Quick And Sharp And "Out Of The Clear Blue Sky"

The Daily Reckoning

Weekend Edition

February 24-25, 2001

Paris, France

By Addison Wiggin

MARKET REVIEW: Quick And Sharp And “Out Of The Clear Blue Sky”…

It was not a good week on Wall Street.

The Nasdaq plunged 6.7% to close at 2262 – its lowest point in more than two years this week… wiping out the miracle 86% rise of 1999. But the worst isn’t over. “We are in a major bear market,” a technical analyst for Wachovia Securities told USA Today.

Another headline in USAToday also reports “Average Fund Drops 6.1%” for the week. When this kind of news is headlining the mainstream press – wanton fear is not far behind.

Although most analysts expect further rate cuts when the Fed meets again next week, the Greenspan Put is played out… Last month when the Federal Reserve made two interest rate cuts, the Nasdaq shot up 25% after the first cut, and held on to +20% following the second. Now those gains are gone. The Nasdaq 100 is down 3.4% for the year.

Still, we may see rallies in the coming weeks. But be careful… “Bear market rallies tend to look better than the real thing. They are quick and sharp and come out of the clear blue sky.” (Reuters)

For the week, the Dow plunged 357 points – 3.3% – to land at 10,441 helped on the way down by a 84 drop on Friday. The S&P 500 finished the week in ‘official bear territory’ – down 55 to 1,245. The broader index lost just under 7, Friday.

The Russell 2000 477 – down 4.4% for the week

ADD’L PRICES FOR THE WEEK: Relatively Stable

Gold: $262 up $3

Crude Oil: $29 –

Natural Gas: $5.13 down $.46

CRB Index: 220 down 2

Dollar Index: 112 –

The Euro: $.91 –

British Pound: $1.45 –

Japanese Yen: $.86 –

FLOTSAM & JETSAM: Dot-Commies And The Restaurant Business

– from Lynn Carpenter,

Fleet Street Letter

“Dot-coms, B2B enterprises, tech stuff… it looks like the restaurant business with a college degree to me. Look what happened when we bellied up to the dot-com bar. We got a lousy meal and a surly waiter wanted a tip anyway. (Figuratively speaking, we didn’t go for this New Economy stuff at Fleet Street, but a lot of innocents did.)

The kind of crumbums that gravitate to the restaurant business have friends in Congress, so every year when they cry for a special exemption to the going wage rate – for their industry only – they get it. Most restaurants would go under if they had to pay real wages to their staff instead of $2.09 an hour. Same song, new choir in tech land: Most dot-coms would have gone broke sooner if they’d had to compete for staff with real folding stuff.

Instead they lured workers in with options, which are free to print. Like waiters, dot-com and tech workers get most of their money straight from the customer’s pocket.

Meanwhile, Wall Street looks at this game and says “Wowee! they workers of the world are aligned with shareholder interest.” Bull. Anyone foolish enough to have shares in a business that is constantly dealing out options is the one who is really getting the bill. His shares are diluted every time some programmer or order-taker exercises his right to get 1,000 shares for less than market price.

Look at Cisco: 4.8 billion shares outstanding in 1995, 7.2 billion today. A 50% increase. Meanwhile, its profit margin has steadily dropped every year; its return on equity is down by two-thirds from a superb 30% in 1995 to a miserable 11% today. No wonder the equity holders are getting a smaller return.

The company keeps letting employees buy shares for pennies on the dollar and then split the pot with those who paid full price on an even-steven basis.

What a scam.

And Cisco was one of the best companies out there. Paying workers with options instead of competitive salaries hurts investors even more in companies that can’t produce a profit at all.”

Enjoy your weekend,

Addison Wiggin, The Daily Reckoning