Message Font: Serif | Sans-Serif
 
No. of Recommendations: 10
This mess we are in is essentially the fault of the Board and the FOMC.

Cisco misses earnings and the investment community calls for John Chamber's head and says that he is a poor CEO and ....

Dell misses earnings and the investment community says there is a continuing slowdown in computer sales and that Michael Dell is ....

Apple misses earnings and the investment community says there is a continuing slowdown in computer sales and ....

Nortel announces that contracts have been postponed and cancelled and that growth will only be 15% and the investment community blames Nortel and its CEO and ....

THIS COLLAPSE OF THE TECH MARKET AND TECH ECONOMY AND THE LOSS OF FAMILY INVESTMENTS AND THE DESTRUCTION OF THE FUTURE OF FAMILIES IS THE RESULT OF THE INCOMPETENCE OF THE FED.

*****

Do not make the mistake of believing that there will be a soon recovery of the majority of these family losses. The "American Family" -- with anger focused toward the companies that have "missed" and/or toward the Fed -- have sold their stocks trying to save what's left of their money; they will not reinvest in the stock market for a very long time; many will never again buy equities.

Many retail investors are over forty years of age and these people, people who had a large amount of money to invest, will never take the chance of this type of a free fall loss again. Will certainly never take a chance with as great of a percentage of their money as they did during the tech market boom that Greenspan and the Fed have crushed. It's over for them. And as a result it is essentially over for a long time for the market.

The Fed believes or wants to believe or wants you to think they believe that the money will flow back in to equities in a very short time. They base this assumption on the fact that there is a lot of money sitting in money market funds. Again, here, as they did last year, they are making an economy-compromising mistake based on an assumption based on a record of "money on the sidelines."

The money is sitting in money market funds because people are waiting to pay their taxes, not because it is ready to enter the market. The Fed has misjudged the situation based on recorded information, AGAIN.

The people who have been totally flattened and subsequently totally discouraged are tech investors. This Fed doesn't seem to get it that until they restore confidence in tech investing, they're going to get a perceptual recession that results in a real recession. These are old time economists -- the leadership of the FOMC is over 70 -- and here at the beginning of 2001, in the midst of the greatest tech revolution the world has yet experienced -- we have JNJ and GE and, perhaps, MER as "the stocks to buy" for the year. And the Fed has manipulated the market economy into this position. Preposterous!

And yet, they sit there, secure in their beliefs, as the greater economy toiletizes, stating that the problems with the market are now the result of "faulty thinking". I would suggest that the faulty thinking can be attributed to the Fed. They need to ease NOW and a lot more than fund futures indicate to restore confidence. But this reality cannot be understood by simply viewing reports and that is how the people at the Fed make decisions and so there will be slow, slight easing and consumer confidence will not be restored.

The people at the Fed do not indicate that they understand the importance of confidence -- confidence is not easily recorded or reported -- and these people are "report-only-type-people" and essentially unchangeable. And so the Fed will miss again, making the last mistake needed to move the economy into a long recession.

The Fed is already demeaning the perception of the average consumer, the average investor, as "faulty thinking." This phrase is used to overshadow the Fed's mistakes, to protect the Fed's previous choices. And "faulty thinking" by retail and other investors or not, the result will be the same. We're going to get a recession based on Fed policies.

We're headed for a recession based on the inability of these people to act appropriately in 2000 and now in 2001.

The Fed has essentially ruined the American market economy for the next several years, not only through ruining the business of tech companies but more importantly through destroying investor confidence. The Fed will do nothing to change that consumer confidence even though it is still -- perhaps and only right now -- possible because the Fed does not realize that the window of opportunity for consumer confidence renewal will only last about another month. Once the money is used for taxes, the remainder is going into guaranteed vehicles. Then it's over for the market for a long, long time.

The Fed will know it has moved into guaranteed vehicles when they receive the reports that indicate this reality. Too late!

Let Greenspan and the FOMC state that the recovery will be in the second half of the year. He and his committee are incorrect, again. The committee that raised rates SIX times last year and never waited for results. Ask yourself "Did the economy need to be immediately slammed into reverse?" "Could the raises have not been completed over a two or three year period, waiting, always waiting, for results." "Would you have cautioned someone with whom you worked that acted in this unthoughtful, aggressive manner ... about any project?" These people have not indicated competence; why do you believe they will now make the correct eases, be correct?

Let it be recorded that at the beginning of 2001 in the midst of the greatest tech buildout the world had ever seen, the American Fed slammed the tech economy with six unnecessary rate hikes, ruining the business of top tech companies such as Cisco, Sun Micro, Intel and crippling the US and world stock markets.

Let it be recorded that by the middle of 2001 the majority of individual investors in the US had lost in excess of 50% of their family's wealth and the Fed still lacked an understanding of the extent of their error and continued to err and refused to ease aggressively to increase consumer and investor confidence.

The Fed and FOMC are poised to cause a major recession; confidence in the market is almost now dead and once completely murdered, will be dead and resistant to quickening for years.

The recovery will be long and slow and many good, necessary to the American culture tech companies will not participate in the recovery. They will not have survived this unnecessary manipulation.

JMHO.

Print the post Back To Top
No. of Recommendations: 14
I read that entire message and you sound very angry. As for people never trusting the market again I have to disagree. I may not be an old hand when it comes to investing but I do know this. I am 22, and I purchased my first mutual fund shares when I was 20. I would sya that at least 60% of my freinds have at least some money in the market and we all talk about investing. None of us are brokers, my good freinds that invest include a 6th grade teacher, a lab tech, my mother (nurse), dad (truck driver), a mechanic, car salesman, and other blue collar jobs. None of us are millionares but we all manage to put money away. We all have read books (several recommended by this site) and comntinue to invest.
I majored in History at Truman State Universtiy before joined the Army. I studied several market crashes and each time they were led into by companies becomming richly valued based on pricipals or somekind of energy crisis. And each time they recovered the losses and then some (in some cases rather quickly). I may be young but I know that the market has been around a lot longer then I have and it will continue being around long after I am gone. This little bump in the road called the year 2000 pales in comparison to some of the stock srashes witnessed in the past.
To sum this jibberish up, I represent the average investor that you said would leave the market and never invest again. I think that is a generalization that is wrong. Maybe I am basing this on limited knowledge, or maybe inexperience, but given time I think you will find that I am right. Give the market time and it will come back.
And dont forget that the Fed you critisize is the same fed that inherited an economy during Bush sr's administration and helped create an environment that allowed for the tech boom (with the help of technology of course). I feel that Greenspan has seen his share of market turmoil to make him an expert in guiding us out.

And then maybe I am completely wrong and really need to be quiet who knows, but only time will tell.

Fairly New Fool,

Rechtien
Print the post Back To Top
No. of Recommendations: 4
You're correct. I am angry.

Angry because this Fed turned many "investors" into daytraders who won't keep any money in the market overnight at all because they doesn't trust the Fed and don't trust the analysts that are feeding off this downturn. Is this logical? Maybe. Maybe not. But it is reality. And thus the market is even more volatile than it would be as a direct result of Fed policy.

Angry because I found it necessary to waste my time watching the market daily, weekly -- and I didn't want to compromise my life in this manner and who wants to live this way -- or lose hundreds of thousands or get out of the market. So, now, here I am in cash. So stupid.

And its as a result of us all being considerate as we wait for the Fed to get its act together. If it can. I don't think this Fed can. We need to wait for terms to expire, new appointments, pressured resignations. And that, my friend, is going to take a long time.

And here I sit in cash. So that I am not killed financially. And because of incompetence. And very few people say anything. (That failure to say anything could be another message - there are advantages to large investment institutions in this downturn.)

I'd fire these people. But of course, they can't be fired. Kind of like tenure for incompetents because of some favor or success of the past!

JMHO.
Print the post Back To Top
No. of Recommendations: 1
Gosh, if I was only in cash right now, as you are, I'd be a happy camper! I still have one independent stock position, to say nothing of my mutual fund stock positions in my 401K, IRAs, and other accounts, which are all taking a beating.

If there is money sitting on the sidelines right now to pay taxes, I hope it's more than was sitting out there last year. I still can't help but think that part of the reason for the dive stocks took last March was because lots of folks needed the money to pay their taxes (but then again, probably not too many folks have gains that they'll have to pay taxes on this year). ;-)

I don't think the Fed is incompetent; perhaps they just went a little too far, and seemingly they have already started to rectify that mistake.

JMHO
Print the post Back To Top
No. of Recommendations: 0
>>I am 22, and I purchased my first mutual fund shares when I was 20. I would sya that at least 60% of my freinds have at least some money in the market and we all talk about investing<<

>>I represent the average investor that you said would leave the market <<

Sorry, you do not represent the average investor if you are 22 years old. Your investing results are "at the mercy" of older numerically and financially stronger investor cohorts, those of which I speak.

Print the post Back To Top
No. of Recommendations: 4
Actually I would think that if you are in cash now you are better positioned to take advantage of the market than nearly anyone else.

As for the Fed; certainly they blew it last year with the two final hikes in March and May - those are the ones now causing negative growth in manufacturing. But the fed's reasoning was sufficiently clear in raising rates, if possibly overstated and mistaken.

Trying to control the year over year growth rates of the economy is no easy task. I certainly could not do it. And while I agree that the Fed over-hiked to try to slow that growth I think if you look back at the 4th quarter rate of 1999 (which was something like 8% quarterly growth) and then second quarter rate of 2000(which I think was 5.8%) the fed's reasoning made sense - those are unsustainable growth rates.

What the fed failed to realize was that the full impact was so much longer in coming than traditional financial prediction models suggested. It took some 18 months for those rate hikes to take effect - when it traditionally took 6-9 months.

The massive and sudden reversal by the Fed in January is certainly indicative of their realization. Sorry for the repeat here, but from June 1999 through May 2000 the Fed hiked interest rates a total of 1.75 points - and rescinded 1.00 points already here in one month in 2001. And they will likely be forced to another half-point cut during the year.

As it relates to investors, however, I completely disagree with you. Investors will come back. The message delivered consistently within EVERY magazine, news show, website, etc. is this: The best prospect to grow your money long term is in the US stock market.

Does anyone, anyone at all, disagree with that statement? Isn't that why we're all here? To figure out how to do that?

Cisco, et.al., got killed, sorry, reduced in price because their short term prospects for profitability are not all that great. They may not deserve a $50/shr price right now. But if you ask long term Cisco holders if they have EVER seen this before, I'll bet they say they have.

And when the economy turns around, which will probably not be this year, stocks will rebound, including Cisco.

And the Foolish will prosper again.

hutch

Print the post Back To Top
No. of Recommendations: 8

> Let it be recorded that at the beginning of 2001


small investors began searching for someone else to
blame for their own screw-ups.

hb

Print the post Back To Top
No. of Recommendations: 3
>>The massive and sudden reversal by the Fed in January is certainly indicative of their realization. Sorry for the repeat here, but from June 1999 through May 2000 the Fed hiked interest rates a total of 1.75 points - and rescinded 1.00 points already here in one month in 2001. And they will likely be forced to another half-point cut during the year.<<

This turn-on-a-dime reversal reinforced the perception of the average investor, the perception that the Fed does not know what it is doing. Sustained raising, never waiting for results, and then an "Uh Oh, we-made-a-massive-error month of January" and an undefined forward-looking policy. Result: investor insecurity. Money will not reenter the market until investor confidence is restored -- as I have previously stated -- and that will take a very long time.

You stated >>As it relates to investors, however, I completely disagree with you. Investors will come back. The message delivered consistently within EVERY magazine, news show, website, etc. is this: The best prospect to grow your money long term is in the US stock market.<<

And that message is a tired, tiring message. It has been front page, center page in these magazines for years. And people did believe it. That is why they invested in the market, in tech. But the message no longer has credibility; certainly not at this time. It is equal to the message that the Fed is competently in charge of the economic situation, that the Fed knew, knows what it is doing. Both messages existed as the "Mom and Pop" American investors watched their portfolios deteriorate, their planned futures evaporate. Few believe either message, either messager at this time; perhaps for a very long time to come, perhaps for some, the entirety of their investing future.
Print the post Back To Top
No. of Recommendations: 0
> Let it be recorded that<

your >screw-up< of my message is cute but essentially uninformative.

Have a nice "cute" day.




Print the post Back To Top
No. of Recommendations: 2
Two words.

Baby boom.

Boomers need to invest for retirement. Most will have lost some money in the tech bust (I'm down a bit over 10% non-house worth), but all still need to invest. Most invest in mutual funds. Sooner or later, the mutuals will again think that tech is The Great Thing. And the next boom/bust cycle will begin.

Your post is a buy sign.

Long CSCO, at least until 2010.
Print the post Back To Top
No. of Recommendations: 17
When I read these "It's the fault of . . . " messages, I can only suggest the following:

o Educate yourself on how to decide if a stock is attractively price and a learn little investment history (Security Analysis, Graham & Dodd (1934). More relevant today than ever)

o Grow up.

o Take responsibility for all your actions. Be they stupid or smart.

And guess what, it's not Bush's, Clinton's, Greenspan's, the FOMC's, Wall Street analyst's, your Broker's, Chamber's, Roth's, the Jews, the Christians, the Whites, the Blacks, the Asians, the Arabs, God's, Jesus's, Buddha's, Krishna's, Satan's, or my Dog's fault. If you overpayed for a stock, it's your own damm fault.

No one forced you to buy it.

Finally, remember what your old man told you, "Five minutes into a poker game, if you don't know who the sucker is, then you're the sucker"

Regards,

A.
Print the post Back To Top
No. of Recommendations: 2
tesvin,

Concerning your statement "We need to wait for terms to expire, new appointments, pressured resignations. And that, my friend, is going to take a long time.", I started thinking about a course I took in college back around 1990 called Money & Banking. In that course, the section on the "Fed" said something like "The Chairman and Members of the Board serve one seven-year term only and then must be replaced." I may have either the number of terms wrong or the years but I'm certain that Alan Greenspan has surpassed what was taught in that class back in 1990. I do feel it is time for Greenspan to step down.

Do you or anybody else on the board recall anything about this?

I definitely agree that the Fed slammed the brakes way too hard. My Dad said that historically, everytime the Fed has jacked the rates up to 6.0%, the U.S. has fallen into recession. I don't know if his statement is correct but it may be true this time.

Mr. Spindlelegs

Print the post Back To Top
No. of Recommendations: 2
<<Your post is a buy sign.>>

there has been so many of these quotes from csco 70 down to csco 30. you need to come up with facts. why should we jump in and buy now? a simple answer of 'it has already fallen so low' is not good enough.

i believe TMF has trained the LTBHers all too well. do LTBHers actually sit down at the end of the month, evaluate how much theyve lost and say, hmmm... maybe i should sell - not because company of fundamentals but because of falling stock prices.

sure. stocks will eventually rise to its new highs. but are you willing to wait 3,4,5 years to recover what you have lost 'on paper'?

a paper loss is still a loss. that money is still no longer yours. i dont care if you dont need to money for another 10 years. you no longer have that money. time is on your side. ONLY time is your side since the stock price is not.
Print the post Back To Top
No. of Recommendations: 1
>>Baby boom.

Boomers need to invest for retirement. Most will have lost some money in the tech bust <<


>>(I'm down a bit over 10% non-house worth)<<

I think you have been very fortunate. Most investors are "down" substantially more than that from their "highs."

>>Most invest in mutual funds. Sooner or later, the mutuals will again think that tech is The Great Thing.<<

Do "most" really invest in mutual funds? I don't know anyone who has the majority of his/her portfolio in mutual funds.

Let me tell you how I agree with you.

I believe we will see some movement of money into mutual funds this year. The greater amount of this money will be money that belongs to investors who invested in mutual funds before the tech market boom and as a result have a history, albeit somewhat fractured, of belief in patriarchal management of their investment dollars.

As part of the "I've lost how much money?" investing for myself and "What do I do with my money, our family's money now" "Guaranteed vehicles pay next to nothing" investment choice process, some investors will choose mutual funds for 2001.

And this group will be making a mistake. Many mutual fund managers are not any more competent than the average investor. Most of these people were hired during the last decade of prosperity and have little or no experience with a sustained downturn. Many investors who are shocked at the downturn in their net worth, who invested on their own during 98-00, who choose mutual funds this year will simply experience another downturn in their portfolios.

But it is to the advantage of large institutions and "financial planners" and institution analysts to make you think that the only problem is that you invested for yourself in the aforementioned years. After all, they make more money if you pay management fees and front and rear end loads and portfolio analysis fees and .... So they will all rush to your support on this board and in life.

>>And the next boom/bust cycle will begin<<

Not for a very long time if the Fed does not ease again aggressively and immediately.
Print the post Back To Top
No. of Recommendations: 1
Much of what you are saying was said in 1987 when the stock market melted down. "They" said the average investor had been burnt so bad losing half their wealth in a matter of days (not over months like the tech wreck) and the average investor would never return to the stock market.

In a matter a years the investors powered the longest running bull market in history.

I doubt such a bull market will return, but the average investor will be back.
Print the post Back To Top
No. of Recommendations: 2
Tesvin,

I agree 110% with everything you said, and you said it eloquently. The Feds (Greenspan) made a terrible mistake last year with the increases, why didn't they give it more time in between to see the effect? Now they refuse to admit the error of their ways and do something quickly to reverse it. I believe some of them are to old and do not understand technology and the "new economy", and they have no interest in expanding their horizons.
The Feds do a terrible thing, business slows to a crawl, some great companies miss earnings estimates by a penny, and the analysts are ready to ruin them with downgrades and badmouthing. I am invested in Cisco and two of the three other stocks you mentioned. My broker last Thursday morning advised that I had to much tech stock and should sell some and invest in BK. Thursday was a good day for techs and I did not sell anything. Maybe that was a good thing because BK is down $4 a share at this moment from what I would have paid for it last Thursday. When I wanted to buy AOL or TWX before they merged, he advised AOL. I bought AOL, but would have been better off with TWX for obvious reasons. Do any of these people know what they are talking about anymore?
I don't often post on the boards but had to respond to yours because it is exactly what I am feeling about this whole sorry situation. Thanks

Print the post Back To Top
No. of Recommendations: 3
I'll put it this way.

I first came in in the late 70's, dollar cost averaging into a front-load mutual fund using a letter of intent to keep the fees down. It tanked. My mentor said, "Stocks go up and stocks go down." So I stayed. And it went up.

Then I got into no-loads. Saw the 1987 crash and lost a lot more than then I have up to now. Missed a buying opportunity for MSFT (the big one that got away). Stocks went back up. Started a TSA through the American Funds (New Perspective, committee managed). Saw more tanks in 91(?) and 97. Yawn. Been there done that got a T-shirt seen a shrink.

Guess what? That TSA has taken the bulk of our savings, and rewarded us for doing so. Retirement accounts are where most people's money is, and many have no option but to be in mutual funds. The tech bubble may be poked, but everything else is down a tad--nothing to get excited about. That includes diversified mutual funds.

But of what's left, I put a small amount into stocks. Currently I'm a bit up in CSCO, way down in ATHM, and way up in WM and TDW. SCH down a bit. Even with my single stocks I'm about par for the course.

The key? Buy CSCO, but buy other things that are not tech. Or buy a mutual fund (for worldwide investing) plus an index (for at home stuff) and sleep at night.

Regards,

K
Print the post Back To Top
No. of Recommendations: 1
>>Much of what you are saying was said in 1987 when the stock market melted down. "They" said the average investor had been burnt so bad losing half their wealth in a matter of days (not over months like the tech wreck) and the average investor would never return to the stock market<<

I believe you support my argument. Please check my previous posts.

As simply analogy:

if you buy double-decker green ice cream cones at The Green Ice Cream Emporium in Tuk, California every day or every month for ten years and then for every day one week you buy double-decker green ice cones at the same place and they're just terrible. Do you immediately stop buying double-decker green ice cream cones from The Green Ice Cream Emporium?

I would bet no. You'll go back in a couple of weeks and rebuy, thinking it was just a glitch time at The Green Ice Cream Emporium.

But what if the double-decker ice cream cones at The Green Ice Cream Emporium are terrible for weeks, months? What if every time you taste the green double-decker wonders for half a year your tongue is insulted as your wallet is thinned.

I would bet you'd stay away from those things for a great length of time.

Investors "tongues" have been insulted with ill-tasting, double-decker green for more than six months.

And they're not going to go near The Green Ice Cream Emporium in great numbers and with thick wallets for a long, long time!

Print the post Back To Top
No. of Recommendations: 1
> The Feds (Greenspan) made a terrible mistake last
> year with the increases, why didn't they give it
> more time in between to see the effect? Now they
> refuse to admit the error of their ways and do
> something quickly to reverse it. I believe some of
> them are to old and do not understand technology and
> the "new economy", and they have no interest in
> expanding their horizons.

*rolls on floor laughing*

Maybe you should explain it to them, NEEDMONEY. I'm
sure they would be fascinated by your insights on
technology and the "new economy".

hb

Print the post Back To Top
No. of Recommendations: 22
tesvin wrote:
The "American Family" ... have sold their stocks trying to save what's left of their money; they will not reinvest in the stock market for a very long time; many will never again buy equities.
[and...]
Many retail investors ... Will certainly never take a chance with as great of a percentage of their money as they did during the tech market boom that Greenspan and the Fed have crushed.


and added later:
...we wait for the Fed to get its act together. If it can. I don't think this Fed can.

I just don't agree with this. A Federal Funds rate of 6.5% is not going to kill an economic boom...in fact, even as the Fed was raising rates, the market really went into overdrive and the most extreme valuations were reached. Inflation at the consumer level rose from about 1.6% in 1998 to 3.5% in 2000, so with rates at 6.5%, the real interest rate was only 3% -- certainly not excessive by any stretch of the imagination. In addition we had an incredibly tight labor market as well as other signs of the economy overheating. The Fed should, and did, act.

What killed this stock market was overvaluation, plain and simple. The market, and CSCO (as well as a lot of other stocks), had no business being priced at the levels they were. And it was not the Fed, but individual investors, that bid this market to the ridiculous valuation levels we saw last year.

The phenomenon that led to the extreme over-valuations was the arrival, in force, of two types of investors: the uneducated investor and the momentum investor. The uneducated investor didn't (and probably still doesn't) have the first clue of how to rationally value a company, but thought all you needed to do to get rich was just buy the stocks everybody else was buying. The momentum investor couldn't care less what price they paid for a stock, as long as a "greater fool" was available to buy it from them at some point in the future.

The market was turned, in effect, into a giant casino (or pyramid scheme) where if your stock didn't double in a few months, something was wrong.

It doesn't work that way.

Hopefully those investors will now begin to learn the real basics of investing. Or, as tesvin says, maybe they'll not take a chance on investing in equities in the future. If they are going to insist on investing in an uneducated manner, it would be better to stay away. Both they and the market would be better off in the long run. Some, at least, are learning: there have been some encouraging columns from TMF writers lately acknowledging that (surprise, surprise) it does matter how much you pay for a company after all.

While I don't enjoy seeing anyone lose money, I for one certainly am glad to see the return of a more rational stock market. A market that loses all connection with reality can cause serious capital misallocation, which is very damaging to the economy -- but that's a topic for another post.


Steve
Print the post Back To Top
No. of Recommendations: 0
I'm not fully convinced the institutions have been taking their money out. When you look at volumes, for the most part the last couple of days aren't really out-of-whack. Maybe I am trying to rationalize things for myself but it seems like the average investors are the ones who are nervously bailing out. That probably works out great for people in mutual funds. I'm trying to hold but have to admit I am getting more nervous.
Print the post Back To Top
No. of Recommendations: 1
>>In addition we had an incredibly tight labor market<<

See Larry Kudlow's interpretation of this situation. His economic training occurred after the middle of the last century.

>>as well as other signs of the economy overheating.<<

Is this that fairy dust inflation stuff again?

This should be counted as the great Fed success of last year. They actually had the average investor believing we had a problem with the economy that required steel-boot six-raise intervention.

>>The Fed should, and did, act<<

The Fed did not act; it reacted ... and belatedly, incorrectly, excessively ... with the six unnecessary raises.

And again, it is reacting belatedly, incorrectly in 2001.

>>I for one certainly am glad to see the return of a more rational stock market.<<

Is a market that destroys the wealth of the average American family, a market that destroys an entire market sector, a market in a tech-centric economy where tech stocks are considered horrid investments, a market that has been manipulated through six raises and then a knee-jerk turnaround "Oh-No-Its-Falling-Apart double ease" a "rational market?"

Print the post Back To Top
No. of Recommendations: 7
Great thread here! I cannot find anything to argue about. You are all correct! I thought the Fed got over zealous last spring with the last few hikes, but I honestly do not believe that is where the market took the hit. The Fed cuts this last month should have stirred the market if the fed rate hikes were really the problem. And, look! The market is just as screwed today as it was before the Fed made the first cut in early January.

Someone mentioned the thing that I believe is behind the overall problem. The Fed hikes helped do the market in, don't get me wrong. That certainly helped slow things down, but I believe liquidity is the real problem. Look at the NASDAQ starting March 15th of last year and also look at how it performed following April 15th. I firmly believe the problem was capital gains taxes. The demand for cash robbed the markets and the economy of liquidity.

As folks did their taxes last year, they came to the startling realization that the nice gain they enjoyed in 1999 was now responsible for a huge tax bite. And, the new car, furniture or the neat home improvement on which they spent their stock gains wouldn't cover the IRS's needs. The IRS wants cold hard cash.

So, the old portfolio had to cough up some more cash. Some folks filed an extension hoping for a market rebound...but the market just went lower. As people covered their IRS debt, the market was driven even lower and lower some more.

That, my friends, is what I believe. Does anyone know how to find out how much of the Government's revenues last year came from income taxes versus what portion came from Capital Gains Tax? Hummmm? Each individual pays one tax...so no one knows whether I am right or wrong. I think I am right though.

So, the real solution is for the Government to give the taxes back! I believe that will jump start the economy exactly as it stopped it last April. Isn't it funny how the Government reported a surplus way above what they ever expected? How can this have happened unless a surprising windfall came to them? And, what exactly was that windfall? I believe we may be on the right track here.

Unfortunately, the Government just killed the goose that lays the golden egg...if I am right. When the stock gains stop, the capital gains taxes stop and the surplus funds dry up. Oops! Now the Government takes a hit...and they hate that! I think we now have a pretty good idea why Mr. Bush wants a tax cut...maybe he really knows what is going on, my friends. I hope so, anyway.

Print the post Back To Top
No. of Recommendations: 0
Do "most" really invest in mutual funds? I don't know anyone who has the majority of his/her portfolio in mutual funds.

Are you counting real estate? Assuming no, I'd like to introduce myself. 80% of my portfolio is in my 401K, which is doing well in FDGRX thank you very much. The remaining 20% is invested in a variety of stocks including quality retailers, tech enablers, tech "retailers" and a flyer that isn't looking so great at the moment.

My principal residence, including 1/3 acre lot, is valued approximately 4x what I've got in my portfolio and I "own" about half ot it...the bank currently owns the other half. Because of this real estate, which I consider to be part of my portfolio, I guess I fail your test for majority in funds...

What was your point anyway?

Steve K
Print the post Back To Top
No. of Recommendations: 4
By giving all the blame to Greenspan for the currently short slowdown, you must also be giving him all the credit to the long 10 years of economic growth. Very large and undeserving compliment. You just can't say he is the single most reason a market swings one way and not the other.

I started investing in March of 2000, and as a young newbie full of spunk and a handful of money I thought I couldn't go wrong, so I bought CSCO right at about the same time Barron's published that great article (last I heard it wasn't written by Greenspan) and Microsoft went to court (What was the reason for that again?). Needless to say it wasn't the best entry point. I have been learning since that time and luckily I am on track with my new found goals and long term strategies, so I am pretty happy and sleep at night (So now need for the lectures). I also remember how the time also brought about the worries that the economy was growing too fast. The same people that call for his head for raising rates too much are the same people who said we didn't raise them enough back then! Remember we were actually having real bad market days when reports would show that the economy was growing too fast. You could blame Greenspan for this atmosphere, but what about the high valuations? Do we blame him for investors who paid way too much for IPOs that were basically phantoms? Alan Greenspan isn't one of the stupid people who decided to say that Dot Coms were technology companies when clearly technology is only used as the transport for a particular company's service. We don't call Fed-Ex an airline company because it happens to use airplanes as oone part of it's service mechanism. Dot Coms may represent a particular stream of revenue for technology companies, but it shouldn't be used as a determining factor as to whether the technology industry is doomed.

As for the analogy about the ice cream shop, it didn't make sense to me. If I have purchased a certain flavor for a long time and it was good, and then recently I start to get the same flavor and it was bad, I would probably try a different flavor, just like I would go to a different company if the other's performance continued to be bad. Also, you were saying that bad sentiment would drive people out of the market for a long time, maybe forever. Getting a consistently bad flavor from the emporium that has been so good for a long term would make me look for another emporium, not to stop eating ice cream altogether!

Finally, I just want everyone to know that I don't blame Alan Greenspan and the Fed for my horribly RED portfolio since March of 2000. I also don't blame him for the 35% salary increase I have received since March of 2000. I will also not blame him for the 65% total increase in my salary over the last 2 1/2 years (same company). I am a techie and I have come to terms with the the current state of the economy and take full responsibility for my actions. Alan hasn't helped me work my 10-12 hour days and he hasn't been the one loving every minute of my job. I'm just glad I would never put my economic livelihood on the stock market and would rather work for a living like most of the "average" investors whose financial outcome you seem to know so much about.

Sorry for the rant, but I look at it this way - With all the bandwidth and capacity that is wasted on rants and flames when it could be used for useful posts that promote learning and thought, I certainly can't go wrong in technology. And yes I know my response continues to perpetuate the ongoing battle between usefulness and waste, but hey, I'm human.

I'm sure you may know more than me about the stock market since I am such a "newbie", so I thought I'd admit that before you came back with that response. It is just a shame that your post could have been used to provide some intelligent reasoning that I could learn from than some crazy analogy about some nasty ass'd ice cream.


Take it easy to all!







Print the post Back To Top
No. of Recommendations: 2
SteveH2,

...I for one certainly am glad to see the return of a more rational stock market...

Can you tell me where I can find that rational stock market? I certainly haven't been able to find one in the past 6 to 9 months!

Thanks for the laugh....
Jon
Print the post Back To Top
No. of Recommendations: 0
>>By giving all the blame to Greenspan<<

You have not read my first posting -- "The Fed."

>>for the currently short slowdown, you must also be giving him all the credit to the long 10 years of economic growth. Very large and undeserving compliment. <<


Nope. Wrong-headed conclusion. If you and I and Michael Dell and Steve Case and John Roth and John Chambers and Steve Jobs and Bob Pittman are in the garage creating the "new tech economy" and Mom and Dad give the keys to the garage to the neighbors the "Federalees" and the Federalees come in and smash all the computers and burn all the blueprints and steal all the money we were planning to use to buy the equipment we needed, it does not follow that they were creating or created the new tech economy.



You just can't say he is the single most reason a market swings one way and not the other<<


And your
Print the post Back To Top
No. of Recommendations: 0
Oops! Didn't check bottom of last posting.

Message was to end at end of my reply with "does not follow that they were creating or created the new tech economy."

Print the post Back To Top
No. of Recommendations: 2
The Fed may not have watched Japan, that raised rates and then proceeded to lower them to zero, and still no rebound. We are in for a hard landing. Most businesses I talk to have said that February is a disaster. We will need panic selling for this bull market to be over, more than likely Nasdaq 1500.

Big money is happy, they are on the sidelines, just like Joseph Kennedy in 1929, who went to cash before the cash and had $4 Million, by 1934 he was had $40 million.

Greenspan is the friend of big money, they will roll back into the market when it bottoms. There was no inflation, just a market that big money needed an adjustment, and Alan gave it to them. For the hard working 401k plan people, the buy and holders, life will get tougher, expect NASDAQ 1500. As Bob Brinker says "We will need panic selling to signal the end of this bear, and then there will be bargains to buy". We are not there yet, CSCO could easily go to 15.
Print the post Back To Top
No. of Recommendations: 18
Tesvin, have you seriously studied monetary policy? Fiscal policy? They take a long time to affect an economy, so any central banker is forced to try to predict some time into the future, with data that's already weeks or months old by the time he gets it.

The Fed is already demeaning the perception of the average consumer, the average investor, as "faulty thinking." This phrase is used to overshadow the Fed's mistakes, to protect the Fed's previous choices. And "faulty thinking" by retail and other investors or not, the result will be the same.

Do you really think paying 200x earinings for a company is not "faulty thinking"? Or, worse yet, paying $250/share for a company which not only hasn't shown a profit, but can't even say when it will? All con games are based on the mark's greed, and the hucksterism around last winter/spring did just that. If you've lost all that money, at least try to learn something for your loss rather than looking for a scapegoat.

We're headed for a recession based on the inability of these people to act appropriately in 2000 and now in 2001.

Yes, in hindsight we can see the Fed made a mistake. Is an ability to always accurately predict the future now the only way to "act appropriately"? Your hindsight is wonderful; I hope for your sake your job doesn't depend on always being 100% right about what will happen 3-6 months from any given day. Hindsight won't help you there.

The committee that raised rates SIX times last year and never waited for results. Ask yourself "Did the economy need to be immediately slammed into reverse?" "Could the raises have not been completed over a two or three year period, waiting, always waiting, for results."

Are you bagging me? Money supply changes constantly, not incrementally, and changes in monetary policy have long lag times before having an effect on the economy. By the time the Fed "waited for a result", it would already be too late to really affect the next quarter's money supply. Then they'd have had to slam on the brakes even harder. Are you old enough to remember what Paul Volcker had to do to tame inflation in the 1970s? I am. It made the 6.5% Fed Funds rate look like a picnic.

The recovery will be long and slow and many good, necessary to the American culture tech companies will not participate in the recovery. They will not have survived this unnecessary manipulation.

First, the threat of inflation in 1999/2000 was real; 0.7%/month is not "fairy dust". The fact we did not experience it does not prove the threat was false; that's like saying we didn't need to hire all those additional cops because the crime rate started going down after we did so. Second, too many of those companies would have collapsed in the face of out-of-control inflation anyway, because their business plans were weak, incomplete, or based on ridiculously rosy projections. The companies might not survive, but the people who ran them and worked in them will, and they'll be much smarter than they were a year ago.

This is a longer post than I had intended, but I think it's important people learn from this bear market rather than just create complex conspiracy theories to justify not having to question their own actions and assumptions.

Dart (down hard this year; sadder, but I hope smarter)
Print the post Back To Top
No. of Recommendations: 4
Is this that fairy dust inflation stuff again?

This should be counted as the great Fed success of last year. They actually had the average investor believing we had a problem with the economy that required steel-boot six-raise intervention.


Inflation really was up...as I cited, from 1.6% to 3.5%. That's a two percent increase, and the Fed only raised rates 175 basis points. Remember, inflation was only around 4% when Nixon imposed wage and price controls in the '70's (although I'm not defending that decision by any means!).

Is a market that destroys the wealth of the average American family, a market that destroys an entire market sector, a market in a tech-centric economy where tech stocks are considered horrid investments, a market that has been manipulated through six raises and then a knee-jerk turnaround "Oh-No-Its-Falling-Apart double ease" a "rational market?"

What wasn't rational to me was the four-fold increase in the Nasdaq between late '98 and early '00, unaccompanied by any four-fold increase in growth rates of the companies involved.

I guess to answer your question, in my opinion, yes it is. The market was irrational for about a year and a half, and has now returned to some semblance of rationality. And the Nasdaq is still about 70 or 80 percent higher than it was less than two years ago...even after the drop. The same could be said for most of the big stocks that dominate the index. (I did a rough estimate by looking at 5 year charts, and it appears CSCO is up about 50%, INTC about 60%, MSFT only about 10%, ORCL about 350%, SUNW about 200%).

Steve





Print the post Back To Top
No. of Recommendations: 0
The Fed cuts this last month should have stirred the market if the fed rate hikes were really the problem. And, look! The market is just as screwed today as it was before the Fed made the first cut in early January.

Good points. I wish it had occurred to me to include them in my post -- thanks for making them.

I firmly believe the problem was capital gains taxes. The demand for cash robbed the markets and the economy of liquidity.

Hmmm, that's interesting. You may be onto something there. I think it's a situation where there were probably several contributing causes (I really oversimplified when I said it was overvaluation, pure and simple). That may have been one of them.

Steve

Print the post Back To Top
No. of Recommendations: 0
jbgbbs wrote:
Can you tell me where I can find that rational stock market?

Point well taken...touche!!

Steve
Print the post Back To Top
No. of Recommendations: 3
God Alan has managed to make a mess just because he didn't like the wealth effect the stock market created. Did he consider many of these people use their portfolios as their only source of retirement? Companies like Csco are being blamed for something that God Alan started. Soft landing, HAH!!! I also have read in several articles that every recession was created by the FOMC. Maybe we should all stop ragging on the Coporate world and march against God Alan.

Dragonlady1
Print the post Back To Top
No. of Recommendations: 1
>>Tesvin, have you seriously studied monetary policy? Fiscal policy? They take a long time to affect an economy, so any central banker is forced to try to predict some time into the future, with data that's already weeks or months old by the time he gets it. <<

This is their job; their solemn responsibility. That's why they're so very well paid. They're not donating their ime. And they failed -- miserably.

>>Do you really think paying 200x earinings for a company is not "faulty thinking"? Or, worse yet, paying $250/share for a company which not only hasn't shown a profit, but can't even say when it will?<<

You are providing a preposterous example to support your argument. And it discredits your argument. Does Cisco have no earnings? Sun? Intel? Dell?

The manipulated market economy of right this moment gives CSCO the same PE as it does Coke - KO. And they each have the same amount of world market available for expansion, yet to explore? LOL

More of the same: Sun Micro has a PE of 36 and KO a PE of 68.

>>If you've lost all that money, at least try to learn something for your loss rather than looking for a scapegoat. <<

All what money? I'm in cash. Read my previous posts. This isn't about me. :)


Print the post Back To Top
No. of Recommendations: 8
This is their job; their solemn responsibility. That's why they're so very well paid. They're not donating their ime. And they failed -- miserably.

Duh. But there's a great distance between failure in hindsight and incompetence. I understand Jack Welch once refused to fire a mananger who lost $100 million for GE, saying "why would I fire someone I just paid that much to educate?" Jack Welch has had plenty of failures (he'd be the first to admit that), but he's hardly incompetent. Name me the head of a large central bank who's performed better over the long run than AG.

You are providing a preposterous example to support your argument.

Hardly. Plenty of folks bought QCOM in Jan 2000 when its P/E was near 400, and plenty more bought AMZN, LNUX, CMGI, VNTR, and several dozen other dot-coms, for upwards of $100-$250/share (I could go on all day listing these companies).

All what money? I'm in cash. Read my previous posts. This isn't about me. :)

Given your bitter tone, it must be about you. If you took the attitude that "this isn't personal, it's business" then I think you'd have much more professional detachment.

Dart
Print the post Back To Top
No. of Recommendations: 0
This may be a waste, but that was pretty darn funny!!

Fairly New Fool whohas never had bad ice cream,

Rechtien
Print the post Back To Top
No. of Recommendations: 0
Are you old enough to remember what Paul Volcker had to do to tame inflation in the 1970s? I am. It made the 6.5% Fed Funds rate look like a picnic.

Ah, Paul Volcker the biggest inflation hawk of them all. I remember having CD's earning 12-13%!

Plummer
Print the post Back To Top
No. of Recommendations: 2
You -- >>Name me the head of a large central bank who's performed better over the long run than AG.<<

Pay attention. Another make-it-up as I go, as I want, non-reader of my message. I said "The Fed."



You -- >>But there's a great distance between failure in hindsight and incompetence. I understand Jack Welch once refused to fire a mananger who lost $100 million for GE, saying "why would I fire someone I just paid that much to educate?" <<

How many "failures in hindsight" per person according to the rules-of-you.

How many times would Jack Welch have reeducated the same guy, the same gang of guys, before getting rid of him/them. This is a repeat performance here. Read some history. Duh!


Me -- >>You are providing a preposterous example to support your argument.<<

You -- >>Plenty of folks bought QCOM in Jan 2000 when its P/E was near 400, and plenty more bought AMZN, LNUX, CMGI, VNTR, and several dozen other dot-coms, for upwards of $100-$250/share.<<

Many new companies go through an accelerated stock price growth when they are first publicly trade. I suggest you read some pre-1990 history and see that this was not specific to the 90s. Successful companies can simply grow into their P/Es. Do you believe that should not be allowed to occur? Do you believe that a big brother, a cultural momma should always be out there aggressively and punitively defining what absolutely must be in economic culture according to some rules which they believe you must immediately and unquestioningly accept because you -- mass you -- aren't intelligent enough to provide imput or to make appropriate decisions? How sad is that!



Me -- >>This isn't about me. :)<<

You -- >>Given your bitter tone, it must be about you.<<

You can see the bitterness in the smiley or ... what exactly there Einstein.



You -- >> If you took the attitude that "this isn't personal, it's business" then I think you'd have much more professional detachment.<<


Replies

-- Are you intensely interested ONLY in yourself?

-- Passion is culturally defined. You must travel!

-- Oh, I took that class too. Wasn't it informative? Professional Demeanor 502 for Message Board Writers.

-- Is this where you enrich your reply by stating "Your message is bunk because I don't like the jacket you're wearing?

-- I believe you want someone ABOVE, OMNIPRESENT to manipulate the market, your life, the world because you are attempting herein to dictate the rules of discourse that would/should/must create credibility for ALL, always. LOL





Print the post Back To Top
No. of Recommendations: 8
No, I'm citing historical facts, not "making it up as I go" (and not name-calling, BTW; both those qualities sould like someone else in this dialogue).

Pay attention. Another make-it-up as I go, as I want, non-reader of my message. I said "The Fed."

I read your first post in its entirety. O.K., then, name me another board of governors of a large central bank who's done better over the last 10 years. The hair is split, but you still haven't answered the challenge.

How many times would Jack Welch have reeducated the same guy, the same gang of guys, before getting rid of him/them. This is a repeat performance here. Read some history. Duh

I have yet to see any historical context in any of your posts, but O.K., here's some. From 1865-1990 the US averaged one panic/recession/depression per decade, each one lasting several years. This Fed has beaten the average by a lot, so by comparison they've done very well.

Passion is culturally defined. You must travel!

It seems you assume I'm an insular American who's had little exposure to other cultures, but you'd be wrong. I've spent nearly 1/3 of my life overseas, living "on the economy" in Europe, Asia, the Middle East, and Australasia, from the time I was 6.

I believe you want someone ABOVE, OMNIPRESENT to manipulate the market, your life, the world because you are attempting herein to dictate the rules of discourse that would/should/must create credibility for ALL, always. LOL

I'm sorry you believe the first part, and that civility and backing arguments with facts is "dictating the rules of discourse", but putting words in my mouth doesn't make them true.

Basta,

Dart
Print the post Back To Top
No. of Recommendations: 0
**** OT ****

Dartman14N,

I came this close to adding you to my favorite Foolslist until I saw uourdisclosure.....

A Seattle Mariners fan in Alabama?!!

How is that possible?

:-)

-Mike

And now back to the regularly scheduled CISCO talk ...
Print the post Back To Top
No. of Recommendations: 1
Have you explained how the Fed is at fault? Your logic escapes me. Individuals and institutions bid prices up to unsustainable levels. Now, some of that is correcting itself.

Are you suggesting that Greenspan should cut rates earlier than he did? Or, that he should have kept raising rates throught the 2nd half of the 90s to keep the bubble from forming?

How is the Fed at fault?

Patrick
Print the post Back To Top
No. of Recommendations: 1
Many new companies go through an accelerated stock price growth when they are first publicly trade. I suggest you read some pre-1990 history and see that this was not specific to the 90s.

No, we've seen a saturation of the IPO market with companies that possess little more than a hot name before, in the 20's the hot name was "motor". Now if you were around back then and you were fortunate enough to buy General Motors and held through the great depression, you would have done pretty well. Otherwise you would have invested in the equivilent of Pets.com, at best.

Good 'ol Graham & Dodd point to an overheated IPO market as one of the sure signs that speculation, rather than investing is the prevailing paradigm for money entering the market.

Successful companies can simply grow into their P/Es.

We'll use Cisco as an example, back in April/March 2000, when it traded at its all-time high of 80, and was briefly valued more highly than GE, it had TTM earnings of .33, and a LT growth rate of about 30 percent.

Now, let's think in terms of almost-worst case scenario (certainly much worse than this one) for the sake of getting a margin of safety, let's assume Cisco will never trade for less than a P/E of 10. Now, let's also assume that a stock performance tracks its earnings performance is never worth more than per share than the earnings it will eventually produce and 'eyeball' fair value (FV) by simply multiplying our margin of error P/E ratio by earnings per share and seeing how long it will take Cisco to pay out.

FV, March 2000 Price, March 2000
3.30 80 difference:$76.70
FV, Feb. 2001 Price, Feb. 2001
4.20 25.75 difference:$21.55

Assuming an indefinate continuation 30 percent earnings growth (which, BTW, is not a resonable assumption). Cisco will now reach its fair value somewhere in between 2007 & 2008 (in 2007 its fair value would be about 20.27.) Buying in March of 2000, on the other hand, you could have expected your payout somewhere between 2012 & 2013 (in 2012 its FV would be about 76.75).

This is an only a rough estimation, of course, and who really knows where Cisco, the economy, the fed, the world, you or I will be in 2012 or 2007 for that matter? It's all based on a set of assumptions. Cisco may be one of the stocks that 'pays out'. Unfortunately, payout at a p/e of ten is the breakeven point, not where you start making money. Cisco is, IMO, one of the best managed & positioned companies in the U.S., but that doesn't mean you'll make money investing in its stock.
If nothing else I learned that in the past couple of years, and Greenspan has, at most, a peripheral relationship on this.

Do you believe that should not be allowed to occur? Do you believe that a big brother, a cultural momma should always be out there aggressively and punitively defining what absolutely must be in economic culture according to some rules which they believe you must immediately and unquestioningly accept because you -- mass you -- aren't intelligent enough to provide imput or to make appropriate decisions? How sad is that!

Tell you what I know I don't want. Rampant inflation cause by unsustainable growth rates being allowed to go unchecked. Someone who is concerned about their portfolio's performance, or the portfolio performance of their constituants setting the long-term economic policy of the country.

Sincerely,
C.C.
Print the post Back To Top
No. of Recommendations: 0
***OT***

Mike,
I'm from the Pacific Northwest, but am going to Air Command and Staff College here. My neighbors are quite nice to me despite my eccentricities, like not having a Braves sticker on my truck, and flying a purple and gold Huskies flag instead of Auburn or 'Bama.
Was just up your way a couple months ago, visiting my in-laws just west of Columbus. Am hoping to maybe catch a Reds game or two this summer with my father-in-law.

Dartman
Print the post Back To Top
No. of Recommendations: 6
<<small investors began searching for someone else to
blame for their own screw-ups.>>

Let me emphatically second that statement.

Lots of small individual investors got way too greedy and thought it was way too easy. Just buy "great" companies at whatever price and you'll be fine. I'm sorry, but it ain't that easy.

Personally, I think the investing philosophy put out here on the Motley Fool is significantly to blame because many people have trusted them. Back when I was still an engineer (1996) I first got interested in stocks partially due to the Motley Fool. For that I am grateful. Now I am a 2nd year MBA student preparing to embark on an investments career and I realize much of what is spouted here is nonsense, and unfortunately many have bought it hook, line, and sinker.

They made it seem so easy.

Foolish four - just follow this methodology and double the market returns. Think about it for a second. It's absurd. Now its been discredited.

Rule Maker - the performance over the past 3 years is abysmal. The market index is destroying this portfolio. But, hold on for a second, you gotta think long-term. Well, 3 years is starting to get mighty long in my mind. If you underperform for a year, well that is to be expected at times, but at 3 years you gotta be questioning your philosophy especially with such a huge magnitude of underperformance. What's the lesson here folks? Contrary to popular belief by the much of the TMF, VALUATION MATTERS. If you pay too much for a company no matter how darn exceptional it is you could get seriously burned.

Rule Breaker - yeah, its still beating the market long-term but look how much has been erased. That gap is narrowing and IMO will continue to narrow. Amazon IMO will continue to fall (hell it might become a penny stock, just kidding). Its a retailer, plain and simple and will be accorded the valuation of retailers. I'm surprised it took the fall from 105 to 15 for some to wake up to that fact. Ebay is probably the one gem among Internet companies but its richly valued also and is likely to fall significantly.

Now on to Cisco, I think now it has finally entered the zone of reasonable valuation. I looked at P/E and P/S ratios dating back to 91. We are back to where it traded from 91-96 (before the insanity of 97-99). I believe it can still sustain a above average growth rate for the next 5 years. I just bought a Jan 03 LEAP. Based on the historical lows it could still fall much further buy hey thats the chance you take.
Print the post Back To Top