Harry, here goes one of my morning cup of coffee economic jags.
Many tech charts, if charts as a class of indicators are reliable, show considerable speculation and potential weakness. How much of this is a result of overall changes in the market versus a mania specific to techs/nets/.coms/bio's is the most critical question because that answers whether we will run higher or as you suggest, be in a secondary meltdown this summer.
Lets take a systems approach.. the whole system of money and value in our economic system. In general:
Value, money, the quest for profit.. take many forms in our system including the value of labor, talent, invention, taxes, real estate, commodities, patents, debt instruments, stocks, derivatives.. and on and on.
The value of these various groups changes over time in complex ways we obviouly don't understand, but its fair to say there's some need for balance.
One asset class can become so over valued that the structure and stability of others throws the whole system out of wack, phase, balance, whatever analogy you wish.. the overages in one screws up the functioning of the whole such that it will self correct... for good or bad (no judgement here).
Its important to note we aren't in a closed system, which most people fail to think through, but an open system that evolves to accomodate excess and opportunity, I'd even go so far as to say the system evolves taking the shape of whatever is opportunity and excess... we are constantly restructuring ourselves to capitalize, and many structures of our system are canibalistic to any weakness..
.... thus we find, in the stock market, that YES, techs can easily get crazy and be historically overvalued for a very long time without collapsing like a tulip mania. The momentum players are right, it can go on and on at ridiculous valuations.
We also find that NO it can't, because other parts of the economic system compete succesfully to take away that money/valuation or a structure in the system cannibalizes excess. Either way, high flyers periodically collapse like we've just seen, and their collapse makes people re-calculate what the risk is to be in them versus being at risk in other parts of the economic system.
Conclusion.. there's still a feeling that one's at risk by not being at risk, that there's more to be gained being in a risky stock market than being in bonds, gold, real estate, etc.
The reality of this general belief can only be supported in the long run by an accomodative money supply so that everyone has 'cards' to play with, a continuing dramatic business expansion in mo-mo sectors so that growth and earnings stimulate higher expectations, and that the fullest employment provides a salaried cushion enabling the greatest number of people to speculate.
Jim |
