Lee, your theory is probably right on the money...imo, the craze for everything internet related, while certainly producing some useful things, is largely a feature of credit - induced malinvestment, which is taking place economy-wide. as a matter of fact there is still no i-nut company on the scene aside from AOL that can actually produce an honest good old operating profit. the published figures of e.g. Yahoo, show that in spite of a multitude of accounting shenanigans which have become the order of the day for U.S. listed corporations, the company wouldn't be able to show a profit were it not for the cash pile it received in secondary offerings. i am zeroing in on this particular example, because the stock has 'arrived' so to speak with it's inclusion in the S&P. it's a great service, which i often use and which has yet to squeeze one cent of profit out of me.since it gets most of it's operating revenues from advertising, one must ask how viable a business proposition web-based advertising actually is.well, everybody answer that question for himself. at the moment we are in the realm of fantasy, aided and abetted by the Fed.
did anybody assimilate the fact that during '98 125% of reported S&P profits were used to buy back stock? yes, it was done on credit. in fact, everything's done on credit these days. the leveraging of corporate balance sheets, the stock options scam (it is a scam imo as long as the associated expenses are not properly accounted for), and the U.S. variation of zaitechu, the beefing up of earnings figures by using pension fund surpluses as well as the pooling-of-interests accounting trick all serve to present an image of reality for WS to hallucinate over...the true state of affairs is basically a guessing game at this stage.
it is not really a new era. granted, technological advances of considerable import have occurred. but that's the case ever since the first cave-man rubbed two sticks of wood together to make fire. it's not enough to explain the comedy of greed that's playing out in stock markets around the globe.
the explanation for that is more mundane...the stock markets have become the outlet of choice for monetary inflation on an unprecedented scale.
now i agree that the current crop of fantasy stocks will eventually be subjected to a dose of reality. but lets not forget that even the old-line established and actually profitable 'old era' stocks are priced at never before seen multiples in the case of the 'darlings'. and they engage in all those practices enumerated above.
it may make sense to borrow money to buy back one's stock at 100 when it reaches 120 a year later. it may make sense to keep chipping away at shareholders' equity when the only number WS is focusing on is the growth in eps.
and so on...
however, all this makes only sense as long as the bubble keeps on inflating, while the current rules of the game stay roughly the same. as soon as that's not the case anymore, all these new era concepts will come back to haunt shareholders, as they will have the reverse effect in a bear market.
it is important to recognize this, as it more or less ensures that the practices of this great disinflationary secular bull market have laid the ground work for the secular bear market that will follow.
this brings me back to YHOO, and it's inclusion in the S&P: it was a demonstration what the mindless buying by the index funds can do.
the flip-side of that particular coin is of course mindless selling, should people ever get sufficiently disenchanted to pull out of index funds.
meanwhile all that fiat money AG.com is throwing at the banks allows the liabilities side of the great economic ledger to expand and expand...
regards,
hb |
