<<amen to that. bear trap, bull trap, lather, rinse, repeat.>> actually i don't have a consensus on what is or is not a "bear trap" or "bull-trap"--i hear it used in different ways.
I prefer--a bear-trap is when market is in "a suckers rally"(buyers get burned) and a "bull-trap" is when there is a 2-3day sell-off and shorts pile on only to get "squeezed"--ah the Street,a lingo mingo of it's own.
Notes--ADBE got beheaded AH--down over 4 dollars.
GDP at 8:30pm/consensus -1.
and this print out of a notable commentary from briefing.com--notable,because briefing.com doesn't usually feature such grim outlooks <<Live Headline
31-Oct-01
IT Is Gloomy [BRIEFING.COM - Robert V. Green] Being a tech investor has become difficult. It is time to realize, however, that the broad spending patterns of the past have disappeared from the marketplace, and will not return in the foreseeable future (next 2 years). The Information Technology (IT) market is gloomy.
Enterprise Spending
Information Technology spending is driven by enterprises, not consumers.
And enterprises are not returning to the high levels of technology spending that we saw in the bubble era.
A report released last week by the Meta Group, an industry consulting firm, showed that, for the first time in 30 years, technology spending by Information Technology (IT) departments in corporations will decline in 2002. The decline will be between 2 and 5 percent.
The last such decline was in 1982, before the minicomputer boom, and then the PC era that reignited everything.
To put this in perspective, the average growth in the past 10 years has been 8 percent in the US (6 percent globally). Last year, in 2000, the highest level ever was reached, at 10 percent growth over 1999. It should be remember, of course, that most enterprise level budgets are set in the fall, which would have been the fall of 1999 for the year 2000, and months before the technology sector collapsed.
For now, the rush to improve an enterprise's technology infrastructure seems a lot less important to most companies. There is no longer the "must go e-business or die" mentality. Proven return on investment (ROI) must be shown before an upgrade gets approved.
The combination of a poor economic environment, the disappearance of the "dot-com threat," and the diminishing returns from upgrading most technology systems have all combined to depress technology spending.
Hasn't happened in thirty years. It is fair to say that most tech stock investors have never experienced a downturn, which explains why so many tech stocks are still overvalued.
XP Not The Answer
PCs hit their first sequential declines in worldwide sales in 2001. And strong growth isn't coming back anytime soon.
Some have hoped that Windows XP, the new Microsoft operating system, will revitalize the entire PC sector. That won't happen, either.
There are three basic problems with Windows XP.
Most PCs are already good enough for what they do: client/server and desktop functionality.
Windows XP tries to force standards on the industry. Proprietary attempts to do this have always failed in the IT sector.
Windows XP is expensive. The "per-server" automated fee-on-install system and the forced two-year maintenance program is distasteful to many enterprises. The XP business model has the effect of turning a capital expenditure into an operating expense and enterprises hate that.
What Microsoft really needs is an assault on the enterprise level computing systems. Despite their wide spread success, Microsoft has not been able to penetrate the core systems of the biggest enterprises in America. Insurance companies, banks, factories, industrial plants, and other deeply entrenched business still run on antiquated mainframe systems, networked to PC desktops and client/server systems.
Windows XP won't conquer the enterprise. At least, not now. In today's economic environment, preservation of cash is the watchword at most companies. Completely revamping existing enterprise IT systems won't do it.
As for the desktop, PC upgrades used to be automatic, because it came with improved Word, Excel, and email functionality. But, face it, Word and Excel have reached the point of diminishing returns. It isn't worth upgrading the entire department anymore. They tools are good enough. Most managers just want their workers to make good use of the tools they already have.
Bill Gates has been promoting Windows XP by saying things like, "Do know how great it will be for Grandma to see videos of her grandkids on a Windows XP system?"
The irony of this is that Bill is now making the same mistake that most beginning entrepreneurs make: thinking that product features make sales. The truth is that market demand makes sales, and market demand generally accepts whatever features come closest to meeting the demand. Features rarely create demand. Is there really any latent demand by grandmothers to see pictures of the kids on a PC? There might be a couple of grandmothers out there, but there certainly aren't enough consumers demanding whiz-cool features to feed the $25 billion annual expenses of the Microsoft Corporation.
The final conclusion? Don't count on Windows XP to revive the tech sector.
Too Much Fiber, Too Many Hosts, Not Enough Broadband
Much of the great growth of all tech stocks from 1995 on was driven by the buildout of the internet. Since all technology stocks are interrelated, the massive spending to buildout the internet benefitted every one.
Every internet company bought new PCs, with new broadband access, and telephone or cable service. The web hosting companies bought PCs. The fiber network companies bought everything from routers and hubs from network vendors who bought components from the component vendors who bought chips from the semiconductor companies who bought intellectual property from the fabless chip companies. All of the companies in that chain bought PCs, cell phones, Palm Pilots, databases, productivity software, and phone lines.
In short, a huge portion of technology spending to buildout the internet was incestuous spending between vendors.
And for the most part, they have had little end user impact, particularly in the consumer market place. After all, only 8% of American homes have broadband access and more than 60% of those without it say they don't need broadband.
It couldn't be any simpler: we just have too much internet capability. Please don't write in saying that everyone still needs fast access, that service is terrible. The truth is that pretty much everyone who was dying to pay for it already has it. Excite@Home, once the poster boy for broadband across America, is bankrupt. The Regional Operating Bell Companies are stopping DSL deployment. (SBC and Verizon both have put DSL rollouts on hold, according to articles last week in the Wall Street Journal.)
Wrap it all up and it adds up to one thing: several years worth of working off the glut. If you own stocks that have anything to do with the internet networking rollout, and that includes everything from Cisco to JDS Uniphase to Corning to Aware, you've got a while to wait before the sector rebounds.
The Tech Economy and the Broad Economy
Today, it is far more likely that the broad economy will experience a rebound before the highly concentrated tech sector. A company like ADC Telecom, whose Q4 revenue is expected to off 60% from last year's revenue ($400 million versus last year's $1 billion), is going to take a long, long time to regain its lost heights. If history is any guide, it will never fully recover.
There were still undoubtedly be individual companies that find a way to grow strongly in this difficult era. But for the most part, the great tech stocks of the late 1990's will never see their all time stock highs again. By the time the tech industry becomes a great growth engine again, the dominant positions may be owned by companies other those that dominated the last era.
Psychology
Too gloomy for you?
That's just the way it is. It doesn't mean that individual stocks can't go up 20% or more in various spots, or that all tech stocks will continue their year long declines. But it does mean you can't expect the boom type growth of two years to come back when tech rebounds. Far more likely is a world where sustained flat revenue will be considered an achievement, if profitable.
It is a marked shift from the great era of the tech buildout, where the focus was on fast revenue growth. Tech stocks in the future will be judged more on sustainability of revenue and profitability and preservation of cash. These are very different parameters of judgement than most tech investors are used to.
The tech investor who fails to realize this shift, and is still hoping for a "rebound in tech stocks" in the short term is likely to be disappointed. Our advice, for those wanting to establish long term investment positions, is to wait until the rebound actually starts. So far, that's more than a quarter away and probably at least six to nine months away.
Happy Halloween.
Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com >> end quote |
