By: Mary Mostert, Analyst, Original Sources
March 13, 2001
Fox news called it a "bloodbath" and the New York Times tell us that the "great bull market of the 1990's is finally over." Bill O'Reilly is telling us that the market has crashed and is blaming Alan Greenspan. He says it started five months ago.
Well, in all due respect to Bill O'Reilly, he doesn't really know what he's talking about and is drumming up business, as it all to typical of journalists when the news gets sparse, to scare people into listening to him.
The facts are, where the Nasdaq is concerned, the bull market ended a year ago on March 6, 2000 when the Nasdaq hit 5048.62. It has been sliding back down every since. From March 6 to April 10, 2000 the Nasdaq dropped to 3321.00. That's 1727.62 points, or a drop of 34% in a month's time and what w as Bill O'Reilly and the New York Times talking about? It was an election year. Bill Clinton was the author, according to the media, of the good booming economy of the 1990s. We didn't' hear one word about a threat to the economy or a "bloodbath" or the "end of the bull market."
What did we hear from the media during the last year of the Clinton Administration when the Nasdaq was sliding? They were talking about Elian Gonzalez. There was hardly a murmur.about the sharp drop in the Nasdaq, a phenomenon which was led by the sharp drop in Microsoft stock, thanks to the efforts of Bill Clinton and Judge Jackson to force it to break up to help their buddies in Netscape and Cisco.
On April 17, 2000 I wrote about the sharp drop:Where's the Kind of Leadership Reagan Provided in 1987 to Stop a Stock Market Panic?
The value lost in that one week could have paid 36% of the National Debt. One trillion dollars vanished the NASDAQ in one day. It has never recovered and it has never recovered because the stocks were grossly over-priced. From March of 1999 to March of 2000 the NASDAQ rose 2500 points - averaging an increase of more than 100 points per month.
A year ago there was another phenomenon that is present this time too - a sharp slide in the Asian markets. I was not surprised at the sharp drop in the Dow and the NASDAQ because, as I reported on my website, the Nikkei dropped 256.81 points to 11,914.56 by midday, down 2.11 per cent Hong Kong stocks were 478.50 points down dropping to to 13,298.22
I wrote at the time:
"The fall in Hong Kong sent shockwaves through the territory, where the index crashed below the psychologically significant 15,000 level, the first time it has done so since January 25.
"At the open it was down 836.71 points to 15,306.05 points and went into an immediate freefall. Two minutes into trading it broke the 15,000 level and half-an-hour later 7.18 per cent had been wiped off the value of stocks."
The other factor that is still in play from last year is the cost of oil. A year ago we were being told that Clinton-Gore had negotiated an "agreement" among OPEC nations to increase supplies of crude. Actually, the cost of oil remains $24-30 a barrel, or about two and a half times the cost in 1991. High oil prices mean higher costs for everything - for transportation, for heating our homes, for products made from oil, which means higher costs for almost anything made from plastics, etc.
And, the fear of possible oil-cost driven inflation is why Alan Greenspan raised interest rates to cool off the economy, for which Bill O'Reilly is now lambasting him.
Another factor in the latest stock market drop, and the fears of recession is a rising employment, instead of the rising unemployment. Yet, I also pointed out, a year ago, that:
"Another inflation factor is the small group of young people now graduating from college. In 1960, the birth rate in America was 23.7 per 1000 people. By 1980, when today's 20 year olds were born, there were only 15.9 births per 1000 people. On the other hand, during the Great Depression of the 1930s both marriage and birth rates dropped sharply. The birth rate in 1930 was 21.3 births per 1000 people. Only five years later, in 1935, the year those retiring in the year 2000 were born, the number of births per 1000 people had dropped to 18.7 or 2,377,000 births."By way of comparison, it took five years of economic depression, from 1930 to 1935, to reduce the birth rate 2.6 points. However, the American Birth rate began to climb as World War II improved the economy and gave people a greater appreciation for their families which produced the baby boom of the 1940s and 1950s. It took 35 years before the birth rate was down to the level of the 1935 rate. In 1970 it was 18.4.
"The legalization of abortion by Roe v Wade in 1973 had an immediate and dramatic impact on the number of babies born, dropping to 14.6 births per 1000 in a couple of years, in 1975. This small generation is expected to finance the social security and Medicare for the huge baby boomer generation which begins to retire in the year 2005.
However, of all the factors that I mentioned a year ago, when the bull market actually began, the attack on Microsoft in the government's Anti-Trust case may have had the most impact. It was, after all, the engine that made the stock market rise, especially the NASDAQ, has been Microsoft. It was the breakdown of negotiations between Bill Gates and the Government which brought on the sudden 1000 point drop in the NASDAQ in March and April 2000. The sell-off took place when Bill Gates refused to sign a document which would have stifled consumer oriented innovation. On March 24, 2000 Microsoft stock hit 115. It hit a low of 40 in December 2000, closing at 51.9 yesterday.
I strongly suspect that much of the current sell-off has taken place because of the media. As I have pointed out before, the word "recession" which was not used once that I can remember when the NASDAQ dropped 1000 points in a week when Bill Clinton was in the White House, in April 2000, suddenly became part of the vernacular of the media on the very DAY that Al Gore conceded. It even has become the mantra of Fox News' Bill O'Reilly, who claims to be only presenting us with "facts."
I said in when the Jackson Court announced its planned break-up of Microsoft on November 8, 1999.
"The glee being expressed by the government and by Microsoft competitors at the hoped for demise of the Microsoft giant could be short-lived, especially if Microsoft stock drops precipitously as a result as did the RCA stock (which dropped 90% during the Great Depression after the government's anti-trust case against RCA)."
Bill Gates' personal stock in Microsoft dropped $11.2 billion in value. That's a huge price to pay for the right to innovate.
The Nasdaq has dropped 62 percent from its peak last March. As a participant in the internet economy, it is my opinion that the decline is not really a "slowing of the new economy" as we are being told, but a slowing in speculation in companies that have never made a profit but which, many believed, one of these days would make them rich.
Can we have a real recession or depression, as some are fearing, without there being a large increase in unemployment? While earnings are weak, at this point, employment is still robust - still below 5%, a figure considered to signal a possible inflation just a few years ago, - compared with the 40% unemployment of the 1930s. If the Senate passes the Bush tax cut, which will give the average family about $1600 of their money back, there will not be a recession. Giving people the opportunity pay debts, buy a computer, send a child to college or add to their savings will do far more than putting the same money in the hands of politicians to create "programs."
Unfortunately, there is a school of thought among Democrats that their personal self interest is better served by blocking the tax cut in hopes that a recession they would blame on George W. Bush will help them regain the Congress in 2002.
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