How did we get here? How did we get where only a handful of stocks plus the Net matter? When people look back at this era, will they hold it in contempt, like that era in the '70s in which only a few stocks worked, or that era in the '60s that destroyed so many good managers?
Are we headed toward financial lunacy with a speed akin to that
18-wheeler barreling down the breakdown lane while you are changing a flat? Or is this just business as usual, the logical growth of a market that wants growth and shuns everything else?
First, in a bizarre way, the reason we got here is because the market cares only about growth. (For you newbies, I am speaking of the market in its animal-spirited fashion, as if it were a living, breathing entity. The
of the world tell you that is foolish, but my job is to help explain using the best analogies I can as opposed to objectifying -- and therefore obfuscating -- this market's moves.)
Why does the growth obsession make sense? Because we are in a no-growth environment. We have been in one for years. Periodically there will be groups that get pricing because of cyclical concerns. For two years, oil-service companies had pricing, meaning they could raise prices because of a rig shortage and an increase in the price of oil. But both proved unsustainable. Nevertheless, while the hikes were on, you hit pay dirt if you owned the drillers. But the love for the group turned to disgust as soon as the pricing went the other way. This group keeps threatening to make a quintuple or quadruple bottom, but no bottom is in sight.
Similarly, the airlines had some pricing last year as their planes ran full to capacity. But then the Asia thing hit and many had overextended, so you had the bizarre situation in which some routes lost millions and others couldn't make up for them, no matter how full they were. Again, quick boom and bust.
There is no pricing in paper or chemicals as far as the eye can see, which is why you get a
just throwing in the towel. Steel? Hopeless. Copper? Ridiculous. Nickel? You kidding me? Zinc? I think people pay you to use zinc. (Zinc companies, don't sue me -- that is what is known as hyperbole.)
But there is pricing in technology. There are cycles, and those cycles have buyers.
may be selling more power for less money, but it is making good money. The computer I typed this on is awesome and represents great relative value vs. a 1988 mainframe, but it is not cheap. It cost a lot of money. And the demand for microprocessors and their ilk is outstripping supply. That bit of tightness breeds pricing, and this market loves pricing.
Then why the Net? Because it is the ultimate supply-and-demand cycle. If the Net were something that had only 10 million potential users and not one user more, there would be people who would be paying immense amounts for that use. One of those lines to the Net might be trading at $10,000 now, or maybe $20,000, because the Net is the biggest bargain out there.
But the Net is an unlimited commodity, courtesy of the equipment makers (
-- see the new-high list) and the computer companies and the modems and the phone lines. (More new highs.) And the companies on the Net are so beloved that it is simple to presume that they could charge more and get more advertising rather rapidly, as soon as people figure out how to make it work.
Let's use the example of
. I have no doubt in my mind that AOL has become so much of our culture so fast that if it wanted to it could charge $25 a month for full-featured AOL use. If AOL were to tack on a $2-a-month instant-message fee, I would pay it in a flash. I am addicted to it. If it charged a penny per email, or 2 cents, or 10 cents, it is still so much more of a bargain than the real post office that, again, I would be willing to pay. When I stare at the screen, I don't mind looking at ads and going to their sites, and those people will pay, too.
So, on the one hand, I have a chemical company that can't make its numbers or an auto parts company that is blowing up. On the other hand, I have a business that could double, maybe even triple, its prices, and the persistent client would still say thank you very much.
In other words, growth vs. no growth. And the Net has hypergrowth. At least that's the logic behind the animal-spirited ramp to new highs. And it is a logic that money managers have to embrace or see the money taken away from them.
James J. Cramer is manager of a hedge fund and co-chairman of
At the time of publication the fund was long AOL, Ascend, Cisco and Lucent, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to