Rich, There's Nothing Wrong With What Your Saying,
However the devil is in the details.
>Broadband and mobile will drive growth<
SBC just announced they were cutting capital expenditures
by $500 million. I will try to post the article in the
next post. What analysts are saying is that this is the
first shot and will trigger a round of capex cuts by the
other RBOCs. Also there's no guarantee the capex cuts
stop at only one round. Plus the guys that were going to
drive broadband access to the home: RCN Corp, Covad,
Northpoint,Rhythm, etc are either busted and out of
business or pulling way back and conserving cash.
I was going to go thru a list of other stuff, but we
all get the picture I think regarding cutbacks.
I don't expect people to really agree with me, but I
also think it helps to post differing points of view.
Some of the things I'm trying to point out may be
obvious or some may think wrong, but I'm gonna say
them anyway.
The three things I want to bring up are: 1) We're
heading into a recession, 2) There are no obvious
drivers for the next round of technology spending,
in fact there has been overinvestment in everything
from computers, to software, to telecomm equipment.
3) the character of the economy is changing and will
look very different in another year or two.
On Point one, well the issue is hotly debated in the
news and media so there's plenty there for all to
read. Point Two I addressed in my previous post to
you.
Point Three is something I've been trying to grapple
with. The two main themes that are changing the
character of the economy is that a) basic energy is no
longer cheap and plentiful, but is in short supply
and getting more expensive going forward. And that
b) everyone is trying to raise cash: from individual
households to corporations.
Just as the energy shocks in 1973 and 1979 put the
US economy into a recession, where you had stagflation
and inflation at the same time: the present day
doubling, tripling and quadrupling of energy costs:
natural gas, home heating oil, & gasoline, & electrical
power costs along the entire Western region of the US
states - not just California - would seem to constitute
the same basic ingredients,or witches brew that caused
some nasty problems back then. These costs have yet to
fully ripple thru the economy. And because they reflect
basic supply/demand imbalances they will take time to
work themselves out. The US economy is predicated on
cheap energy. When energy is no longer cheap, watch out.
Regarding cash: during the latter half of the 90s,
cash was treated with some disdain, IMHO. No one really
wanted to hold it. This was fairly widespread and could
be seen in many different forms: high-tech employees
would forego payment in cash and accept stock options
instead, mutual funds held very little cash & concentrated
on performance, many investors mirrored mutual funds and
were fully invested in concentrated technology bets,
Internet and Telecomm startups didn't need to show
profits or cash flow, just bring in the revenues, etc.
Now you hear talking heads talk about value investing,
investors are off margin, either by choice, or by
bankruptcy, and monthly figures since at least January
show much more money going into money markets.
Internet & telecomm companies, etc are all trying to
reach profitability...ie the business and investing
environment has turned much more conservative. Employees
want more security, ie are willing to trade a reduction
in options as part of their pay package for more cash up
front.
Gradually people and corporations are demanding value
for their efforts: cash in the form of pay, and cash
in the form of profits.
The main concerns now are not how many clicks you got
on your website, or how fast your revenues are growing,
but when are you going to reach breakeven, when are you
going to show a profit.
The fact that we have a conservative Repubilican
government in office politically reinforces all the
above economic tendencies, IMHO.
When you are concerned about cash: getting it and
keeping it, consumers will cut down on spending, and
corporations will cut down on investment and capital
expenditures. Isn't that how we have recessions?
Too much supply and not enough demand?
Just some thoughts. They may be of some help to you
Rich. Then again, they may not. If not maybe to someone
else out there. Any responses are welcome.
Good night and good luck to all.
Peter.
(PS: None of this is being posted to get anyone to
sell or buy anything. I'm just trying to describe
what I think I'm seeing out there as thoughtfully
as I can.) |
