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Don Luskin
Sherman, set the Wayback Machine to the mid-1980s.
The market is a shambles, and corporate raiders strike terror into the hearts of incompetent but entrenched CEOs throughout corporate America.Return of the Yahooligans
Or should I say throw the yahoo out? Who ever thought that Yahoo! (YHOO Quote), that paragon of New Economy companies, the prince of "Internet stocks," would bring back to life in the 2000s the rituals of the rust-belt retreads of the 1980s? Well, it's happened. Last week, Yahoo! announced an anti-takeover measure -- a poison pill -- and called it a "Stockholders Rights Plan." According to the company's press release, "The Rights Plan is designed to deter coercive takeover tactics, including the accumulation of shares in the open market ..." What's so coercive about accumulating shares in the open market? The way things have been going, it seems like it's the other way around: Investors have had to be coerced to buy any shares at all. And then Wednesday morning, trading in Yahoo! was halted. This was no quick Nasdaq-style halt while a press release was rushed out. This was a 1980s, NYSE-style, all-day halt. Wishful thinking, perhaps, that someone like Walt Disney would take Yahoo! off our collective hands at a nice takeout premium, but that's one of the many rumors that were out there. After the close, the news came out. It was the usual 2001-style earnings and revenue warning. But in keeping with the retro 1980s theme, CEO Tim Koogle got the big hook, and a big share buyback was announced.Can't Fight Fashion
So why the 1980s theme? Is it like those old jackets in your closet with the wide lapels -- if you just wait long enough, eventually they'll come back into style? No. It's because, just like it was in the 1980s, hard times are making stocks cheap. We may not have the courage to buy them. But the CEOs, the boards and the stock exchanges are starting to fear that someone will. When those someones start stepping up to the plate, it's going to get real interesting around here. But it's not going to be as easy in the 2000s as it was in the 1980s. Way back then, it was easier for the raiders who fished cheap stocks up off the bottom. Since then, all kinds of legal restrictions on tender offers have been put in place, supposedly for the protection of shareholders -- but, in reality, for the protection of entrenched management. And antitrust rules have gotten more strict since the 1980s, too. WorldCom's failed attempt to take out Sprint last year would have sailed through during the Reagan years. Now WorldCom is itself a takeover target, with the apparent cooperation of its exhausted CEO Bernie Ebbers. But if WorldCom couldn't take over Sprint, who can take over WorldCom? With bureaucratic and regulatory intervention around the world -- not just in the U.S. -- waiting to find something wrong with every megadeal, it's going be hard for megadeals to get done. And that means that stocks, whose values should have a floor under them thanks to the natural process of corporate combination, will have a harder time finding a bottom. And what's worse, regardless of effects on stock prices, it means that it will be harder now to carry out the necessary process of "creative destruction," extinguishing inefficient companies and managements by having them acquired or restructured out of existence. It was creative destruction that caused so much anguish in the 1980s, but that also laid the groundwork for the boom of the 1990s. Have we regulated away the destruction -- at the cost of regulating away the creativity, too?Missing That Buy Signal
Wednesday, I wrote about the possible Nasdaq buy signal coming from Dr. Fredric Goodman's price-volume loops. Remember that we were waiting for Wednesday's price and volume to confirm the buy-loop that was closed Tuesday. Here's an updated chart, with Wednesday's action added as a red dot.
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