The Speculator's
Corner
First the Internet, now the Human Genome
By Laurel Kenner and Victor Niederhoffer
Special to TheStreet.com
2/18/00 9:12 PM ET
URL: http://www.thestreet.com/comment/thespeculatorscorner/887210.html
This week, the growth-dominated Nasdaq Composite ended up 0.4%. But the energy that it took to sustain that level, both monetary and psychological, exacted a heavy toll on the old-fashioned value stocks favored by those investors who are not part of the funky economy. Both the Dow Jones Industrial Average and the Standard & Poor's 500 Index ended at levels last seen in October 1999.
Why did it happen?
For one, there was too much complacency. Last Friday, the market wrestled with limit-down in the S&P 500 futures index and bounced back with alacrity to end down only 1.5% on the day. Even today, the illusion still lived as the S&P futures again touched the 35-point limit-down, and the Chicago Board Options Exchange's volatility index, or VIX, again came within a gnat's eyelash of 30.
The decline to new lows all around dealt a body blow to those who thought that stocks were a never-ending upward spiral, perhaps even a knockout.
The second reason the market fell is "Dr." (what was his Ph.D. thesis topic?) Alan Greenspan. In his Humphrey-Hawkins testimony to Congress, he advanced an incredible theory completely out of line with the current thinking that individuals make decisions based on rational expectations.
Out of regard for our readers' patience, we will not quote him in full here. The gist was that the pickup in productivity is a problem because of increased expectations for long-term corporate earnings, which spur business investment and increase stock prices. And this, the doctor concluded, creates "purchasing power for which no additional goods or services have yet been produced."
We say, Enough, you're out of your bathtub. Illusions based on analysts' earnings forecasts don't lead to excessive spending or stock market purchases.
For more than four years, Dr. Greenspan and a host of other senior citizens have been sounding the alarm that stocks are too high. Someday, for sure, the clock will stop and they will be right. But when it does, they will find that stocks have moved a few hundred percent above where they gave their median warning.
Be that as it may, the market reveres Dr. Greenspan as the child reveres the stern grandfather. He functions as the superego of the market. And when he comes up with yet another reason to justify his bearishness, there are many who are prone to change their attitude.
Psychologists study the process of changing attitudes in the lab with student volunteers and conclude that when people are influenced by a respected figure, their sense of grounding can change. Greenspan's remarks on Thursday were enough to set the dominoes tumbling, albeit with a lag of one day just to create a maximum of churning to keep the markets and the brokers happy over the long President's Day weekend.
The total amount of energy in nature does not change; it is merely transformed from one form into another, be it a conversion of light to heat, electricity to magnetism.
Similarly, in the market, the energy of the Internet stocks is not lost. It is passed around to other areas -- in this case, the biotech field. And this year, the names of companies that have been the secret of stock market life have been built up from the code "gen."
The concept of "memes" -- words and ideas that allow cultural forces to replicate with incredible speed through a population -- parallels the fact that companies built up from the gene code have been tearing ahead this year. The names and price appreciation for the first five companies on the alphabetical list of publicly held companies beginning with "gen" are listed below: Gene Logic (GLGC:Nasdaq), up 367%; Gene-Cell (GCLL:Nasdaq), up 900%; Genelabs (GNLB:)(GNLB-Nasdaq), up 104%; GeneLink (GNLK:Nasdaq), up 436%; and Genome Therapeutics (GENE:Nasdaq), up 194%.
These numbers are quite representative of the entire list of companies built from the gene sequence.
Some of the top 20 performers in the Nasdaq 100 this week were gen companies and their cousins -- those with "immun" in their names: Immunex (IMNX:Nasdaq), up 30%; Genzyme (GENZ:Nasdaq), up 21%; Biogen (BGEN:Nasdaq), up 13%; Medimmune (MEDI:Nasdaq), up 15%; and Amgen (AMGN:Nasdaq), up 14%.
The Amex Biotechnology Index is up 61% year to date and 23% this week. Contrast that with TheStreet.com Internet Sector Index, down 5% both for the year and the week.
While the Dow was busy falling 2% this week, the Russell 2000 Health Index added 15%, helped by such stars as Regeneron (REGN:Nasdaq), up 38%; Neurogen (NRGN:Nasdaq), up 57%; Celgene (CELG:Nasdaq), up 16%; and Human Genome Sciences (HGSI:Nasdaq), up 34%.
As we have said repeatedly: It's all so easy, once you know the code.
(Note that the top performer in the Russell Health Index was Molecular Devices (MDCC:Nasdaq), up 66%, and that the top 20 also included Cell Pathways (CLPA:Nasdaq), up 30%. "Mol" and "cel" may be memes in the making. Stay tuned, as we are in the process of devising a method of breaking the code on a predictive basis, and will report on our progress next week.)
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Laurel Kenner is a former markets editor of Bloomberg, and a trader. Former hedge fund manager Victor Niederhoffer is currently a private investor and author of Education of a Speculator. At time of publication, Kenner was long MedImmune, while Neiderhoffer held a net short position in S&P 500 futures and options, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While they cannot provide investment advice or recommendations, they invite you to comment on this column at mailto:%20lkenner@thestreet.com.
