From: Tony Berkman (tberkman@rcn.com)
Date: Thu Dec 21 2000 - 11:42:52 PST
Having spent many years working as a quantitative analyst at a hedge fund,
one thing I've found to be true time and again is that in most charts, you
can always find just what you are looking for to reconfirm a preconceived
notion. I have grown to take with a grain of salt many terms often used to
describe the various types of markets for precisely the reason Linda
mentions - much depends on time frame and perception. In other words, one
can always make the case that the "long term trend" of ANY market is up, as
long as you go back far enough in time. Since this is true of all markets
at all times, I would offer that the very notion of a "long term trend" is
meaningless.
As for when has the "bubble truly burst", the contrarian in me
would say that well see the bottom once we stop seeing a multitude of
articles suggesting we've bottomed.
tb
At 01:12 PM 12/21/00 -0500, Linda wrote:
>[Adam and I have been discussing bear markets. That probably depends
>on one's time frame: here's a ten-year Nasdaq composite chart which
>suggests that for now, the long term trend is still up.
>
>http://www.wsrn.com/images/AHT/compx901220.gif
>
>Linda]
>
>
>http://www2.briefing.com/Scripts/PowerAnchor.asp?varArticleID=SB20001221000527gjones
>
>The Day The Bubble Died
>21-Dec-00 00:05 ET
>
>[BRIEFING.COM - Gregory A. Jones] A new low for the year on the Nasdaq.
>More key support levels fall. A slew of additional warnings after the
>close including AT&T, Real Networks, and Conexant. Surely more declines
>are in store for tech stocks. Or are they? Lost in the negativity
>yesterday was an important turning point that has been a long time
>coming.
>
>There have been two factors prompting the tech stock ugliness since
>April. The one that is receiving most of the attention
>lately is the deterioration in the economy. While very real indeed,
>this deterioration would not typically warrant a decline of more
>than 50% in the Nasdaq. Note that the Dow's decline has been much
>more subdued, and that the Dow really has been flat since April 1999.
>
>The far more important factor behind the Nasdaq's plunge has been the
>popping of the tech bubble. Few would now dispute the fact that tech
>stocks experienced a bubble in 1999 and early 2000. The question for
>investors is when that bubble has been fully deflated. Arguably, that
>occurred on Wednesday.
>
>There's nothing like a chart to tell the story. Because the bubble
>began in 1999 and ended in 2000, we need to look at the market's
>performance over the past two years to gauge where we are in the
>life of the tech bubble. We have been watching the percentage change
>in the major indexes since the end of 1998 for this purpose
>-- that's what we offer in the following chart.
>
>[chart]
>
>It's not difficult to identify the true beginning of the bubble back
>in the fall of 1999. That's when the blue Nasdaq line became detached
>from reality and from every other market index. By early 2000, the
>Nasdaq increase relative to the end of 1998 rocketed to 126%, while
>the comparable increases in the Dow and S&P 500 were 21% and 24%,
>respectively.
>
>Though the indexes can diverge from time-to-time as a result of the
>different growth prospects in technology versus old economy
>companies, this divergence is usually a few percentage points. That
>100 percentage point gap seen earlier this year was truly staggering.
>
>What we must acknowledge now is that the gap has been erased. Tuesday
>was the first day since the bubble began that one of the other indexes
>eclipsed the Nasdaq in performance since the end of 1998.
>
>This is a powerful point that warrants repetition: if you had invested
>on Dec 31, 1998, you would have been better off investing in the Dow
>(+12.4%) than the Nasdaq (+6.4%). That's almost two years in the heart
>of the technology revolution in which the old economy Dow outperformed
>the new economy Nasdaq. How times change.
>
>The good news is that this shake-out was necessary. The Nasdaq
>couldn't return to health until the bubble had died. It died this week.
>
>Does that mean that the bottom is at hand? We're not smart enough to
>know the answer to that, and indeed no one is. But we can say that the
>Nasdaq is now standing on much firmer ground. The economy is slowing
>and that's a very important issue, but with Fed rate cuts coming soon,
>relief from this problem is not far off.
>
>One sure positive is that yesterday was one of the first big down-days
>that wasn't followed by a declaration of capitulation by CNBC. We're
>not sure exactly where the bottom is, but wherever it is, there will
>be so much pain that no one will think it's the bottom. Wednesday felt
>something like that, didn't it?
>
>
>
>
>____________________
>
>Jeff Henley, Oracle's chief financial officer, on Microsoft's
>earnings warning: "That's too bad. I feel really sorry
>for them. And if you believe that, I've got a car to sell you,
>too."
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