Thanks for that link. Interesting reading. The real dilemma is that most expect a rebound in the latter half of 2002 to 2003. Te question becomes however how much faith to put in that rebound, how big will the rebound be and what sectors will continue to do well once the recovery hits.
FA wise and using all historical, common sense and realistic tools available, I don't see how anyone can really expect the 98-2000 era to return, .... ever. While investors may not have learned their lessons, CEOs and CFO sure have. Watching the dot coms blow up, telecoms go to the brink of death or else going over the brink, there isn't going to be a mad rush to upgrade fiber etc in the future past reasonable percentages of income. Sure they will build out, improve existing networks etc but not to the scale they did pre Y2K and at the birth of the internet when capital flowed freely. I doubt even Joey B believes that now.
As I have said all along, the brick and mortars, the gorilla techs and some mid caps will do nicely. Also one thing that I think has totally been ignored is that 2 years from now is a HUGE time line in technology. Technology changes daily and major innovations seem to come along every 18 months or so. Somewhere out there is a small cap or private firm that is going to revolutionize the way we communicate, crunch data or store it and I doubt any of us have heard of them or know about it. While it is near impossible to find these upstarts before they bloom, we have to wonder which of the existing leaders of tech in that sector will get hurt by them unless for some reason they are able to buy them out or merge.
This is why I have a hard time getting on board the high valuation train. Everything is priced for perfection when no one with a lick of common sense thinks that things will go perfectly 2-3 years out. We have gone from Asian crisis, Brazil crisis, to Russian crisis to Argentina to a now Global recession, a fear of inflation to deflation all in the span of 2 years. While we have navigated these waters successfully thus far, It has now become clear that all the things CFZ bears were saying all along and were being mocked about have come true. Earnings were being inflated by Pension funds, stock market speculation gains and various other "Other Income" games. Pro Forma accounting was going to the extremes that now even the SEC and big players are calling for a change etc.
The scariest part is how during the hugely successful boom times, most of these tech firms still couldn't make real GAAP accounting standard profits. Now that the slow times are here, they are losing enormous amounts of money.
What scares me most is how I see the money rotation starting to go back to the way it was disproportionately traded at the top of the bubble. Dividend stocks are being dumped to chase hopeful yet unattainable goals in techs that are falling apart FA wise. Sure GE, TYC, MMM, DD etc will probably have banner years ahead as the slow down bottoms and recovery starts, but is JDSU, GLW or MU for example going to see margins and sales like they did in 2Q 1999? I doubt any analyst or economist thinks so.
As usual for the last few years, the stock prices are climbing on the greater fool theory and already I am seeing egos going through the roof because some clown buys XYZ and it doubles. While it is a great trade and it is to be congratulated, I see the same people trying to justify the gains based on FA, new economic models and hopes of future recoveries that are higher than at the tops of the past boom times. Never underestimate manias so they could go on further but they will eventually fail.
If anything, I think the techs that have the most promise are the ones not moving much lately. MSFT is loaded with cash, has a monopoly on PCs and is moving into new areas. The court cases are winding down so there isn't much left to unseat them. True that they aren't going to have times like the Windows 95 release again, but enough will buy XP or their next version to keep a fairly even revenue stream that is predictable and stable. They are now entering the era of being a big stable tech instead of a growth play. I imagine they will become a Y2K version of IBM in the times ahead.
I see Cable and wireless TV being a future growth area, Drugs and healthcare as a steady gainer and energy as a good cyclical trading vehicle as the whole new era of Russia trying to befriend the west while unseating OPEC plays out.
We are at a cross roads politically. We have the opportunity to now trade with China, become full fledged allies with Russia while distancing ourselves with the Middle East and picking our fights in that theater as we become less dependent on them for oil.
It is too long to write here but the US always has to have an enemy of convenience and we have now found our enemy for the next 10-20 years. Our entire economy depends on it as defense spending fuels the dry times of the economy. Through defense spending, we can provide liquidity for innovation in electronics such as in the past GPS, Fiber comm, Faster buss lines, larger and faster planes etc. It also serves to keep companies like BA, UTX, RTN etc going when airlines reduce spending.
Now that we have a new "War on Terror" and Americans are fully on board, we can return to times like the 1950s where we can pick fights across the world as needed to keep things rolling. True it is a total waste of resources as peace time innovation is adopted faster and has a more direct impact on the economy but defense innovation and factory output keeps people in jobs. As your link you provided showed, unemployment is expected to peak over 6.5% by 2003. We are going to need every type of job we can get by then regardless of if it is for consumers or defense. We have along list of countries now that we can go after with little threat of defeat as long as we do a full scale assault. When Afghanistan is done, we have Iraq, Somalia, Kenya, etc near the top of the list and a whole bunch more that we can spin up in the press as we go. My only fear is that there will be a delay as we try to rebuild a military that Clinton tore apart and demoralized.
I saw most of our good young troops throw up their hands and leave during his tenure. I saw many more of the older guys just waiting for him to leave so they could get a George Bush signature on their retirement certificate rather than Slick Willy signature since they came in under Reagan and wanted to go out with something they could hang on their wall instead of hiding in a closet. Them sticking around those extra years kept promotions down for the guys stuck in the middle and now we are seeing a void of experienced leaders. I just hope with the renewed patriotism we are seeing now, we get enough good young troops to bring us back up to at least near the quality we had in the mid 80s to early 90s and that the experiences learned in leadership during this short Afganistan exercise will help our new senior leaders. The young kids we had up to last year could barely comprehend on the 8th grade level and had absolutely no motivation. The best young troops we had seemed to be the foreign kids we were letting in from South and Central America. My best troops over the last 3 years were kids from Panama, Honduras etc. Of course why should they have motivation when the only thing we ever did was go overseas to fight some ghost enemy when slick got caught with his pants down... literally, or his other escapades. The military to Slick was a vehicle to get the press off his back and get the press refocused on conflicts elsewhere, not a tool of foreign policy or domestic defense. I am finally seeing some morale returning to our forces and some repair of the damage that was done over the last 8 years but will it be in time if we step into a real fight soon?
Wow, this short response has turned into a novel, guess I better go sample some turkey to see if it is done yet. -ggg-
Happy Turkey day all.
Good Luck,
Lee |
