Hi Marc, RE:" the soap-box derby "
>Analysts attribute the current bearishness to the Asian troubles and the Russian troubles. Russia represents at most 1% of the US market, and I don't have statistics to compare it to the world at large. I have heard numbers like 3-5% for the Asian connection, although it is much higher in network, chip and cell phone stocks. This is still a tiny percentage. I have two alternate ideas I would like to "float".
OK, I'll bite - we'll debate this one, Marc (^_^)
The question of "exposure to Asia" has evolved - to the question of "exposure to currency devaluations", which more correctly describes the economic causes affecting our equity values. True, "Russia represents at most 1% of the US market..." but it is not the "Russian troubles" it is the "Russian roubles" that have affected us: they owe us money.
The acute DownTrend from mid-July was not first set off by some new drop in Tokyo or Hong Kong or Moscow stock markets. This time, the DOW dropped first, and it was by and large led by a rapid and accelerating selling off of the NF.X - NYSE Financial Index stocks, Banks, Brokers and Insurance Companies, which are heavily weighted in the S&P and major market indices. The financial sector's exposure to currencies outside of the Pacific Rim, in Russia and Latin America, and even Canada - appear to be a cause for this effect. Folks and Funds with lots of NF.X sector stocks, which had been (and for the most part, still are) ahead of the S&P-500 benchmark, apparently took money off the table very quickly when they sensed a widening of currency erosion, which might affect the U.S. and German banking sector, as it has already affected all sectors that rely on (foreign) kapital spending for revenue growth.
>a.) Short term the market is, in fact, reacting to the Clinton scandal and the concern that he might do something even bigger of international significance to divert attention, and no one thinks that will be good. I don't think the scandal affects the market at all, but the nervousness about the diversions is much more potent in the financial areas.
That the office of the American Presidency has lost credibility in the minds of the American people, is truly a real tragedy. I am certain that you are correct in your feeling that smaller (retail) investors feel uneasy investing in America, when they are reluctant to respect their political leadership. Unfortunately for these smaller investors, they have succeeded only in selling their equity in America to stronger hands, at a substantial discount.
>b.) Long term the small investor is beginning to take seriously the projections of decreased productivity due to diversion of resources to deal with the Y2K bug. There are several billion dollars in (wasted?) programmer time, at least, to consider.
In the future, I believe that historians and cultural anthropologists will be chagrined by "the episode of the Year 2000 Bug", which is not only a manifestation of our anxiety about the future, but also the magic of the millennium numerology - and the fears of the other 80% of our society, who are ignorant of information technology, and wary of what it means to their personal and professional security. Anyone who is too afraid to invest in America because of "the Y2K bug" probably should be in bonds to begin with.
>The demographic bulge of Woodstock generation and baby boomers investing is still pushing the market up, but the above issues are causing concern, and perception is still very significant in the market. Could this be the sea change we feel ?
We are experiencing a fundamental change, on that we agree, Marc - not just "solving some problem". To me, the major factors behind fundamental change are different from what's on TV right now.
People are investing in stocks because: employment is at an all-time high, wages are in strong USD; we BabyBoomers have retirement accounts and are inheriting estates; and taxes and the kost of kapital are low. Investing and financial information have become more accessible, too - but I see this as an effect caused by people's demand, and a new medium with which we can interact, rather than a cause.
People are afraid right now because stocks are going down, and they are losing net worth. They search for reasons to explain, "why ?" Well, they're losing real money because they are selling at a price that is lower than the price they paid. As for fundamental changes, they tend to enhance (total) wealth, while re-distributing rate of growth from one place to another.
The biggest change has been the end of the 50-year ColdWar. Peace puts an enormous quantity of surplus raw materials and labour supplies from the defunct Communist Bloc into the neo-capitalist global economy; and it diminishes the mechanism of the Military-Industrial engine to grow wealth and spur innovation.
Ironically, the second biggest change is that "industry", in its classical sense, is no longer relevant to American society. The DJIA-30 is an artifact of another era. We are rapidly divesting ourselves of the last vestiges of our industrial past: C+DAI, AN+BP, for example - in preparation for the information (or "networked") economy that is our future. Americans don't want to work in factories, Marc. The office cubicle has become the machine station of the information worker.
The third most significant thing affecting us is our exploration of the human genome. This will change all the rules, all our values and all our illusions. Just as the nuclear age shocked our parents' generation, forever changing the nature of war, which had been a part of all human history up to that time - unlocking the program that produces Homo Sapiens will SHOCK our generation, the BabyBoomers. It will start in a benevolent way, and already has: "take these vitamins, and eat this diet, and get these inoculations, to enhance the health and destiny of your babies". Given a pill or a procedure to ensure that your child will have increased immunity to X, would you not choose it? But then, it won't stop there: the line between mandatory genetic medicine, perhaps even required by health insurers, and elective eugenics, will begin to blur. Natural ChildBirth will become unthinkable. Just as energy became nuclear in our parents' time -- birth control will become birth control in our lifetime.
-Steve |
