Don't worry Sy...we are still good to go for 4 more years :)
When Will the Market Crash? September 2004, That's When
Jesse Berst, Editorial Director
ZDNet AnchorDesk
Are we at the end of the stock market's stratospheric valuations?
No, the end is still four years and five months away.
Even before the verdict came in Monday, Microsoft's stock was plummeting. By
the end of the day, the Redmond giant's shares dropped 15%. And the selling
off continued Tuesday with the Nasdaq dipping below 4,000. Click to ZDII to
see what it is right now. Click for more.
With more people tying their wealth to the stock market, it's important to
understand when it all could come crashing down. According to the Fed's
quarterly "flow of funds" report, Americans hold a whopping $13.3 trillion
in stock, accounting for almost 32% of household wealth in 1999 -- up from
28% in 1998.
Let's look at what's behind today's valuations and why those trends will
continue to push the stock market up. And then let's consider the new value
equation and the unexpected events that could interrupt my scenario.
THE BIG SHIFT
We are in the midst of a complete paradigm shift. Railroads and cars changed
the delivery of physical goods. The Internet is changing the transport of
intellectual goods.
The previous paradigm shift ushered us into the Industrial Age. It also
allowed the creation of enormous new companies. (U.S. Steel, Standard Oil,
Sears Roebuck.) In a similar fashion, our shift to the Digital Age is
creating opportunities for huge new digital companies. AOL, Amazon, Yahoo.
That window of opportunity is still open. That's what's driving the market
and that's why the end is still years away.
Right now we're in the midst of a 10-year cycle that began in the summer of
1995 with the launch of Amazon.com. Which gives us until the summer of 2005
to enjoy the ride.
If this first launch phase lasts about 10 years -- as history suggests --
then the transition to the next phase should hit about June 2005. Since the
market typically anticipates by about nine months, I calculate the next
giant correction for September 2004.
OK, I may not be able to predict with quite that much precision. But the
general direction is quite clear. As Merrill Lynch VP Steven Milunovich
writes, the Internet is unleashing creativity not seen since the
Renaissance. (Do you think he meant AnchorDesk?) Free enterprise and free
ideas are spreading around the world.
VALUE AND GROWTH
No longer do investors look only at the price-to-earnings ratio. Merrill
Lynch analysts Thomas Astle and Michael Chang use discounted cash flow to
determine a stock's true long-term value. They believe the old P/E ratios
don't factor in the time growth will be sustained. Merrill Lynch predicts
growing demand for the Internet will drive long-term growth. With the
impending onslaught of Net appliances, and increasing acceptance of the
Internet, the infrastructure will require a significant buildout.
WHAT COULD GO WRONG
Of course, the market won't grow straight up. There will be dips. And
certain events could totally derail the growth: war, uncontrolled inflation
and astronomical gas prices among them.
Barring the unforeseen, expect the market to climb in fits and starts --
mostly the latter -- as the high-tech industry continues to rewrite the laws
of economics. In fact, as you read this, President Clinton is gathering top
minds -- from Alan Greenspan to Bill Gates -- for a White House conference
on the new economy. They'll ponder the booming economy -- now enjoying its
longest expansion in history |
