From John Hussman, of the Hussman Funds, in his weekly newsletter released today:
As I wrote on January 8, 2001:
“Investors haven’t learned their lesson. Despite the brutalization of New Economy stocks over the past year, ignorance and greed obey no master. Following the Fed move, investors went straight for the glamour tech stocks, dumping utilities, pharmaceuticals, consumer staples, hospital stocks, insurance stocks – anything that smacked of safety or value. Investors are behaving like an ex-con, whose first impulse after getting out of the joint is to knock over the nearest liquor store… the immediate response of investors to interest rate cuts was to create a two-tiered market. And unfortunately, it’s exactly that failing ‘trend uniformity’ that places this advance in danger. Historically, sound market rallies are marked by uniform action across a wide range of sectors.”
“To illustrate the probable epilogue to the current bubble, we’ve calculated price targets for some of the glamour techs, based on current revenues per share, multiplied by the median price/revenue ratio over the bull market period 1991-1999.
Cisco Systems: $18 ¾, 52-week high: $82
Sun Microsystems: $4 ½, 52-week high: $64
EMC: $10, 52-week high: $105
Oracle: $6 7/8, 52-week high: $46Get used to those itty-bitty prices. That’s what happens when companies keep splitting their stock during a bubble.”
Alan Abelson kindly featured those comments in Barron’s Magazine, followed that Monday morning by a round of dismissive remarks by several CNBC anchors. No matter – those projections turned out to be optimistic. As it happened, the 2002 lows for these “four horsemen of the internet” took Cisco to $8.60, Sun to $2.42, EMC to $3.83, and Oracle to $7.32. We forget that the most popular large-cap speculative leaders at the 2000 peak lost 92% of their value over the completion of the cycle. It feels better to forget.
Good thing nothing like that could happen today; the Fed has our backs.
