DEATH OF A CLOWN
Having escaped from the blizzard that never was to lovely old London, and
the tech rally that also failed to show, I thought it proper to have a spot
o' tea and see if Ray and Dave could provide a little insight. While
possessing nowhere near the business acumen of Ian Anderson, the brothers
Davies can always be relied upon to provide at least as much wit and wisdom
when it comes to human frailty, foibles; fears, greed and confusion. (And we
won't even go into Lola.)
My makeup is dry and it clags on my chin
I'm drowning my sorrows in whiskey and gin
The lion tamer's whip doesn't crack anymore
The lions they won't fight and the tigers won't roar
Chorus
La-la-la-la-la-la-la-la-la-la
So let's all drink to the death of a clown
Won't someone help me to break up this crown
Let's all drink to the death of a clown
Let's all drink to the death of a clown
The old fortune teller lies dead on the floor
Nobody needs fortunes told anymore
The trainer of insects is crouched on his knees
And frantically looking for runaway fleas
Reprise
Here in the States we have more than our share of poets and pundits
(although few with the wit and wisdom, not to mention the musical abilities,
of the Kinks and Tull), but it's just not the same. We're a young nation
hardly capable of introspection and lack the brutal centuries of barbarity,
plague and eventual domestication that our forebears livee and breathed
providing a better ability to put things into a longer-range context.
Nonetheless, the inability to draw upon the doings of kings and knaves for
perspective hasn't left us bereft of examples to learn from. Our youthful
and great nation has never experienced a shortage of clowns posing as or
thrust into a position akin to royalty. They're crowned with regularity on
Wall Street, and beheaded even more frequently.
Amidst an increasing number of earnings warnings, topped off by INTC's tale
of woe and CSCO's announced layoffs, the Nasdaq continued to plunge after a
meager attempt to break above and hold the 2250 area failed last week. No
amount of gibberish and jawboning by still-bullish strategists and
optimistic blather from Fed officials could stem the aftermath of the
bubble's collapse. It's become increasingly clear that the emperor never had
a closet filled by Aboud or Zegna, but was parading around in his birthday
suit that few dared to state. As for the so-called "new economy," it was
little more than a concept fostered by easy money, supply shocks, a
foundering euro, excessive debt, malinvestment, hubris and greed.
The broader market had been performing much better until very recently than
it dd throughout most of the past few years. However, "value" has already
caught-up with "growth" for the most part on a five-year basis after having
lagged so substantially for so long. Traders continued to flock to cyclicals
in anticipation of an economic rebound, but it seems more than a bit
premature to think that the folks who got it all wrong before have now got
it right now. Yes, the employment data and to a lesser extent retail sales
indicate that the economy hasn't collapsed.
However, with the economy shedding 190k manufacturing jobs in Jan and Feb
and tech companies aggressively cutting costs, it's a bit much to believe
that the economy will turn come the second half. Especially when one
considers that the plunge in consumer confidence began well before it was
clear that the tech sector was in such dire straits. (Yes, I know most
economists disparage confidence as a leading indicator, which is one of the
reasons it's apt to be very important.)
And, lest one becomes too secure in the fact that apart from tech stocks
things are just swell, that wasn't the case on Friday and valuations are now
such that it won't be in the immediate future. While you may label me as
just another Wall Street clown, perhaps a few of the words of another, who
was also labeled a clown last year might carry a bit more weight. After all,
who better to provide a bit of insight on the market's state of affairs than
the Oracle of Omaha?
Among some of Warren Buffett's observations in his annual letter to BRK
shareholders were the following words of wisdom: "Nothing sedates
rationality like large doses of effortless money." "The fact is that a
bubble market has allowed the creation of bubble companies, entities
designed more with an eye to making money off investors rather than for
them." He also stated that the 'business model' for many IPOs were too often
"the old-fashioned chain letter." "We own stocks of some excellent
businesses but most of our holdings are fully priced and are unlikely to
deliver more than moderate returns in the future. We're not alone facing
this problem: The long-term prospect for equities in general is far from
exciting." Ending with the statement that BRK is eager to hear from
businesses that meet all of its six acquisition criteria, he also stated
that, "We are not interested, however, in hearing suggestions about
purchases we might make in the general stock market."
I was most taken by the fact that much of Mr. Buffett's large FNM and FRE
positions have been distributed to the masses, which I believe is what most
prudent investors should also consider. Financials and retailers continue to
look very vulnerable to significant downside, as both will suffer from a
worse than expected economic environment and have been aggressively bought
by funds recently. These groups are also apt to be for sale if we continue
to see net outflows from equity mutual funds, as was the case last month.
We're in the initial capitulation stage, as industry analysts have, for the
most part, thrown in the towel. However, until the selling pressure spreads
throughout the broader market and volume picks-up substantially, it's likely
that a real bottom won't be made. It's going to be very ugly once the clowns
all try to climb over themselves to get out of the Volkswagen, and then it
will be time to drive away with some juicy bargains.
Hopefully, my targets of COMP 1500 and SPX 985 aren't too optimistic; we'll
check our indicators back at the office this morning. It's good to be back,
and I'll try to share some impressions that I got from overseas investors
tomorrow. In the meantime, let's all drink to the death of some clowns!
yesterday's meehan's notes with a tip of the hat to the thread. |
