The Newer New Thing

The TaskMaster marvels at where we've gone in a week.
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No Time for Reflection

SAN FRANCISCO -- This weekend, I found myself thinking about what an incredible week Wall Street had just experienced (and we along with it). Yes, between dancing Saturday night away with the TaskMistress and watching my beloved

Dolphins

squish

Seattle

on Sunday, a few work-related thoughts permeated my consciousness.

So I planned to use this space tonight to reflect a bit on how incredible last week was.

To recall, the week began with the

Nasdaq Composite Index

setting a record, then suffering a near 10% correction in three days -- featuring its two worst-ever point declines, only to recover with

Friday's advance, the Comp's biggest-ever point gain (until today).

Friday's gains, of course, came despite the earth-shattering news

Thursday evening from

Lucent

(LU)

(doesn't that seem like eons ago, already?). With the benefit of hindsight spectacles, I realized during my weekend contemplation that we as market watchers (myself included) again underestimated the investing public's willingness -- heck, eagerness -- to put money to work on any downturn. I think

Jim Cramer

correctly

surmised the selloff occurred and was concluded during after-hours activity Thursday (notwithstanding his own skepticism). And with the downturn everyone expected Friday thus forestalled, those dip-hungry investors put their cash to work regardless (and did so again today).

But what seemed so important, so mind-boggling this weekend got bum-rushed by today's

news of the merger between

America Online

(AOL)

and

Time Warner

(TWX)

(You heard about this already, didn't you?).

Asked the "who's next" question on

CNBC

this afternoon, Michael Graham, Internet analyst at

Robertson Stephens

, mused about how hard it was to imagine any traditional media company taking over

Yahoo!

(YHOO)

, what with its $115 billion market cap after today's 7% rise.

I'm not going to pretend that I understand the full implications of the AOL-Time Warner deal, but, if anything, it demonstrates the question is not who could acquire Yahoo!, but who will Yahoo! (and others of its ilk) acquire. I can't stress how monumental that is, as it represents a 180-degree turn in how Wall Street viewed many so-called New Economy companies. I'm not convinced the deal justifies the outlandish valuations of most online firms, but it makes life a lot more pleasant for those who are.

When I asked Scott Bleier, chief investment strategist at

Prime Charter

, the valuation question, he answered with an "unequivocal no."

Bleier, who I quoted forecasting the "virtual" companies would acquire the "old world" names back on

Nov. 24, admitted the magnitude of the AOL-Time Warner transaction ($174 billion based on Time Warner's closing price today) exceeded his prognostications.

"It should not be a surprise that the virtual world should buy the real world, but this is the biggest and the first," he said.

Like just about everyone else, Bleier foresees more such deals in the offing (where is that, anyway?). But once Internet companies merge with traditional firms, "the days of fantasy are over," he warns. "You can't feed a giant forever with baby food" (or expectations of future earnings or hype -- or tofu, for that matter).

To wit, Time Warner stock was "dead in the water" from 1990 until late 1997, the strategist recalled. "It wasn't until they addressed their debt and got their

financial house in order that Wall Street cared."

In the aftermath of the newer new world created today (regrets to Michael Lewis), Internet firms in general, vs. the AOL-Time Warner combination in particular, will have to move toward profitability "very quickly," Bleier continued. "If they can't, there will be a lot of people buried in these stocks."

Wouldn't it be rich (no pun intended) if, in declaring victory for the new media by swallowing up Time Warner, AOL ushered in an era where new-media companies are valued by traditional metrics?

Should it come to pass, I think even

Alanis Morissette would appreciate the irony.

Long Arm of the Deal

Think the AOL-Time Warner deal was far-reaching just because media, online and cable companies gained in its wake, taking

major proxies higher in the process? Well it goes far beyond those fairly obvious connections.

With

value stocks sauntering higher last week, I arranged to do a follow-up interview today with Dwight Anderson of

Tudor Investments

. Anderson was one of several market players who'd expressed optimism for value stocks when I

first wrote about the group's potential resurgence.

Although I suspected it would be overwhelmed by the headline events, I proceeded with the interview today and was a bit taken aback when Anderson conceded -- in so many words -- the value stocks needed the AOL-Time Warner deal like they need a hole in their collective head.

"No question, you were building up momentum in terms of flow of funds" into value stocks Anderson said, and the huge media deal siphoned some of that away.

Indeed, while the

S&P Barra Growth Index

climbed 2% today, its value counterpart rose a measly 0.1% while the

Morgan Stanley Cyclical Index

slid 0.6%.

Barring some other blockbuster news event (what else can happen?) tomorrow, I'll bring you the details of my interview with Anderson, featuring his belief that "it is different this time" for basic-material companies -- a view the hedge fund manager admits finding frightening to contemplate.

And to those who've pelted me with "growth before dishonor" emails and charged me with harboring some bias, remember it's not necessarily an either-or proposition. The market (finally) appears to be broadening. Prudent investors should at least consider doing the same.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

taskmaster@thestreet.com.