Hi David,
Thanks the thoughtful opening contribution to this thread. While the timing of the DOJ attack on Mr. Softie was co-incident with the demise of the Nasdaq bubble, I view this governmental action to be no more than a minor piece of the speculative mosaic that we are continuing to live through.
The impact of the lawsuit is probably no greater than is Steve Ballmer's statement last fall that the NAZ is absurdly overvalued.
If one were to really examine what was going on in late '99 and early '00, I can think of no better explanation for the bubble through 3/00 than excessive liquidity provided by the discount window at FRBNY. AG and the Governors were concerned at the stupidity of the American public in reaction to the supposed millenium meltdown. There is abundant proof that there were (and continue to be) many people who's rationality failed them and they fell prey to wild conspiratorial views of the apocalyptic end-of-the-world scenarios. This is part of the heritage of fear that we've endured for 400,000 years as a species and is clearly mal-adaptive in most instances today. But so be it. The Fed responded to this irrational fear by pumping the equivalent of $500 for every man, woman and child in the US into the money supply. This created a huge distortion of the financial markets, and when the money was withdrawn from circulation starting in February, 2000, the inevitable decline in the NAZ occured, because that was largely where the excess liquidity was parked. As I say, Mr. Softie's role in all this was a minor one. More one of perception than of hard currency reality.
Now, if your premise is that the DOJ persecution of MSFT is the proximate cause of the meltdown of the NAZ, then surely you would have to argue that now that the Presidential succession has occured, that the heat is off M$, DOJ will be told in no uncertain terms by John Ashcroft that it is to wind up the MSFT prosecution without prejudice and we should be getting on with life. Has this aided the price of MSFT? Perhaps to a degree. Has it sparked a rally in the NAZ. Hardly. The NAZ is prone to move in relation to the actions of the Fed and the perceptions of the investor community about the prospects going forward in the real economy. And, of course, most importantly on the money supply. So how is that going? Well, I follow this data point:
biz.yahoo.com
And what it has been saying is that the FRBNY has been adding on average about $4-5B per day in liquidity since the first interest rate decrease in early January, yesterday's buy-back notwithstanding. So, the Fed is pumping. The markets aren't reacting yet because of the awful earnings reports that will be coming in the second quarter. But the Fed will win, once again. Just as it created the recession we are in, it will end it. Perhaps not before the end of the year, and not before there is a lot more blood in the market for the long term buy and hold patzer, but the market will turn.
So, David, I'm not buying the suggestion: "It All Depends on DOJ v. MSFT". The world is a lot bigger than one declining software company in one declining sector (i.e. PCs)of the computer industry.
Let the debate begin. :)
Best, Ray |
