- The Washington Times - Tuesday, July 23, 2002

Stocks tumbled further yesterday, with a 235-point drop sending the Dow Jones Industrial Average to its first close below 8,000 in almost four years.
Other major stock indexes mirrored the decline of the Dow, which fell 3 percent to 7,785, with the Nasdaq Composite and Standard & Poor's 500 indexes ending at levels not seen since May 1997.
Despite an exhortation from President Bush, few buyers were willing to step in even at the low prices yesterday, and the market was nudged lower by the latest chapters in the seemingly never-ending saga of business failure and scandal this year.
Mr. Bush yesterday noted the good value in many stocks, while cautioning that he is "not a stock picker," in remarks at the Argonne National Laboratory in Illinois.
The president expressed confidence that investors will start to see the value of shares in companies whose prospects for growth and increased earnings are improving along with the recovering economy.
"There's value in the market," he said, noting that the prices of many stocks relative to earnings have come down sharply. "People are going to come back into the market. They're buying value, as opposed to, you know, buying into a bubble."
Stocks of J.P. Morgan, Citigroup and other major banks fell as debt-ridden Worldcom Inc. submitted the largest bankruptcy filing in the nation's history, adding to their losses. And new questions were raised about the propriety of the banks' loans to Enron Corp., the former energy giant involved in the big corporate scandal last year.
"The trend is lower here until proven otherwise," said David Strauss, senior portfolio manager at Johnston, Lemon Asset Management. "Stocks were really overvalued two years ago, and they're coming back down to more normal valuations."
The extraordinary loss of nearly $8 trillion in market value since 2000 has been painful and "very discouraging," Mr. Strauss said. But investors are finally starting to see good value in big-name stocks, which was hard to find when the market was booming, he said.
Another positive sign is that technology stocks which led the way down at the start of the bear market have weathered this latest down performance well compared to other sectors, he said. That suggests that tech stocks may be close to a bottom and would be able to lead the market back up when it rallies, Mr. Strauss said.
Washington's primary role is to enact legislation to ensure honest bookkeeping by corporations and their auditors, Mr. Bush said, noting that Congress is close to passing such a bill.
"The economics, the platform for growth is in good shape," he said, ticking off the good performance of inflation, productivity and industrial production in recent months as signs that a lasting recovery is in the works.
Whether investors are hearing this message and stepping up to the plate to buy again is in question. Foreign buying of U.S. stocks has plummeted this year, sending the dollar into a tailspin.
In recent weeks, the exodus, or buyers' strike, by large investors has been increasingly joined by small investors. One survey by UBS AG and the Gallup Organization found that investor optimism this month dropped to its lowest level since 1996, with less than a third bullish on stocks.
Withdrawals from U.S. stock mutual funds were running almost double the record pace set after the September 11 attacks, even before the Dow's 390-point drop on Friday, according to TrimTabs.com Investment Research Inc.
Small investors are pulling money, particularly out of aggressive growth and technology stock funds, and increasingly putting money into real estate and bond funds, TrimTabs said.
Jon Goebel, who runs the SouthTrust Value Fund, with investments in El Paso Corp., Yum! Brands Inc. and Harris Corp., has been selling stocks to raise the cash needed to pay off investors redeeming fund shares.
"I don't recall so much pessimism about both the short-term and long-term outlook for stocks," said Edward Yardeni, chief investment strategist at Prudential Securities, who estimates that stocks today are 27 percent undervalued.
Even assuming that the earnings of the S&P; 500 corporations are inflated by about 9 percent a year because they do not deduct the value of stock options as expenses, he said, the market is still "cheap" by historical standards.
Still, Prudential's technical analyst, Ralph Acampora, does not believe the market has touched bottom.
"The capitulation is not over; it is just beginning," he said, noting that past big "winners," such as defense contractor Lockheed Martin of Bethesda and beverage-maker Coca-Cola are just starting to experience stock breakdowns.
Such "pretty" stocks must be sullied like the rest of the market before it can muster a lasting rally, he said, citing the contrarian logic that over the years has been used to predict the rise and fall of the market.

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