NT

-- Pam (jpjgood@penn.com), March 07, 2000

Answers

Today was a fluke but the last few weeks drops were long overdue. Its been "tulip season" for too long. (But I thought that at 6,000 DJIA also.)

P&G dropped 29 to 61 3/4 which accounted for the DJIA loss all in one place. This is also a traditional sign or a market top when "bad news" like P&G's earning revision gets the Stock pounded. This has been going on for months and the drop in Lucent and IBM were two big examples.

DJIA *needs* to go down or the earnings have to double this year. Its at the highest levels P/E wise since the 1961-62 break when P/E hit:26++ and things like XRX and PRD were 50-100 times earnings. That break was mid 900s to upper 500s and for many years I had the NY Daily News Headline when it broke 29 points, "Market drops 29, Worst plunge since '29".

xxxxxxxxxxxxx

http://dailynews.yahoo.com/h/nm/20000307/bs/stocks_leadall_2357.html

But in another tale of two indices, the Dow Jones industrial index (^DJI - news), plunged after consumer products giant company Procter & Gamble Co. (NYSE:PG - news) issued a profit warning and fell more than 29 points.

SNIP

The Nasdaq pierced the 5,000 mark only months after it spiked through the 3,000 milestone in November and 4,000 in December.

The Dow Jones industrial index (.DJI) was down 320 points, or 3.15 percent, at 9,850, due almost entirely to the big selloff in Procter& Gamble.

-- cpr (buytexas@swbell.net), March 07, 2000.

RETURN to Business & Tech / Monday, March 6, 2000

History shows paths to market crashes, but lessons seem forgotten

LARRY ELLIOTT THE GUARDIAN, LONDON

In the spring of 1720, when all of London was clamoring for shares in the South Sea company, Sir Isaac Newton was asked what he thought about the market.

"I can calculate the motions of the heavenly bodies, but not the madness of the market," the scientist is said to have replied.

Newton should have heeded his own wise words. Having sold his stock in the company at 7,000 pounds sterling, he later bought back more at 20,000 pounds sterling at the top of the boom and went down for the count with other speculators when the crash came.

Little has changed in the intervening 280 years. Common to every bubble is the ingrained belief that this time things will be different, that the rise in the price of an asset is rooted this time in sound common sense rather than recklessness, stupidity and greed.

Take the crash of 1929. In Devil Take the Hindmost, Edward Chancellor records how Wall Street's elite convinced themselves that the rules of economics had been rewritten and that the market could support ever-higher share prices.

John Moody, founder of the credit agency that bears his name, intoned in 1927 that "no one can examine the panorama of business and finance in America during the past half-dozen years without realizing that we are living in a new era."

And Yale economist Irving Fisher declared a few weeks before the October crash that stock prices had reached a "permanently high plateau." Why was this? Simple, he said. The creation of the Federal Reserve in 1913 had abolished the business cycle, and technological breakthroughs had created a "new economy" that was much more profitable than the old.

As share prices continued their heady rise, traditional methods of stock market valuations were abandoned. It did not matter that many start-up companies of the late 1920s were not making any money; what counted was that some day they surely would. So share prices were justified by discounted future earnings.

Investors mortgaged themselves to the hilt to buy stocks in exotic companies from brokerages houses, which proliferated in the 1920s. One analyst warned that "factories will shut ... men will be thrown out of work ... the vicious circle will get into full swing and the result will be a serious business depression" unless sounder minds were brought to bear.

He was, of course, ridiculed by market experts.

Sound familiar? It should, because the gravity-defying performance of stocks in London and New York is eerily redolent of 1929. And again those who warn that the stock market edifice is built on sand have so far been proved wrong. It is quite possible that they will continue to be wrong and that this time the rules really, really have been rewritten.

It may be that Fed Chairman Alan Greenspan has abolished the business cycle, that Goldman Sachs' contented equity guru Abby Joseph Cohen is wiser than Irving Fisher, that Amazon.com is in a different league from RCA (the go-go stock of the 1920s).

However, there are plenty of warnings there for those prepared to heed them.

One is what is happening in the markets themselves. More and more money is being concentrated in a handful of stocks in the technology sector, while shares in "old industry" fall. An analysis by Peter Oppenheimer of HSBC showed that the price-earnings gap in London between the new economy stocks and the old economy stocks is the largest for any market ever.

An analysis of the balance sheet of Amazon.com by Tim Congdon of London showed that liabilities were covered more than four times by holdings of cash and securities in early 1999. However, by the end of the year, high investment and trading losses meant that liabilities were higher than cash and securities. He believes that the rise in the Nasdaq index is being underpinned by firms borrowing money to buy each other's shares -- the equivalent of taking in each other's washing.

Amazon.com's results, he says, give "a fascinating and alarming insight into the cost of building an Internet brand. Arguably, they also demonstrate that the high-tech element in the American stock market is now gripped by a speculative madness of a kind never before seen in the organized financial markets of a significant industrial country."

Economist Robert Gordon has started to unpick the American productivity data in an attempt to put the "new paradigm" into historical perspective. "I believe that the inventions of the late 19th century and early 20th century were more fundamental creators of productivity than the electronic-Internet era of today," he said.

Oppenheimer, at HSBC, estimates that share prices in the new economy imply growth rates that are unlikely to be achieved and that collectively shares are overvalued by 40 percent.

Sushil Wadhwani, a member of the Bank of England's monetary policy committee, quoted a survey last week showing that 133 Internet companies that have gone public since 1995 would need on average to expand their revenues by 80 percent a year for the next five years. Microsoft, which has had a virtual monopoly, has managed only 53 percent a year; Dell, 66 percent.

It's no wonder that Greenspan is doing his level best to massage share prices down. He knows that the alternative could be a full-scale panic. But even on the assumption that there is no repeat of 1929, there are certain conclusions to be drawn.

First, the euro looks considerably undervalued against the U.S. dollar.

European exchanges have performed strongly in recent months. Equity investors seem to have cottoned on to the recovery in the European economy, but foreign exchange dealers -- perhaps recalling how they were too long on euros around its introduction -- have not.

Second, the real medium-term danger for the global economy will be deflation rather than inflation.

Downward pressure on prices is strong; it would not take much to tip western economies from disinflation into deflation. Even though policy-makers believe they have scope to ease monetary and fiscal policy, the experience of Japan in the 1990s suggests that such action may be more difficult than they think.

A crash would have more profound implications, not least the rediscovery of the virtues of social democracy and the need for some curbs on the global money machine. A meltdown on Wall Street would be seen, rightly, as the crescendo of a period of financial turbulence that started a decade ago.

Some today say that the United States is just another Thailand waiting to happen. After all, the United States has all the ingredients -- a rising trade deficit, a consumer credit binge and wasteful investment in nonperforming assets.

At this point, it is traditional to say that a crash is to be avoided at all costs. Actually, a shake-out would not mean that the benefits associated with the new technologies would be lost, any more than the end of the railway boom in the 19th century put an end to railways.

But crashes do have the effect of cleansing the stables. In the aftermath of the 1929 crash the policies of laissez-faire were cast aside in favor of controls on speculation and the financial system in general.

Sadly, those lessons have been forgotten, with the result that we live in a state of perpetual financial instability.

http://www.ardemgaz.com:80/tech/D4bcrashes6.html

-- - (x@xxx.com), March 07, 2000.

http://www.hussman.com/hussman/html/armagedn.htm

graph comparing 1929, 1987 and today

http://finance.yahoo.com/m1?u

all the major indexes, (not just the wall st journal's top 30 which make up the dow)...

-- INever (inever@check.com), March 07, 2000.

The spin is relentless.

The DOW was down 324 points at its low today(as of 12:19 central), and cpr quotes a source that implies you shouldn't panic, as it was mostly due to P&G. At its low, P&G accounted for about 150 points of the DOW drop. Note too, no mention of crude oil busting right through $33/barrel to hit a high of $33.85. Spin, spin, spin.

-- J (Y2J@home.comm), March 07, 2000.

J -

CPR's postings were hardly spin. In fact, a true market bull would see them as just so much doomsaying.

The huge opening drop WAS almost entirely due to P&G; it took 40 minutes to get open this morning and when it did, it was Katy-bar-the-door. There are reports that the sheer size of the P&G open (and drop) actually took some Wall Street terminals offline for a time, doubtless causing a few traders to need a change of Hanes.

Since then, a lot of market commentary I've read has given the impression that P&G is best-of-breed in the consumer products business and if they can't handle these problems, the other companies in that sector will have trouble as well. P&G made it clear that the shortfall was due to higher pulp and petroleum costs. Now we're seeing the other stocks losing altitude as the day progresses and the implications become clearer.

I wouldn't expect anyone to tell folks to just "panic". C'mon, this is the news business. They use code words like "concern" and "significant negative reaction" and such. Just in the last hour or so, I've seen verbs like "battering" and "crushing", so the mood is obviously darkening.

-- DeeEmBee (macbeth1@pacbell.net), March 07, 2000.

DeeEmBee,

It was, and still is, hard for me to see exactly where cpr is commenting and where he is referencing some "news" source. That being said, I am not taking issue with cpr spinning the DOW drop, per se, but the WHY of the DOW drop(unless that was his commentary). It appears to me that it was a reference to a "news" source. To clarify, while P&G is obviously a large part of the DOW drop, to imply that there are not other reasons(Greenspan's hawkish stance, oil to almost $34/barrel) and dismiss the DOW drop on an isolated company problem, is spin. The release was worded to make the average investor think that this is a P&G problem, not a market problem.

That said, since cpr is an oil guru, it is interesting to note that he mentions nothing of oil's new high in relation to the DOW's drop when posting to this thread. It is my belief that by NOT mentioning oil, he is spinning the DOW drop in much the same way that the "news" release was.

-- J (Y2J@home.comm), March 07, 2000.

Duly noted. I must say that it would seem to be a tall order to ignore oil right now or "spin" it away. Too many stories coming from too many directions: climbing pump prices, OPEC saber-rattling, P&G telling us that petrol costs are chewing up their bottom line, etc. "Black gold" is used in almost everything.

Some analysts are now weighing in on several of P&G's competitors in that sector. Merrill Lynch has downgraded Clorox, Avon, Rayovac, Dial, Alberto-Culver, and Colgate, just to name a few. *ouch*

-- DeeEmBee (macbeth1@pacbell.net), March 07, 2000.

The Reuters article was clear. That was not me. I am a Stock Bear and have been for over a year. The Nasdaq represents pure gambling now.

P&G traded 36 million shares down 1/3 its value and it is a weighted DJIA stock. It is still "overpriced". The yield is too low and the growth not fast enough to justify 30X earnings even for a very very good company like P&G. BTW, it is down almost 50% from the highs of last year and while it was falling 30% the DJIA was rising. Please explain that.

What exactly did I spin that Reuters did not cover? Read the Reuter's statement.

Now if P&G had gone down 2 points and the DJ down 300 then you can say the fall in the Dow was "broad".

Hint: I am not an oil 'guru' just because I traded oil for a long time.

What has the oil price rise got to do with Y2k except that it is continuing the rise that started in early 1999 and now it is 2000?

If you think oil will double from here or 30 buy oil futures. Its a free country. When the chart tops out and there is every indication that it is over bought by traders now as the Open interest falls. Take a chance. You might have the "thrill of a lifetime" after you see the daily limits hit day after day should the March 27th plans of opec lead to them turning the faucets back on.

What about oil in the mid 20s time after time since 1980?

Was the price up in the 30s Y2k RELATED??

The SHIEKS TURNED OFF THE FAUCETS BACK IN SPRING, 1999 and the supply and stocks have been used and not replaced.

Got the picture. OIL is a commodity that sells on price per yield /bbl.

If there is cheaper stock anyplace it goes first even if heavy and dirty vs. light and sweet.

Look at the charts of oil for the last two year and the last 20 years.

You can see the rise in 1999. It rose to the 24.50 level in Nov. Dec.

NOW. Where was all your conspiracy thinking when it was up from 10-12 bbl which itself was down from the 20s??

OIL is related to the DJI in that it is a feedstock for many other products. However, the interconnections and dependency upon oil are not what they were in the 1970s.

-- cpr (buytexas@swbell.net), March 07, 2000.

Per Yahoo!:

DOW: -372.91 at 9797.59 NASDAQ: -57.04 at 4847.81 S&P 500 -35.57 at 1355.71

-- Deb M. (vmcclell@columbus.rr.com), March 07, 2000.

Stick a fork in the DJIA and S&P500. We got way too much bad news coming out, especially in the "old economy" stocks. The Dow is only about 250 points away from its 52 week low. Seems like only a few weeks ago we were at an all time high. Hey, it WAS only a few weeks ago! Go figure.

The only thing holding up the markets now is tech, and it's about 12 stocks doing that. If some bit of news causes some of the Nasdaq bellwethers to falter -- e.g., lowered earnings numbers resulting from a slowdown as many "old economy" companies realize they haven't got as much money to spend on tech -- the COMP will make a funny whistling noise as it drops, much as the DJIA did today when P&G finally opened.

-- DeeEmBee (macbeth1@pacbell.net), March 07, 2000.

cpr,

No, it is not clear. Look at your first post. Below the address, you have the following:

[But in another tale of two indices, the Dow Jones industrial index(^DJI-news), plunged after consumer products giant company Procter & Gamble Co. (NYSE:PG-news) issued a profit warning and fell more than 29 points.

SNIP

The Nasdaq pierced the 5,000 mark only months after it spiked through the 3,000 milestone in November and 4,000 in December.

The Dow Jones industrial index(.DJI) was down 320 points, or 3.15 percent, at 9,850, due almost entirely to the big selloff in Procter & Gamble.]

With the "SNIP" in between the first and second paragraphs, I was not sure if the first paragraph was the article, or if the second and third paragraphs were the article. Upon closer examination, I would guess that all three paragraphs were the article. The "SNIP" between them was confusing to me, as I'm sure it would be to most readers.

With that said, it is spin to say that a 320 point drop was "due almost entirely to the big selloff in Procter & Gamble", when no more than 150 points of the selloff could have been attributed to P & G. Apparently it was Reuters' spin, not yours. I apologize for my confusion over your ill- placed SNIP.

On to your rebuttal post.

I never questioned that you were a stock bear. I do not question your assesssment that P&G is still overvalued. Asking me to explain P&G falling 30% while the DJIA was rising makes what point?

You asked, "What exactly did I spin that Reuters did not cover? Read the Reuter's statement".

I did read the Reuters' statement, and the answer is OIL. By being the resident oil expert, and not mentioning that OIL was setting new highs again today, you were spinning the same thing that "Reuters did not cover" as the DOW dropped sharply, OIL.

I would say that the drop in the DOW was broad, 27 of 30 stocks were down on the day. One of the three that was up, and the only one to be up sharply, was Exxon-Mobil, an OIL company.

You then shift gears and ask what the oil price rise has to do with Y2K. Maybe nothing, maybe everything. My point was about the spin that has put upon the oil up/DOW down connection, not about what is causing oil to go up.

You then try to change the topic/intimidate me with your oil trading knowledge by challenging me to go buy oil futures, blah, blah, blah. The point of my argument is that Reuters and you will not admit that oil at recent new highs is bad for the DOW, not whether or not I can make money trading oil.

You then say various off-topic things like: "What about oil in the mid 20s time and time since 1980?",
"Was the price up in the 30s Y2k RELATED??",
"The SHIEKS...",
and other various oil tidbits, none of which argued my POINT, which was, WHY DIDN'T YOU OR REUTERS MENTION OIL AT NEW RECENT HIGHS WHILE THE DOW PLUNGED.

See, I can use all caps, too.

You then attack me, not my point, by asking where my conspiracy thinking was when oil was up from 10-12 bbl. Again, this has nothing to do with my point.

Lastly, you chime in with the, "oil is not as important now" baloney. More spin.

My point is not that the DOW is overpriced, it is not what is causing oil to go higher, it is not whether I think oil will go higher still(it will), it is not whether I think there is a conspiracy to make it go higher, it is not whether or not I can make money trading oil; my point is that with the DOW down sharply today, the esteemed Reuters chose to blame it "almost entirely" on P&G, and that you, with an obvious oil background, chose to post what the esteemed Reuters had printed, and neither of you mentioned the obviously related fact that oil set recent new highs today above $34/bbl. If you could answer sir, why the spin.

-- J (Y2J@home.comm), March 07, 2000.