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Pastimes : DOW 36000 - Glassman and Hassett -- Ignore unavailable to you. Want to Upgrade?

To: Clouseau who wrote (24)	12/10/1999 10:40:00 AM
From: Sid Turtlman	Read Replies (1) \| Respond to of 42

Dave: "Now then, wouldn't the revenue from the peanutbutters.com be spread out so that Yahoo et al get recurring revenue? Surely they dont rely completely on new IPOs for biz growth..." It depends on how the deal is structured, how much is a one time fee versus an agreement to continue advertising at a certain rate. But even if Yahoo/AOL takes the revenue in over time, the source of the money is not the customer's operating cash flow, but the war chest handed to the customer in an IPO. That isn't the same thing as money from P&G, which won't need another stock offering in a year or two to stay in business. I don't know the numbers, but I suspect that a very large percent of YHOO and AOL's advertising revenues come from customers with negative operating cash flows. "And I guess I am confused with the productivity argument - replacing people with computers...companies are buying computers and software, but unemployment is low low low...so workers are doing more with the new tools." I wasn't trying to make any particular point about productivity. What we have is very low unemployment, but very little in the way of excess employees at any given company. That isn't contradictory, and is a consequence of the strong economy. My point is that, because every company is operating so lean, should there be any slowdown in demand, they won't have any good way of cutting costs to counteract it. The percent of the average company's cost structure that is fixed relative to sales has risen sharply, IMO, because of computers substituting for people. That is good on the way up - small increases in sales produce big increases in profits - but bad on the way down, whenever that may be. As to Kudlow, I know of him, but I almost never watch CNBC, so I am not up to date on his arguments. But I don't think his view as you described it is uncommon, and fits in with my "conservation of risk" idea. People with that viewpoint will confidently leverage themselves up to take advantage of the trouble free growth that they expect. That provides even more demand, making for an even stronger economy, inducing even more expansion of supply. Unfortunately, when things do slow, that leverage and the extra capacity makes the next downturn much worse. Keep in mind that I am not claiming that this reversal of all the upward spirals must start happening soon. Maybe it will, or maybe things can go along fine for another couple of years before any trouble hits.