John, re boom/bust TALC:
1. in order to have repeat patterns of boom/bust, you don't need anything other than unchanging human nature. We are hard-wired to overshoot in both directions, making wrong predictions based on linear extrapolations of recent events. In the longer-term, patterns of change (like any specific technology-adoption vs. time) are never linear. They are S-shaped, or approach an asymptote, or a sine-wave. Or even random, a scatter plot. But in the short-term, the simplest pattern for us to recognise, is a linear pattern. And we have to recognise patterns, whether they are there or not, to stay sane. Our minds seize (using either definition of that word) onto a linear pattern, fall in love with it, and ignore data that might warn us that reality is diverging from the expected linearity. When the dissonance gets too large, we make a sudden, painful, and costly adjustment. That is what causes booms and busts. Until we re-wire the human brain, all our gear won't change this.
2.<<This situation seems a lot different than previous cycles to me in that the internet, bandwidth, and chip speed are all going to experience major growth going forward.>> Define "growth". Growth like the airline industry has had? That industry is about 80 years old now, and there is a consistent longterm pattern of more people flying more miles, bigger airports, bigger airplanes, faster airplanes, etc. Lots of growth. But there is also a consistent longterm pattern, that stocks in airlines go up and down randomly, and then go to zero.
3. I probably overstated the case. The TechnologyAdoptionLifeCycle isn't always boom/bust. But it frequently is, and it is now, with internet/telecom. Tentatively, I'd say the defining characteristics of a boom that has to end in a bust, is: a very rapid infrastructure buildout, financed with borrowed money. If the buildout happens slowly, with a succession of niches being serially created, then people won't get as excited, there won't be that "gold-rush" frenzy that we saw in 1999. If the buildout is financed out of cash flow of existing companies (something that will only happen in a slow buildout), then any misadventures (like putting hundreds of satellites in orbit to serve the non-existent sat-phone market) won't result in the wholesale defaults/delisting of corporations.
4. my main concern, the reason I think we may (medium-term =2003-2004) see lower stock prices in the telecom/internet services/equip area, is that the excesses (that caused the 2000-2001 Bear Market), have not been wrung out of the system. I see a bottom and a rebound in the fundamentals, but I also see a huge unresolved overhang of Moral Hazard, bad debts, over-enthusiastic stock and bond-buyers. At the bottom, PEs (using trailing GAAP EPS) should be single-digit. Maybe, with Fed Funds <2%, I'd stretch that to forward PEs around 20. Anything over that is a Bubble that hasn't deflated completely yet. At the bottom, capital should not be available. Corporations should not be able to raise money (by selling stock, bonds, anything) to buildout infrastructure to serve any unproven market.
5. So far, the impact of the internet, has been less than the changes caused by mass-adoption of railroad, or car, or telephone, or telegraph. And far less than the printing press. Each generation where those technologies became widely available, experienced the same "this-changes-everything" wide-eyed wonder that we have with the internet. We can speculate that, eventually, the internet may have a greater impact. |
