I don't buy this theory at all.
Amy wrote:
"I believe Bush's warnings had a huge psychological impact on consumers and investors in May and June."
I didn't hear anybody talking about the "amber flag" or "green rating" or whatever Ridge, Reichsfuhrer fur den HomeSec, was nattering about. Maybe others heard this as a topic of investor worry.
Whatever, the tech recession clearly was already well under way, going back to the bursting of the Bubble in early 2000. The collapse in Intel from the 60s and 70s down to the 30s happened a year before 9-11, back in the fall of 2000. The collapse down into the low 20s happened in January-February of 2001. Meanwhile, Akamai, Inktomi, JDSU, Teligent, Commerce One, Portal, and a hundred other companies were seeing their stocks go from $50-150, typically, to a couple of dollars. Many stocks once at $100 are now selling for $0.50.
This collapse preceeded 9-11. And the "warnings" you speak of in, when was it?, May and June, had no noticeable further effect on their meager prospects.
Lots of ostensibly bad news has hit. The collapse of the dot coms, the 9-11 events, the blackouts in California, the likelihood of higher taxes (especially here in California, which is facing a massive deficit due to too many handouts to welfare addicts, bums, and other socialist programs), and of course the Enron, Tyco, Adelphia, Anderson, and Wordcom chicaneries.
My main theory for why tech is in the toilet is different. Many people and many businesses simply don't see any compelling reason to upgrade. I know you disagree, I know you say you need to buy the latest and fastest machine to do your work. Good that you need this power. The sales figures tell us that clearly most people and most businesses don't. The numbers don't lie.
And the same applies to fiber, optical switches, etc. The Reichsfuhrers warnings in May and June aren't reason fiber is dark and the connectors are corroding unused.
"The public equities are in the tank, and it seems to have created a negative life of its own. His May negativity has created an uphill battle. "
Some stocks are doing fine. The DJIA, even with its many new tech companies added in recent years, is "only" down 25% from its highs in the past year. Take out the techs and the drop is even less.
People are still buying cars, still fixing up their houses, still buying home theater systems. But they aren't buying online advertising and so that whole fake bubble ("click throughs" and "eyeballs") is helping to drag the Internet sector down. AOL alone may drag the successful part of AOL-Time-Warner down to where someone buys the assets and liquidates the AOL joke at firesale prices.
"I tend to believe the May warnings made companies much more conservative in their spending patterns."
I doubt the May-June warnings were noticed by many. Look at the big picture. Tech wasn't recovering in Q1.
"... I went to an entrepreneur's party tonight and I didn't meet any new entrepreneurs (I didn't meet any existing ones either.) It's like they're all gone, "
Careful, Amy, you sound like you're starting to panic.
"which is too bad, because now is probably the best time to start a company. Labor is easier to find, money goes further, fewer competitors to be had, etc. "
I don't see why this is a good time to start a company, unless one has a truly good idea.
"I wonder how a lack of new startups will impact the public companies today and in the future? "
The shakeout of hundreds of flaky companies with weird names like Boo.com, Firepond, Loudcloud, etc., will be a good thing.
"How much of large co revenues come from small companies? Probably small (?), so my bigger concern is: how will the lack of new companies impact the future, in the way of driving innovation and thus driving future revenues for large public companies? OTOH though one theory says, the outcome of any downturn is innovation thus, more revenue. Microsoft, Cisco, Compaq, and Intel were the result of a previous downturn. "
I've never heard this theory before, that Microsoft, Cisco, Compaq, and Intel were the result of a previous downturn. Let's take a look:
* Microsoft: Founded in the mid-70s by two Harvard students. Started operations in a small building in Albuquerque, circa 1975-76, after the Altair 8800 was released. Recession or downturn? No, the 1973-74 recession was well and truly over and this was a period of expansion.
* Cisco: Founded in the late 1980s. A small operation as of 1988. Len and Sandy used to come to parties I was at. Recession or downturn? Not by any analysis I have seen. The market crash of October 1987 was over and done with (in a few nerve-wracking weeks, but over by the end of '87, and not a downturn in any meaningful sense).
* Compaq: Founded in the wake of IBM's introduction of the PC in 1981. Got really rolling by 1984. Beat IBM to the punch with the first 386-based machine a few years later. These were the Reagan boom years, not a recession by anyone's analysis.
* Intel: Founded in 1967, rolling by 1968. Part of a long period of slow growth, with some "Go-Go Years" hysteria happening (outlined nicely in Adam Smith's "The Money Game"), but economists don't consider 1967-68 to be recession years.
(BTW, the full import of the Vietnam War had yet to be felt in the economy...the high inflation of the Nixon-Ford-Carter years was still in the future.)
So, by my count, your theory is 0 for 4.
Downturns are often times when people sit tight, happy to have jobs,
As for the innovations brought about by these companies, I have major quibbles with at least two of them. However, the innovations brought on by most of the late-90s companies are, to borrow a film title from the mid-80s, "less than zero."
--Tim May |
