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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end? -- Ignore unavailable to you. Want to Upgrade?

To: Mad2 who wrote (2732)	4/2/2000 3:57:00 PM
From: Sir Auric Goldfinger	Read Replies (1) \| Respond to of 3543

Forces of Nature, Immutable Truths By GRETCHEN MORGENSON. NEW YORK -- So the laws of physics apply to new-economy stocks after all. The Nasdaq composite surrendered to the force of gravity last week, falling 7.9 percent. The composite, which was up 24 percent at its peak on March 10, is now up 12.4 percent in 2000. Not bad for three months' work, but the trend is troubling. So troubling that Edward Kerschner, chief market strategist at Paine Webber, says we are witnessing the beginning of the end of the mania. "The reason I think all excesses correct is I have this silly belief that markets are efficient," Kerschner said. "From time to time, people make excuses to chase stocks. But ultimately, all a shareholder gets is a right to earnings. These stocks do not have earnings." An index that Kerschner created out of the 20 hottest and newest Nasdaq stocks, what he calls the "new, new industrials" has lost half its value in the last three weeks or so. And he believes these shares could decline an additional 50 percent in coming months. Although the Nasdaq soared on Friday on quarter-end buying by institutional investors, it remains vulnerable to another immutable law, that of supply and demand. Recent heavy selling in Nasdaq shares is almost certainly owing to the excessive use of borrowed funds by investors buying shares. Margin debt stands at record levels -- up 9 percent in February alone -- and analysts who study the figures say the borrowing is concentrated in Nasdaq stocks. As these stocks fall, brokerage firms that lend to their clients ask for additional funds to shore up their portfolios. Since many investors don't have fresh money with which to meet their brokers' calls, the shares are sold, putting more pressure on already damaged stocks. Buying the dips becomes impossible. Executives at Nasdaq companies that have gone public recently are another big selling force in the market. These insiders typically agree to lock up their shares for several months after an offering, but many of these lockup periods are over or ending. And practically all the skeptical investors -- those who bet against hot stocks by selling their shares short and buying them back later -- have been driven out of Nasdaq stocks. This means that there are fewer buyers on hand to stop a slide in shares. Finally, when investors buy stocks simply because they are going up, they don't know really what they own -- and so are much more likely to panic and sell when stocks start to fall. Investors who analyze companies and know what their value should be are apt to hold on in a downturn. The question is, if Nasdaq falls further, will it take more reasonably priced shares down with it? Julian H. Robertson Jr., one of the most successful value investors ever to walk Wall Street, shut down his money management firm last week, a victim of the bull market in absurd stocks and the bear market in solid companies. On Thursday, Robertson pondered what might happen to downtrodden value shares in the event of a Nasdaq massacre. Although he thinks they might fall a bit, he believes institutional investors or insiders at these companies who know the shares' values would step in and buy, keeping their declines to a minimum. "That's why a stock's value is so important," he said. It is equally important, given the market turmoil, that investors take stock of what they own in individual shares and mutual funds. Technology stocks have become ubiquitous in index funds and even in funds that claim to be value-oriented. Risks in many of these shares appear to be rising as their upward momentum flags. And, contrary to popular belief, risk does matter.