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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (2425)	11/1/2001 8:58:48 AM
From: Steve Lee	Respond to of 99280

The article makes a lot of sense. I would argue at the author's outright placing of blame on Greenspan though. I do think he eased to much, making it easier for companies to prolong the overcapacity that is killing profits. The DRAM industry is perhaps the most extreme example of how this game of "last man standing" can only be won when capacity is reduced by the weaker players. There were three reasons for the overcapacity. Any one was big enough to cause a problem on its own, and they all happened at the same time. 1) Y2K. Greenspan did not cause Y2K. He made a lot of liquidity available because in his judgement, he thought the alternative might have been worse. I think Y2K probs were vastly overstated but who knows what would have happened had the preparations not been possible due to a lack of capital available for investment. 2) The Euro. Financial institutions were required to update systems ready for this new currency. Financial organisations are amongst the biggest spenders when it comes to computer related purchases. 3) The internet. Everyone knew it was going to be big. Not many knew exactly how they were going to harness it, but almost everybody was scared of missing the boat. And of course it allowed misallocation of capital on a massive scale as unviable businesses were allowed to live long enough to make their founders rich. All three of these factors happened at about the same time and a massive new system rollout was engaged in. Manufacturers built plants and service organisations opened offices. It will be a long time before this type of demand from everybody at the same time happens again. Even if there is some "pent up demand" out there (there isn't - people are still upgrading but prices are lower so it doesn't show on the top or bottom lines), it will not all happen at the same time.