Three Card Monte dealers mentioned again: "Do Diligence By Alan Abelson
Bookings on the Titanic.
If interested, please contact the New York Stock Exchange and
Nasdaq.
In an act of unsurpassed altruism, both of those estimable institutions have
chosen to share their wealth and good fortune with the average man in the
Street.
They plan to do so, as all the world now knows, by going public. And rather
than keep panting investors in a state of insufferable anticipation, the Big
Board at least vows to move heaven and earth (it has great connections) to
launch its IPO before the snow flies.
Why now?
Because the time is ripe. Or, more finely, investors are ripe. And, what has
long separated man from the lower orders is the knowledge that, when
something's ripe, you pluck it.
No doubt there have been times since the first specialists set up shop beneath
the Buttonwood Tree that the eminences reigning over the Stock Exchange
toyed with the notion of going public. What dissuaded them was a vexing
paradox: During periods of high excitement in Wall Street, they somehow felt
not the slightest impulse to offer a piece of the lucrative action to total
strangers, and, contrariwise, during those stretches when investors were in
their right minds, shares in the Stock Exchange were an impossible sell.
Pure and simple, there has been no time like the present, a fortuitous fact that
the perceptive bosses of the bourses have been quick to grasp. A monster
mania has made the pulsating masses receptive to even the most problematic
new issue, while a certain business imperative has made the exchange
leaderships eager to have the public clamber on board as fellow owners.
What precisely, you may well ask, is that business imperative? Merely this:
There's a reasonable possibility that new and powerful rivals will leave
Nasdaq and the New York Stock Exchange with very little wealth to share.
The dimensions and nature of this competitive menace, which goes under the
insalubrious name of electronic communications networks, were laid out in
graphic detail in this magazine last week by Bill Alpert.
Few things serve to concentrate the mind as keenly as even a remote threat of
extinction. And the exchanges have responded to the challenge by deciding to
open their hearts and their equity to the public, allowing even the humblest
investor to contribute his dollars to the cause.
If the strategy, which seems to entail the NYSE and Nasdaq using the money
raised to start up their own electronic communications networks and/or
buying into existing ones, fails, the public will have the satisfaction of financing
a noble, if futile, effort. If the strategy works and the exchanges continue to
flourish, they can return to their previous state of grace via a leveraged
buyout, in the process relieving the public of the burdens of shared ownership
by going private.
Disclosure of the planned IPOs immediately generated an outpouring of
learned opinion by money managers, day traders, chat-room devotees, TV
talking headcheeses and kindred scholarly types on the merits -- or minuses
-- of the New York Stock Exchange, the stock. The most alarming comment
came from a very wise old Wall Street hand when asked what he thought of
the Big Board going public. He replied with another and absolutely
unanswerable question: "Who cares?"
That's the kind of subversive attitude that, unless promptly quashed by the
authorities, could sink the offerings without a trace.
So, of course, could a few more weeks of sick markets.
Life and the stock market, last week's shooting in Atlanta again made
starkly clear, not only bear little relation to each other but are often mirror
images. In life, to paraphrase a familiar refrain, what begins as tragedy often
ends as farce; in the stock market, what begins as farce often ends as tragedy.
At least in its most recent incarnation, day trading largely has been an exercise
in silliness. What could be more farcical than the idea that any of us bumpkins
equipped with a computer, an online connection and a little spare time could
make his fortune trading stocks?
This kind of running joke was fed by the mindless mewlings of TV pitchmen
and gee-whiz accounts in the public prints of programmers, potato-chip
salespersons and grease monkeys who quit their jobs and found riches and
happiness in a few hours of daily speculation.
Mark Barton, the chemist turned day trader who wrought such bloody
murder and mayhem, manifestly was unhappy and, apparently, in financial
distress. While there's credible suggestion of serious tensions in his marriage,
the venue he chose for his rampage was a pair of brokerage offices, rather
persuasive indication that a bad trading experience was the locus of his rage.
Mr. Barton's berserk action got us to ruminating on what the consequences
might be should this great bull market end in tears and a dizzying descent,
leaving a scorched financial landscape in its wake. Those consequences
would be particularly severe because everyone and his grandmother is in the
market and because the economy has been riding an eternally expanding
stock market bubble.
Hopefully, recriminations, no matter how bitter, would be expressed in a
civilized fashion. But if we suffer anything like the devastation wrought by the
1973-74 bear market, congressional investigations are sure to spring up like
weeds, and this fair nation will be consumed by the greatest hunt for a
scapegoat in the history of the world.
In due course, such obvious suspects as Mr. Greenspan, Mr. Rubin, the big
brokerage houses and their upstart Internet counterparts, mutual funds, hedge
funds, bullish shills in the media, academics who predicted the market would
go to 40,000 -- all will be forced to take their turn in the dock. But, initially,
we're thoroughly convinced, the full measure of fury will be vented on short
sellers.
That may seem perverse. And it is. But it's also predictable. For in their angry
rush to fix blame for the market meltdown and the incineration of their
portfolios, investors won't stop to make distinctions between profiting from
falling stock prices and making stock prices fall.
So, ironically, after nearly a decade of feeling nothing but pain, far from being
able to savor their long-awaited triumph, the handful of surviving shorts are
apt to be busily defending themselves from the grave charge of having been
right. They'll just have to console themselves as best they can with being
awash in money, while everyone else is parched for the stuff.
As we say, we fervently hope that the disenchantment and hostility stirred up
by a truly awful bad bear market will express itself in a civilized manner.
However, just to be on the safe side, we urge Bob Prechter, Bob Farrell and
Barton Biggs to enter federal witness-protection programs. Either that, or
relocate temporarily to some place that doesn't have a stock market, like the
moon, perhaps, or Mars.
Suddenly, it's last summer!
The parallels are spooky. Just as they were this time last year, the markets are
teetertottering dangerously.
The difference, of course, is that last year, with Asia caught in a sinkhole, the
markets were roiled by deflationary demons. This year, it's the specter of
inflation returned from its long stay in the desert that's throwing a fright into the
markets.
Fears that labor will cease its docile ways and noisily push for "more" were
fanned by Thursday's disclosure that the government's employment-cost index
had shot up 1.1% in the second quarter, the biggest jump in the measure since
1991. Immediately, like a flock of ravens fluttering before their eyes, investors
were prey to visions of rising price pressures and even uglier visions of still
higher interest rates, courtesy of the Fed.
Nor were those nervous souls becalmed by the sharper-than-expected drop
in new claims for unemployment insurance. And even the ostensibly reassuring
news (for those anxious about an overly buoyant economy) that GDP in the
second quarter had slowed to a 2.3% annual pace, sharply below the 4.3%
of the first quarter and below Street estimates as well, failed to lift spirits.
In fact, there was less for the cautious types in the GDP report than first met
the eye. For one thing, although consumer spending slackened, consumer
income remained robust, which raises the odds that Jane and John Q. are
merely taking a breather. Further, businesses chose to fill inventories much
less aggressively, stocking up in the second quarter at half the $38.7 billion
rate of the previous three months. But there are good and sufficient reasons
why inventories will rise sharply as the year wears down.
Not the least of these reasons is the fact that many businesses have scaled
down inventories to unprecedented levels in the face of an economy still
pounding along quite impressively. So, just in the course of things, those
inventories would have to be replenished. But, more to the point, come the
last few months of the year, you can expect a burst of inventory building as
everybody is seized by what a sharp friend of ours calls "Year 2K restocking
fever."
Adding to this fever, the same friend notes, will be rising prices of all manner
of commodities. Indeed, he sees a rollicking rise in such trusty yardsticks as
the Goldman Sachs Commodity Index and the Commodity Research Bureau
Index. That warming climate for commodities is not, it somehow strikes us,
entirely favorable for bonds. Which suggests to us that, intermittent rallies
notwithstanding, bonds will remain as punk an investment over the rest of the
year as they have been so far in 1999.
In a nutshell, the markets are right to be uneasy. For the
disinflationary/deflationary environment that has been so dominant throughout
this decade -- and so benign for both stocks and bonds -- is likely to be
replaced by one more congenial to inflation. We're not talking the 1970s
redux -- but so what?
We attend very closely to what our friend says about commodities simply
because he knows more about them and is the most astute trader of them
we've ever come across. And we've come across a lot of the breed in our
long trek through this valley of tears.
Normally a pretty cool cat, he grows quite animated when he beholds the
prospects for commodities and the end of their 18-year bear market. What's
more, he anticipates a surge across the length and breadth of the commodities
markets, including such laggards as wheat, corn, soybeans, cocoa and cotton,
aided by the impact of drought.
Already, he points out, the economically sensitive commodities, notably oil,
have been smartly on the rise. And already, too, producers of selected
commodities, like copper and aluminum, have followed oil's lead in cutting
back production to reduce supply and firm prices. He expects this tactic to
find converts among hards and softs alike, furnishing significant thrust to
prices, even while demand picks up in tune with the global economy.
Sentiment in the pits, he observes, has never been so bearish, with virtually
every non-oil and non-metal commodity showing record short positions.
Come the fourth quarter, he sees a great explosion upward across the board.
More specifically, he's looking for at least 20% rises in the commodity
indexes from here. "The commodity complex," he asserts, "is like a great
stock trading at a discount to book, and all of a sudden there's a story."
Which translates, to state the obvious, into bad news for bonds and,
ultimately, for stocks."
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