The Hot Dog Stand

[wndysrf]

Mark?s Market Commentary ? December 27, 2002

 

A friend of mine had a partial ownership interest in a hot dog stand near Dodger Stadium. Last year, the business took in $17,600 in revenue but only made $1,900 after expenses. The business had no debt. The assets (value of the hot dog stand and the rights to the vending location) were worth about $38,000.

 

The reason he sold his interest in this business was simple.

 

The hot dog stand was owned by 10 different owners. He only owned 10% of the business, and the market price offered for his small share of the business was a staggering $9,500!!

 

Furthermore, the other 9 owners were arguing about what to do with the $21,000 in cash the business had on hand. My friend thought the cash should be distributed to the 10 owners, which would mean $2,100 each for each owner.

 

But he was outvoted. Eight of the other owners thought that it would be prudent to use this $21,000 cash to buy out two of the ten owners out for $19,000.

 

That would leave the company with 8 owners instead of 10, and very little cash left. Now the remaining 8 owners would be left to fight over the measly $1,900 in net income the business generated each year.

 

My friend took his $9,500 and ran.

 

The business is not a hot dog stand.

 

Add 6 zeros.

 

And the company is not owned by 10 people. It?s owned by 7,230,000,000 people.

 

The business is Cisco Systems (CSCO).

 

And that glorious $21 billion in cash you see paraded on Proctovision this morning means $2.90 for each of the 7.23 billion shares outstanding.

 

Not bad for a company whose stock is trading at $13/share? Well, $13/share is 5x sales and 50x last year?s earnings.

 

CSCO recently declined to pay any cash dividends. Instead, management wants to ?buy back stock?.

 

That means CSCO can buy out 22% of its stock right now, and leave the remaining 78% of its owners (5,639,400 owners, $73 billion in market cap) fighting over its 26 cents a share in earnings each year.

 

What a pathetic investment.

 

And just think, one ?beat by a penny? announcement out of Chambers (27 cents vs. 26 cents) is usually good for about a $4 gain in the stock, or a $35 billion explosion in market cap!!

 

Or put it another way, the hot dog stand earns $1,975 vs. $1,900, and the 10% owner?s share of the business vaults from $9,500 to $13,000!!!

 

Now its time to look at some forecasts from last year made by the 7-figure salaried strategists. Remember, these people are paid very high salaries because they are ?experts? in charge of ?safeguarding? your investments for long term retirement purposes.

 

From CBS MarketWatch November 2001:

 

As the markets move higher into late 2001, many see this as evidence that investors are looking "across the valley" to better earnings in 2002, and that this hope would be fulfilled. In November 2001, Thomson Financial/First Call said most anal cysts are expecting S&P profits to climb by 10 per cent in the second quarter and 30 per cent in the third quarter. Tech stocks are expected to boost their profits by 44 per cent in 2002.

 

Equity strategist Ed Kerschner of UBS PaineWebber expects the S&P 500 to climb by 35 per cent in 2002 to about 1,600 ? almost twice what it is now. Abby Joseph Cohen of Goldman Sachs sees the S&P at 1,300 and the Dow at 12,500, while Jeff Applegate of Lehman Brothers sees the S&P at 1,350. "What this market is telling you is that economic recovery next year is an absolute certainty," said Henry Cavanna of JP Morgan Fleming.

 

Even though the market looks overvalued ? with the S&P 500 trading for more than 25 times earnings ? the argument is that it looks cheap based on future profits. "I agree that the valuation of the stock market is high right now. But that is fairly typical during a profit trough," Christine Callies of Merrill Lynch told USA Today. "Price-earnings multiples will come down gradually over time as earnings growth improves."

 

Kershner: Off by 77%

Cohen: Off by 44%

Applegate: Off by 50%

 

Two of the three have been fired. Will ApeWoman finally get the ax in 2003??

 

Ignore the front page article titled ?Five High-Tech Companies Are Amassing Big Piles of Cash?. The Street?s obsession with tech stocks continues unabated. Lets examine how Joe Sixpack has done with the tech stock nightmare the last three years.

 

The far right hand column on page 1 of The Wall Struck Journal about the broken dreams of common stockholders participating in the bubble is a must read. Stock ownership (% of households) was 33% in 1989, and rose up in hockey stick fashion to 48% by 1999 and has stayed there ever since.

 

As the referenced article states, there has been no real selling in the stock market. Most sucked in near the highs held their positions all the way down, or in many cases, doubled down on their bets. Some got out in the fall of 2000, but these lucky ones were few. Stories of those who cashed out at the top are nearly nonexistent.

 

So it appears that the frequent jamming and bounces engineered by Da Boyz has served its purpose. It has kept selling to a minimum, or at least provided enough volatility to encourage heavy rotation and gigantic commissions for the brokers.

 

Lets use Mr. Lundy as an example. A construction company employee who place his life savings of $65,000 in the hands of a trusty Merry Lynching broker saw his account grow to $791,879 by March 2000. Then the bubble cracked, and the broker engaged in the usual HeatMapping Heavy Rotation gaming in order to try and ?reposition? the account in order to ?catch up?. The account was heavily churned, and Merry Lynching was able to grind out $369,000 in trading commissions, Dick ?Hit Man? Grasso-style, on this one account from December 1998 to July 2001.

 

The account has been essentially wiped out, yet Lundy still occasionally checks the prices of his former high flying stocks and ?snickers?.

 

How many of these guys whose accounts were churned out of existence are going to be anxious to get back in?

 

How many hopers who just held with the death grip all the way down, failed to sell at the ?tech bubble rebound? highs on March 22, 2001, scared to sell at the ?v-shaped recovery highs? on January 4, 2002, and now are looking at the December 2, 2002 ?Election Erection Rally? top?? Will they sell or hold on the next decline?

 

Today?s Action

 

Needless to say, the last several days have been scary for short sellers. Nobody likes these ultra-low volume days where it seems that an upside explosion is imminent.

 

Tim Ord was thinking that the mid-December lows was a ?shakeout?, and that the high volume top on December 2 would have to be re-tested on lighter volume at some point. The December lows were taken out, but the volume is too weak for it to count.

 

A couple more shorts were added, but the higher profile tech short favorites are to be avoided until after the year end tape jam.

 

Girlfriend of the Week

 

Buddha checked in for a minute today. He had some comments about The Girlfriend of the Week:

 

?Really it is C.N.B.C.?s job to distribute stock into the public. They work for corporate power. Nowhere did they ever sign a form that says they owe the public money, or stock wealth, or are in any way there to function as a public trust. Once it is clearly understood who they obviously are, the emotion is taken completely out of the equation. They have always been and will always be an arm of corporate power and wealth whose sole function is to keep the world public interest in equities alive and to provide stimulus daily and hourly for intraday Casino operations, i.e. speculative buying and selling.?

 

?The simplest way to read the dictates of C.N.B.C. from out of the front office is to read the body language and vocal tone of their virgin preMarket announcer, wannabe S&M parlor girl Leslie LaRoche. She is trying so hard to please her corporate bosses with positive spin on literally any equity sector that isn't toast or RoadKill that she is quite often beside herself with a schoolgirl?s joy when a DeathStar happens to be 'gapping up' 15 cents on the open. Frankly she would be more interesting if she just removed her teeth and got on her knees but this is another subject entirely and perhaps not fitting for the season.?

 

Note the understated, conservative appearance from the dated photo of Miss Leslie featured below. Complete with the Palm Beach Crash Helmet and the corporate suit which hides everything and reveals nothing.

 

Now she?s adopted the Dominatrix chop cut and that eager smile which seems sweet and innocent enough. Of course, nobody can see her sequin thong and her barbed wire bra and the multiple tattoos as she reports from the Nasdaq MarketSite in Times Square?

 

Who better to serve as the anchorwoman for the investors? favorite whipping post?

 

Position Summary:

 

New quarter short on NYT at $45

New quarter short on WSM at $27

New half long on GSS at $1.72

 

Note: Pessimism and mistrust of the gold shares remains intact. The shares refuse to cooperate as the gold contract makes new highs. I will continue to buy on weakness until the shares either start outperforming the metal, or if the shares start becoming too extended on a parabolic move.

 

Gold is the top performing sector, and it is likely to be heavily favored for a year end tape paint push.

 

We are 44% short, 24% long, 16% cash.

 

Half Short:

 

LOW at $42

INTU at $53

C at $38

TGT at $34

MBI at $50

JPM at $25

AMGN at $52

 

Quarter Short:

 

FRE at $68

CFC at $49

KBH at $49

LEN at $56

TOL at $27

BBBY at $35

COCO at $40

KSS at $66

NCEN at $28

NYT at $45

WSM at $27

 

Full Long:

 

GG at $11

 

Half Long:

 

BGO at $1.31

HL at $4.10

PAAS at $5

DROOY at $3.35

GLG at $9

MDG at $16

[GregFokker]

Mark, you've outdone yourself. Out-freaking-standing. This one's being printed and saved.

[Guest AssMaster]

Heya Mark. New avatar, just for you! :grin:

[Guest alex]

Arch Crawford expects gold stocks to "explode" (his word) on Mon-Tues.

[The End]

alex,

 

Did Arch C discuss the equities market?

[Guest alex]

END: his daily update said he's looking to go long SPX around here for a trade. Was expecting a bottom yesterday or today.

[The End]

Alex,

 

We did see a hammer on the spx hourly, so i would tend to agree.

 

Rememeber i said we should go higher as long as 872 does not get taken out.

 

This market sure is weak though and 908 might be all she wrote. Good luck

[Guest alex]

Added more GSS on today's weakness, too (1.75), good for at least a pop to 1.95-2.0, I think, along with more GG, NEM, HMY. Indifferent to the rest of the market for now.

[Guest]

Schaeffer said in his opening view that the only thing left to motivate trading will be the news. Earlier this morning,

it was reported that North Korea has asked its U.N. nuclear

inspectors to leave the country. The eyes of the world are

now blind to the North's nuclear intent. In light of geopolitical

tension I added GG, GLG and MDG and am currently 60% long

the PMs. I'm perfectly positioned for a year end tape paint :grin:

 

http://www.financialsense.com/metals/sincl...p/2002/1226.htm

[Guest AssMaster]

Don't know if this has been posted:

 

Four Years in a Row

 

Oh yes, current asset allocation:

 

25% BEARX

60% PM

10% tech, EWC

 

If you lose money in cash, stocks, bonds, where else but real estate and PMs can you go to preserve your money from inflation?

[Guest alex]

North Korea's KJI reminds me of a high-school bully who's just started a massive food fight in the school cafeteria to get some attention. I don't think the guy's ever been out of the country (except maybe to a Tokyo love hotel) and even remotely understands the big ruckus he's causing in D.C.

 

Different from the Iraq situation: US cannot afford to call NKorea's bluff and have them blow up SKorea/Japan/China, without which US economy would collapse. Besides, invading NKorea would start WWIII with China. Aint gonna happen.

[DrStool]

Eavis's article is one of the best summaries of what's wrong that I've seen.

[Ned38]

I think "they" whoever "they" are, are hoping for a quiet weekend and sleepy overseas action before we open Monday.

 

If "they" get it , I expect them to attempt a futures jam/gap up on Monday.

 

But of course I am merely stating the obvious

[Guest AssMaster]

Actually, NK is behaving perfectly naturally from what I know of their ilk.

 

Act irrationally to keep everyone confused.

Blame your opponent for the very things you are doing.

Push things to the brink quickly in order to get the other to capitulate.

Use political intrigue and backstabbing among your neighbors to divide them.

 

Actually, rather like a psycho version of The Art of War. When I read the Art of War, I had this sense of deja-vu...and realized I had learned all of it from the behavior of my Chinese ex-girlfriend.

 

So we are playing this just right. Don't lose your cool. Let them stew in their own juices while they throw tantrums and worry everyone around them. China and S. Korea want to be buddies with these guys, so let them handle it. Remain calm. Don't let them see you sweat. It's all about power and control with these types. And if you exhibit any weakness, they will look to exploit it without mercy. And agreements are made, not to be kept, but simply to get what you want. Never believe anything they say, because they do not believe anything you say. Such is the case with people who they see as opponents - which is EVERYONE...especially round-eye.

[Contrarius]

I didn't know Kerschner got canned! That makes my day!

 

Should Abbie Jo get the axe?

 

?Some things have taken longer than expected to straighten out, but that has not deterred our view. The bottom line is we don?t think there is a recession coming.?

Abbie Joseph Cohen, Goldman Sachs

July 31, 2001

 

?Those who wait too long to get back into the market stand to lose out on potential profits in the end.?

Abbie Joseph Cohen, Goldman Sachs

July 31, 2001

 

 

And what about Doc's favorite Al Goldman ????

 

?Investors are once again overreacting to a natural slowing of economic growth.?

Al Goldman, AG Edwards

March 1, 2001

 

?The bear is dead and we're transitioning into a bull market. There are better times ahead.?

Al Goldman, A.G. Edwards

May 3, 2001

 

?We sense that the sell-off is behind us and the market has the preconditions in place for a pretty good year-end rally.?

Al Goldman, AG Edwards

December 17, 2001

 

"This is still a good rally."

Al Goldman, chief market strategist, A.G. Edwards

December 27, 2001

 

Or Ned Riley...

 

?2002 should be an up year. We will have more predictable forecasts and

growing confidence that we are not going to fall into a deeper recession.''

Ned Riley, chief investment strategist at State Street Global Advisors

[Riley expects 10 percent gains for the Dow Jones Industrial Average and S&P 500 next year.]

Dec 31, 2001

 

 

Thanks Mark.