[Slate] Analyst Whores; Qualcomm Soars; Nasdaq 4K.

Adam Rifkin -4K (adam@XeNT.ics.uci.edu)
Thu, 30 Dec 1999 00:02:27 -0800 (PST)

Indulge me in completing this trilogy of market posts by noting that
today was a day for 4K. Nasdaq 4K. Now remember, the Nasdaq hit 3000
for the first time ever in November. Six weeks later, it's at 4000.
That means the Nasdaq Composite is up 81% on the year -- the best market
year ever, beating the Dow in 1915. [Following that model, we should
see a 1929-style crash in, say, fourteen years. Don't say I didn't warn
ya... :]

More astounding, the Nasdaq 100 -- that's the one hundred biggest stocks
in the Nasdaq -- is up 97% this year, and the average tech fund is up
128% this year. Think about that. Makes the Nikkei's return of 57%
this year seem okay but not great. Makes the Dow's return of 23% seem
anemic, and the S&P 500's return of 12% this year seem pathetic. And
don't even ask how Warren Buffett did this year.

That Qualcomm price target of 1000 confuses and amazes me. It would
give that company a market cap of what, $150 billion? What's that, like
3% of the U.S. GDP?


> Analyst Whores; Qualcomm Soars
> By: James Surowiecki
> Posted Wednesday, Dec. 29, 1999, at 3:32 p.m.
> If there's one thing to hope for after this day on which the Nasdaq
> leapt over 4,000 (hardly a month after it crossed 3,000), it's that
> three months from now no one remembers Walt Piecyk's name.
> Piecyk is the Paine Webber telecom analyst who this morning put a
> 12-month price target of $1,000-a-share on Qualcomm, which closed
> yesterday at $503 a share. Piecyk's call sent Qualcomm's stock back off
> to the races. It opened at $560, and ended the day at $659, which is a
> leap of 31 percent. That's respectable by any standard, but it's
> especially remarkable when you consider that Qualcomm, before today, was
> already the best-performing stock in the S&P 500 Index, up about 1,800
> percent for the year. (It's now up better than 2,300 percent.)
> I know, I know. These numbers are effectively gibberish, especially
> since I could fill this column every day with stories about stocks
> making incredible moves upward. So why does it matter or not matter
> whether in May the mention of Walt Piecyk's name will be greeted with
> anything other than "Who?"
> The simplest answer is that the success of calls like Piecyk's--success
> here meaning just that investors buy on the news of your price
> target--leads to more calls just like it. When Henry Blodget, who was
> then at CIBC Oppenheimer, said that Amazon's shares would hit $400
> within the year (he was right), it catapulted him into national
> attention and, in some sense, probably got him his new job at Merrill
> Lynch. And other analysts noticed. When FreeMarkets, a hot new
> business-to-business company, went public a few weeks ago, an analyst at
> a firm that wasn't underwriting the deal initiated coverage on the day
> of the IPO and set a price target of $300 a share, even though the
> company was going public at $48 a share. It's become almost de rigueur,
> in fact, for analysts to make audacious calls. Otherwise they won't even
> be noticed.
> You can see the same phenomenon at work in analysts' estimates of things
> like that fabled Internet business-to-business market. For a while now,
> the number everyone's been tossing around is $1.3 trillion in 2003. But
> that means that if you're an analyst and you cite that number, no one
> will notice you. So now the numbers are getting ratcheted up, to the
> point where a recent Goldman, Sachs study said the market could be as
> large as $2.5 trillion. (And, of course, here I am mentioning the
> report.)
> The phenomenon of number creep is bad because we want analysts to reach
> conclusions they think are true, and not conclusions that they think are
> going to get them on CNBC. (I realize this is incredibly naive, but
> there it is.) And the truth is that there still isn't enough
> accountability for these kinds of forecasts to make the rewards and
> punishments for success and failure commensurate. But the phenomenon is
> also bad because these kinds of calls have become market-moving events,
> which means that it's no longer irrational to trade as a result of them,
> at least if you're a trader.
> According to a traditional definition of "information" about a stock (as
> in, a stock's price reflects all the available information the market
> has about it), Piecyk's report was not new. Moreover, when you consider
> that Qualcomm was already up 1,800 percent for the year, the appropriate
> question to ask is probably: "Why are you just starting to cover this
> stock now?" But if we broaden the definition of "information" to include
> everything that might affect that stock's price, even in the short term,
> then the report has to be considered new information, which means that
> it has to affect the stock price. And that means that ignoring it is not
> necessarily rational, even if there's nothing valuable about Piecyk's
> analysis.
> The best thing for everyone, then, will be for Qualcomm to settle back
> in the next couple of months, or even just rise slightly, and for
> Piecyk's forecast to be forgotten. In the long run, even in this stock
> market, companies' stock prices will find their true level. But what has
> become incredibly clear in 1999 is that the signal-to-noise ratio in the
> stock market is degenerating (with something like Piecyk's report being
> noise), and that means that it will take longer for those true levels to
> be reached.


The focus of conversation among those best versed in this issue is
about how we are going to clean up after what appears now to be an
inevitable train wreck. As a society, we are on the point of conceding
failure. Those unwilling or unable to move off the track are numerous.
Federal agencies. State governments. Local and municipal governments.
School districts. Private sector industries. Small and mid-sized
companies. Critical infrastructure players. And most foreign nations.
It's crazy. It's frustrating. It cannot be happening. But it is. Now the
"smart" questions have shifted to concentrate on contingency planning,
crisis management, and liability. Lawyers are circling, and that is not
a good sign.
-- Harris Miller's testimony to Congress on Y2K, May 1998
See: http://www.y2kchaos.com/y2kchaos.htm#265

[Aside: if nothing happens on Y2K, I hope all the former Y2K alarmists
are taken to the funny farm and locked up for trying to panic everyone.]