The stock market is up. The Dow is back over 10,000, but no one really knows why. Ignore it.
The stock market, especially technology stocks, has been changing faster than Colorado’s springtime weather. One minute Lucent Technologies Inc. and Motorola Inc. are fighting off reports of impending bankruptcy and the next, the stock prices of VoiceStream Wireless Corp. and Deutsche Telekom have been artificially boosted. Why? Because someone wrote fraudulent-yes, fraudulent-letters pretending that high-ranking government officials said they would approve the merger between the two wireless companies.
Let’s examine this a little closer. Motorola and Lucent certainly have their problems, and both companies have acknowledged publicly that they have made a number of mistakes. But both companies have some pretty decent underlying core competencies. In fact, people rushing to sell stock in either company may be calling their stockbrokers on Motorola StarTacs operating on Lucent networks.
In contrast, VoiceStream’s and DT’s stock prices benefited from a fake letter that wasn’t much more insightful than conventional wisdom, which said that the government was going to approve the telecom merger between the two companies anyway.
Times of crisis call for cool heads, but it is increasingly difficult to find them. Knee-jerk reactions are the norm these days.
Chuck Phillips, managing director at Morgan Stanley, has tried to place some of this economic roller coaster in a larger perspective. Here’s what he said: 70 percent of the venture-capital financing that has taken place in the last 25 years occurred in 1999 and 2000. Whereas investment banks used to have years to research a company’s business plan, study the industry and decide whether to invest, in ’99 and ’00, they had weeks. Bad decisions were made. Companies without viable business plans were funded. Now we are seeing the repercussions of those investments. Today, 71 percent of media stocks are below their IPO price.
So yes, some companies should disappear. And others have been struggling for years and the economic downturn is just hastening their impending doom.
But this day-to-day roller-coaster ride of what were once robust wireless stocks seems more like panic and overreaction than well-thought-out reaction.
And while the companies deserve some of the blame, the media, financial analysts and good old U.S. impatience also share this burden.
