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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Maurice Winn who wrote (11408)	6/11/1998 7:27:00 PM
From: Gregg Powers	Read Replies (3) \| Respond to of 152472

Maurice: Be careful trying to interpret Greenspan via sound-bites. I taped his testimony and watched in its entirety last night and I found much to worry about. Not the least disquieting of which was the fact that a U.S. Congressman and the Chairman of the Federal Reserve actually had a sober discussion as to whether or not the U.S. market has entered a Holland-esque tulip phase. While Greenspan disavowed the analogy, he repeated--one again--that U.S. equity valuations can only be supported by a very optimistic outlook for corporate earnings. In his typically oblique way, Greenspan suggested that this optimism may prove unwarranted. Let's cut to the chase of my concern. Heretofore, U.S. investors have been celebrating Asia's decelerative impact on the U.S. economy. The logic has been that the Fed cannot tighten monetary policy, and spoil the party, because higher short-rates would strengthen the dollar still further and potentially reignite the global currency crisis. So, the thinking continues, interest rates remain low, earnings keep growing, and everything is just grand. Unfortunately, deflation is becoming an issue of global proportion. Falling prices throughout Asia are, in turn, intensifying price pressures for American companies. Witness Sawtek. Trust me on this, based on historical precedent, deflation and high equity prices DO NOT MIX because deflation has a nasty tendency of destroying corporate earnings. Ever study the history of the Great Depression? As worldwide economic growth stalled, governments worldwide began erecting trade barriers (in the U.S. it was "Smoot-Hartley") to protect domestic manufacturers. These trade barriers exacerbated the economic weakness until the global economy began a steady, deflationary downward spiral. This became known as a Keynesian Liquidity Trap. Simply put, economic conditions got so bad, that people were not willing to borrow money at ANY positive interest rate, because there still remained an obligation to pay the money back. That may sound like hyperbolic bull-feces, but trust me, that's what actually happened. Fast forward to Japan. Interest rates are barely over 1%, but still the economy falters. From a monetary policy standpoint, the BOJ is clearly "out-of-bullets" while fiscal policy remains hamstrung by a lack of vision and looming deficits. This is going on while, and potentially because, the banking system is submerged in non-performing assets. Let me give you a another perspective. Remember the U.S. thrift crisis? Well the Federal Reserve solved that crisis through an enormous, albeit invisible, tax on the American people, the deflationary aspects of which caused the 1988-1991 slowdown. Tax, what tax you say? The Fed systematically dropped short-interest rates, creating a very steeply slopped yield curve (i.e. the spread between short and long rates). This was tantamount to a tax on American savings, because the banks were able to borrow money from depositors at lower rates than would have otherwise existed and then lend this money out for a large positive spread. Due to this wide spread, financial institutions minted money and were thusly recapitalized (BTW: this is not idle commentary. My partner and I LBO'd a thrift in 1988, paid $30mm for it, and sold it last year for $225mm after paying our investors $70mm in dividends). Why is this story relevant? Because the Japanese government cannot solve its banking crisis in the same fashion because domestic rates have dropped so low that there is no way to engineer a meaningfully profitable lending spread. This is obviously very bad because it is in no way obvious how the Japanese are going to reliquify their banking system. Clearly the economy cannot, and will not, support higher taxes..so you get a spiral of weakening economic activity, deteriorating financial institutions and a falling yen. Not pretty. Now, we layer on all the excess industrial capacity sitting in Korea and other Asian states, and its not difficult to envision a continuing deflationary spiral as each nation fights for product marketshare against a backdrop of weakening business activity. Bottom line....I am concerned that the wholesale debasement of the Asian monetary system has created trade imbalances that replicate the effect, but not the form, of the 1930's trade barriers. Meanwhile, us North Americans celebrate our strong economy, and the absence of inflation, without understanding that our ship of state is gradually running aground. Declining U.S. rates are reflecting worldwide deflationary pressures, which in turn are holding down the price of goods in the U.S. Instead of celebrating this fact, we may need to consider what happens if the U.S. economy were to continue decelerating and itself slip into recession. Food for thought... Gregg

To: Maurice Winn who wrote (11408)	6/13/1998 12:30:00 AM
From: Gary Walker	Respond to of 152472

Not snooping, but sputtering as usual! Perhaps one of these day QCOM will make us some money! More amazing about the US economy is that the Federal Reserve has done a wonderful job keeping out of the way. I don't consider Greenspan's comments about an overextended market as troublesome an issue like some others. The big scare is the problems in Asia. Ironically, this is good for the US economy in the short run and probably those overextended in Asia. The troubles in Asia will make foreign goods cheaper back here. More imports will take the pressure off American businesses to fill the supply pipeline using increasingly expensive US labor. Here we are back in the summer (winter in your part of the world!) technical duldrums. Happens every year and presents a great buying opportunity. So when is QCOM going to take off?? Regards, gw