OT Market Mania....is something wrong with this picture?

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Is anyone that clueless to believe that this can continue to go on and on? These people have lost all sense of reality.


-- TM (mercier7@pdnt.com), December 10, 1999


Maybe they've found a way to convert shares of that crap into food in the event of a stock downturn.

-- O (O@O.com), December 10, 1999.

Amazing. What more can be said ..... maybe a quote from Lt. Uhura:

" .... reality? .... This isn't reality. This is fantasy - now get in the closet."

-- Jon Johnson (narnia4@usa.net), December 10, 1999.

If things get bad, you can always use that crap (shares) for toilet paper (yuck!).

-- Montana Lurker (MontanaLurker@BigSky.com), December 10, 1999.

A friend was telling me about his internet stock that went up about 30% in a week. I asked if he realized the average Nasdaq stock has been declining since October 1997 and the average NYSE stock has been declining since April 1998. Of course he didn't care because his internet stock went up!

These trends can be seen in advance-decline charts at: http://www.decisionpoint.com/DailyCharts/ADCurrent.html

Also note that last week the NYSE had 162 new highs and 780 new lows. The Nasdaq was stronger with 572 new highs and 288 new lows.

This divergence between the average stock and the largest capitalization stocks/high technology stocks is comparable only to the two year period before the 1929 crash.

Of course S&P 500 valuations (P/E Ratio) today are the highest in history based on record earnings. Until recent years, the S&P 500 P/E Ratio on record earnings had never exceeded 20x. Even at the peak before the 1929 crash. Even at the peak before the 1973-74 bear market. Even at the peak before the 1987 crash.

Of course corporate profits must be growing faster in the 1990's than ever before? No sir, corporate profits in the 1990's are growing at the same as the annual average since 1950: 5.7% measured peak-to-peak.

If you buy stocks at today's record high P/E ratios and the P/E ratios stay at this record level permanently (and don't go even higher) you can expect to earn no more than 5.7% annually for earnings growth plus about 1% annually for dividends, for a total stock market return of less than 7% annually. the only way to get higher returns would be through an even higher P/E ratio than today.

It's tough to notice a financial "bubble" when you are inside it.

-- Richard Greene (Rgreene2@ford.com), December 10, 1999.


2 observations about the "climate" of this market frenzy.

1) You see this same kind of activity at the local 7 Eleven when the lotto games approach the astronomical level. All of a sudden every would be millionaire begins dropping their paychecks into the kitty hoping for lightning to strike.

2) Despite the fact that the author mentioned that Linux is LOSING money, that revelation had absolutely no effect on the euphoric theme of the article.

-- TM (mercier7@pdnt.com), December 10, 1999.

From Forbes Digital Tool:

Bubbles: From "tronics" to "dot com"

...For a guided tour down this dark back alley of Wall Street, we enlisted the help of an expert: Princeton economics professor Burt Malkiel. For the seventh edition of his best-selling 1973 classic "A Random Walk Down Wall Street," which will be published in April, Malkiel has written a section on Internet mania and how it echoes earlier stock market bubbles.

"I do believe that were in the middle of another bubble," says Malkiel, pointing to telling signs such as pathological greed among investors, astronomical market values and unbelievable multiples of sales among Internet stocks.

"A lot of people will lose a great deal of money," he says.

For investors whod like to see todays Internet craze in a historical perspective, heres our rundown of three notorious bubbles from the 1960s, 1970s and 1980s:

"Tronics boom" of 1959-1962

With the dawn of the space age, every electronics stock suddenly took off like a rocket on Wall Street, reaching valuation levels not unlike Internet stocks today. And just like a "dot com" can help an obscure offering surge into the stratosphere today, the key to a stocks success could often be found in its name in the 1960s as well.

"I call it the tronics boom because these soaring stocks usually had some form of tron or tronics in their name," says Malkiel, citing such "trons" as Astron, Dutron, Vulcatron and Transitron and "onics" like Circuitronics, Supronics and Videotronics, as well as one company that, for good measure, put together the winning combination Powertron Ultrasonics.

Then, like now, the demand was huge but the IPOs were relatively thin, so that stock prices would soar at the launch.

Investors argued that "tronics" stocks couldnt be valued according to traditional methods because they represented a whole new era of the economy that was nothing like the past. Promoters entered the stage to talk the stocks up further. As a result, stocks soared to multiples of 50, 100 or even 200 times earnings.

But in late 1962, "tronics" stocks and other growth issues came crashing down in a massive sell-off.

"The Nifty Fifty" of the 1970s

In the 1970s, Wall Street took a hard look at stocks and decided that blue chips were singularly exempted from the laws of gravity in the sense that they could only go up, not down.

While small-capitalization stocks may fluctuate with the winds of market sentiment, the markets heavyweights were shielded from these swings because they were seen as safe havens that people would never sell off, the theory went. They were the kind of stocks that your grandmother would give to you when youre born and that youd only sell in the most dire financial straits. Because youd buy these stocks but never sell them, they were known as "once-decision growth stocks." All in all, there were about fifty such gilt-edged issues, ranging from International Business Machines (nyse: IBM) to Walt Disney (nyse: DIS).

As a consequence, the market became extraordinarily top-heavy, just like it is now. Blue chips enjoyed multiples in the range of 80 to 90 times earnings as other stocks languished.

As we pointed out here at Forbes at the time, "What held the Nifty Fifty up? The same thing that held up tulip-bulb prices in long-ago Holland--popular delusions and the madness of crowds. The delusion was that these companies were so good that it didnt matter what you paid for them; their inexorable growth would bail you out."

The end was inevitable: those sterling blue chips came crashing down, one by one. By 1980, most were trading at multiples under 20 times earnings.

Perspicacious readers will note that exactly the same trend is unfolding in the stock market today, two decades later. Stock market averages rose dramatically last year, catapulted by enormous gains among popular big-capitalization stocks, but at the same time most shares actually lost ground. While the S&P 500 gained some 27%, the small and mid-cap stocks in the Russell 2000 dropped 3.6%.

Biotech bubble of the 1980s

In the early 1980s, Wall Street was thoroughly convinced that biotechnology would usher in a brand new world of high-tech medicines and cures against diseases like cancer. The markets optimism quickly translated into soaring share prices.

"But this time around we werent even talking about price-earnings multiples because the companies didnt have any earnings," Malkiel points out.

Some biotech stocks sold at 50 times sales, even higher than modern-day high-flyers like online bookseller Amazon.com (nasdaq: AMZN).

Genentech (nyse: GNE), one of the first biotech companies to launch shares, saw its share triple in the first 20 minutes of trading.

Once again, Wall Street devised intricate new methods for evaluating companies that reported no earnings, with analysts basing their recommendations on the expected value of products in the pipeline. At its most extreme, posting a profit in the manner of traditional drug companies was construed as a drawback because those earnings might decline in the future.

But guess what? In the latter part of the 1980s, most biotech stocks lost three-quarters of their value amid questions about FDA approvals and a growing realization that sales had been overhyped.

-- Mac (sneak@lurk.hid), December 10, 1999.

Moderation questions? read the FAQ