Cary, I think that every secular bear and bull markets has its own characteristics and "raison d'etre", but somehow, every major secular bull move (like the last one from 1982 to 2000) is followed by a nasty secular bear. The underlying forces differ, but often the start of a secular bear market in equities is rooted in excessive valuations (1929, 1966, 2000), often the first leg down in such a secular bear is not sufficient to bring valuations back to the long term norm (mostly, because such first phase is often also associated with major economic dislocations and drastic declines in corporate earnings). Such a secular bear also often ends up with valuations ridiculously low (the August 1982 bottom was with a PE on the SP of around 7 if memory serves, and many companies where begging for bids well under book and sometimes under net cash). I don't disagree with you that forced obsolescence plays a role (it used to be a driving force in the automobile business in the 60- 70' or so, until Japan Inc. built cars that need not be replaced every three four years), but not sufficient, I believe to overcome other drivers. Obsoleting existing "technology" capacity is the tail that wag the economy, not a major driver. We have an economy of $10 T per year, even if obsoleting existing capacity in technology gets us back to the semi-equip shipments to reach the $40 B/year level, it will not influence itself the overal economy. As for the products manufactured with such new technologically advanced capacity. it will be so much cheaper, that twice as many units will need to be shipped yearly just to "stay in place", and that is probably not too far from the normal replacement cycle of the technology currently in place. The way I see the next major secular bull market right now, is through the accelerated increase in the middle class in the developing world, not necessarily because of a new killer application or a completely new technology. Such acceleration should bring with it a bolus of demand beyond the demand of the developed world (which is not going to increase at much more than the 2%-4%/year over the next few years. I have seen projections that "biotechnology" will be the next driver of economic growth, and I don't "buy" it for the simple reason that expenses on health care in developed countries are already at about 15% of GDP. That process, while a very long term engine to growth of the world's economy is not a sudden change, but a protracted process. The problems in the economy here and abroad are not just in "Technology", the overcapacity is wide spread, and companies are slow to take remedial actions. Look at how long it is taking to shoot dead Hyunday (excuse me, Hynix (g)).
From a "market" point of view, I think that we are facing a cyclical bull market soon, but that one will die prematurely as well, and long before we get to excessive valuations like in 2000. The bottom of the next bear leg in what I believe is a secular bear market, may find some companies with better earnings than this year, and strangely, at possibly lower prices, as the yardstick used for valuation, gradually decreases. Valuation is a market psychology phenomenon, and it takes time to change. People are still comparing current equity prices to the 2000 tops and "deep inside" are still expecting such prices to reappear. IMTO, that valuation psychology will change over few bear/bull cycles, possibly until we get to the point we got to in the summer of 82.
Now, I am guilty of writing too much, so I'll stop right here.
Zeev |
