March 14, 2001

The Slaughter Continues on Wall Street!

Yesterday's rally in the stock market was merely a bear market bounce. The market, contrary to news media hype, hadn't hit rock bottom and started to climb out of the pits of despair. Instead, stocks hit a ledge on the way down and bounced. It was just enough to sucker in more hapless investors before the big plunge today.

How could stocks not fall further? As fast as stock prices are plummeting, earnings are falling faster. The Nasdaq-100 had a price-to-earnings of 968 this morning -- that means it would take 968 years for these stocks to make back their share prices. Or take the S&P; -- please! Even after their recent decline, the S&P; stocks sold for 24 times the profits they made in the previous year, far above their historical average of 14 times earnings. Just bringing the S&P;'s price-to-earnings ratio back to "normal" would result in the index falling another 40 percent.

Yet still, the bulls are saying that today is IT -- this is the final sell-off before the "V-shape" recovery. Stop kidding yourself, folks.

The truth is, the stock market is only as good as the economy, and the economy is in terrible shape. Retail sales fell by 0.2% in February when economists were hoping for an increase. Business inventories rose in January, which means manufacturers are stuck with warehouses full of products they can't sell. And high-tech, high-paying jobs are being eliminated by the thousands, which shreds consumer confidence, which hammers both the larger economy and stocks.

It's a vicious cycle with no end in sight. We don't want to predict how low the markets will go. But it's a lot lower, and a lot more painful, than any of the bulls want to admit.


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