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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: dennis michael patterson who wrote (33645)	10/19/2000 2:01:08 PM
From: brian z	Read Replies (1) \| Respond to of 42787

By Michael J. Mandel This Tech Slide Could Hobble the New Economy Falling stock prices could threaten the U.S. innovation machine and spark a downturn. That's why the Fed needs to cut rates now By virtually all of the conventional indicators, the U.S. economy still looks strong. Unemployment is at near-record lows, and consumer spending and retail sales are on the rise. Business capital spending is robust, and even with all the profit warnings, analysts still expect corporate earnings to rise by a solid 15% for the third quarter. Yet the sharp fall in the tech-heavy Nasdaq stock index in recent weeks -- about 25% since early September -- may indicate that the U.S. economy is starting a long slide into a tech-led economic downturn. The decline in stock prices strikes directly at the heart of the New Economy: the ability of new technology companies to raise large amounts of money for risky new ideas and investments. If the Nasdaq stays down or drops lower, it will become increasingly hard for innovative tech startups to fund the next leap forward in wireless devices, Internet-based businesses, and other cutting-edge applications. SPECTER OF RECESSION. The result: The great American innovation machine will slow over the next couple of years, dragging down productivity growth and removing the major fuel for economic growth. Moreover, unless the Fed breaks the downward spiral by cutting rates quickly, the eventual outcome could be a far deeper recession than anyone expects. During the New Economy boom of the 1990s, the rapidly expanding tech sector and the soaring stock market fed on each other. The stock market served as a prime source of funds for new tech companies, which could easily raise millions, or even billions, with IPOs. The willingness of investors to pay big bucks for public offerings also stimulated the flow of funding for startups from venture capitalists, who knew they could easily take their companies public. At the same time, the rapid pace of innovation and the flow of hot IPOs from new tech companies drove the markets higher and higher. But we're seeing that once the market hits the skids, the virtuous circle starts to move in reverse. The fall in tech stocks has already dried up the IPO market, leaving new companies without a good way to raise money for expansion. And while venture-capital firms still have a lot of cash now, they, too, will be forced eventually to cut back on funding new businesses, since it has become much harder to take startups public. CUTBACK CYCLE. The tightening of the capital markets has already hit many Internet businesses, forcing them to either close or to cut back in an effort to become more profitable. And these spending cutbacks have, in turn, triggered a slowdown at many Internet-consulting companies and Web-site designers. If the stock market stays down, the funding squeeze will spread to larger tech companies as well. Particularly vulnerable are the telecom companies, which must raise enormous amounts of money to pay for expanding and upgrading their wireless and broadband capabilities. On Oct. 16, for example, Verizon and Vodaphone were forced to retreat on IPO plans for Verizon Wireless, their jointly owned wireless company, the largest in the country. What should policymakers do? If they follow the Old Economy rules, there doesn't appear to be any need for the Federal Reserve to cut rates yet, since the labor market is still tight and the economy is expanding. Indeed, the latest consumer price index numbers, released on Oct. 18, suggest inflation is starting to accelerate, a clear indication to conventional economists that it may be necessary to raise interest rates. PERVERSE EFFECT. That would be a mistake. In the New Economy, the key to growth is the ability to finance innovation. In the face of a mounting capital squeeze, what the Fed needs to do is cut rates now. That would provide a floor for the stock market, make more funds available to new businesses, and stimulate the flow of productivity-enhancing new ideas and new products. That could keep the tech boom alive, while holding down inflation. If the Fed gives in to its fear of inflation and waits too long to cut rates, the danger is that the tech boom will turn to bust. Moreover, the tech slowdown could have the perverse effect of making the U.S. economy much more inflation-prone, since companies will no longer benefit from the waves of innovation. Once that happens, it will be far more difficult to regain the economic and financial vibrancy of recent years -- and we'll all be mourning the prosperity of the 1990s.

To: dennis michael patterson who wrote (33645)	10/19/2000 2:04:12 PM
From: drsvelte	Read Replies (1) \| Respond to of 42787

13:37 ET Manugistics (MANU) 82 5/8 +6 5/8: Stock backs off session high of 85; hearing that it is the subject of a negative CFRA report which cites rising DSOs and sequential slowdown in license revenue growth, but market clearly not that impressed with the report. Anybody know anything about this group? Knocked MANU down 5 points in 20 minutes. They did this last year to Dycom (DY)and also to TYCO. I think in both cases (not as sure about TYCO) their allegations were successfully refuted, although both stocks took some heavy hits.