Dave,
At the end of that article, the author says:
Many people worry that the United States may also have a Japanese- style "bubble economy." But there are some good reasons to believe Japan's experience won't be repeated here.
Then he goes on to try to back that up:
Japan's bubble expanded as investors used paper profits on stocks to make increasingly large bets in the market. Even big companies joined in, generating corporate revenues through market speculation instead of by selling products - something that, for the most part, hasn't happened in the United States.
Say what? That's EXACTLY what has happened in the U.S. stock market. Internet companies went public with no revenue plan except to sell ads for other Internet companies, who paid for the ads with money raised by their own IPOs, and by selling ads to other Internet IPOs.
Furthermore, companies like MSFT, to pick a random example, have actually started including their stock market profits on their quarterly earnings report to hide the fact that their profits are no longer increasing. This is now widespread.
And besides, we have lots of problems that Japan did not have, like rampant share dilution due to stock options, and volatility due to IPOs floating only a small part of their equity, and a lethal combination of negative personal savings rate and a vast credit bubble, which combined will result in accelerating bankruptcies and finally bank failures.
And while many U.S. firms have continued to focus on restructuring and cost-cutting during the good times, many Japanese companies did not. That failure made them vulnerable when the downturn came.
Many U.S. firms HAVE focused on that, mostly because their actual operating earnings have been decreasing while their stock prices were being bid skyward. But worse than that is that many companies have taken their profits and blown them on stock market speculation.
By the way,...
If that happens, you would need to look for good companies that can continue growth and market dominance.
I think Microsoft will be able to hold on to a fair share of market dominance, although they will lose some ground to Linux, Mac OS X, and other open-source initiatives. But that will represent a declining revenue base because (1) Microsoft's prices (how many hundreds of dollars is Office now?) will have to go down to compete with the upstarts, and (2) the slowing economy will shrink the overall market. And whatever the outcome, the antitrust case is not going to help.
Dave |
