This column was originally published on RealMoney on June 12 at 2:05 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.Right now is exactly when we need to start buying stocks. The bears have been ecstatic in the past few weeks, and here are all the worries.
- Interest rate increases are going to lead to a bad situation for consumers. Every consumer who has an adjustable-rate mortgage is going to get a wake-up call over the next 12 months when his payments potentially double (from the 3.5% rate two to three years ago to the 6%-7% rate he's about to start paying). Housing prices will consequently collapse, and because the U.S. home-ownership rate is 69%, that could lead to bloodletting, as many homeowners realize they now have negative net worth and no feasible way to sell their properties without declaring bankruptcy. The trade deficit, combined with the rate increases in the European countries, combined with the persistent rumor that everyone is going to start paying for oil in euros, could lead to a collapse in the dollar unlike anything we've seen. All the large-cap companies, despite having excellent cash flows, are having stock issues for various reasons ( Microsoft ( MSFT) delaying Vista, Exxon Mobil ( XOM) feeling regulatory fury because of its enormous profits, Intel ( INTC) (trading at six times cash flows) getting competitive pressure from AMD ( AMD)).
|Source: John Mauldin|
Some Cyber HistoryWhat makes the market different from the prior bear market is that these speculative companies that are attracting the best hedge funds as investors are markedly different than the cybers of yore. They have real assets, real cash flows and ultimately provide a buffer to any serious market pullback. And what happened to the cybers? Didn't there used to be a whole bunch of large public companies that had the prefix "cyber" in them? Like whatever happened to that great company, Cybernet Internet Services ( ZNET) that provides Internet connectivity services. In 1999, it did a $150 million high-yield bond offering led by Morgan Stanley and Lehman Brothers. Today, it traded 580 shares for 1.9 pennies a share. Where did that $150 million go? Or how about Cyber Digital ( CYBD)? It wasn't enough to be "cyber." It had to be "digital" also. The company, at 32 cents a share and with a $5 million market cap, recently announced that it placed a $103 million value on its CTSX system. The company did an analysis based on a comparable transaction, and J.C. Chatpar, president and CEO concluded, "Therefore, we believe that our CTSX system could be valued at $103 million. Yet, our current market cap is only $5 million, based on approximately 22 million shares outstanding at current stock price." Fascinating. The other day I was reading an online piece from October 1999, called "VC Buzz." That day, Oct. 6, 1999, $211.4 million worth of VC deals were announced. And that was a slow day. Just in case they missed something, at the end of the article they asked, "Do you think your cool company ought to be featured in a VC Watch column?" Times have changed indeed. P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
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