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Tech
fatigue?
Irrational
exuberance could be on its last legs. But for better or worse, John
Schofield thinks it still has legs.
By
MAUREEN TKACIK
March
15, 2000
Web posted at 9:00 p.m. Hong Kong time, 8:00 a.m. EST
Click here
for current data on world markets from CNNfn
Technical
analysis is a stock trading philosophy studied rigorously by hedge
fund managers, day traders and Prudential-Bache's John Schofield.
The premise: throw out P/E ratios, cash flows, balance sheets. Discard
thy antiquated methods of valuation, investors! Markets are about
moving averages, smoothing tendencies, support levels and the primacy
of plain-vanilla human nature.
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So why is George Soros crying in his beer? Why do the guys who know
flow charts and support levels best find so little support from
the markets these days? What about the tech boom is so confounding
to the techies?
Well,
partially because technical analysis relies on the markets acting
according to established patterns. That is, patterns established
in the past. And the tech and telecommunications revolution we're
experiencing is quite simply a fantastically new, unprecedented
paradigm the likes of which could never be pinned down in a flow
chart.
All right, all right, that's a lie. The Internet is a big ponzi
scheme that investors are lapping up because it's one of those primary
tenets of human nature to want to get rich.
Q:
Right?
A: Well, it's going to change the way we live, the way we do business,
blah blah...
Q:
So we should forget all those antediluvian rules of how to value
companies, such as "revenue streams" or "more than
five full-time employees," and believe the hype?
A:
One of the main characteristics of stock market booms is pundits
saying "all the old rules have changed" and entering into
all these crazy contortions to justify what in the end is a liquidity
bubble and a liquidity bubble alone. Probably the best example of
that was late '80s Japan, and then the government finally just let
the bubble burst. Quite simply, pronouncements like that are just
another sign that we're near the top of the market.
Q:
But people have been making excuses for a few years now in America,
and then you keep getting the "but, we're in Asia and we're
two years behind, so we have at least another two years of bullishness."
line. What do you make of that one?
A:
Well, Asia's been in a catch-up process during the past few months,
and at some point in global markets the cycles become a lot more
synchronized. Asian technology stocks will continue to rise while
the NASDAQ continues to rise.
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Q: And that ends...
A: I think we're actually in the midst of a correction right now.
It's hard to call it, but when you get Softbank and Hikari Tsushin
shedding half their values, you get most of the NASDAQ's bigger-cap
stocks off their highs, you get the NASDAQ losing 4% in a day like
you did yesterday, that's a bit of a correction. Alongside that,
you'll see the better-quality stocks lose the most, because they're
the most liquid, while investors move into some of the smaller-caps.
You see that now with the NASDAQ, where Yahoo and Microsoft are
way off their highs, and tiny biotech stocks or Internet security
stocks are coming into vogue. But smaller-caps can be even more
volatile, as you saw with yesterday's mass biotech sell-off. But
as a theme, this has legs.
Q:
I was watching you on CNBC the other day, alongside strategist after
fund manager after analyst coming on the show and subjecting their
portfolios to anchor approval. And there was one courageous fund
manager, all bleeping day (I was sick, okay?) who was willing to
say he thought P & G was a BUY at these levels.
A:
Well, that's another sign you're in the late stage of a bull market,
is when you get fewer and fewer people questioning the conventional
wisdom and airing a contrarian view.
Q:
I guess it never does pay to be a contrarian.
A:
It does for some, but you've got to have your timing just right.
Then it can really pay off.
Q:
May the force be with you
Be
it overvalued tech stocks, high-profile mergers or corruption scandals,
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