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

To: Paul Shread who wrote (9505)	6/19/2001 4:15:16 PM
From: faro	Read Replies (1) \| Respond to of 52237

Article from NYTimes Faro Fiber Optic Cable and Railroad Track There is a must read story in the New York Times, if you are an active trader or investor. Nothing less than the key to the future of the stock market resides in the resolution of the pain and the forced liquidation of debt from overexpansion of fiber optic capacity in the telecom industry. This is a very important description of a growing cancer in the stock market that could take down the system. This article opened my eyes. A NYT registration (free) is required to access the following link. Once-Bright Future of Optical Fiber Dims <http://www.nytimes.com/2001/06/18/technology/18MELT.html> In the last two years, 100 million miles of optical fiber more than enough to reach the sun were laid around the world as companies spent $35 billion to build Internet-inspired communications networks. But after a string of corporate bankruptcies, fears are spreading that it will be many years before these grandiose systems are ever fully used. The old saying is, Those who fail to learn from the lessons of history are doomed to repeat them. As the New York Times article points out so well, a remarkably parallel, overcapacity situation occurred in 1873 during the build-out of the railroad track system. In 1873, the bankruptcy of the financial firms backing the railroad build-out precipitated the Panic of 1873, which led to the worst economic conditions experienced, to date, by the United States. New York financier Jay Cooke first bought the Northern Pacific Railroad, which ran from from Minneapolis to Seattle, hoping to make a fortune in the usual way. In nineteenth-century America, people did not get rich building railroads, they got rich selling land along the railroad line, which the government gave them when they built the railroad. Because the land was next to the railroad line (and therefore had guaranteed rail access), it was usually extra-valuable, and the railroad owners could sell it for a huge profit. But Cooke had a problem. The land alongside his railroad on the northern Plains was bad for farming. Even with a railroad next to it, few would want to settle there. So Cooke hired publicity men to cook up false stories about how good the land was. But the truth leaked out. When it did, buyers lost interest, and Cooke's business empire collapsed. (If this sounds like the new economy stories, it is not coincidental.) Things snowballed from there. Cooke's investment bank had been considered one of the strongest in the country, and when it collapsed, investors in the stock market panicked and started selling. Banks failed. Lenders demanded that people who had borrowed money from them pay up...immediately! Businesses went bankrupt, and jobs disappeared. In 1873, the country entered the worst depression it had ever faced. New York -- America's financial capital -- suffered most. After ten boom years, now came the bust. By winter, 25 percent of New York's workers were unemployed. Hunger and homelessness spread. On January 13, 1874, thousands of workers filled Tompkins Square. They demanded government jobs. Instead, the police attacked them. The depression continued for four years, and so did the protests. The government responded with force and cracked down against unions. Armories were built throughout the city. People feared a second Civil War -- not North against South, but workers against owners. Tensions eased somewhat when prosperity slowly returned, but they would continue into the new century. So, to bring us to the current situation... In a nutshell, financial firms, like MWD have lent billions of dollars, through bond underwritings, to the telecom industry to build out capacity that won't be used for years. The mismatch between investment incurred and revenue deferred threatens to take down the stock market, as liquidation of other assets is forced now, to gap the cash flow shortfall differential.