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September 29, 2000
The equation holds: a gently slowing economy has offset the inflationary effect of high prices for energy.
Mortgage rates drifted a hair under 8.00% from time to time this week, about as low as they are going to go until
this economic slowdown proceeds from "gentle" to something more abrupt. It's just a hunch, but I think the odds of slower substantially exceed the chances of rebound.
The basis for that hunch: unhappy events in the stock market. The wealth effect is not quite running in reverse, but there is damn little wealth being created.
The overall stock market indexes are holding up reasonably well. The following are year-to-date results:
Dow
S&P 500 Nasdaq
Wilshire 5000
-7%
-1.5%
-9%
-.5%
Not a disaster, but hardly the results that would make you feel like rushing out to buy Porsche's Cabriolet.
While the broad market is okay, the economic supercharger -- technology stocks -- is rapidly turning into an economic drag:
52-week high Today
52-week high Today
Yahoo $250
95
Dell
59
31
Amazon 113
40
HP
136
98
Microsoft 119
60
AT&T
61
27
Intel
75
43
Gateway
84
46
Since March 24, the Morgan Stanley Internet Index has fallen 48.4%.
In the last 48 hours, two single-stock epics: Apple Computer this morning recorded what some observers believe to be the largest single-day percentage loss in stock market history, falling 57% to $23.19 (52-week high: $75.25). The second: by yesterday's close, Priceline.com had fallen 42% in two days, trading at $10 versus a 52-week high of $104.
Ouch.
More than money has been lost this year. Only a few months ago, the Buzz Lightyear types -- "To Infinity, and Beyond!!" -- had faith that astronomical p/e ratios were proof that tech stock values had only begun to soar. That faith is being crushed, one Apple, one Priceline at a time.
An absence of faith will slow consumption even faster than an absence of cash.
The Priceline experience is crushing one other article of technology faith: that low prices offered by web peddlers would put everybody else out of business.
Yesterday, Fay Landes, analyst at Sanford C. Bernstein, regarding Priceline's price-only business model: "They have a business that targets cheapskates, and it's hard to make money off them."
By the way, E-loan, an $18 IPO which reached a high of $74 last year, today trades at $4.25 per share.
Cheap isn't enough. You have to be good.
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