FLYING HIGH

	December 30, 1999
	Paul Solman looks at the markets' high-flying year.

PAUL SOLMAN: Stocks were down a touch today, but for 1999, the tech-heavy NADSAQ Index is up a whopping 84%, the Dow up 25%. Here to help us take stock: James Cramer, money manager and cofounder of Thestreet.com, an online financial publication; and Elizabeth Mackay, chief investment strategist at Bear Stearns, the Wall Street investment and brokerage firm. Welcome to you both there in New York. Mr. Cramer, is there a touch of madness in the stock market at the moment? JAMES CRAMER, TheStreet.com: Paul, to say that it's all rational would make a little too much sense of it. However, there were opportunities this year if you were willing to accentuate growth and pay up for growth that I think turned into a sensible picture. I'll give you an example. In the 80's if you had just bought all the software companies and kept Microsoft all the others kind of disappeared but Microsoft made you a fortune. Many people were making the same bet in the 90's. They're saying, let's just get all the Internet plays, and if we get one big one, it will make up for all the losers, and I think that has worked. PAUL SOLMAN: So Ms. Mackay, do you buy this argument? I mean, if you bought every Internet company, I guess is the argument here, and one of them dominates the Internet in the future, then you'll be okay because you will have Microsoft of 2000? ELIZABETH MACKAY, Bear Stearns: Well, it seems that there are an awful lot of Internet players in the same spaces as it is called and i think the problem eventually may be one more of supply than demand. I don't think anybody would argue that the Internet is not an amazing phenomenon, that it's changing society as well as the economy as well as the way we do business. But what investors are willing to pay or how far out willing -- investors are willing to look to discount future earnings does change. And I think as we see more and more companies doing very simpler things with respect to the Internet, I think some of those companies, inevitably, are not going to be making money and I think investors may well lose patience with those. PAUL SOLMAN: You are saying discount future earnings so you are talking about how much these companies are going to make in the future. ELIZABETH MacKAY: Right. Anticipating that eventually they will make money. PAUL SOLMAN: Well, let me ask Mr. Cramer -- is that what investors now think? I mean, is the point that just like historically if you buy a stock because you have a share in the company, and so eventually it will make profits eventually and you'll share in the profits? Is that what it federal government on now? JAMES CRAMER: No, not at all. What is going on is there is a momentum gain, and we're very much driven, as Elizabeth said, by supply and demand. I happen to believe that supply of stock of high growth stock is in very short supply so it's being bid up. I don't think anyone expects all these companies to do well. One of the companies that I think most people think of as being a huge Internet success story - Amazon - I personally am not long Amazon - because I think it has very little chance of making any money. But people are paying for scale, these are venture capital words that basically mean betting on some world dominator out sometime in the future who will be able to monitize the eyeballs. Will it happen? I can't even bother to ask. My partners are asking me to make money. I don't want to make a long-term judgment when I sense that the momentum is there and there is so much money to be made. I wish I could be more rigorous, but it's not working like that. PAUL SOLMAN: So profits have nothing to do with it, I mean, except profits in some possible future of one out of the hundred companies you buy or something? JAMES CRAMER: I think that people are judging these companies about how well they execute. In some ways cases profits matter but that tends to be the older line New York Stock Exchange companies. Most of the companies that I'm dealing with every day, the earnings are so far out that they are irrelevant. And what people are looking at is great revenue growth, because great revenue growth, they figure the profits are going to come eventually. PAUL SOLMAN: So, Ms. MacKay, Profits a thing of the past, or are you just and old fuddy-duddy, I mean, by talking about discounting future profits? ELIZABETH MacKAY: I guess maybe I have one foot in the old economy but... PAUL SOLMAN: You seem kind of young for that? ELIZABETH MacKAY: Thank you. I think at some point business, business - and companies are in business to make a profit and I think ultimately you do have to make a profit. As I say, the willingness to look out to venture beyond, to take a risk, does change overtime and obviously at this point with respect to this phenomenon investors are willing to look out a fairly long amount of time. PAUL SOLMAN: Maybe hundreds of years. ELIZABETH MacKAY: Perhaps, in some cases. PAUL SOLMAN: Mr. Cramer, every finance professor I know says market is overvalued. I'm reading the clips in preparing for this and the bubble is about to burst line comes time after time. What do you and people like you know that these so-called experts don't? JAMES CRAMER: First of all, is it a bubble? Perhaps there is a tremendous amount of money coming in chasing very few goods. Must it necessarily end? Let's look at the worst bubble of our lifetime, which is NIKKEI, the downtown from 1989, ten year decline. It doesn't necessarily - PAUL SOLMAN: I don't mean to interrupt where everybody was saying just what they are saying now, it's obvious that stocks in the Japan market are overvalued. It's only a matter. So, that is the analogy you are making here, right? JAMES CRAMER: Yes, exactly. I'm saying that I'm not got going to dismiss that. If the Fed continues to - the Federal Reserve allows easy money, allows lots of buying on credit, we're going to have a NIKKEI- like situation. There will still be much opportunity before that happens though. I mean we speak in terms of innings when we are traders. Are we in the 7th inning, or are we in the 9th inning? I personally feel that there is still much more to come because is there a tightness of supply, not enough companies that people can bet on yet and the opportunities are still there. So I can't put myself in the bear camp. PAUL SOLMAN: I hate to ask you this question, but is this, are you subscribing to what has been called the greater fool theory, that is that there is a greater fool who is going to buy the stock at these inflated prices? JAMES CRAMER: I said to two of my investors that I can play the greater fool theory better than anyone else, so to tell you right now a lie that I'm not playing it would be wrong. I'm a trader by nature. I think there is a greater fool theory going on. I think I can identify what is working better than others but what I believe that over the long term all of these companies will make it. I think four or five of these companies will make it; that's all. In the interim I intend to profit from it. PAUL SOLMAN: Ms. MacKay, does it scare you at all to hear what Mr. Cramer is saying next to you there? ELIZABETH MacKAY: No. I mean, Jim Cramer does this for a living. It's not the average person watching the show investing in a mutual fund or starting to pick some of their individual stocks, is perhaps in a different circumstance. And the thing is what becomes very difficult is back in 1983 certainly personal computers changed the world. They debuted at that time but that didn't mean that Compaq and Apple Computer didn't decline 70% from 1983 until ' 84. And they were the winners. They didn't seem like winners if you were sitting there with the stocks down 70% so it gets difficult in the early stages of this kind of a phenomenon. So I think there may be more conservative ways perhaps to play the Internet than just buying momentum at this point, again, if that isn't your occupation. PAUL SOLMAN: Is this largely a hi-tech boom, I mean, the Dow is up 25, NASDAQ 84. Is that dominated by hi-tech stocks or are all stocks doing really well this past year? ELIZABETH MacKAY: Actually, we've started to see and I still hold out the hope that in fact the market may be starting to broaden out; that once we get past December 31 and once for professional investors this performance period is passed, you might see some profit taking, and that is not a bear market in technology, but you might see some trimming of profits and seeing that money being put into some other area of the markets more cyclical type stocks, other service type stocks that will also benefit from the very positive global economic trends that will continue into 2000. PAUL SOLMAN: So, but not all stocks have then gone up? ELIZABETH MacKAY: Right, in fact in 1998, most stocks were down for the year and until recently most stocks in 1999 were done for the -- down for the year. PAUL SOLMAN: Well on that note we'll leave it. Thanks both very much and Happy New Year. ELIZABETH MacKAY: Same to you, thank you.