Grizzly's Growlings Current Report

Monday Morning Market Musings    04/03/2000

"Pop Goes the Bubble"

OK, here we go, all together now, an' a one, an' a two: 
(click here for some musical accompaniment)

All around the stock exchange,
The money chased the hot stocks.
The money thought 'twas all in fun,
Pop! goes the Bubble.

Official apologies are hereby extended to the 17th century author of "Pop Goes the Weasel." Much to our chagrin, we have been unable to trace the roots of this famous but anonymous nursery rhyme to 1630's Holland. 

Holland's Tulipomania is the classic speculative bubble that economists and historians love to talk about, and indeed it is a fascinating episode worth study. A timely new book entitled "Tulipomania" by Mike Dash, has just hit the bookstores. 

How far did Tulipomania go? At the height of the frenzy in 1637, a single tulip bulb sold for 10. No, not ten dollars, not ten florins, but ten times the average Dutchman's annual wages. 

According to Charles Mackay's classic and must-read Extraordinary Popular Delusions and the Madness of Crowds, a single "Viceroy" tulip was exchanged for:

four tons of wheat
eight tons of rye
four fat oxen
eight fat swine
twelve fat sheep
two hogsheads of wine
four kegs of beer
two tubs of butter
1000 pounds of cheese
one complete bed
one slightly used men's suit
and one tarnished silver drinking cup

Quite a bargain, eh? Of course tulips crashed down to earth shortly thereafter, devastating the Dutch economy.

But Tulipomania was just about flowers! Today's InterneTulip mania is about money, and making more of it through technology, e-Commerce, and the Internet.

schiz·o phre·ni a (skts-frn-, -frn-) n:

Any of a group of psychotic disorders usually characterized by withdrawal from reality, illogical patterns of thinking, delusions, and hallucinations, and accompanied in varying degrees by other emotional, behavioral, or intellectual disturbances. 

Schizophrenia comes from the Greek words meaning "split mind." Contrary to popular belief, schizophrenia does not refer to a person with a split personality or multiple personalities. (That's called Dissociative Identity Disorder.) 

Take your pick though, "illogical patterns of thinking" or "split personality." Either way, it fits the state of mind of the US stock markets.

Monday's (April 3, 2000) Microsoft-inspired 349 point (7.6%) mini-crash in the NASD Comp was the index's largest single day point loss, and fifth largest percentage drop. The index is now down 16% in just the last seven trading days. 

The DJIA surged 300 points Monday in an "in-your-face, who-da-man?" rally.

Two weeks ago, the so-called Old Economy stocks were the laughing stock of the stock markets. Now, they are seen as a safe-haven. 

The Elliott Wave patterns suggest further selling ahead in the NASDAQ Comp over at least the next few days. The index appears to be in the final stages of a five-wave impulse move down from the all-time highs last month. Monday's mini-crash was probably sub-wave 3 of final small degree wave five down. Subwaves 4 and 5 of wave 5 are needed to complete what should be only the first five large waves to the downside.

Following that short-term bottom, a sizeable relief rally (some would call it a sucker rally) should carry the NASDAQ Comp back towards the 4500-4700 area, thus setting the stage for a major crash, perhaps 1200 points over 3-4 days. 

For speculators prepared to handle the risk, the top of this relief rally might present one of those once-in-a-lifetime shorting opportunities. (Please read our disclaimer.) 

US STOCKS REMAIN ON FULL CRASH ALERT!

The weakness in the NASDAQ really isn't new news. The formerly high-flying NASDAQ IPOs have tanked over the past months. Here's a sampling:

Yup, the bubble has burst.

Recommended reading:

David Tice, portfolio manager of the Prudent Bear Fund, offers an excellent appraisal of the state of the markets. http://cbs.marketwatch.com/news/current/
commentary.htx?source˙x/http2_mw

History never repeats itself exactly, but don't miss the New York Times online's featured called "Looking Back at the Crash of '29." http://www.nytimes.com/library/financial/index-1929-crash.html.

Finally, how bad might things get if the markets crashed? Here's an excerpt from an AP story from last month 

ATHENS, Greece (AP) -- Hundreds of angry investors chanting ''We want our money back'' gathered Tuesday outside the Athens Stock Exchange after shares took another plunge in a crisis that is growing increasingly political ahead of elections.

Riot squads stood ready to protect the exchange and stock brokers fled out the back door of the building after the market's general index dropped 6.6 percent, or 320.90 points, to close at 4542.65 -- its lowest point since August.

''I lost not only my money, but the money of my clients who will one day kill me,'' said Lambros Yannoulis, a 57-year-old investment adviser with a major insurance company who joined about 350 protesters.

"If I seem unduly clear to you, you must have misunderstood what I said."
Federal Reserve Chairman Alan Greenspan
  

grizzly@bearmarketcentral.com
Please read the disclaimer.