Today is Sunday, April 9, 2000, and there is a snowstorm here in Greenwich with a forecast of up to six inches before yesterday's temperatures in the low 70s return. Thousands of magnolia blossoms that have made their debut within the last several days now lie helplessly on the porch's wet cement unable to bear the weight of the snow coupled with the wintry gusts. 

We are telling you this because there seems to be an uncanny correlation between today's weather's behavior and the stock markets' behavior.

Last Tuesday, April 4th, the Nasdaq made a record-breaking 1,074 point round trip. Bill Gates' loss was a reported $12 Billion for the day as Microsoft's market value reportedly dropped a little over $80 Billion. Don't cry for Bill. He is still the wealthiest man in the world.

The April 5th Investor's Business Daily carried as its Number One story: Intraday Panic Cuts 13.6% Off Nasdaq Till Buyers Bite --- The Nasdaq's correction turned into a scary freefall -- with the index losing 575 points or 13.6% of its value -- before bargain hunters stepped up and pulled it back to a loss of just 75. Volume was a staggering 2.9 billion shares. The action among the blue chips was less pronounced but no less breathtaking. The Dow industrials plunged 504 points, or 4.5%, before recovering to lose 57."

The Nasdaq peaked on March 10th with an intraday high of 5132 and declined 1,483 points or 29% on April 4th to 3649 within a period of 16 business days.

The incredible, mind-boggling volatility continues.

We wrote on March 9th in our Clients' Report: 

"Meanwhile the separation between the 'New Economy' and 'Old Economy' stocks continues to widen. The former is the equivalent of technology, bio-technology, internet and dot.com companies while the latter is thought of as being comprised of 'smokestack' stocks, autos, oils, foods and America's other Blue Chip companies that have always represented this country's industrial strength.

"We do not like those terms but will put up with them for now because they do have a certain illustrative value. For example, as of yesterday the Nasdaq (New Economy) had risen to the 5000 level for the first time in history while Procter and Gamble (Old Economy) warned of an earnings shortfall before the NYSE opened.

"Result: P&G opened down close to 30 points which immediately erased about one third of its $115 Billion market value. It is down several more points again this morning.

"At the end of New York Stock Exchange trading on March 7th, P&G had lost about $40 Billion of its value, and the Dow Jones Industrials closed down almost 400 points after an intraday loss exceeding 400 points. This was its fourth largest point loss in history."

That was less than a month ago when the Old Economy stocks were out of favor. Within three weeks the markets and investor psychology had dramatically reversed. We feel confident in predicting that these conditions will continue as the struggle between value investors and the tech investors continues. 

Ironically, or perhaps not ironically, the major article on The Financial Times' March 7th front page carried the title "SEC warns on market risks." It continued:

"America's chief stock market watchdog on Monday warned investors to be on guard against biased advice, flimsy business plans and a 'casino mentality' in the US equity markets.

"'Unless investors truly understand both the opportunities and risks of today's market, too many may fall victim to their own wishful thinking,' said Arthur Levitt, chairman of the Securities and Exchange Commission.

"Mr. Levitt has issued such warnings before, but the timing of his remarks - with the technology-fuelled Nasdaq Composite Index on the brink of breaking through the 5,000 mark - gave added weight to his speech at a conference on the New Economy.

"Many newly floated internet companies command record price/earning multiples. Mr. Levitt said that made it particularly hard for investors to work out what companies were worth. 'Are some of today's companies really worth 1,000 times nothing?' he asked the audience of 1,800 at the Jesuit university." (Boston College)

As an investor you should be aware of the fact that Customer Margin Debt at Broker-Dealers (borrowed money used to buy stocks) increased 9.1% in February and has increased nearly 50% since last September. 

Customer Margin debt was at an all-time high of $265.2 Billion at the end of February 2000. This does not include hedge fund debt used for the same purpose. Nor does it include borrowed money put to use in equity derivative transactions employed by JP Morgan, Bank of America, Citigroup and Chase Manhattan - to name a few.

We can only wonder what the change in the novice investors' collective psychology might be after their receiving the deluge of margin calls and, in some instances, being sold out last week. Getting a margin call to repay your loan is one thing. Getting sold out (when your broker liquidates your entire account to get his money back) is a real attention-getter. Knowing only the symbol of a company without knowing its name let alone what its business is, generally will put the "investor" on a fast track of learning how both getting a margin call(s) and being sold out really works. It's sort of an Old Economy thing.

We continue to focus on clients' capital preservation and to seek out investment opportunities that are surfacing as a result of the markets' upheaval and volatility. We applaud the superb advances that are being made in biotechnology, communications and other New Economy endeavors. The problem, however, continues to be what prices should be paid for these companies.

Meanwhile, avoiding the land mines in these tumultuous markets is not easy. 

Your comments are always welcome, and we invite you to visit our Web site www.hamiltonadvisors.com.