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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: paul_philp who wrote (20914)	7/8/2002 10:25:20 AM
From: AC Flyer	Respond to of 74559

Hi Paul: It seems quite reasonable to expect a long period of market underperformance and there has been much written in the financial press in that vein recently (how many times have you seen "reversion to the mean" lately?) Nevertheless, I think that the tea leaves are there to read, and they tell a compelling story. First, it's not 1929, it's 1922. The adoption of new technologies always follows a predictable path - the S-Curve. There is always a mid-curve shakeout and consolidation in the adoption of new technologies (remember Osborne Computer?). This occurred in 1922 with the automobile industry - the forerunner of GM lost ~80% of its value in the 1922 bear market, for example, then went on to something like a 1600% gain by 1929. We know what happened next, of course. Second, we have multiple overlapping new technologies, not just "the internet," at the approximate mid-point of their S-Curves - cell phones and internet access are at approximately 50% penetration, with broadband access at significantly less than 50%. This means that our bubble is in reality several overlapping bubbles, each with its own dynamics. The third and most important factor, and one that is for the most part totally ignored by mainstream economists, is demographics. An economy is no more than the sum total of its parts - i.e. the spending patterns of all the individuals in it. Since the early '80s, the economies of the US, Canada, Australia, New Zealand and much of Europe have been riding the wave of a growing crescendo of spending by the baby boom generation that will peak around the end of this decade. This is a highly predictable and highly quantifiable economic force. It is the reason why (together with the intelligent and insightful monetary policies of Uncle Al) the US economy has swallowed the dot com/telecomm crash whole. Spending on housing and consumer goods - durables and non-durables - continues uninterrupted. Incidentally, this factor is also ignored by those who seek to explain the Great Depression. The stock market crash of 1929 was coincident with the peak of another great demographic wave in the early 1900s - this time an immigration wave that was stopped cold in 1914 by the Great War. The Great Depression was not nearly as severe in the European economies as it was in the US and this is the reason - no immigration wave. So, my expectation is for the '90s bull to resume shortly following a mid-curve shakeout, regardless of government meddling. As far as this goes: >>The path forward is not with technology but with new business practices, governement policies and (especially) more intelligent economic models.<< all I can say is that we have less faith in the capacity of government to do anything other than screw things up on this side of the border. We will REALLY need enlightened government post-2009. It's a sure bet we won't get it.