Hi Greg,
Re: I would love the hear from posters on this thread or elsewhere what their take is on what the new bull market will look like.
Beware of what it is you seek. :)
The drivers for bull markets are general prosperity, loose rules for the acquisition and disposal of equities, favorable monetary policy and a new technological advance that is compelling to the investment community, i.e. the story. Let's examine each of these in turn.
1) General Prosperity - You may have noticed the new SI thread that compiles the growing list of lay-off announcements. This is viewed by some Schumpeterians as a wholly healthy aspect of creative destruction. Those who are getting the pink slips, especially with their stock options now worthless, don't see things exactly the same way. The sentiment among the third shift workers at the Chrysler assembly plant in Belvedere, IL, all recently made redundant, is probably even worse. They don't have prospects to apply new economy skills to replacement jobs. Their $60,000 PA incomes are about to be halved. On the docks at CF in Chicago, the biggest business in the past couple of weeks has been shipments of promotional materials for the Daytona 500 and an association convention. Not exactly the industrial widgets that were flowing through that hub a year ago. Look at the California economy. Layoffs in the brick, flower and bakery industries as spot prices for natural gas has destroyed business models. Ag commodity prices still weak. Where's the prosperity? How about the involuntary layoffs at Charles Schwab. Looks like the brokerage industry is itself sort of broken. So, I just don't see the general sense of well-being that is requisite for a bull market return, based on the "animal spirits" of the investing community. They're still smarting from paying that grossly inflated utility bill, while perusing the latest deflation in their brokerage statements and wondering where things are really headed. A quote from Cheryl Strauss-Einhorn about commodities: "Demand simply isn't there."
2) Loose Rules on the Acquisition and Disposal of Equities - We certainly do have this phenomenon working in the favor of the markets. LIFFE in London just commenced single stock futures trading and it is going to be available state-side by the end of summer. Margin rules aren't going to change, and the opportunity for gambling in the equity markets hasn't been as uncontrolled since the 1920's. What a great run that was, eh?
3) Favorable Monetary Policy - After a year of strangling the market with higher rates and the withdrawl of liquidity, the FRB made an abrupt about face in the face of a stock market crisis in early January. The FRB continues to prop up the market with added liquidity and its precipitous rate cut, matching a similar fit of fear in 1994. At present, the FRB feels that it has done what needs to be done to keep the markets on a somewhat even keel. There is fear in the heart of the FRB regarding a further decline in the NAZ, for instance, because of the tremendously damaging psychological impact that would have. Should the markets lock up, no one, except the most curmudgeonly shorts, would be allowed to prosper. This is clearly not on Greenspan's agenda. However, he's not in the least bit motivated to recreate the Bubble of 2000, nor should he be. We have witnessed a historical moment at the blowoff top last March and it generally takes years if not decades to align all the parts of a general hysteria once again. I see no catalyst in the near horizon. But there is one brewing, more below.
4) A New Technological Advance that is Compelling to the Investment Community - Perhaps you noticed the market's reaction today to the Orange IPO. This is the Great White Hope for the 3G wireless revolution. It fell flat on its face. Too many of us know that there is no there there, as far as profitability and prosperity for the buildout of the 3rd generation of wireless services. It demands too much capital, it requires the gutting of existing prosperous GSM services and it will be way beyond the next decade before the extravagant and irrational bidding war for UMTS licenses is finally normalized in the capital markets. BT, DT and others have amply demonstrated the ability to shoot themselves in the foot with irresponsible bidding for licenses. The credit markets have responded with appropriate bond rating reductions. So, the whole Internet-optical-wireless-telecom sector will not be the driving force for the next great bull market. [[More on this subject at the AMCC thread, post #1337 ]]
Nor will the PC industry, which is sliding inexorably into the status of a mere commodity business.
What then to look to for the future catalyst for the bull to return? My best guess is that it will be bioinformatics and proteomics that lead the charge. That the announcement this week by the HGP and CRA in Nature and Science will be the scientific basis for a true revolution in biological science. It's not just me who believes this, I've got some very high-bandwidth company in this viewpoint. Nathan Myrvold, the ex-CTO of Microsoft is fully engaged in the biotech sector, see the current issue of Red Herring for the details.
With about 15% of the US economy devoted to health care, and expected to rise dramatically as the boomer generation goes geriatric, I'd say it's a no-brainer to think that any new cancer cure, alzheimer's vaccine or life extension technology will be a great driver for the markets.
So, Greg, I'm off to study up on SNPs. It's da fushia....:)
And I expect the bull to raise its horns and start to charge in a couple of years. The newly mapped, and still incomplete genome is just starting to yield economically important and scientifically exciting results. We are only in the starting blocks on this, the biggest scientific advance of our lifetimes.
We got to get this new story in place for the investment community to start to salivate in a serious, slobbery style. As I say, it'll take a couple of years. But the media is geared up and the public will soon be abuzz with discussions of how primitive our drug discovery process used to be.... and, wow, we really are gonna cure that cancer...
HTH, Ray |
