Jay:
> Stock market investments become less attractive in inflationary
> times. A stock going up 7% per year isn't too great if inflation eats
> away my buying power at 8% per year. In effect I loose 1% of my
> value on my investment. So, many investors leave for greener
> pastures at the threat of lower yield, which they are doing right now.
> Of course, in selling off they also are creating the dropping prices,
> as we see in our beloved Sunw.
I agree with you 100%. However, IMHO, I do not think we are living in an inflationary time period. Inflation is mainly due to people spending more. Do you really think that is what is taking place at this time? Back in mid 80's the mentality was buy, buy, and buy more. When people made more money they would go out and spend it (on everything from fancy cars, to clothing to bigger homes, etc.). The mentality was that 'since now I make more money therefore I have to spend it and enjoy it right NOW'! 'Live for today and not tomorrow' was the popular mentality of the time! Then came the inflation and interest rate hikes and then the so called recession that happened in late 80's-early 90's. Corporate America went through a drastic restructuring and a lot of people lost their jobs. I remember right here in Silicon Valley all these high techs were laying off people at the same rate they are hiring now! As we got out of that recession mode, and as US economy became global ( thanks mainly to the technology and US's leading edge in this sector) jobs were being created (and I mean high paying jobs), and the same people who went through the corporate restructuring of the 80's have found new, higher paying, jobs now. But they never take their jobs as granted as they did before! If one makes more money he/she does not go out and spend it like he/she did back in the 80's. People do not just live for today, they actually live more for tomorrow! And because of this mentality the extra money they make goes into their savings and/or investments. Ask yourself, do you spend more than you save? I can guaratnee you even if you think you are still spending more now after careful examination you notice your rate of saving is much higher (i.e. 401K, IRA, stock purchase plans, mutual funds, individual stocks you own, money market funds, CDs, etc.). So the notion of inflation IMHO is really meaningless. There is no inflation, IMHO. Sure FED may raise the rates one or two more times, but by doing so the economy slows down (again IMHO) so fast and so quick that they end up lowering the rates before the year ends. The mentality of the environment to cause inflation does not exist (again IMHO).
As far as stocks are concerned (and in particular high tech stocks), in the final analysis it is the buttom line earnings that matters. Regardless of the temporary interest hikes in the US, because of a strong domestic economy and also becuase US is the technology supplier to the rest of the world, high tech coporate America will be making great profits. Sure, higher rates will cause their profit margins not to be so great but the demand will offset that. And this will not only include SUNW, but practically any other high tech. company you can think of (as long as you have at least a 12 month view of your investment and most important of all the patience.).
Regards,
- Addi Jamshidi |
