Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : The Big Picture - Economics and Investing -- Ignore unavailable to you. Want to Upgrade?

To: Dwight E. Karlsen who wrote (416)	11/16/1997 10:47:00 AM
From: Tommaso	Read Replies (1) \| Respond to of 686

I hope none of the people on the networking threads see your post. They get awfully excited at the idea that some of those companies will disappear and that the outlook may not be unlimited. I am a convinced holder of BEARX, the Prudent Bear Fund, among whose portfolio of short sales ares some of the companies you mention. Too bad there has to be too much of such a good thing. or rather, for us who use the networks it's wonderful.

To: Dwight E. Karlsen who wrote (416)	11/16/1997 9:47:00 PM
From: Sid Turtlman	Read Replies (3) \| Respond to of 686

Dwight: The overcapacity in networking capacity is just a result of the stock market doing its proper job. When people expect robust profits in a company, industry, or the economy in general, they bid up the stock prices of the companies that they think will benefit. That facilitates these companies raising more money to expand capacity, and, more important, sends a message to the business community that more capacity is needed in that area. So even companies that don't directly raise money from the market act on the information that they get from the market. For example, you mentioned Fujitsu as a new player; well, it had the cash to invest, and could have invested it lots of places, but it did what the market told it to do, and now we have even more networking equipment capacity as a result. But the stock market does its job in the other direction, too. When it becomes obvious that we have enough capacity (collapsing profits will make it obvious, if you are right) the stock market will send a message in the form of collapsing prices that, thank you, we have enough capacity in this area, we don't need any more for a while. That is how the stock market connects up to the economy. It is not just random ups and downs, and has to do with more than just the supply and demand for stocks. If the market is too high, we get overinvestment; too low, we get underinvestment. It is a great system; it is the main reason we beat communism. We had a rational way of allocating capital, and they didn't. In the long run we are much better with it, despite occasional periods of overenthusiasm (this current one lasting a few years) and the terrible profits and stock market losses that will be the consequence, until underlying demand rises to meet capacity, or enough capacity gets retired to meet the demand.