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Trench warfare and the Viagra syndrome:
Welcome to the most exciting market in U.S. history!
by J. Christoph Amberger
If you’ve found yourself forced to watch children’s movies in recent years (and what parent and grandparent hasn’t?), chances are you’re familiar with the movie Babe. As the year 2000 ground to a screeching halt, I was reminded of that flick’s resident duck, standing on a rooftop, screaming "Christmas is Carnage!"
In this sense, Christmas came early for investors in 2000. The final massacre in the U.S. markets began in October, and as of this writing, it shows no sign of abating.
The juggernaut of Internet high-fliers stalled in midyear. Like overweight novice skiers at the top of the Super-G slope, they began to slip... then slide... then careen downhill — straight into the stands filled with perfectly good companies and stocks that got mowed down indiscriminately as panic began to spread.
"Value" = -8%?
In early January, the Baltimore Sun ran a piece in their business section that highlighted a local financial guru and "value-based" mutual fund manager — who had just finished another year of "beating the Dow AND the S&P."
If you ask me, I’d say that’s a Pyrrhic victory at best. Because for 2000, that only meant he lost a little bit less than the overall indices. (In a way, it’s like Baltimore’s Mayor O’Malley... who is currently playing up the enormous success story that in 2000, "only" 255 people were murdered in Baltimore City. That’s great... as long as you’re able to keep our expectations low enough!)
But it fits the picture. After the slaughter in the markets, everyone seems to be ready to settle for second-best. Analysts are now saying a recovery in the market won’t take place until summer... and late summer at that. And that can only mean the roller coaster market of late 2000 is going to continue... up 160 points one day... down 150, then 200, then another 180... and then in a steep trajectory up 300 points in a single day.
And that’s just the Dow, not some heavily manipulated Canadian junior mining stock index.
...but wait, there’s more!
Then, of course, there’s the NASDAQ... down 41% over the period from January 1, 2000 to January 1, 2001... and down a whopping 56% from its 2000 highs.
That’s not just the pure capriciousness of feeble-minded lemmings. The underlying economic statistics are indeed sufficient to set even the stoutest-hearted investor scurrying for the nearest bolt-hole.
The December numbers from the bean counters at the National Association of Purchasing Agents indicate that manufacturing activity fell to its lowest level in a decade, with the association’s purchasing index dropping to 43.7% — the worst figures since 1991. That’s as close to zero economic growth as you can get.
Consumer spending is even more depressing: new car sales dropped nearly 8%. Christmas sales were a debacle for most retailers... causing American retailing icon Montgomery Wards to close down shop for good, and giant Sears to shut 89 full-line and specialty stores.
Duct tape and pick-me-ups
That sure is bleak.
Bleak enough for Alan Greenspan to unexpectedly break out his secret stash of financial aphrodisiac in the first week of January, when the hoped-for boost in investor confidence failed to materialize.
And like Pfizer’s blockbuster product, the effect of the January 3 rate cut was strong but temporary. It took about an hour to reach full "working order"... made a few people ecstatic for a few hours... and just a day later, everything slowly started pointing south again.
Can the Fed keep it up? How often can Greenspan whip out the market Viagra? After all, he’s got big shoes to fill: the dot-com boom of 1999-2000 was subsidized by billions and billions in venture capital and marketing dollars. And it will take more than a few rate cuts to convince investors to put more money at risk in the markets. After all, a 2.6% annual return on a savings account looks better than most of the Q4/00 mutual fund statements that are being mailed as I write...
The decreasing effectiveness of rate cuts is partly due to the overall acceleration in the way markets work.
Remember the Asian Contagion? Only a decade or two ago, spectacular corrections in markets like those affected by the 1998 "Bahtuslism" — such as Malaysia, Thailand, South Korea, and even Hong Kong — would have taken five to ten years to work themselves out. But, while most of the underlying problems remain unfixed, it took most of them less than a year to stabilize.
The same goes for the U.S. markets. "Bad news" is being digested within hours of — sometimes even before! — the actual announcements. "Good news" that would have buoyed a market for at least a week or two back in 1994 today sparks intense rallies that wear off in a few hours.
I love this market!
But don’t get me wrong. While the markets seem doomed to a murderous back and forth vaguely reminiscent of the trench warfare at Verdun, this doesn’t mean there’s no money to be made! In fact, when was the last time in your experience as an investor... when you could make use of double-digit percentage jumps and dips occurring in a single day?
As in the last half of 2000, making a profit in the markets of 2001 requires an uncanny eye for opportunity... the willingness and ability to act fast... and the discipline to take profits whenever you have an opportunity. (More on this in our 2000 performance update on Page 10.)
With the completely redesigned, sleek new print edition of Taipan, we at the Taipan Group are proud to introduce our upgraded advisory service to friends and readers worldwide.
At the core of your Taipan subscription remains, of course, your monthly issue. But to better alert you to those cataclysmic short-term events that will rock global markets in 2001, we are offering you... at absolutely no additional cost... a daily alert letter updating you on the day’s main events and opportunities in the most exciting global markets.
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On February 15, please check out these sites for Taipan editor Brit Ryle’s hot new stock recommendation... presented exclusively to Taipan subscribers.
With this, I wish you Happy Hunting in the Viagra markets of 2001!
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