Paul and Thread, If one steps back a bit, it is hard to see why the outlook should be so bleak right now. The negatives as I see it are the economic slowdown and corresponding chain-reaction effect, the inventory and overcapacity areas in telecom, the dotcom failures that are continuing (used gear being auctioned off), and the bottleneck area in telecom (last mile). On the other hand, the positives I see are aggressive Fed cuts, lower stock prices (has to be a positive at some point), pent-up demand (at some point has to happen), that the consumer is holding up, demographics ("Roaring 2000's" argument), relatively low unemployment, low inflation, overall prosperity (no major wars, standard of living pretty high, most people not affected except for 401K portfolios), and the fact that more folks are bearish now (always a contrary indicator at bottoms and tops of course).
Regarding the negatives, I think the chain-reaction effect is the "restraining force" that you mentioned. Companies are holding back on purchase decisions because of the fear that things will get significantly worse. Theoretically, the chain-reaction effect can cause a great depression if it gets out of control. But I don't see that. The consumer is holding up well, most people are having pretty good lives right now. I don't see many parallels to the the great depression. Also, I think the information network that is in place now is helping people see things better. The media of course is still working to make things worse (higher highs and lower lows), as it always has, but the average person seems less affected than in prior downturns. Only the pundits on Wall Street and some in corporate America seem significantly affected. We always hear how the average person is going to panic, and yet is always tends to be Wall Street that is guilty of being way too emotional, both on the upside and the downside. Regarding inventories problems and dotcom failures, one thing that will help a lot at some point is that all this gear will be obsolete. On the CBS MarketWatch TV program that was just on, they said that although internet use is no longer doubling every 3-4 months, it is still doubling every year at this point. The inventory problems have to be short term in nature because of this growth and the product innovation that is continuing.
The last-mile bottleneck problem, however, does concern me. One only has to look at a country like Russia to see what monopolies can do to an economy. Post No. 45667 on Yahoo GLW Board had a link to a congressional broadband bill designed to address the problem. The link to this post is no longer working for some reason, but here is the link to the proposed bill. I have not looked into this, I am just posting the link here, FWIW:
thomas.loc.gov
Maybe a grass-roots effort will end up addressing this problem. I would be willing to put some effort into that. The reason is because I am starting to see this as a very big deal.
Regarding the valuation questions, it amazes me how much Wall Street can change views on this over time. Recall the argument that techs are no longer cyclical, so therefore the PE's should be higher, for example. Also, it is amazing as to how much fundamental disagreement there can be on the basics of valuation. The following Barrons article presented two views, one that says that PE's are way too high, the other that PE's are way too low:
interactive.wsj.com
From the article (6/25/01):
"James Glassman and Kevin Hassett, in their book Dow 36,000, started with the same theory, but proceeded to argue that investors have grossly undervalued the stock market for at least a century. Glassman and Hassett said that there should be no equity "risk premium" because over long periods real returns have been higher for equities than for Treasuries. They say that the P/E should be about 100, or about four times as high as it is. Dow 36,000 referred not 10 years in the future, but right then, when the book was published -- in 1999."
I found the recent posts interesting where it was argued both ways about whether or not AMAT will be coming back early relative to other techs. If companies do not look ahead, AMAT would tend to come back last, since they are at the end of the food chain. But if companies are looking ahead, then stocks like AMAT will come back sooner, as they will be placing these long-lead-time orders in a timely manner. My guess is most tech stocks will start to rebound about the same time, but telecom may take longer.
I may get hammered from here beyond my imagination, but I just can't sell any good tech stocks at these levels, for any reason other than some short term trading. I think we are at a great point in human history. Technology is making the world a much better place, and I think we are only in the early innings of the game. I am very confused about all the details, and as to the question of when things turn around, but longer term (1-2 years out), I just can't see why the economy and the market won't recover quite well. Just my two cents worth, any comments are appreciated.
John |
