John, I always appreciate your well-thought-out posts.
re your positives:
1. Fed rate cuts are about over, and their max effect on the economy won't be till late 2002. Lots of time till then, for stocks to go lower (or just sideways).
2. lower stock prices: valuations are just now, and only in some tech sectors, getting into their 1990-1995 range. All valuations in the 1996-early 2000 time period are suspect (bubble numbers), and cannot be used as a yardstick.
3. pent-up demand: Consumer demand hasn't fallen much at all, yet. Over the long-term, consumer demand can't go up at a greater rate than consumer incomes are. Do you see much chance of consumer incomes going up much in the next 12 months? Do you see consumer debt levels continuing to go up? Current consumer demand is at peak, not trough, levels.
4. low inflation? it's doubled off its 1998 lows, and is just below the critical danger threshold of 4%.
5. I see the dominant mood as uncertainty, not bearishness. Panic buying and panic selling, on alternate months. Lots of people still very eager to believe any hint of good news. And semi-equip valuations today are far higher than when the sector has been out of favor before, indicating a lot of bullishness, at least in this sector.
re last mile: this is THE bottleneck in telecom today. The RBOCs have effectively defeated the intent of the deregulation law. I think it will be solved by a technology that totally bypasses the RBOCs. Maybe cable, maybe fixed wireless. The government can't fix it, private industry lawyers will always be able to run rings around the regulators. Or buy off the legislators.
The idea that equities shouldn't have a risk premium, is an idea that can only be widely believed in a market mania. "Dow 36000" is going to join "The Gorilla Game", as providers of an intellectual rationalization for valuations during the Bubble.
I agree, (some) valuations are now acceptable. I closed out my last short position last Friday, and will now only add long positions, from Nas 2000 on down. If we get another 50% rally on the SOX (which would be the 4th in this bear market), I'll be buying puts again, however. I think we may be near a bottom in stock prices, but I don't think a sustainable rally is going to happen till 2002. Or 2003. The rough ride isn't over yet. |
