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Here We Go Again

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By MSHH
April 24, 2001

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Was in the Arizona desert golfing for the last two weeks. No brokers. No CNBC. No Motley Fool.

Get back this morning and flip on the computer for the first time in two weeks and go to TMF and Bill Mann's article "Here We Go Again." How great to be back at TMF and get to read another fantastic piece by Mann. Just hope everyone gets a chance to read yet another thoughtful, well-reasoned article by the Motley Fool's best writer.

Mann is right on target as usual. Nasdaq up over 25% since I left two weeks ago. The Siebel Systems that I bought for a trade just before I left for 24.60 I see closed today at about 45.50 today. I mention this not to say how smart I was but to show how insane the markets continue to be. Will be calling my broker with a sell order Monday morning.

I feel the same way Mann does after the rate cut and the run-up in tech that had started even before the cut. "Here we go again." Massive run-ups in the share price of tech companies based, it seems, on reports from a few of the more solid companies that things might not be as unbelievably horrible as the worst case scenarios assumed. And based on this we see all the usual suspects (you know who the companies are) running up 50, 75, 100%. A few companies manage to meet or beat drastically reduced expectations and the QQQ goes from 36.30 the day I left to golf to 48.40 today. By my rough calculations, up over 30%.

Have we learned nothing? Good question, Bill. Nortel up about 25% despite giving about as bad as guidance as a management could give. In a word, sickening. The same "analysts" who were treating tech like the plague two weeks ago today encouraging the same clients to get on board before it's too late. Why? Simple. Because here we go again.

Two things I don't think were mentioned in Mann's article. 1... Why is Greenspan cutting rates in what seems like an increasingly panicky way? Because he thinks the fundamentals of the US economy are so sound? I don't think so. So what does that tell you about the revenues and earnings of corporate America that eventually drives the share price of companies? In my opinion, we haven't seen the worst yet and I think that is why Greenspan is desperately flooding the economy with liquidity as fast as he can. 2... I was amazed at the spending that continues to take place in Scottsdale and Phoenix. Nieman Marcus and Bloomingdale's parking lots jammed. The malls packed. Housing developments springing up in the desert. Car sales still extremely strong for this point in the cycle. The US consumer obviously continues to drive the economy. Which would be great except for the ever-increasing layoffs you are beginning to see in corporate America and the record levels of debt the US consumer is carrying. If the US consumer quits spending when his neighbor loses his job and quits taking on ever more debt it will make the slow-down of the last year in corporate spending seem like good times. With all that means for the markets.

The Fed seems determined to re-ignite the speculative fires that created the last huge bubble that ended only about a year ago. Seems like a long time ago. Greenspan seems to lurch more erratically than ever between slamming on the brakes last year to putting the pedal to the metal starting the first week of this year. Who needs a Greenspan "put" when he apparently feels the need to give 'er the gas even when the markets finally seemed to be stabilizing a bit at rational levels a few weeks ago? Is the Fed, along with the help of the sell side "analysts," determined to wring the last little bit of profits that might still exist in the average investors account after the wild volatility last year by getting them to buying into yet another Fed-induced bear rally? I don't get it. And if this latest Fed "gift" to the Nasdaq finally actually does manage to re-ignite that creeping inflation into something serious? You could easily see the Fed have to tighten next year just exactly at the time when it doesn't want to.

I know this all sounds like gloom and doom but it isn't. I just agree with Bill Mann that we have seen nothing in the last two weeks that would justify price moves like we've seen. In fact, it could easily be argued that the Nasdaq Comp especially was still substantially overvalued in comparison to revenue and earnings even before this latest 30% run-up.

So, I will be taking Mann's advice again and preserving capital by selling Siebel Monday morning. If Siebel goes to 60? I guess I'll just miss out. The markets are still being driven by hope, fear and greed and the same old bubble mentality, which I think is really unfortunate. All one can do is take advantage when it gets too ridiculous. I never forgot, thankfully, that investing is about both wealth appreciation and preservation of capital. I know this is not the first time Mann has pointed this out to Fools. But it doesn't hurt to be reminded again. Hope as many Fools as possible will see Mann's article and at least think about it. Thanks again, Bill.

Mike