the party. This is seriously bad news. Today's Wall Street
Journal says it all, "Shoppers cut back spending at some of the nation's big retail chains in September,
heightening retailers' worries about the all-important Christmas shopping season. Fearing that months of
economic bad news and uncertainty about Iraq may finally be sinking into consumers' psyches, many big
retailers have been bracing for a chilly holiday. Now, with what may be a big holiday iceberg
heading their way, retail companies are doing their best to manage inventories -- and manage investors'
expectations.
Wal-Mart Stores Inc., the world's largest retailer, Monday said September sales would miss
expectations for the second consecutive month. Sales at stores open at least a year are expected to
move forward just 3% to 4%, not 4% to 6% as previously projected. J.C. Penney Co. estimated
September same-store sales would be down 1% to 3%, revising its earlier estimate of flat sales or even
a slight increase. Target Corp. said September sales have been "well below" its plan of a 3% to 5%
increase at its discount Target stores and slightly less than that for the total corporation. The Minneapolis
retailer slashed its estimate for the month; it now expects same-store sales to be slightly below last
year's levels.
Through months of stockmarket declines, corporate scandals and job cuts, consumer spending has held
fairly steady. No amount of bad news seemed to stop some buyers from splurging on cars, houses and
other big-ticket trophies. Still, consumers show signs of growing stingy in areas such as clothing and
gifts."
It was, of course, sheer fantasy to think that successive waves of refinancing would hold up
consumer spending. After all, $7 trillion has been wiped off the value of American shares --
equivalent to two-thirds one year's entire GDP. (Think of two-thirds of Americans out of work for a
whole year.) And at least a million people have been thrown out of work permanently (including
500,000 in telecom alone).
You simply can't keep the consumer spending when he no longer has a job, or has a new college
graduate who can't find a job (e.g. my daughter) or has a relative who's just been fired or who has
a neighbor who's been looking for a job for over a year and has given up.
If you thought the September quarter was bad, wait until you see the results of the fourth quarter
-- the one we're presently in. Tech stocks have taken the brunt of the "hit." Nasdaq lost 21.8% in
the September quarter. Now it's time for the non-techie, blue chip Dow stocks to get hit. Dow only
fell 14.2% in the September quarter.
Today's techie shorts include IBM, Cisco, Intel and Microsoft. But the biggest shorts are the "blue
chips." Proctor and Gamble, Coca-Cola, 3M, Eastman Kodak, Johnson and Johnson, Exxon, Merck,
Caterpillar, General Electric and even Tiffanys. And there are others. Pick your own.
AOL Time Warner is clearly a cockroach stock. I remember telling readers of this column to sell it
short at $50. I can now see it falling below $10. There's too much "stuff" going on that's not good
for its business. Too many fishy smelly "deals." Too little growth. Too much rancor. Read the
latest in the Ted Turner/Steve Case spat -- today's New York Times. It's fascinating. Click here.
Ditto for Marriott, another cockroach stock. Marriott hotel owners are suing the company because
it's robbing them dry. The whole thing smacks of desperation. Check out this New York Times
story. Click here.
There are increasing bargains around in private investments as we Americans continue our
entrepreneurial adventures. Thoughts from those I've seen lately:
+ Only invest in companies whose products and services can absolutely positively save their
customers BIG money now. That's all companies are interested in -- saving money.
+ Do not invest on the terms you were initially offered. You can typically negotiate some extra
warrants, options, a lower price, etc.
+ Insist on certain conditions. There are four critical areas: First, reporting. How much and often
they'll tell you what's happening to your investment. Amazingly many don't commit to quarterly
reporters. Second, negative covenants. Management can't increase its salaries without your
approval. Third, what your role, if any, will be. Will you be a board member? Will you be an
advisor? What your reward / exit strategy is likely to be. Will they pay you a dividend, if they
haven't sold the company within five years?
+ And you'd better get it all in writing. Verbal agreements stink in today's world. More and more
executives are using today's tight economic conditions as an excuse to renege on their
agreements. Sad, but true.
The end of a miserable quarter. God, am I pleased that my consistent advice this year has been
to stay out of ALL equities -- tech and non-tech. Think of how much money we've all saved. My
advice remains: Stay away from all equities. Short only with monies you can afford to blow. And
keep a tight 15% stop loss on your shorts. |
