First a few comments on 'tulipmania' are in order.
While PSR's (market cap to sales) >>20 certainly qualify as insane, there is the fragrant smell of PRODUCTIVITY in them there tulips:-).
Most of the macro merlins will agree that PRODUCTIVITY is the driver of interest rates and the economic bandwagon. Likewise, it is
*productivity* that LEADS interest rates lower. And since markets LOVE lower interest rates, the corollary that follows is........anything bearing/wearing productivity rules.
The Internet is proving itself as a profoundly *productive* distribution tool. Specifically, the early data indicates that pure e-tailers yield twice as much revenue per employee as their brick and mortar counterparts. Likewise, even more interesting productivity findings can be seen by examining the balance sheets of Dell and Cisco over the past 4 years. As both of these companies moved to Internet distribution , the % of SGA required per $1 of revenue, and the % of SGA required per COGS DECREASED.
For the balance sheet impaired, this means that as these companies moved more and more product into the Internet channel, the bottom line earnings accelerate.
Furthermore,the Internet allows for quick turn of inventory and efficient allocation of capital. In a deflationary environment, whoever has the most turns wins as only those who can take immediate advantage of component price declines survive. Use of the Internet as a distribution tool will prove to be essential for survival in a deflationary environment.
So-----IN THE TULIP PATCH there *IS* indeed the fragrant smell of productivity that drives markets wild. I agree that e-tailers are currently way overvalued, but terminal lifetime valuations have NOT been reached.
Having said that--let's move to the Chicken Little Scenerio's...(my apologies for the above rant)...
Ready?
Scenerio#1-This Revolution was birthed in the ether so the FCC could easily precipitate a cyber train-wreck. IF the FCC were to impose local access fees on ISP's *or* if the ESP exemption disappeared , bandwidth would become MUCH more expensive and the e-commerce revolution would come to a screeching halt because the SGA reduction (and the corresponding productivity) would not be so pronounced.
Scenerio#2- August 22, 1999--Powergrid goes down because of Y2K snafu in the GPS (Global Positioning Satellite) rollback.( GPS was last rolled back on Jan 6, 1980). Market reacts badly (yeowch!) and some e-tailers evaporate into the ether.
Leeza Rodriguez
(p.s. Lefevre's book was extraordinary.It underscored the significance of knowing WHERE you are in the feeding chain.) |
