Word: dotcomers
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...first, admit it--watching those bratty dotcom billionaires, oops, millionaires--ha!--thousandaires squirm as their cyberpriced stocks came screaming back to earth and their dotcoms disappeared overnight. But then something else dawned. It wasn't just kids from Stanford taking it on the chin. It was us. Suddenly, warning lights are flashing. In recent weeks, everyone from mighty Intel--whose microchips power 80% of the world's computers--to lumber and housewares seller Home Depot has signaled a sharp drop in profits, leading nervous investors to pummel their stocks...
...things are so good, why has Wall Street been doing so poorly, especially now that America has become a nation of stock traders? An explanation is that Wall Street has exchanged its traditional role of follower of economic trends for that of economic pacesetter. Consider the way that the dotcom mania showered wealth on every jaunty entrepreneur with the gleam of an idea but not a clue about earnings. In the past, the stock market would rarely show its checkbook to a start-up sans profits. And now that Wall Street has been burned, the fear is that the current...
...that's not very likely. The U.S. appears to be witnessing something richer and more varied than either New Economy enthusiasts or dotcom alarmists have envisioned: the rapid--if still painful and uneven--merging of the old and new economies. That's evident from deals as complex as America Online's proposed $120 billion acquisition of Time Warner (the corporate parent of this magazine) or as simple as the act of buying a Pokemon video game or a bedding set from K Mart's website, BlueLight.com "What we're seeing," says Garth Saloner, a professor of e-commerce at Stanford...
Amid the frenzy, the market awarded astronomical valuations to dotcom companies that had never made a dime--and paid an unheard of 100 to 200 times earnings for true New Economy leaders like Cisco or Sun Microsystems or Dell Computer, whose stocks have since plunged some 50%. "The current growth rate of earnings won't support stocks with high valuations," says Hugh Johnson, chief investment officer for the investment firm First Albany. "That's why technology stocks are coming down so sharply...
...that behavior defied a bedrock principle that the market makes most people look silly most of the time, a principle that quietly resurfaced last spring in the form of a dotcom massacre and today presses squarely in the face of eternal bulls. As has been fairly obvious for most of human history, not all market pullbacks are buying opportunities...