10/5

The Results Are In And The Winner Is...Although the numbers have not yet come out for 3Q, we produced the following table from Investment Company Institute data for 2Q 2000:

With the concentration of assets under management in the hands of these top 20, just where do you think they were most heavily exposed?  Surely not micro, small or mid cap issues.  That leaves only one place else - the top quintile of the S&P 500.  What is also striking in the above table is that it was the fast moving traffic that experienced the greatest year-over-year asset growth for the twelve months ended June 30.  Janus and AIM are far and away standouts.  These large funds have little to no escape valve in a market where stocks can open down 50% for missing the quarter.  Just ask Janus how it felt to be the largest institutional holder of Apple as of 6/00 (5.9% of total shares outstanding).  Don't worry, AIM was right behind Janus in the Apple corp. holding 1.5% of AAPL's shares as of the end of 2Q.  

The investment performance of the S&P index itself really mirrors the specific results of the top quintile.  We've argued for some time that the modern day mutual fund dominance of the investment landscape would ultimately lead to trouble as a massive concentration of assets was being forced to invest in a narrower and narrower group of large capitalization names that theoretically offered "liquidity".  At the moment we are finding out just how much "liquidity" they do offer.  Are we witnessing the very beginnings of the discrediting of the mutual fund industry?  We don't mean that mutual funds are bad, but rather that asset size constricts investment flexibility and stock selection to largely fit the needs and constraints of the size of these funds.  Conceptually, when the funds ultimately decide to sell or are forced to sell at the direction of fund holder redemptions, who will be standing on the other side of the trade?

The Loneliest Month Of The Year...Although October seems to be the perceptual month for doggy investment performance (possibly due to crash memories), statistically September is the loser.  This September was no different.  The Dow and the S&P sheepishly retreated from the possibility of making new highs and the NASDAQ was taken out behind the barn and had the tar kicked out of it.  In looking back over the last 30 years, this was the fifth worst one-month loss for the NASDAQ.  Here's a little retrospective of other months in the top honors circle:

As can be seen, the magnitude of the NASDAQ drop in September 2000 is much closer to the experience of months that preceded subsequent weakness as opposed to those that were nearing an end.  Who knows what happens ahead.  The only comment we have is that in each of these historic monthly NASDAQ declines, aggregate NASDAQ valuation was much lower than that experienced today.  Much lower.

Mainline and bulletin board biotech sweethearts have been the vehicle of choice for the volatility trading crowd over the past few months.  As we mentioned before, they were flying the day after Intel reported its little earnings indiscretion.  It's time to check the vital signs of some of the favorite "trading vehicles" in the group.  What else would you expect us to do at this point?

With very little in the way of revenues or earnings to their name, the biotechs are incapable of disappointing at the moment.  They trade on sound bites.  Just today Affymetrix announced that they see breakeven or maybe even modest profits by yearend.  Clearly that warranted an approximate $440 million one day upsurge in the market cap for the company.  Three times the annual revenues of the company.  Sound like the former trading activity of anyone else you may remember?  (Hint: TNT - tech, net, telecom)  Biotech has a very promising future as we continue to make our way into the 21st century.  No question about it.  It is our future.  But, so is the Internet and look where it has gotten those stocks.  If we didn't know better, we'd have thought the above table was a reprint of Internet valuations a mere six months ago.

Time For A Raise...No, don't worry about the government reports regarding wage inflation.  Statistical adjustments should take care of any misperceptions under the current administration's regime.  Likewise raises won't be handed out in techland due to sagging stock options.  Option strike price resets will clearly precede the actual divestment of cash.  Hello?  The raises we are speaking of were handed out by the ECB, Korea and the Central Bank of the Philippines.  Today the ECB unexpectedly bumped rates higher.  EUR On your own as to why.  The Bank of Korea raised its own key interest rate for the first time since early in 2000.  And lastly, the Philippine Central Bank raised reserve requirements for the Philippine banking system.  Sounds wonderful for the foreign economies, right?  What makes matters worse is that the stock markets in these various countries have already been smacked over the recent past.  Clearly these foreign Central Banks must have misplaced their complimentary copies of the "Greenspan Method Of Central Banking".  Do you think Amazon is still carrying some inventory?

The Forest And The Trees...The NDX briefly dipped below the critical 3350 level.  Here's an update of Tim's very important chart:

Is there any question that those with the most to lose on Wall Street know exactly where the important lines are drawn?  Of course there isn't.  

Stepping back for a moment, the NDX is also crossing critical longer term lines.  The longer term stochastic measurement also does not look too hot:

Lastly, the NASDAQ itself has flashed an MACD weekly sell signal for the first time in years that is going to need a quick trip to the repair shop to save.

We wonder why Jim Lehrer asked Bush and Gore during the debates on Tuesday if the government should intervene in a stock market meltdown?  Do you think he had just finished logging off Quote.com?