Greenspan is probably single handedly responsible for a good portion of it.
Well, the Murphybot agrees with that:
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Thursday January 18 04:16 PM EST
Tech Guru Sees Brightening Skies
By Vishesh Kumar
(The Industry Standard)
It's time to buy technology stocks. That's the advice offered by Michael Murphy, editor of the California Technology Stock Letter. Murphy, who also runs a small group of mutual funds from his home base in Half Moon Bay, Calif., thinks there is little chance of recession – and what's more, he blames the stock market's woes in 2000 on none other than Federal Reserve Chairman Alan Greenspan.
Despite the widespread belief that the economy weakened in 2000, Murphy points to statistics that suggest the opposite. He believes that, economically, 2000 was a great year. The Nasdsaq's dismal performance, he contends, reflects irresponsible monetary policy by the Fed. Although Greenspan often is perceived as the economy's savior, Murphy believes it was Greenspan's paranoia about the Y2K bug that triggered the Internet bubble in the first place.
"Greenspan ended 1999 in a panic about Y2K," Murphy said in an interview last week. "Because of that, he started pumping up the money supply at literally a 50 percent annual rate in October and November of 1999. The real economy can't absorb money so fast, and this flooded into financial assets. It created a bubble for Internet and biotech stocks."
According to Murphy, Greenspan figured the capital would help ease the uncertainty surrounding Y2K. And because people were supposed to withdraw money from banks, Greenspan felt the policy would yield tangible benefits. Murphy says the Fed, ironically, ended up causing the real problems in the year 2000 by being worried about the imaginary ones.
"You can go back four years and take a look at the Nasdaq and the NYSE," he says. "The NYSE is up and to the right. The Nasdaq follows the trend for a couple of years, but then there is a huge bubble that collapses. The bubble was created by Greenspan pumping money into the economy. Ten days into the new year, he realizes that he has made a mistake, and starts taking money back out."
Murphy contrasts the poor performance of the market with the comparatively strong economy in 2000. He says much of the bearish sentiment echoed by many analysts is unsubstantiated. For example, there is a widespread belief that PC sales suffered in 2000. But Murphy says every quarter in 2000 was a record for PC sales, including the fourth quarter. PC sales in 2001, he says, should top those in 2000. The same goes for chips and cell-phone handsets, Murphy says.
Murphy admits that we are in the midst of an inventory recession in the chip industry. But he considers the recession – which he dubs the Joseph-Niles recession, after chip analysts Dan Niles of Lehman Brothers and Jonathan Joseph of Salomon Smith Barney – is more perception than reality. Because of the talk about a recession, companies have cleared their inventory, which appears to be a softening in demand. As long as consumers keep buying products, however, this recession will be corrected. "As long as end-user demand doesn't collapse, the economy will be OK," Murphy says.
Murphy says current tech-stock prices offer an excellent buying opportunity. The economy is strong, and historically, the Nasdaq is poised to rise. Murphy notes that this was the worst year in the index's history. The second-worst year, 1974, was marked by a near 30 percent rise the following year. And the market finished in the black for eight out of the next nine years.
Says Murphy, "This time, it looks like the Fed might be on our side." |
