Advance explanations for a crash [ I particularly like #6 ]
pathfinder.com
Friday, February 4, 2000
Advance explanations for a crash
Why wait till the day of reckoning to find out what killed the bull market?
I've got a list of ready-made rationales.
By Walter Updegrave
Well, things were looking dicey for a while, what with the Y2K-noncompliant Nasdaq losing nearly 5% in January. By February, though, everything was back to normal, with stocks of all stripes climbing higher.
Still, we all know that one of these days "The Big One" (as Redd Foxx used to say as he clutched his chest on Sanford and Son) will hit. Now I don't have a clue when that will happen. But I do know that when TBO arrives, the papers, the airwaves and the Net will be swarming with seers, sages and savants all pointing fingers at various culprits and, of course, suggesting that they saw it coming all along.
I've got a better idea. Let's beat the post-Crash rush to judgment, and get our stories straight while there's still plenty of air in the bubble. I offer six handy explanations for the crash that you can pull out at a moment's notice to impress your friends. Then you can worry about more important things—like, say, margin calls and all those early-retirement plans.
THE BULL MARKET ENDED BECAUSE...
1. Fed chairman Alan Greenspan was too aggressive in raising interest rates, leading jittery investors to conclude that inflation must be a more serious threat than they thought. Facing higher rates and the specter of higher inflation, investors fled stocks in droves, wreaking havoc with the Dow, Nasdaq, S&P 500, Russell 2000 and, for reasons not entirely clear, the Indianapolis 500.
2. Fed chairman Alan Greenspan wasn't aggressive enough in raising interest rates, leading jittery investors to conclude that inflation would become a more serious threat than they thought. Facing the specter of higher inflation and higher rates, investors fled stocks in droves, wreaking havoc with...(see ending above).
3. Investors, believing tech-stock prices had become grossly inflated,
rotated into health, financial and energy stocks in search of reasonable valuations. Unfortunately, the massive shift of money into these sectors made them overvalued too, triggering a furious chain reaction in which investors raced like maniacs from industrials to consumer durables to services to utilities and eventually back to tech in a fruitless search for value. Dizzy from rotating, investors finally decided just to dump their stocks and buy hog bellies and gold bullion.
4. Quarterly earnings for every company in the Standard & Poor's 500 index came in exactly one cent above analysts' consensus estimates. Realizing corporate earnings figures are even less reliable than presidential candidates' campaign promises, U.S. investors decided they were better off in markets where the rigging was upfront. So they pulled their dough out of U.S. shares and poured it into emerging markets.
5. After years of losses, Amazon.com finally reported a two-cents-a-share annual profit. Instead of heartening investors, however, it made them realize that at this pace, it would take 872 years before Amazon could generate enough earnings to justify its lofty stock price. As everyone from neo-value investors to net-stock zealots began dumping Amazon, the selloff spread to other dot-com companies, then tech firms and finally to any company that uses technology.
6. It turned out that the doomsday forecast of Deutsche Bank economist Ed "Y2Krackpot" Yardeni wasn't wrong, just premature. On January 1, 2001—the first day of the real New Millennium—computers worldwide crashed just as Ed predicted, sparking a full-scale collapse in economies and stock markets around the world. Within minutes, Yardeni posted the following message in bold type on his website:
"Nyah, nyah, nyah, nyah
nyah, nyah, nyah, nyah, nyah, nyah." |
