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A
Note To My Readers
If you have
gotten this far, then you might be interested in what motivated a
private investor (me) to devote so much time to writing.
In October 2000,
I read an article in the Hartford Courant (owned by the Tribune Company
a.k.a. L.A. Times et al)
suggesting that the equity markets were nearing a bottom. This type
of stupidity was too tempting not to be answered with an Op-Ed.
Below, you will see the Op-Ed I wrote in response to the Courant's article
and some communications from the Courant explaining why they would not
publish my piece.
Quite frankly,
this encounter with the Courant convinced me that rational intellectualism
had been replaced in mainstream American life by a Politically Correct
hybrid stupidity
and the pabulum from self professed "experts". Well, we can't expect
from others what we won't deliver ourselves so it was time to step up to
bat.
Here is my
original Op-Ed:
In an age of experts, I often wonder
what has become of common sense. Matthew Lubanko’s article “Market
Mayhem: Day’s Tumult” (October 13, 2000) once again provided me with a
chuckle about the hindsight of expert opinion and the need to have faith
in common sense.
Without reservation, the article is a
compendium of expert opinion in the form of market analysts’
interpretation of recent economic events and their consequences. I have
to take issue with these analysts and their analyses not only because
market analysts are the same people who were recommending outrageously
over-valued equities just a year ago but, additionally because the
analyses lack the common sense of fact.
Understatement one: “It may be too early
to declare the latest round of selling as the final step in the market’s
descent to the basement, analysts said.” More to the point is the fact
that the NASDAQ composite still has an average P/E (price earnings
ratio) of over 100. At its peak, the P/E was over 400 and we have all
seen the dramatic losses suffered in these equity valuations with over a
40 percent loss of value from the high of 5133 to the 3000 level. In
lay terms this means that if you had $100 a year ago, today you have a
bit less than $60.
In any common sense valuation of an
equity for investment purposes a P/E of 50 would be extremely
aggressive, but for argument's sake let us accept a P/E of 50 as normal.
This means that a further slide of the NASDAQ from an average P/E of 100
to a P/E of 50 could take the composite from the 3000 level to the 1500
level without some very aggressive earnings growth. Which leads us to…
Understatement two: “…But several
bright spots appear on the horizon. Oil priced above $30 a barrel is no
longer a shock….” The shock value of $30 a barrel oil is titillating but
of very little significance. The effect on the economy and the
economy’s inability to sustain growth in the face of current energy prices
is the FACT of the analysis.
A bit of common sense might lead a
person to easily discover that the United States consumes about 20
million bbl/d (barrels per day) of crude oil. In a little over a year
the price of crude oil has risen from just under $10 per barrel to
around $35 per barrel. With a little basic math we realize that about
$150 billion dollars has been diverted from all other expenditures to
pay for the crude oil increases alone. When the additional cost
increases for natural gas are factored in and this sum is calculated as
a nominal (before inflation is factored in) percentage of the
approximately $9 trillion United States GDP (Gross Domestic Product) the
result is about 3%.
If energy price increases equate to 3%
of GDP and GDP was expected to grow at a rate of 5% before the increases
a bit more of math would indicate a revised GDP growth rate of 2%.
After adjusting the 2% growth rate for inflation either a 0 growth or a
negative growth (economic recession) is the result.
Common sense: The NASDAQ composite
could likely sustain a P/E adjustment from 100 to 50 even with aggressive
earnings growth, if energy price increases either dampen earnings growth
or
shrink earnings the result is that there would likely remain a longer
road ahead of this economy to the bottom than the analysts are
predicting. Given these facts, the average investor should be very very
cautious in the near term.
This is an analysis of the current
economic situation based on fact and while it is not fool proof, it
bespeaks of common sense.
©Daniel Sargis October 15, 2000
Here is the Courant's response:
Thank you
for the oped. We prefer that local writers write on local issues,
because we subscribe to so many syndicates and services that provide us
with opeds from renowned experts on national and international issues.
I'm sorry.
Carolyn Lumsden
The Hartford Courant
The "renowned experts" this provincial luminary from the
Courant was referring to were stock analysts employed by brokerage firms!
You know...like the analysts later barred from the security's industry for
hyping stocks to please corrupt clients. Realizing that the portfolios of the average investor were
about to be torched, I again responded to the Courant:
Mr. Brian Toolan
Editor
The Hartford Courant
285 Broad Street
Hartford, CT 06115
Dear Mr. Toolan:
It was with the mischievousness of ironic delight that I read Ms. Lumsden’s enclosed reply to my Op Ed submission. I was
originally motivated to author the submission by my frustration with the often Pollyanna(ish) and untimely opinion of the “experts” whose articles I had been reading in the press.
To read in the Courant, among other papers, the quotes of security analysts (“experts”) that the stock market may be near the
bottom or that the economy may be softening after the fact of an over 40% decline in the NASDAQ seemed to me to be of untimely usefulness to the reader and just not quite accurate.
With an undergraduate education from Trinity College split between Enlightenment Period thought and American economic history
(with healthy doses of physics, theology and philosophy thrown in) I would not ever consider myself to be anymore of an “expert” at anything than someone like the great “generalist” Benjamin Franklin (not to put myself in
Franklin’s league).
Some might think that my graduate education (MBA) from Cornell University might make me an expert in finance and business but
after founding and nurturing my company since 1971, I value the broad and interconnected thought of a good “generalist” more than the often myopic and niche thinking of an “expert”.
Far from challenging the validity of “expert” opinion, I am supporting the American tradition of the “thinker” and “generalist”.
America’s Founding Fathers more than amply proved the worth of educated generalists with varied interests who stirred healthy debate on subjects of national significance through local publications. These great people were
intellectual generalists who could transcend disciplinary bounds and apply the same logic to the necessity of nitrogen in the soil as they would to the necessity of a First Amendment. They knew that both were necessary
nutrients for the “end game” of their purposes.
Americans intentionally “caste” aside the notions of monarchy, primogeniture and entail because America is a society where the
individual may rise or fall on individual merits. For the Courant to support a system of intellectual privilege by adhering to a policy where, “We prefer that local writers write on local issues, because we subscribe to so
many syndicates and services that provide us with Op Eds from renowned experts on national and international issues,” misses the target of Op Ed pages and the local public interest.
If the Op Ed pages of the Courant are not a place for local readers to intelligently and responsibly author opinions of
intellectual curiosity than it is of little wonder that so many people look outside Connecticut’s capital city as destinations of excitement and national significance.
I respectfully leave you with two additional thoughts. It is always a good idea to tend one’s own backyard first and as the
great American educator Nicholas M. Butler so poignantly phrased it, “An expert is one who knows more and more about less and less.”
Respectfully yours,
Daniel Sargis
25 December 2000
To
which, I received the following:
Dear Mr. Sargis:
I received a letter from you dated Dec. 25 regarding an OpEd piece you
sent
to The Courant that was rejected. While enjoying reading your original
submission and your letter regarding the rejection, the persons you need
to
deal with are Carolyn Lumsden and John Zakarian, who is Editorial Page
Editor. You can e-mail Zakarian at The Courant, as you did Carolyn.
Zakarian is the editor of the editorials and the letters to the editor,
and
reports directly to the publisher, as I do.
Good luck as you continue this intellectual joust.
Sincerely yours,
Brian Toolan
Editor
My
best friend from graduate school got sick of listening to me wail about
this and suggested that I submit an enhanced version of the original
analysis to an Internet site...specifically EtherZone.com.
The enhanced analysis became Economic Suicide
and the crew at EtherZone.com posted it.
Well,
we all know how one thing leads to another and...along with Fox News, Talk
Radio and the crazy Internet, I also became a part of the Vast Right Wing
Conspiracy!
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