September 9, 2003
Watching Mania Days Go By

Amidst a CS First Boston upgrade – and the subsequent gap-up in IBM shares higher – a Wal-Mart downgrade held back retail stocks yesterday.  After hours Research in Motion shares exploded higher by more than 20% - apparently because the $2+ Billion company said it will rack up quarterly revenues of $123-$125 million instead of the previous estimate of $105-$115 million - and McDonald’s was soaring after posting strong August sales numbers (who knew that being ‘open 24 hours a day’ could help pad revenues?). RF Micro Devices jumped by more than 10% after the company said it may break even this quarter.

Suffice it to say, after a dull August the daily action in U.S. equities has become exciting again.  No, the action hasn’t been exciting for market bears - who have been crying wolf since late March - but for the stock market gambler’s whose honey-feed is made up of momentum.  Backed by an improving outlook from Intel, a plethora of analyst upgrades, and a series of better than expected PC sales forecasts, tech has taken the momentum lead.  However, given that analyst comments are moving multiple stocks higher or lower in different industries, it would not take much for any stock/industry to convulse higher as (if) capital rotates out of tech.

Some, including TheStreet’s Task, are concerned that financial stocks have lagged the markets in recent sessions. However, and save the sticky rally in precious metals, it is difficult to find many ominous signals given that Fannie/Freddie worries have subsided for the moment. 

Who Cares About Value?

The top 10 Nasdaq 100 companies by index weighting have a combined market cap of roughly $987 billion.  Does it matter that using even the most optimistic reading on book value (including intangibles and goodwill) that these companies are only worth a combined $141 billion on paper?

Research in Motion, which also said it will earn a couple pennies in GAAP profits this quarter, upped quarterly revenue estimates by $10-$20 million and its market cap rose by more than $500 million (after hours trading).  Baffling.

In short, you don’t try to make sense of absurd tech valuations and individual stock swings. Rather, in a marketplace where no one cares about value all that is worth discussing is price, sentiment, technicals, elections, recoveries, operating EPS comparisons, gullible investors, greedy fund managers, and printing presses.

For those value seekers that believe speculating on how the aforementioned topics of discussion may impact the markets next is a dangerous game, there are a couple of simple observations about today’s mania: Wall Street analysts are moving the markets again, the Nasdaq is trading at 18-month highs, and many investors are happy.  Who said there wasn’t many ominous signals in the marketplace?...

“The economy is getting better and business is getting better, and people had better get on the train.” Sally Anderson, who helps manage $2.2 billion at Kopp Investment Advisors in Edina, Minnesota
 

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