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Politics : High Tolerance Plasticity

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To: Sharp_End_Of_Drill who wrote (206)	2/23/2001 11:33:15 PM
From: MetalTrader	Read Replies (2) of 23153

you've touched on two of the major issues confronting this economy/market. First the market. I think when growth investors are staring at year on year earnings contraction some are going to blow a gasket. We've watched as valuation models have mutated from the bizarre back to the traditional, but PEG is still the valuation of choice for tech investors. When the G disappears there will be another harsh reality check. Using ADCT as the poster child, even with a current pe of 10, when 2001 finally provides a negative growth to earnings, the stock is vulnerable. Granted, looking out a year, long term growth rates over 10% are easily achievable, but .... The other issue you touch on is the telecom debt issue. In looking back on previous recessions I've tried to examine the reasons this one may be different or comparable. In general, the current economy is not that bad. Inflation is not an issue like it was in '68. Nor are we coming out of an expensive war. Nor is the NG shock nearly as bad as the oil shock of '73. The one systemic issue which troubles me is the massive telecom debt underwritten last year. This debt looks increasingly difficult to service let alone pay back. Likewise these companies were responsible for the telecom equipment boom in capital spending. The economy is facing therefore credit risk both the underwriter and vendor level. In addition this cap ex engine is going to be running on fewer cylinders for a good while. Until we actually begin to see positive y-o-y comps it's going to be a bumpy ride. That is very likely not going to happen before 2002. An awful lot of techies have been vaporized so I don't see better than rational pricing for a while. mt

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