Can Bad News Be Good News for Investors?

By Bob Plunkett

“Cytec industries,” whispers the cashier on Counter Three.

I lean forward, “You hear something?”

“Who needs to hear anything? Let’s just say I’ve got a feeling about the waste management sector.”

“Thanks,” I say and scribble down the name on the back of my receipt.

This is gold. Good feelings, after all, are what’s it’s all about these days.

Last month that same cashier made 83 percent on the upside writing call options on My-T-Good yogurt. It came to her when I dropped my newly purchased container on the floor while trying to double-bag my own groceries. Luckily, she spotted the bold new label design. We were lucky. The usual baggers from the group home were on extended break flipping REITs on a laptop plugged into the back of the lunchroom microwave.

I’m pulling the bags out of the third-door flip window on my Japanese van when I hear,

“Sierra On-Line.” It came from the mail truck idling at my box. “Up 12 and a half percent today.”

“On what news?” I ask.

“Who needs news,” says my mailman Ray. We smile at each other.

Both of us have strong positions in the media sector, as does my car mechanic and the woman who comes by to check my heating system. We’re all in the market and we’re all making a killing. And why not? It’s so easy.

Nowadays, there’s no such thing as bad news. Even the last bear on Wall Street has finally given in. This rally is no bubble and it’s not about to burst. Prices, he says, keep going higher because this is the era of the New Valuation Paradigm. In other words, the market which was considered overpriced, is really underappreciated and cheap.

The phone is ringing. “Icron Technology,” says the woman on the other end. It’s my insurance agent’s assistant. “The secretaries here feel that semiconductors are undervalued even at current levels.” She sighs, “Oh and the head office says your payment was late and they have to impose a late fee, but thanks for that tip on Vertex Pharmaceuticals. It scored 36 percent in four days.”

I start putting away the groceries, smiling. And why not? My barber, my dentist’s receptionist, my broker’s nanny – we all can do no wrong. What is high today will be higher tomorrow.

Stocks go up, not because the companies are earning more or selling more or inventing new things. They go up because more people want to buy them. And why now, they’ll just keep going up tomorrow.

I’m setting the table when my wife brings my daughter home from the school bus. “The new driver on the M13 had a good dream about the airline sector.” she says.

“Equipment makers or passengers carriers?” I ask.

“Either. Both. Whatever,” she says.

“Noted,” I say scribbling on a napkin, “But now it’s time to eat.”

At dinner, we discuss the usual topics: my daughter’s IPO in the toy industry, how recent cast changes in “Law and Order SUV” could impact the stock of Comcast, the parent company, how to find a new accountant since the old one let everything ride on AOL and cashed in for the South Pacific.

But we’re all happy and together. The IRA’s are soaring, the college fund is bubbling over from the aggressive-growth small spec & technology mutual fund.

Later that evening, I read my daughter’s favorite bedtime story, “There once was a little start-up called Google…” and then tuck her in.

“Daddy,” she asks, “do you really think the Dow can reach 30,000 without a significant corrective pullback?”

Such innocence. “There’s nothing to worry about,” I say. “This isn’t 1987 or 2008. There is a new valuation model these days. Earnings don’t matter. What could possibly go wrong?”