(From today's Australian, article "yeah, it's gonna run out" by Michael West.)
THINGS were good. Things were too good. And when things were too good, Frank Sources started to get edgy.
This market had the rancid whiff of 1987 about it, though one must remember the market spurted a triumphant 30 per cent higher that year before it blew into smithereens.
This was the 'blow-off' period, the time when irrational exuberance had fully taken sway and things went up on fundamental fundamentals, that is, because there were 'more buyers than sellers'.
City restaurants were flat-strap, biotechs were floating with a vengeance, IAG had just raised $550 million on the rationale it was good to have some extra money in the kick just in case something bad happened. Merrills was setting up a small caps team, Twiggy Forrest's plaything, Fortescue, had bolted to $460 million from scratch in no time.
It was a worry all right. One vexing portent was that 1980s entrepreneur, Bruce Judge was back, taking a free carry from Big Kev. Big Kev, who maintains he's still excited, flipped 8 million shares in his eponymous plaything to Bruce at 3.75c apiece last week. Brucey tipped out 1 million on Wednesday at 27c for a $232,000 turn and kept the rest. Whoever the poor sod was who waded in at 49.5c because an 80s entrepreneur had taken out a 90s entrepreneur should restructure his investment philosophy, or try the tiddlywink market.
Naturally, looking to Marge for advice at times like these would be a silly thing to do. The stocks that do the best are precisely the sort of stocks we'd be shorting. At the zenith of the dotcom boom in 2000, your humble columnist's caustic comments on the likes of Solution 6, Eisa, One.Tel, Liberty One, New Tel, Spike, TeleOne, Voxson, Sausage Software and Airhead were not welcome in some quarters.
Okay, there was no company called Airhead but it would have rallied anyway had it been listed. And don't look to the pros for help. In those days every broking firm in the country had dumped its gold department for a new-economy research team. While the promoters laughed, analysts earnestly modelled the dotcom bucket-shops, fund managers invested your money like there was no tomorrow and there were many conferences.
The sheer volume of corporate activity -- the takeovers, the IPOs, the placements -- suggests the market is too hot but the most telling sign is the utter lack of choosiness.
We hear from the funds every day about this new issue or that new issue. 'Yeah, we took some. It's gonna run.' Sheer sentiment, very little else. This is a wonderful time for promoters, and the longer this market runs, the more rubbish will float.
A word of advice, then: if you can't afford to lose it, don't punt it. Sadly, it will already be too late for many. Margin lending volumes are sky-high. One bloke who set up a hedge fund recently told us the merchant banks wanted to lend him six times his capital. When somebody wants to throw six times your capital at you when you've told him you will punt anything, you've got to worry.
Unwinding all this debt in the event of a crash would precipitate a relentless downward spiral. Then there's the record level of personal debt on everything from the car to the DVD player. It won't last. Low interest rates mean nothing unless relative to the level of debt.
And talking relativities, things are out of whack even in such measurable sectors as tollroads. The recent ConnectEast float was always going to be good but is now more expensive than Transurban -- which has its construction risk behind it -- with forecast yields of 5.5 per cent and 6.1 per cent respectively.
This sort of thing is everywhere you look, and far more pronounced where the earnings are far less pronounced. The more speculative the stock, the better its performance.
One vital signal of an overheated market is yet missing. That is, the wholesale poaching of stockbrokers. Broker movements are surprisingly stable. And the voices of reason can still be heard. Although the 'new paradigm' theorists are cropping up at an alarming rate -- those who believe 'it's different this time' -- there is still a good degree of emotional restraint. That is, people feel the market is high. So there might be another 30 per cent in it yet. Let's face it, the taxi drivers are only starting to get excited.
Since the Great Liberation of Iraq last March, the all ords is up 45 per cent. And that's just the big stocks, not the little-beauty growth stories. That's a lot. And these types of gains come at a price. So remember, it's up by the stairs and down by the escalator.
