Tech Is Dreck

If you want to understand where the stock market is today,

you might do well to ignore the endless stream of speculation pouring from the

financial-news channels and look at something very basic, but thus far

unremarked upon. The answer may be partly

traced to the rising status in the public’s mind of the Nasdaq as a

benchmark on an equal footing with the Dow Jones and the Standard & Poor’s

indices. Ten years ago, the Nasdaq was barely mentioned and had virtually no

standing in the capital markets. But now, because of a public-relations blitz

and the media frenzy with tech stocks, the ups and downs of the Nasdaq are

assigned great significance, more so even than those of the Dow. The result:

Investors in this country and around the world are viewing the market through a

distorted lens. The fundamentals of the market-the Dow and the S.&P.-are

almost lost in the shuffle. And, like Alice walking through the looking glass,

all logic goes to the wind.

After a hard look at the Nasdaq, it would be difficult to

consider it as an important financial barometer. True, the market value of the

Nasdaq is in the trillions. But if one asks how much of the Gross Domestic

Product is accounted for by Nasdaq companies,

the answer is: not very much, about 2.5 percent according to Wall Street

analysts. And Nasdaq companies certainly employ a trivial number of workers. And what about the companies traded on the

Nasdaq? While the S.&P. is trading at 25 times earnings-high already

in a declining economy-the Nasdaq, which hit 5,000 about a year ago, was

selling then at 400 times earnings. And

even today, with that market down 60 percent, it is still trading at

over 150 times earnings. So what we have is a market which the public thinks is

down 60 percent-but which is still overpriced many times over. Should a

tech/growth company sell at 220 times earnings? Even if one accepts the fact

that there should be a premium over what we call the “old economy,” that

premium certainly isn’t 600 or 700 percent.

“In times past,” notes Grant’s

Interest Rate Observer, these multiples of 25 times earnings on the

S.&P., and more than six times that (150 times earnings) on the Nasdaq, would be “valuations of euphoria, not

disillusionment.” And yet investors now believe the market has already had a

significant correction. Feeding this misperception is the saturation

coverage of the financial markets by the networks, their cable channels and the

Internet. A decade ago, the news of the day was that the Dow was up or the Dow

was down, reported by just three TV networks.

Simply put, many of the Nasdaq stocks are where money is

made and lost for speculators and ill-informed investors. The only way a

serious decline in the Nasdaq will directly affect the economy is when the

people who have lost a lot of money spend less on real estate, automobiles, art

and other collectibles. There is scant evidence that there is any impact on

what really matters-the work force and capital expenditures. But there still

could be a long way to go on the downside for those companies with little or no

earnings, or with an economic model that may never earn them a dime.

They Did the Right

Thing

Thanks to a thoughtful Republican from Staten Island, the

New York City Council will not be making a spectacle of itself this spring. Not

unduly, anyway.

When the Council’s Governmental Operations Committee

gathered on March 15, the credibility of the city’s legislature was at stake.

The committee was prepared to vote on a bill to overturn term limits for

Council members, even though term limits were approved twice by city voters.

With the legislation about to take effect, turning two thirds of the Council’s

51 members into lame ducks, a half-dozen lawmakers tried to foil the voters’

wishes by pushing term-limit repeal. They hoped the committee would approve the

measure and pass it along to the full Council.

It came down to Council member Stephen J. Fiala, a 33-year-old freshman

legislator from the city’s most suburban borough. With the vote tied at 4-4,

Mr. Fiala demonstrated that integrity and scholarship are not complete

strangers to the Council chambers. He quoted John Quincy Adams, Thomas Paine

and Ralph Waldo Emerson. He said that while he opposed term limits, he

understood that the people had spoken.

“Twice the voters cast their vote …. And in America, votes are sacred,”

he said. He cast the deciding vote against repeal.

New York voters owe a debt of gratitude to Mr. Fiala and to

Council Speaker Peter Vallone, who also

opposed the repeal bill. The vote reminded us that sometimes politicians

do the right thing and for the right reason.

Isn’t It Rich?

So you’ve just tallied

up your assets and found that you’re worth about $1 million, and you’re

feeling pretty comfortable? Not so fast-according to most Americans, you’re not

rich. The Wall Street Journal commissioned

a survey to find out what people consider to be rich these days-how much one

needs to earn, and what sort of luxury

items one needs to own, to be deemed wealthy in 2001. Most Americans now

believe you must earn at least $1 million a year to legitimately call yourself

a member of the leisure class. Respondents in the New York area sniffed at that

number and added $400,000, for a yearly floor of $1.4 million. They also said

that a net worth of $3.4 million was the prerequisite for being considered

truly affluent. Money alone was not enough. Thirty-five percent believed that

to be rich, one must own a car costing more than $75,000. Thirty-one percent

said that a private plane was a must-have, while 19 percent listed an in-home

movie theater. Asked about the benefits of being rich, “more free time” topped

the list; only 5 percent chose an ability to “give money to causes.” 

The irony, of course, is that just 1 percent of U.S.

households make $1 million per year. And the average income of survey

respondents living in the New York area was

$53,100. Apparently one thing the rich do not do is waste time answering

survey questions.