Wednesday April 5, 8:20 am Eastern Time
worldlyinvestor.com Wake-Up Call
Buckle Up
By David H. Smith, Columnist
All signs point to a lower open but as we've seen, anything can happen, including 13% intraday losses on Nasdaq.
What's next?
Foreign indexes are nearly all down heavily. Index futures are jumping around erratically at lower levels, and while the rapid movement
means that anything can happen in the hours before the market opens, one would really have to expect further declines today.
The Nasdaq fell 575 points, over 13%, on an intraday basis before rebounding smartly yesterday. So 500 points lower there is some chart support, and another few
hundred points lower is the 200-day moving average, which should contain the ultimate downside.
It sounds not too threatening as we become used to giant volatility. But in fact, the index can drop another 25% on the way there, and individual issues lose much more.
Any Lower and It's the 'Poverty Effect'
If the Nasdaq and its new market analogs around the world continue to grind lower, then the new-issue window is going to slam shut. And if the new-issue market slams
shut, then you can forget the secondaries that some of the vapor stocks are going to need just to keep the lights on. A lot of venture, mezzanine, and other private-capital
funding will dry up for a time as well, so there will be little relief from that quarter.
Tragic as it may be for Internet entrepreneurs who are suddenly illiquid and out of luck, this is not all bad.
For one thing, the wealth effect that has so worried the Greenspan Federal Reserve will shortly be replaced by a ``poverty' effect. The hit to consumers' stocks and mutual
funds takes a lot of new cars, homes, and European vacations right out of the picture.
Thoughts of a Rate Cut
In the new world with everyone in the market and everyone interested in financial news, the damping of consumer sentiment is certain to be rapid and dramatic. Far from
having to raise rates three more times to cool things off, the Fed may actually be cutting rates later this year to try to rescue the economy from a crisis of confidence.
For another, we are saved from having to look at 23-year-old Internet entrepreneurs on TV trying to bamboozle investors into thinking that earnings don't matter, that what
they are all about is building brands and consumer bases, and that traffic and revenues are the right metrics.
Imagine a bricks-and-mortar merchant telling you that it doesn't matter if people come in the store and buy things at prices that furnish a margin, what really counts is how
many people walk down the street and look at the sign. Absurd, isn't it?
Chart Support at Zero
Some of us who actually used to be analysts before we quit that to chase momentum in JDS Uniphase (Nasdaq:JDSU - news) like to joke about the vapor stocks that have
chart support around zero. Now it is no joke. The lower right hand corner of the charts exerts the strong gravitational pull.
I pick on JDSU not because it is bad by the way. It is very good. I wish I could have picked some up for a trade yesterday when it was down more than 20 points. But when
historians write about the bull market of the late nineties, JDSU is going to be one of the featured stocks, like RCA in the twenties.
For a time it seemed that half of the participants in my regular Wednesday Sage chats wanted to talk about JDSU. That other guy who writes stuff, Jim Cramer, said that
JDSU stood for ``Just Don't Sell Us'. Maybe for a while we change that to ``Just Don't See Upside.'
Bonds, Old Economy IPOs and Insurance
We have a major flight to quality under way. Bonds, which I have been saying offered exceptional value at yields over 6%, have bid up to 5.7%, at which point the value is
less interesting. Still, a 5.7% coupon is better than a poke in the eye.
Quality financial and pharmaceutical shares are in demand because they have already been through their bear markets and they have reliable earnings, yields, and all that
boring stuff that no one cared about a month ago.
Many analysts laughed at today's new issues, Metropolitan Life, and Krispy Kreme. Old, boring, heavy. But guess what - insurance is hot again, as you can see looking at AIG
(NYSE:AIG - news), AXA (NYSE:AXA - news), or ING Groep (NYSE:ING - news). And Kreme's underwriters actually had enough demand to price their deal above the
indicated range. Just try doing that with a dot-com today.
Be careful. If you have anything speculative, anything junky, think about losing it. Cash is not trash. When you see an opportunity to buy again, buy quality. The quality stocks
like Nortel (NYSE:NT - news) and Cisco (Nasdaq:CSCO - news) will be all right in the long run, but the junk is just junk.
Kyocera Pressured
What's wrong with Kyocera (NYSE:KYO - news)? My favorite stock of 1999 is under pressure in 2000. The investments in telecommunications through DDI that made it so
popular then are a problem now that telecommunications are out of favor.
The fact that DDI's sales agents are Hikari Tsushin, which has completely blown up, gives KYO guilt by association. Kyocera's fortunes are also seen as tied to its technology
partner Qualcomm's (Nasdaq:QCOM - news), another company whose stock is under some selling pressure. So I look for a little more downside in Kyocera before, as the
analysts always say in bear markets, the value really starts to emerge. |
