THERE'S AN OASIS FOR EVERY DESERT OF VALUES, EVEN WHEN IT'S BEYOND SIGHT
BY PAUL KAGAN Don’t look now, but it’s only six weeks to Hallowe’en, and that conjures up memories of history’s worst market crashes. Whether we held stock through them or not, who among us can ignore the specter of these dates? These milestones must be what led calendar-makers to change the name of the season from autumn to fall. Maybe it’s all those wilting leaves that drive investors to liquidate their portfolios in a kind of lame financial harvest. Wall Street, as exiting New York Stock Exchange chairman Richard Grasso knows, is a deciduous tree. But as long as we’re talking about the naked truth, please note that each of the bottoms in the autumns of our years has marked the beginning of a major rally or new bull market. Basically, any autumn featuring a crash — like the dates on the list above — has been, in hindsight, a rotten time to sell stock, and a good time to take stock. Before looking ahead to handicap the future (that’s a triple entendre), it’s worth repeating that there’s a very good chance that an historic market bottom was made on 10/10/02. That’s when the Dow Jones Avg. had lost 40% and Nasdaq 78% of the wealth achieved at the 1/14/00 Dow high and the 3/10/00 Nasdaq climax. For the record, the Dow fell from an intraday top of 11,908 to 7,181. And Nasdaq plummeted from 5,132 to 1,108. How bad was that? Bad enough. If you still believe we’re in a rally in a bear market, you’re asking the Dow and Nasdaq to continue their slide and go back down, to, say, 50% and 15% of their millennium peaks. I don’t think that’s in the cards. The real question is, how long are we destined to wander in this desert of values, bereft of hope that one day there will again be IPOs and higher prices? It’s less of a journey for the Dow stocks, which on Sept. 17 were down only 20% from their top. It’s more of a challenge for Nasdaq players, mired 63% below their high. But it looks less imposing when you’re not shooting to get all the way back. There’s a 36% rally ahead just for Nasdaq to get to one-half of what it used to be. Hopefully, cable stocks will participate, as they always have. The Kagan MSO Stock Avg. at Sept. 17 was 85% above last October’s low versus 70% for Nasdaq and 33% for the Dow. But its broadband technology vendors were up 139%. And all of cable’s recovery gains were made through the June rally peak. The bellwethers — Comcast and Cox — are on a plateau. Smaller MSOs like Insight and Mediacom are down considerably for the year. Some of Wall Street’s lack of interest can be traced to a slowdown in digital and Internet access growth following three explosive, introductory years. But part of the malaise is a repeat of early 1997: Fear of the Death Star. Wall Street makes MSOs drag Rupert Murdoch on their ankles like a ball and chain. Yet, on Main Street, cable is doing what it always has done to stay out of shackles: constantly adding new services. It is historically significant that MSOs are rolling out new services simultaneously in an effort to offer superior packages. They’ve grown out of the methodical, and patient, stance they could afford when they were the only game in town. By the end of next year, most of the nation’s systems will be marketing whatever combination of services subscribers want, ranging across video, voice and data to on-demand, DVR, high-definition, telephony and data, using multiple variations of set-tops and software. In cable, you can’t see the trend all at once. It penetrates local systems a day at a time, and one day — when you’re reading your bill — you wake up and realize it’s all in place, and you wouldn’t be without it. Meanwhile, back in the outside world, people still fret over the social changes that impact their lives: terrorism, war, a sluggish economy, loss of jobs, lower values of everything except houses, offset by record low interest rates that, short-term, make borrowing painless. These are the real issues that make the oasis in the desert of values further in the distance. But in my experience, it has always paid to remember what the highs and lows were. Right now, I don’t think we’ll revisit either one very soon. Paul Kagan is an active investor and money manager who writes exclusively for Cable World. He owns shares in each of the companies named in this column. He may buy or sell before and after his columns are published, and his positions may change at any time. Information in his columns does not represent a recommendation to buy or sell securities, nor is it a solicitation of any securities transaction.
