Formerly About Applied Materials Message Board

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Politics : Formerly About Applied Materials

AMAT 326.76

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11:27 AM EST

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To: Jacob Snyder who wrote (35213)	5/14/2000 2:55:00 PM
From: John F. Dowd	Read Replies (1) of 70976

JS:the techs, with their high valuations, are more sensitive to interest rate hikes than other sectors. In addition to the direct effect on stock valuations, higher interest rates will eventually slow the economy. Since chips are now in most consumer products (toys, cars, kitchen appliances, and all the other "old economy" products, not just in PCs) a slowdown in the economy means lower demand for chips, which means lower demand for chip equipment. That is, demand for chips (and then chip equipment) is (going forward) going to be more closely tied to the general economic cycle. This rule of thumb is not borne out by my portfolio of tech stocks and for tech stocks in general over the past cycle of rising interest rate hikes. True there has been a correction from peaks but this is not a secular tech trend measured over yrs. Consider the following. One: The clean balance sheets of the tech stocks reflect nil to slight internal impact on these well healed cash rich companies. Two: Although discounted cash flow models might be effected to some degree, accounting relative to other industries has to be made for factor one above. (note: 5% compounds 121% in 4 yrs, 7% to 131% in 4 yrs 9% to 141% in 4 yrs. Of course the likelihood of inflation/fed rates compounding for that long is questionable but we can see that the fixed rate alternative is not that attractive and is subject to risk itself as interest rates rise. Three: As inflation increases the need by other industry segments and business in general to become more efficient is heightened by rising cost and margin pressures which forces greater expenditure on automation and computers in order to reclaim lost margins. The future of our economy lies in automation as our population base growth shrinks. We therefore are forced to spend more and more of GNP on technology to cope. The future of the US is inextricably tied to tech. JFD

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