Why the Jobless rate and JIT Inventory mgmt are real negatives to the future of the Nasdaq.
The inital round of unemployment was a positive for the market because the rate cuts would mean that the bond market is less lucrative which would put money back into securitys. But as we continue down this same path the benefits to the Nasdaq do not continue.
The unemployment is real, which means that people do not have work that need work, and these are people in hightech jobs, which were investors in the Nasdaq. They will not be speculativing investing, nor will any of there money which is "on the sidelines" will be coming back. Sure the money in the 401Ks will stay, but it will shift over to NYSE focused funds, as we are already seeing.
The so money flushing back into the Nasdaq is not more profitable, than alternative investments. The Fed can continue to cut rates but there is a point where the effect of benefit to stocks and the market stops. I think we are near there.
On the plus side people still need to live in homes, so the much anticipated complete death of the real estate market is over-hyped. The rate cuts will make homes more affordable and will have a real savings to owners. Will that money flood back into high PE stocks? I tend to think not.
Just In Time inventory managment, the brainchild of Demming Edwards, and adopted by Japan, and returned to the US in the 80's is a real concern. The Nikkei is the best way to see it. This is what Greenspan has been alluding to in his talks to congress.
With JIT mgnt, the ablity to stop on a dime is part of the process. You only buy what you need. So the small inventories are not necessarily going to change. Plus much like in the 89 downturn, in the downturn a good purchasing manager can make the suppliers jump through hoops. The can set up contracts for inventories to be shipped next day, and still not pay premiums.
So with JIT, you can slow down purchasing to meet demand. Which takes us back to jobless rates, they will not be buying products which are nice to haves. And part of the jobcuts is that everyone starts to know someone without a job, these are quality high tech jobs be cut. The sympathy of consumers to slowdown is not yet in the growth numbers yet. IE the nation prepares for a harsh winter, when they see a few out in the cold.
The Nasdaq was priced for growth, the growth is not there, the aspects of investments in stocks without growth, in comparison to the NYSE fundimental stocks is not going to happen. Simply put the stocks of the Nasdaq priced for growth will not benefit from the lower interest rates, as they continue to be cut. Without the premiums put on growth, the Nasdaq can not continue to go up in value. The reduction of growth removes that promise, and the valuations, of that analyst hypes, are simply still not realistic.
The most concerning part, is that this JIT system which makes the slowdown so fast, is the fundamental environment of the Japan's Kansei type environment, and the Nikkei, has not bounced.
Greenspan still emphasises the improvements to prodcutivity, but he is still ignorant on how to match policy to compensate for the those technological changes which cause the slowdown. He has one tool, to lower rates, and he will continue, but listen to his words, Greenspan knows that the FED, is behind the curve on how to swoop in. No question the cut in the face of rally was a great move by the FED. It gave a nice second boost to burn off.
But the fix to this economy is not clear, and the 40 companies that tell us they are the next CSCO best look at CSCO price recently. And CSCO is the best of the bunch.
Long story short---I see deminishing effects of future rate cuts, and the rate cuts are not changing the effects of the which are causing them.
or something like that
wolff |
