April 16, 2005

WHAT'S THE OPPOSITE OF EXUBERANCE?:

Stocks Hit New Low for 2005 (Ben White, April 16, 2005, Washington Post)

Stephen J. Massocca, head of equity trading at Pacific Growth Equities in San Francisco, suggested that the recent sell-off is rooted more in emotion than economic fact and that the "irrational exuberance" of the late 1990s has been replaced by "irrational pessimism."

He said that instead of embracing reports of modest economic growth as evidence that the Federal Reserve has succeeded in reining in rapid growth and choking off inflation, investors are treating them as possible evidence of a looming global recession.

As an example of the dour mood, Massocca cited a rapid sell-off in shares of Apple even after the maker of the popular iPod music player reported dazzling 70 percent revenue growth in the first quarter.

"Skepticism is running amok," Massocca said. "Absolutely nothing, short of an all-cash [buyout] offer, could have gotten Apple's stock to go up this week. I think we are at an inflection point and that all this pessimism is very much overdone."

Several traders said Friday's selling had the hallmarks of irrational panic, including a rapid sell-off in the closing moments. "It's just been a very sloppy market over the last few days," said John O'Donoghue, co-head of equity trading at Credit Suisse First Boston. "There have been a few bright spots, like utilities and food. . . . But for the most part, people are just throwing the baby out with the bath water."

Herrmann of Waddell & Reed said, "This market is not about rational calm right now. It's about nuts." He said stocks have declined to a point where they are attractive to buy. Shares in the S&P 500, he said, now trade for about 15 times earnings, a modest figure by historic standards.


Markets are never rational in particular, only in general.

Posted by Orrin Judd at April 16, 2005 6:06 AM
Comments

Markets are always rational in retrospect. The business cycle may be contracting. Taxes, spending and regulation are out of control. Our economy looks strong in comparison to the near basket cases of Europe and Japan while the world's growth engine is the Chinese command economy, adding incremental demand which has forced up energy and commodity prices. The US markets are nowhere near the valuations typ[ical of market bottoms while interest rates are inching higher. The only hope for sustainable growth is tax reform leading to more capital formation. Further regulation of the capital markets is on the way in reaction to the last market implosion and the proposed reforms will only add hurdles for new businesses.

In the case of Apple, the market momentum needed to force up share prices on specualtion won't be a factor for years. Too many folks were hurt in the last bubble market and AAPL does not pay a dividend. Why own it long term? It's a trade rather than an investment.

Posted by: Tom C., Stamford, Ct. at April 16, 2005 8:49 AM

Don't say that about AAPL to my significant other, who I convinced to buy some when it was in the teens and twenties. It has since split twice and is now in the forties. Seems like a good investment to her!

I've long noted that Apple stock tends to drop on good news for the company. Never figured it out.

Posted by: PapayaSF at April 16, 2005 4:10 PM

Look at the split-adjusted price performance. Buy low and sell high has made money, not holding. Stock splits don't add value, increasing dividends will. With all due respect, it's just a stock. Never develop a personal relationship with a stock. It closed at 35 and change on Friday and will probably head down from here.

Posted by: Tom C., Stamford, Ct. at April 16, 2005 6:45 PM

China's reports on its economic growth have exactly as much credibility as any other official figures from a Communist regime.

Posted by: Tom at April 16, 2005 8:11 PM
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