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: greenspirit who wrote (427)	11/24/1997 6:23:00 AM
From: GROUND ZERO™	Respond to of 686

Hi Michael, Thanks for an insightful and well written post. GZ

To: greenspirit who wrote (427)	11/24/1997 7:43:00 AM
From: Sid Turtlman	Read Replies (2) \| Respond to of 686

Michael: I can't complain about any of the trends you listed. They are all important parts of any bullish case. One problem, though, is that there is getting to be a credit crunch in Asia. As in your points #3 and #4, many companies there may sincerely desire to buy more US capital goods to help make their companies more efficient. But if their banks can't finance them, they can't place the order. This hurts the sales and profitability of the would be vendor. I think my main point is that people underestimate the vulnerability of corporate profits to recession and price wars. Profits have been growing at a nice, steady pace for years, but it is an inherently volatile item. Think of it this way: A company has sales of $100 and total costs and expenses of $96. If a price war knocks his sales down 1% to $99, and rising labor costs increase his total expenses about 1% to $97, his profits have dropped 50% from $4 to $2. That is the kind of arithmetic I think a lot of companies will be experiencing over the next few years. The trends you mentioned are all positive ones, but have been in effect for a while. It is the loss of other positive ones (such as the huge growth in Asian demand) that will hurt.