So here we have it - the Ultimate Answer to the problem of "whence cometh the bubble?" - women! This is a new one. Congratulations, Bill, the check's in the mail...
(His commentary appears a few paragraphs down, after yesterday's "market analysis.")
--
/ dave /
-------- Original Message --------
Subject: WOMEN AND WALL STREET Date: Thu, 20 Apr 2000 14:21:32 -0500 (CDT) From: Bill Bonner <dailyreckoning at agora-inc.com> To: <arouet at winternet.com>
WOMEN AND WALL STREET
THE DAILY RECKONING
BALTIMORE, MARYLAND, Hon
THURSDAY, APRIL 20, 2000
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * In Today's Daily Reckoning:
*** Rally stalls...market falls
*** P/Es over 25 are not sustainable
*** The headless bum of Mount Vernon Place...
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*** What appears to have been a bear market rally ran out of steam yesterday. Bullishness in the morning gave way to dilly-dallying in the afternoon and a gradual pullback.
*** The Dow lost 92 points. The S&P was down 24. The Nasdaq, the source of so much excitement and the subject of so many headlines lately, was down only 87 points. The Nasdaq 100 put on a better show -- falling 132 points.
*** So not much happened. But not much needed to happen. We'll just wait and see what today's lottery numbers...I mean stock market figures...bring.
*** If you haven't sold the rally yet...this might be a good time to do it. It's Easter Weekend. The market is closed for Passover and Good Friday tomorrow. In the light of so much volatility and newly discovered uncertainty, the smart money may enjoy the weekend better with cash rather than shares.
*** But, we'll see -- yesterday's market seemed to hang in the balance between bullishness, bearishness and complete apathy. There were an almost equal number of stocks on the NYSE going up as down -- 1,473 to 1,468. And there were 30 new highs against 48 new lows.
*** Gold is not worth talking about. It seems to have found a price level it is happy with and sees no reason to move on.
*** Steve Ballmer, Microsoft CEO, was asked what he thought of the volatility. "In the long run," he replied, "it's hard to have a P/E much above 25." He's making an important point. High P/E rates reflect high rates of growth -- or should do so. But there are mathematical limits -- when a company grows at a high rate, it quickly exhausts whatever growth potential it might have had."
*** Cisco, the largest cap company in the world, with a P/E of 100 -- is a fool's gamble.
*** The latest trade deficit numbers show the United States importing about $1 billion more per day (weekends included) than it exports.
*** And about $67 billion of "locked up" stock is hitting the market in April. Another $137 billion is hitting in May. The "flow of funds" argument has been one of the sustaining concepts of the bull market. Money was rushing into the market like water in a bathtub. The level was bound to rise.
*** That is, until someone pulled the plug. In May, for example, the amount of "locked up" stock coming onto the market is estimated to be at least four times as much as the new money entering the market.
*** Testosterone is in the news. A front cover article in "Time" worries about the use of it. A recent article in the "NY Times," which I have not read, claims it is decisive in human society. Could it, or the lack of it, help explain today's stock market? Probably not...but some thoughts on the subject, below, anyway...
*** Today is Adolf Hitler's birthday. It is also Maundy Thursday on the Christian calendar. I was an accolyte nearly 50 years ago. I've been around the church all my life...but I'll be darned if I know what Maundy means. I'll look it up...oh...it's "the day before Good Friday [I knew that much] when the royal alms or maundy money is distributed by the royal almoner." There, another of life's mysteries solved.
*** And here's something you don't see every day -- there's a headless man on the park bench in front of my office. Most of the bums who use the park might act as though they had no heads, but this is something new.
*** Mount Vernon square is the prettiest public space in America. But it is plagued by derelicts, crooks and crazy people. Last evening, for example, the Engineers' Club across the way had hired a bagpiper to welcome guests to a soiree. But some feeble-minded nut began putting on his own performance -- dancing around and hollering at the top of his lungs.
*** Maybe the new mayor will clean the place up. According to my sources, Mayor Martin O'Malley was seen at a late- night eatery accompanied by a squad of bodyguards and Puerto Rican party girls. This is a good sign, I think.
*** Ah...now I see; the headless man has tucked his head down into his sweatshirt. He's not really headless, just mindless.
*** Remember Darlene from the Mouseketeers? Well, a friend of mine reports meeting her last week -- in a California penitentiary. She's serving time for a drug offense. I wonder who was offended -- Mickey?
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WOMEN AND WALL STREET
"Could you two please be quiet?" asked my daughter, Maria, as we drove back to Paris last Sunday.
Elizabeth and I had been arguing. What disturbed our connubial harmony was neither the discovery of a billet doux in my shirt pocket, nor even a reproach for the messiness of my closet.
Instead, it was the Efficient Market Hypothesis.
Women will never really understand the EMH nor the designated hitter rule nor the doctrine of strategic air power -- except perhaps for a few freakish Russian athletes of dubious gender...or perhaps the odd U.S. senator...
We practice a division of labor in our household. I make the important decisions. Elizabeth concentrates her attentions on the management of the household. What triggered the argument, if that is not putting too harsh an interpretation on it, was that Elizabeth had overstepped her bounds.
Elizabeth decides where we live, where we send the kids to school, how they are educated, what we wear and eat...how we spend our money and so forth.
I decide our position on the EMH. And the DHR. And the use of strategic air power. I am better equipped, frankly, by mother nature, to deal with these issues.
For the benefit of readers who are eager to return to better uses of their time, I will come to the point: men and women are different. I say that without prejudice or malice. It is simply a fact. Human nature provides for a certain division of labor...even at the most basic level.
The line of demarcation runs right between the sexes, like the Maginot Line between France and Germany. You can breach the line -- but only at great cost...giving you the illusion of triumph and setting the stage for ultimate disaster.
Continuing this line of rumination...if men and women are as different as they appear, what is the consequence of the fact that many investors -- if not most -- are, for the first time in history, women?
Male society, for those unfamiliar with it, is hierarchical, simple and shallow. Testosterone, as mentioned above, is the key to it. The man with the most testosterone is usually the dominant male in any group. You can tell which one he is immediately. He is the most bombastic, the loudest, the most lunkheaded -- with a complete absence of circumspection and the subtlety of a train schedule.
His comments are predictably banal; his conversation is as dull and dreary as a pair of dirty blue jeans.
God forbid that you would actually have to engage in small talk for any extended period of time with a group of men. They are incapable of any reflection that is not self- evident or self-serving. In short, they have nothing to say worth saying...and the best of them have the good sense to keep their mouths closed.
Women, by contrast, are superior in almost every way. While a man's conversation is blunt and imbecilic, a woman's is complex, devious, intriguing...and very manipulative. Women are wily. A man who engages in a discussion -- on any subject -- with a woman is immediately thrown into a battle of wits -- in which he is completely unarmed. He understands nothing of what is going on.
The conversation of women is a pleasure. Especially French women. They seem to have been trained for small talk -- never at a loss for words. But maybe it is just the way their lips pout and purse as they talk. They seem to cut the French vowels so carefully, like a precision machine tool. The sounds emerge like diamonds, cut and polished on every side.
A woman's speech betrays only the slightest hint of what she really means. Her intentions might as well be stated in ancient Sumerian as in any extant language -- for they would be equally indecipherable to the average man.
Men are well advised, in my opinion, to concede whatever issue is at hand and retire from the field while they still can. There is no winning an argument with a woman, the best you can do is withdraw with dignity.
But Elizabeth had crossed the line. She had invaded my turf -- the EMH issue. I had to give battle.
In my most patronizing and condescending tone, I tried to explain that it was impossible to know which way the market would go.
But unbeknownst to me, Elizabeth has become a trend follower.
"If it has gone up for 20 years," she challenged, "isn't it more likely than not to keep going up?"
The subject was not really even the stock market -- but the market for Paris apartments. Prices are rising. Elizabeth's intuition, as well as the amalgamated judgements of almost all the experts, say they are likely to continue to rise.
So the discussion centered on whether to buy or rent. Elizabeth believes we should buy. EMH, however, tells us that we really can't know in advance whether prices will rise or fall. And my contrarian instincts suggest that since everyone seems to believe that prices will rise -- it is at least as likely that they will fall. Anyone with any interest in buying may be doing so now, rather than later - - in order to benefit from the rising market.
I tried to explain this to Elizabeth. But contrarianism has not reached Venus, or wherever it is the women are said to originate. The concept did not appeal to her. Besides, she was too clever for me.
"If it is true that you can't predict the direction of prices," she said, "how could it be that contrarianism would allow you to make more money than a non-contrarian? Over time, won't you make exactly the same amount?"
"And if that is true, wouldn't it be just as wise, theoretically, to buy now as to wait?"
This was too much. She was not only arguing with me about EMH -- she was throwing it in my face.
"Look," I said, raising my voice, trying to make up for the weakness in my argument with the increase in decibels, "the average investor can't hope to outperform the market, but he can underperform it -- simply by being a mooch."
This made no sense in the context of the EMH, but I was not going to be stopped by logical inconsistency. I have been trying to figure this out and explain it for many years. How could I hope to explain all the nuances, paradoxes and complexity of the investment world in one single drive. Besides, I was driving at the same time, which drained my powers of concentration.
"Don't trouble your pretty little head about it," I wanted to say. But I thought better of it.
I explained that the Efficient Market Hypothesis only applies to big, fluid markets. At the edges -- say, the Vancouver junior mining stocks, unlisted securities and the micro-cap tech stocks -- it doesn't apply. These markets are hardly efficient. They are subject to all manner of persuasion. These are entertainment industries, not true investments. They provide the thrills and excitements of Las Vegas, along with the illusion of investing. Investors pay for this service, just as they would pay to get their cars waxed or their noses fixed. The insiders provide the market with stocks just as Ben and Jerry provide ice cream. They are consumable items. One is pumped up and then crashes. Then another is produced. An "investor" could practically guarantee that he would lose money by going into these markets without skilled advice -- EMH or no EMH.
Men have a certain observed and predictable pattern of behavior. Each one thinks he is smarter than his fellows. But few will make a move without the support of the group. Advancing over dangerous territory, a soldier (or an investor) needs his courage shored up, like bridge abutments, by a man on his left and one on his right. Coming under fire, if a single man turns tail and runs, the whole battalion is likely to do the same.
In the markets, the pattern has been repeated over and over again. But this market seems special. It has gone much higher than any other. And threatened with annihilation, investors did not turn and run last week.
Could it be that there is no New Man in the markets -- but a New Woman instead?
Women have invaded and remade the major institutions of Western civilization. Governments are now run by women. (I exaggerate slightly to make my point.) Modern democracies are nothing like the ones of ancient Athens or early America. Women elect almost every officeholder. Since the days of JFK, presidents have tended to look better -- and now, to "feel our pain." Caring and sharing have replaced the pursuit of abstract principle. Tax rates of 50% have replaced those of 1%.
The universities have been taken over by women, too. Far more advanced degrees go to women than men. Women are filling the ranks of academia, from teaching assistants to deans. Are the universities different? I don't know.
The churches, too. Most parishioners are women. And now, many of the clergy are women, too. Is it good? Is it bad? I don't know, but it's not the same.
And now the stock market. I don't have the figures, but a much greater percentage of investors are women than ever before. There are more single women, with more money to invest. Working women manage their own retirement portfolios. Many households give the job of investing to the distaff side of the marriage.
The leading analyst in America is a woman -- Abby Cohen. Stock market commentators now tell listeners that they "feel" a company should reach a higher price. Or they have a good "feeling" about this or that stock. Intuition has replaced analysis -- at least to many of the folks watching CNBC's bubblevision.
Never before have women had so much influence over stock prices. The stock market -- like the other great institutions -- has been feminized. But what will it mean?
Your correspondent,
Bill Bonner
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