Dow Surges Past 10,000 Mark

AP | 12/5/01 | Amy Baldwin

[TPartyType]

Woooohooooo! I've been waiting for this.

[eureka!]

*ping* ;^)

[Billy_bob_bob]

I am of the opinion that this market is very overvalued, so I am not holding any stocks at this time. Can anyone explain to me why the DJIA should be worth over 10k in the current economy? Has anyone actually looked at the average P/E of the NASDAQ lately? Not mention the whole "pro forma" earnings reporting that writes off everything but payroll as a "one time, non-recurring" expense. Please help me understand these current valuations!

[Trueblackman]

Well Democrats can't be too happy about this especially with the nation at war. They have been banking on a soft economy to help them take back The House and hold The Senate. Seem President Bush's Leadership during this operation does not have investors too worried. I hope President Bush and Republicans are remembered for helping to rebuild the economy and turning back The Clinton/Gore Recession!!!

[N. Theknow]

Over 10 thou....and nary a dot.bomb in the bunch.

[hove]

Oh yeah baby! The party is on again! The economy is recovering. I'm going out today an getting a second on my mortgage. I'm gonna max out my credit cards. I'm even gonna sell all my gold Panda's. I'm gonna invest in this fabulous new market....and I'm going in for the long haul! OH....by the way....how are those P/E's lookin??

[eternity]

Glad to see you are so happy.

[Alberta's Child]

Don't just look at the high valuations -- ask yourself why these companies should be worth any less now than they were two years ago.

I predicted earlier this year that the tech sector was going to rebound strongly in 2002. That forecast was based entirely on tax law and the effect that Y2K had on equipment replacement cycles. Because capital equipment can be depreciated for tax purposes over three years, businesses have an incentive to replace high-tech equipment as soon as they even think they need it. As a result, there is an expectation that in any given year approximately one out of every three computers, copiers, cell phones, etc. will be replaced.

Y2K changed all of that because many companies interrupted their three-year cycle in 1999 and replaced much of their equipment on a one-time basis even if it wasn't due for replacement until 2000 or 2001. The direct result of this replacement cycle interruption was that sales of high-tech equipment were depressed in 2000 and 2001.

2002 figures to be a banner year for the tech stocks, since all of that stuff that was purchased in 1999 will be due for replacement.

You heard it here first.

A comment about overvaluation, though. A company with a P/E ratio of 40 can hardly be considered "overvalued" in the current climate, since it is providing a return of 2.5% in an age when interest rates are at historical lows. When you factor in the growth potential for this company, a P/E ratio of 40 may be a bargain.

[Inspector Harry Callahan]

That's some brilliant analysis!

[TPartyType]

To be honest, I own only a few thousand dollars worth of munies. What I know about stocks you could fit in a thimble and have plenty of room left over! But, for me, the 10,000 mark is symbolic, and I want to celebrate this facet of our nation's return to normalcy. Call me a sappy sentimentalist, I just get a little excited about it.

[orfisher]

Don't celebrate too soon. The stock market right now is a bettors game and is not a true indicator of economic conditions. Look at factory production,unemployment figures and consumer spending as weather vane.

[Alberta's Child]

Coming from Inspector Harry Callahan, I regard that as a real compliment. In fact, I'm quite flattered. Good to see that you're still posting on FreeRepublic!

People point to the Microsoft suit in early 2000 as the start of the tech slide, but the truth is that the slide began beneath the surface on January 1, 2000. Companies like Dell, Cisco, and Microsoft had nobody to sell to except new start-ups, since everyone had purchased new equipment throughout 1999.

[Wyatt's Torch]

Just wait until earnings season. Equities are still grossly overvalued. This is a bear rally.

[NeoCaveman]

Horray

[Wyatt's Torch]

I predicted earlier this year that the tech sector was going to rebound strongly in 2002. That forecast was based entirely on tax law and the effect that Y2K had on equipment replacement cycles. Because capital equipment can be depreciated for tax purposes over three years, businesses have an incentive to replace high-tech equipment as soon as they even think they need it. As a result, there is an expectation that in any given year approximately one out of every three computers, copiers, cell phones, etc. will be replaced.

Do you think that the PC and equipment replacement cycle are not anticipated in earnings projections? Of course they are. Here's the kicker though. There is so much spare equipment on the market that companies are basically self-insuring. Why by a new Cisco router when you can buy one on E-bay from a dot-bomb for 1/3 the cost? Also, have you noticed the PC price war? What does it mean when the anticipated volume is replaced but at lower revenues? Oh, and one more thing, do you think the tightening of the screws in capital expenditures by companies that don't want to spend any cash will impact the three year replacement cycle?

[ken5050]

Ya gotta watch The Bear..cause it'll bite you on the ass..this is the type of froth that precedes the big blow-off....it's due to a lot of institutional window dresing, before year's end....much of Wall Street gets its bonus based upon YTD performance figures......so the lasts iota of "irrational exuberance" will blow itself up....the markets are soooo overvalued it isn't funny.....Krispy Kreme needs to collapse by 75%..BTW..look for Amazon to file chapt11 after X-mas....

[yournamehere]

That is an excellent analysis AC. Being in the technology department (and replacing hardware every 3 years..), as well as having many good friends in the financial market, I'm amazed this is the first time I've seen the two put together. I think I'll go tout your theory and claim credit for it.. (haha!)

[Wyatt's Torch]

Being in the technology department (and replacing hardware every 3 years..), as well as having many good friends in the financial market, I'm amazed this is the first time I've seen the two put together.

Please tell me these friends are not analysts. If so, can you tell me who they work for to make sure I never read one of there recommendations....;-)

[LN2Campy]

Stop that talk RIGHT NOW. Go drink your kool-aid and listen to Abby Joseph Cohen and Lou Rukeyser and quit asking such pesky little questions!! ; )

[usconservative]

Y2K changed all of that because many companies interrupted their three-year cycle in 1999 and replaced much of their equipment on a one-time basis even if it wasn't due for replacement until 2000 or 2001. The direct result of this replacement cycle interruption was that sales of high-tech equipment were depressed in 2000 and 2001.

2002 figures to be a banner year for the tech stocks, since all of that stuff that was purchased in 1999 will be due for replacement.

You heard it here first.

Spot On, but they didn't hear it from you first. When this economic slump started in March of 2000, myself along with several others here made the very same observation. Speaking from personal experieince, the company I work for replaced all it's financial and HR systems in '99 in preparation for Y2K, replaced ALL our antiquated AIX Unix servers with new, and replaced our mainframe. The total dollar amount invested in technology that year was staggering, and we've been waiting to achieve our max ROI prior to doing a technology refresh again.

I said back in March 2000 that I suspected we weren't the only ones, and as it turns out --- we weren't. Q2 of '02 is going to be *spectacular* ...

That, you're hearing here first. :)