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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: willcousa who wrote (50201)	8/6/2001 10:00:31 AM
From: Kirk ©	Read Replies (3) \| Respond to of 70976

Take a look at George Gilder's column on editorial page of today's Wall Street Journal for a different take on where we are and why. If memory serves me, Gilder was into many of the companies that were creamed. How is his model portfolio doing? Is he ahead since Jan 1999? He rode the bubble up but did he take some off the table and diversify or did he ride the bubble stocks down to lower levels? thanks

To: willcousa who wrote (50201)	8/6/2001 6:34:35 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 70976

re: George Gilder's column on editorial page of today's Wall Street Journal He says: "A high-tech depression is under way, driven by a long siege of deflationary monetary policy and obtuse regulation that has shriveled hundreds of debt-laden telecom companies and brought Internet expansion to a halt." He's blaming the government for private industry's immense malinvestments in telecom. Those telecom companies are "shriveling", because they borrowed 1T$ in the 1990s, and spent it on infrastructure, to serve markets that, in many cases, didn't exist. Or, even when the markets do actually exist, guesses on market size were absurdly optimistic, so we end up with overcapacity, price wars, and no one makes any profits. In the 1800s, much money was spent building railroads in the U.S.. Often, these railroads were built to empty areas. It was assumed that, once the railroad was built, farms and towns would rapidly spring up along the route. Sometimes this happened. Sometimes, it didn't. When it didn't (a not uncommon occurrence), investors ended up owning (in a famous phrase of the day), "two rust streaks on the prairie". Was this the government's fault? Could different government policy have prevented private investors from making bad guesses about future demand? No, and no. And still no, today. "The entire telecom sector...is engaged in a heroic capital-intensive buildout...." I don't think history will remember this as "heroic". Other adjectives come to mind, the kinds associated with cautionary tales. It usually takes a war to destroy this much capital, this quickly. "For debt-burdened companies, nothing is so oppressive as deflation" True. This was a problem in the 1930s. Irrelevant today. "The leaders of the telecosm have to pay off debt in appreciating dollars while cash flow and collateral declines" False. Inflation bottomed at just under 2% in 1998, and has doubled off that low, to just under 4% now. What deflation is he talking about? Perhaps it will happen in the future, but he uses the past tense, as if deflation were a current reality. Cash flows are now inadequate, because heroic assumptions were made about future cash flows, when the money was borrowed. He correctly points out that many investments in telecom are unusable, as long as the last-mile pipe remains narrow. This is simply one more example of mal-investment. Too much capital went into some areas, not enough into other areas. Who forced the Baby Bells to sit on their hands in the 1990s? Perhaps you can criticize the government, for allowing the Baby Bells to maintain their local monopolies for so long. But this is an argument for more regulation, not less. He seems to be arguing that companies like Dr.Coop.com would have been a commercial success, if only we all had a fat last-mile pipe to our houses. Absurd. A fatter pipe would have increased the costs of maintaining fancier web sites, and that's all it would have changed. Will Amazon sell more books when we all have cable modems? And will they ever be able to make a profit on those sales? I don't think so. It's still the ultimate commodity industry; last-mile bottle-necks won't change that. Thanks for that article; I enjoyed shredding it.