Is Dot-Com Fever Gone Forever?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Is Dot-Com Fever Gone Forever?
Wed Mar 13, 2:48 PM ET
Tim McDonald, www.NewsFactor.com
Recent economic indicators are painting a picture of economic recovery, and languishing tech stocks have begun to stir. But will we ever see another "dot-com fever," or is the excitement of the late 1990s gone forever?
"We're not going to see the boom that we had in the late 1990s [to] 2000 time frame, whether it's in the economy or in the stock market or in technology, for another 10 to 15 years," Giga Information Group analyst Andy Bartels told NewsFactor.
"There were a series of special factors that drove that growth," Bartels said. "One was the Y2K issue, and the other ... was the Internet, one of these once-in-a-generation technological innovations that really changes things. In the broad scheme of things, it's not a bad picture, but it's not a boom."
First, the Good News
Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) put the official stamp on the economic recovery recently when he told the Senate Banking Committee, "Recent evidence increasingly suggests that an economic expansion is already well under way."
Treasury Secretary Paul O'Neill went further, publicly denying that the United States ever actually was in a recession. Even the Governor of the Bank of England said the worst is over.
Of course, consumers have spent steadily through the last few years, and they continue to access the Internet in record numbers. At the same time, venture-backed IPOs rebounded in the fourth quarter -- down from the year-ago period, perhaps, but better than at any other time in 2001.
Industry Leaders Cheer
Industry leaders are jumping all over the optimistic numbers. For example, Intel's (Nasdaq: INTC - news) Craig Barrett said at a recent developers forum: "Technological innovation will lead us to economic recovery. The trend toward increasing reliance on technology for economic growth will only continue in the future."
Some are predicting that in the next three to five years, we will see more Internet wireless addresses come online than were created in the history of the wired Internet.
Now, the Bad News
There are just as many naysayers. News Corporation president and COO Peter Chernin said at a recent London conference that there is "no viable business model that works" for the Internet and that it should be treated as simply a "promotional vehicle."
And there is plenty of bad news to be pessimistic about. The Guardian newspaper, for example, has reported that Goldman Sachs will slash 10 percent of its workforce worldwide.
Meanwhile, telecommunications equipment maker Avaya (NYSE: AV - news) announced Monday that it will cut 1,900 jobs and warned that second-quarter estimates will be lower than expected. Ford announced plans to cut 35,000 jobs, and Merrill Lynch said it will slash 9,000.
And as recently as late December, the International Monetary Fund (news - web sites) said the global slowdown would be worse than expected.
To make matters worse, there is a lot of excess capacity in New Economy industries, along with a huge pile of debt and significant depletion of the funds that helped keep the boom going for so long.
Dot-com firms also face more scrutiny than ever before, particularly in the wake of the Enron scandal. Interestingly, just 3 percent of CEOs at high-tech firms have financial backgrounds, compared with 30 percent at Fortune 500 firms.
"I think what we're going to see is relatively disappointing, compared to the late 1990s [and] 2000, but actually fairly good by historic standards," said Giga's Bartels. "I think we'll see around 3 to 4 percent growth in the real economy. You'll see business investment not being the driver but instead growing at a par with the economy. You'll see the stock market bouncing up and down but not really breaking new ground.
"It's actually in many ways a fairly balanced picture in term of growth, but it's one that after the boom of the late 1990s-2000 period, [is] going to look a little feeble," Bartels added.
In 'Digestive' Stage
Bartels pointed out that productivity actually has stayed consistent -- or even improved, in some cases -- during the bad economic times. This is the opposite of what normally occurs.
"In this case, productivity has held up very, very well," he said. "That's an indication that we're seeing the real fruits of the Internet. New technology, improved processors, improved efficiency. But efficiency of that kind requires grind-it-out product or process change. They're not things you do to get quick overnight bangs from.
"We're in the 'digestive stage' for a whole new set of technologies that came along, figuring out ways to use it effectively," he added.
-- (firstname.lastname@example.org), March 19, 2002
Wednesday March 13, 9:14 pm Eastern Time
Some software execs question second-half recovery
HALF MOON BAY, Calif., March 13 (Reuters) - Software companies and investors that expect corporate spending to tick higher after the middle of 2002 may be in for a disappointment, industry executives said on Wednesday.
``We all read the same reports. We all talk to the same customers ... People think it's going to pick up in the second half. I'm somewhat skeptical of that,'' Sybase Inc. (NYSE:SY - news) Chief Executive John Chen told Reuters at the Lehman Brothers' Global Software Conference in Half Moon Bay, California.
Chen expects the database and e-business software provider's revenues to post year-on-year growth of 20 percent to 30 percent in 2002, but said much of that acceleration would be fueled by sales in Asia as countries such as China build out lagging infrastructure.
While relatively stable buying patterns have returned and a growing number of U.S. economic indicators appear to point to rosier times ahead, Veritas Software Corp. (NasdaqNM:VRTS - news) Chief Executive Gary Bloom is thinking along the same lines as Chen with regard to software spending.
Companies laid out their spending plans at the end of 2001, and they're sticking to them, Bloom said.
``Budgets are set,'' he said. The storage management software vendor's chief executive also noted that some companies may decide to tinker with their budgets and nudge up their allowed expenses at midyear, but only if the economic recovery is on solid footing.
Even if that happens, Bloom cautioned, ``people aren't going to dramatically alter spending plans.''
``IT departments are being asked to do more with less,'' said Barry Goffe, group manager of the enterprise marketing strategy group for software behemoth Microsoft Corp. (NasdaqNM:MSFT - news).
To that end, NetIQ Corp. (NasdaqNM:NTIQ - news) Chief Executive Charles Boesenberg said the multimillion-dollar, multiyear deals that companies signed during the boom years are largely a thing of the past.
``They buy what they need when they need it,'' Boesenberg said. As companies continue to cut workers to compensate for weak revenues, many also are still digesting software purchases made in preparation for Y2K and in anticipation of expanding boom-time ranks.
Corporate mergers also create efficiencies that lower demand, Chen said. ``A lot of tech spending is based on head count. One has to assume that demand will come back slowly,'' said Chen.
-- (email@example.com), March 19, 2002.
An article from late 1999
Y2K Paranoia or Greenspan's Irrational Exuberance?
By Pierre Belec
NEW YORK (Reuters) - The stock market just keeps on climbing and Federal Reserve Chairman Alan Greenspan has been making a massive amount money available in the financial system.
Is it irrational exuberance or Y2K paranoia? Or Both?
Greenspan has permitted the biggest expansion of money supply in the Fed's history in the weeks leading up to the end of the year, when the so-called Y2K computer bug could disrupt financial systems.
The Fed's move has been explosive on Wall Street because a free flowing money faucet at the Fed boosts confidence in the financial system, and the economy at large, and is the stuff that makes bull markets get bigger.
M3, the Fed's broad definition of money, which includes currency, travelers' checks, bank deposits and money market mutual funds, has climbed $194 billion over the past 13 weeks -- the biggest increase ever. The money supply increased at an annualized rate of 15 percent, which is well above the Fed's target growth rate of only 5 percent.
Just a week ago, M3 went up a huge $36 billion, which would seem to indicate that the central bank is buying insurance against some possible disruptions as the calendar changes from 1999 to 2000, analysts said.
``The money supply has gone through the roof and the increase, adjusted for inflation, is the biggest in the nation's history,'' said Don Hays, president of The Hays Market Focus Advisory Group, an investment consulting firm.
``The Fed may be flooding the nation with cash because of jitters among central bankers that the Y2K computer bug could do more damage to the financial system than most people expect,'' he said.
``I just don't have another excuse other than Y2K to imagine why the Fed would flood the system, unless there is something that's happening behind the scenes that we don't know about,'' Hays said.
``This huge liquidity is the reason for the big rally in stocks since October,'' Hays said. ``It's a replay of the market's run-up exactly one year ago, when the Fed rushed to flood the system after the panic from the Russian loan default and the Long Term Capital Management hedge fund disaster.''
The Fed came to the rescue of the LTC fund, which teetered last year on the brink of bankruptcy due to the global market turmoil. The fund's losses threatened to slam the financial system, which in turn could have hurt the economy.
But the increase in money supply and financial system liquidity may also ``reflect Greenspan's thinking that the stock market is on a very unstable foundation because of valuations and Y2K might be the trigger that could keep it from coming down softly,'' Hays said.
One of Greenspan's goal's over the last four years of extraordinary gains in stocks has been to ``talk'' the market down, or to set the mood for the market to come down from its lofty levels in a gradual way and to avoid a panic on the Street, which would demoralize business confidence. But the market has not yet suffered a serious reversal.
And the Fed may fear that Y2K could be the thing that could yet punch a big hole in the market bubble, analysts said.
Three years ago, in December 1996, Greenspan sent global stock market reeling with a comment about investors' ''irrational exuberance,'' and Wall Streeters now say the Fed head is not practicing what he preaches.
There are few signs of panic in the run-up to the new year, when computers may confuse the year 2000 with 1900, messing up date- sensitive functions.
Corporate America says it is confident that it has fixed the Y2K problem, but the Fed is apparently not taking any chances.
The concern is that disruption on a large scale could stun corporate earnings, slam the stock market and drive the economy into recession, analysts said.
``We don't have the slightest idea how Y2K is going to play out,'' Hays said. ``From listening to all the 'informed' sources, I have to come to the conclusion that no one else does either.''
Paul Kasriel, chief U.S. economist for Northern Trust Co. in Chicago, said there is no doubt that the cash from the Fed has been the elixir for the market's rally.
``People are not borrowing just to stuff the money in their mattresses,'' he said. ``They borrow to spend and it ain't a coincidence that the stock market has picked up as the money supply has exploded.''
The Fed can boost confidence in the financial system and make the economy grow faster by making more money available to banks, which eventually leads to cheaper loans.
It can also discourage lending when the economy grows at a fast clip, and threatens to fuel inflation, by withdrawing money from the banking system, or by raising short-term interest rates.
Kasriel said the money supply growth was revved up in October, which is about the time that stocks began their recovery from a selloff that threw the Dow Jones industrial average for a loss of 1,300 points -- a classic correction of 10 percent -- between September and mid-October.
The other major market gauges were also battered, with the Standard & Poor's 500 index slumping 12 percent and the Nasdaq Composite index skidding more than 6 percent.
Since then, the Nasdaq has been rewriting the record books, making highs on an almost daily basis. In addition, the S&P last week hit a new high while the Dow Jones industrial average came within less than 50 points of beating its Aug. 25 record of 11,326.04.
``Without the money supply growth, I am convinced that the market would be in much weaker shape at this time,'' Hays said.
Kasriel said that things could get interesting for the market next year as a result of the Fed's action.
``The Fed may choose to ignore the rapid growth in credit and money that it has a hand in creating,'' he said. ``But investors ignore it at their own peril.''
Kasriel said that, unless the Fed can rope in credit demand, it will have to raise interest rates more than the half percentage point that he has been expecting in the year 2000. The Fed this year has already boosted interest rates by three quarters of a point.
``It is beyond me how the stock market could continue to be immune to further increases in both short-term and long-term interest rates,'' he said.
So the big question is: Will the 73-year old Greenspan leave his job the same way he came in, in 1987, with a stock market crisis?
For the week, the Dow Jones industrial average was down 61.48 points at 11,224.70. The Standard & Poor's 500 index was off 16.26 points at 1,417.04 and the Nasdaq Composite index was up 99.65 points at 3,620.25.
Copyright 1999 Reuters Limited. All rights reserved.
-- (firstname.lastname@example.org), March 19, 2002.