OT - Tell Me When ... or Tell My Why !! - 500 Beiträge pro Seite

[investor_007]

Tell Me When ... or Tell My Why
By Jim Seymour
Special to TheStreet.com
4/17/00 2:22 PM ET




The Catholic mystic Thomas Keating loves to tell the story of the Sufi master who had lost the key to his house.

"He was looking in the grass outside the house. He got down on his hands and knees, and started running his fingers through every blade of grass. Along came eight or 10 of his disciples. They said, `Master, what is wrong?`

"He said, `I have lost the key to my house.`

"They said, `Can we help you find it?`

"He said `I`d be delighted.`

"So they all got down on their hands and knees and started running their fingers through the grass. As the sun grew hotter, one of the more intellectual of the disciples said `Master, have you any idea where you might have lost the key?`

"`Of course` he replied. `I lost it in the house.`

"To which they all exclaimed, `Then why are we looking for it out here?!?!`

" `Isn`t it obvious?` he said. `There is more light here.` "

I cherish that story, because it illuminates so much of human behavior. We tend to look for answers where the light seems brightest, not necessarily where the answer can be found.

I have spent much of my life arguing that rather than focusing so much on finding the right answer -- a very Western obsession -- we should focus more, and first, on finding the right question. Good answers to wrong questions are useless; Worse, they distract and mislead us, often moving us farther from the real answer, the knowledge we seek, than we were when we began.

I thought about that "right question" issue, and about the Sufi master`s teaching of his followers, throughout this long, dark weekend, amid the rubble of the past two weeks.

All around me people are asking what I`m convinced are the wrong questions -- principally, When will it be over? IS it over?

Those are traders` questions, not investors` questions. They seek the quick palliative, the take-two-vicodin-and-call-me-in-the-morning answer to a problem with deeper roots, and deeper meaning, than their "and so what do I do now?" logical conclusion.

Actually, of course, there`s nothing wrong with those questions, and when the sky is falling, they`re inevitable. They`re also a natural part of being a trader, which is certainly not an ignoble profession.

But they`re not enough.

Like you, probably, I`ve lost a bundle over the past fortnight; And like you, probably, I`m looking for that moment when I can get back in, put my reserve capital back to work, start digging out of those losses and working toward a lot better year than it looks right now that I`ll have.

But they are not satisfying questions, and they do not have satisfying answers. Worse, we -- at least, I -- learn nothing from them.

I expect to see another crash like this -- I can`t call it a "correction" with a straight face -- or two or three during my life, and I`d like to think, present evidence notwithstanding, that I`m smart enough to learn something from the past two weeks that will be useful then. I can`t stop the next crash, or the one after that; but I can game them better, I believe, if I now ask not only the short-term "Is it over?" survivalist questions, but also the "Why did it happen?" and "How should I have acted?" questions.

Standing hip-deep here in this swamp beside me, the margin-clerk alligators still nipping at our butts, you may say there will be plenty of time for that later. After all, I`ve written here and said on TheStreet.com on the Fox News Channel last weekend that I think the Nasdaq comp will be over 4800 by Christmas, though most of that movement won`t begin `til after Labor Day. So if I`m right, and things are coming back within the year, why worry about the future stuff, the philosophical stuff, now?

Bail the boat now, damnit; think later.

Yes, but . . . But we always say that. But we never get around to it. But our post-mortem analysis never benefits from the acute insight of the visceral, the blood and pain and fresh memories of the moment, in the moment.

In other words, it`s a lot more convenient to look outside in the grass, where the light is so much better, than here in the house, where it`s dark and still scary.

Later today I`ll run through the steps that I think led, if with not quite perfect coordination or inevitability, to this debacle. Yes, this is a kind of Monday-morning quarterbacking. No, that won`t change the score.

But there`s a reason coaches look at game films on Monday mornings. Roll the projector.


--------------------------------------------------------------------------------

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, neither Seymour nor Seymour Group held positions in any securities mentioned in this column, although holdings can change at any time. Seymour does not write about companies that are current or recent consulting clients of Seymour Group. While Seymour cannot provide investment advice or recommendations, he invites your feedback at [e-mail].

[investor_007]

Seven Steps to Market Hell
By Jim Seymour
Special to TheStreet.com
4/17/00 3:57 PM ET




If the right questions to ask now look beyond the short-term actions needed in this wreckage, as I suggested this morning, those questions begin with what led us to this point: Not looking far back through the craziness of the 1990s, but at least through the craziness of the last month or so.

Because if we can find the steps, and perhaps the chronology, that led us to this moment, perhaps next time we`ll respond faster, believe sooner, turn peril into opportunity. (Not necessarily, I hasten to add: myopia, denial and freezing like deer caught in the glare of the oncoming headlights are fundamental parts of the human condition. As much as I believe in the perfectibility of man, I see that as a construct, a goal, not an outcome, But we can try; we persist.)

I`ve filled several legal pads with my scribblings here on the deck of the Ansonia. After they plucked us the huddled wretches out of the waters where the Titanic went down, I began listing the things I remembered, items I noted at the time but failed to understand and integrate sufficiently, as we approached that iceberg. In the end it got us, but maybe next time we can steer hard left or right in time to avoid a repetition of the last two weeks` bloodshed.

Maybe, in other words, we`ll ask some right questions.

I`ve distilled things down to seven key events. There were many more malignant influences; this was a systemic crash, and that requires complex interaction among thousands of "reasons." But these seven are a start.

They fail the logician`s "necessary and sufficient" test: Taken singly, each was a necessary ingredient in this crash, but none was by itself sufficient to do the deed. Yet in combination, these were, I think, the key events, in this order, that brought down the house of cards:

Supply Issue 1: Dot-Com IPO Strategies

It`s even more clear in retrospect that the standing-orders IPO strategy, especially for dot-coms over the past two years, created demand through artificially limited supply. By offering only a relatively small percentage of a company`s authorized shares in an IPO -- say, 8% to maybe 12% -- the investment bankers earned for themselves fat fees; earned for their real clients, newly public companies` founders and senior executives, great wealth on paper; and drove new-issue prices sky high -- all without producing the big net-cash-in-the-bank balances for the companies that would have helped them weather or avoid the cash crunches and going-concern-letters whirlwinds of recent weeks. That many of these companies are now trading at a tenth or a twentieth of their offering prices is perverse satisfaction, indeed.

That Barron`s `Running Out of Cash` Story on March 6

The piece in Barron`s a month and a half ago, recounting the increasingly desperate cash-on-hand positions of many companies in dot-com land, focused people on a problem many had been aware of, and already were talking about -- but not yet acting on. I believe the piece was not perfect, but I don`t criticize the journalism of Barron`s here: It was fair comment. It was also, however, like yelling "Fire!" in a crowded theater.

Abby Joseph Cohen and Mark Mobius` Comments

Negative words about near-term market prospects and stability from high-profile, name-brand people in the business provided another spark of instant focus. I also do not criticize them: They were doing their jobs. Both, we should note, were generally misquoted: Cohen simply said she was no longer overweighted in tech, not that the tech sky was falling; and Mobius talked only about foreign stocks and some Internet issues. But both blew on glowing embers, and tongues of fire began to arise.

Supply Issue 2: The End of Lockups

As TSC`s Ben Holmes and Jim Cramer have repeatedly warned, the end of the 180-day lockup periods for those granted stock and options at new companies` IPOs created incendiary moments in the market. A story in The New York Times three weeks ago pointed out that 2.4 billion -- yes, with a "b," shares were coming off lockups this spring, and that many of the holders of those shares could reasonably be expected to cash out major parts of their holdings. Suddenly, stock prices supported by acute and planned undersupply were eroded, then slammed, by a flood of unplanned oversupply. The flames spread, and fast.

Margin-Call Selling

For days, the grim reapers of the margin-clerk persuasion did their dirty work at the end of each market day. You may or may not have actually gotten the phone call, and responded, but in any case you were sold out of positions often gone deeply underwater on very short notice. These fire sales focused on raising cash for the brokers whose shares had been borrowed; they were neither cautious nor moderate, but produced the kind of results you get from wielding not a scalpel but a meat-ax. There was no more incendiary force at work over the past two weeks than this Lizzie Borden-style margin selling. They didn`t even serve some nice fava beans on the side.

A Crummy CPI Report

For those naives convinced that inflation was a thing of the past (and that retail sales would continue to increase and joblessness would decrease, both perhaps forever), last week`s March Consumer Price Index numbers were discouraging. With inflation now running around 3.7% -- unless the March numbers were an anomaly, which is possible -- I expect to see the Fed Open Market Committee kick us with quarter-point increases in May and June and probably again in August. And that could change to a half-point each in May and June, if things look worse. This may or may not be needed as a brake on inflation -- this time around, inflation doesn`t feel like it has in the past; have you noticed that, too? -- but it will not be good news for stock prices. Hence, my forecast of little material improvement in the `daq and Dow until after September 1st.

Finally, Fund Redemptions

Late in the game, more gasoline was thrown on the fire by mutual-fund redemptions. It is hard to criticize investors for demanding redemptions, after they`d seen their positions slashed in some cases by a third or more in less than two weeks; and it is harder still to criticize fund managers for their desperate selling to raise the cash needed to meet those redemptions. Neither had much choice. But these wholesale dumps of big blocks aggravated every aspect of a difficult situation, because sales had to be made at any price, not rational prices related to values. Their effect continues; indeed, I suspect that net redemptions this week will be worse than those of either of the last two weeks, given the generally slower response time of mutual-fund investors to market oscillations. The continuing fire sales at damaged-goods mutual funds, and possibly by a mortally wounded hedge fund or two, are now the single biggest threat to regaining market stability.

If those were they key factors -- you probably have your own little list, and we could argue about this endlessly -- how do they lead us to ask the right questions to learn something from this debacle?

More on that tomorrow.

[investor_007]

Right Questions, Useful Answers
By Jim Seymour
Special to TheStreet.com
4/19/00 7:51 PM ET




You may or may not like my chronology of what I think were the slippery steps that built up to, then aggravated, the mess of the last two weeks. Feel free to make up your own -- we can carry this over to the TSC bulletin boards, if you wish -- but whatever list of critical events you construct should then be studied for what it can teach us about asking the right questions about The Fire Next Time.

Yes, "Is it over?" and "Can I get back in?" were and still are valid short-term questions ... especially when our precious two-day rally seems in some peril. But the real value comes from asking questions with a longer-term and deeper focus; essentially, "How can I protect myself next time this happens?" and "How have things fundamentally changed?"

As happy as I was with the market action Monday and Tuesday, and as relieved as I have been with Wednesday`s refusal to fall completely apart again -- and as much fun as it was to sell into intraday rallies Tuesday for the right reasons, not the wrong ones -- I have a deep distrust of V-bottoms, and I`m enough of a cynic to want to see a few more days` positive action before I decide this crunch really is over.

(Yes, Wednesday`s close blunts a pure V-bottom, but it`s near enough to worry.)

I`m not lighting the fireworks yet to celebrate, just gradually redeploying reserved cash and looking for chances to take quick profits. And I`m continuing to try to formulate, then answer, some of those "right questions" I wrote about Monday.

The point of this little right-questions exercise is not to give you a predigested set of questions and answers, but to encourage you to refocus your thinking and come up with your own. With that in mind, here are a few of my efforts:

Are the destructive elements that caused this crash still alive in the market? Mostly, yes. While we haven`t had any prominent market figures playing the doomsaying role, we still could, easily. We still have a huge shelf of founders` stock coming off lockup. Margin-call selling and fund redemptions have calmed down, but dot-com IPO pricing and supply issues seem unlikely to change (though with so many IPOs pulled down for the immediate future, it`s hard to tell yet whether this medicine "took"). And I still think the Fed is going to hit us with rate increases in at least May and June, as I wrote here Monday morning. Overall, while some froth has been wrung out of the market, and some "bad holders" have been shaken free of their ill-considered, heavily margined positions, this is still potentially a killing ground.

Are those destructive elements somehow now structural, more or less permanent additions to the scene? Again, yes, I`m afraid. Nothing`s going to change the IPO pricing and supply issues, nothing. The Fed will continue to worry about inflation, perhaps in the process aggravating if not downright causing it. We`re unlikely, I`m sad to say, to move to more sane and sustainable margin policies, and will thereby continue to encourage the Margin Mania that was a primary driver in this mid-April debacle. In other words, from now on, if you want to continue to play the game, you have to accept and factor into your trading strategies the new rules of the road. This business has institutionalized greater volatility.




Are good earnings reports -- a traditional recovery-driving mechanism -- going to pull us out of slumps, and help level out the volatility? No. Yes, we are once again giving credit to the notion that profits count. But we`ve seen great earnings reports throughout the past two and a half weeks -- and they didn`t save a single company. Much more often than not, following good quarterly reports, stocks sagged.

Has the experience of the past two weeks changed our perception of risk-reward? Yes, absolutely, and -- I hope! -- permanently. Consider the last 18 months in the market, especially in tech stocks. We had huge gains without -- time for some straight talk among friends here, remember -- much risk. It was easy to buy in at almost any valuation, then watch the shares kite up. But wait: Is that how it`s supposed to work? I thought big rewards demanded big risks. I thought small risks meant small rewards. The market forgot that. You forgot that. I forgot that. Risk-reward is back in the ballpark. The days of riskless high returns are over, at least for some time to come. The kind of "all risk, all the time" portfolios many people have built over the last two years are things of the past, at least among sane investors, and maybe -- this is still far from clear -- among sane traders. (No bad jokes, please, about contradictions in terms!)

Enough.

I`d be interested in seeing on the TSC Message Boards some of your proposed "right questions" and their answers.

Be careful out there.