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Author: ZenvestorB Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1933  
Subject: Progress and Tech Spending Date: 2/4/2003 9:34 AM
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Hi Everybody,

I guess Cisco is reporting are giving a forecast around today. I have a pet theory that the stock market in general cannot advance significantly without technology stocks also advancing.

My thought goes something like, the one thing that US companies want is to improve their ability to make profit. As has been seen over the last 20 years or more, the use of technology is at least perceived to improve operations, lower cost, and thus increase profits. While in certain cases, maybe many cases, the actual results have fallen short of the expectations, almost any reasonable technology update produced some benefit. For examples, PC spreadsheets to word processing to e-mail to B-to-B internet connections, etc.

Thus I'd propose that corporate progress is tied hand-in-hand to technology progress and implementation. While some believe it is tech that drive corporate progress, I'd say that corporate success provides the cash to purchase tech products and allow further tech progress. But regardless, it seems that only when technology does well does the market conclude all is well in the business world.

For instance, currently in a time of great uncertainty, many industries are showing good to decent results. Homebuilders results are unbelievable, healthcare continues to post good returns, surprisingly even financial institutions and hotel/lodging companies are posting decent results. But the general attitude of the market and the economy is akin to the disappointments from IBM, Microsoft, Intel and probably Cisco.

I'm not saying that my theory of Tech as the market is usable or telling in anyway, but I think that the evidence is compelling that as one single benchmark for economic and market sentitment, major tech is as good as any other.

ZB
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Author: woodstove Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1626 of 1933
Subject: Re: Progress and Tech Spending Date: 2/16/2003 4:38 PM
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Hi Everyone,

Tech spending is a good indicator I think. Some anecdotal evidence that the slump is ending - my business has really picked up during the past few weeks. Companies upgrading systems (maybe 1999's Y2k related glut is finally wearing off), getting faster network connections, thinking about ways to use computers to improve their business / reduce costs. Also the manpower situation is starting to turn around, with some inquiries about outsourcing, but things are still extremely tough for new graduates and those laid off from downsizing employers. Friends confirm the impression of turnaround, eg local computer store owner says his business in Feb is way up over Christmas which was low and would have been normally a high volume month.

Regarding short selling, another thread, it seems extremely risky to me. Is it being pushed as a retail strategy now? I sorta get the impression.

Also, at the hedge fund level, I think there might be too many players. The supply of talent and opportunities is probably fewer than the number of fund managers and situations. Expect screwups and disappointments. I don't know how the mutual fund of hedge funds situation works, but I've heard of mutual funds which have lost money nonetheless sending their fundowners a tax bill - so there is some transparency in some situations and it may be not entirely capped exposure if a hedge fund has a loss in such a way that it generates a large intermediate taxable gain. Yikes! is my reaction, but I'm not a very trusting guy when it comes to funds.

My own preference in the markets and in business activities generally is for more friction, not less. As long as financial relationships can skid around quicker than production relationships can be adjusted, it will be disadvantageous to risk one's capital long term in anything real such as a manufacturing business. Or rather, capital premiums required might be excessive. I have no idea what likely will be the tax laws, import duties, liability exposures, or other context say 10 years hence. Decisions seem not to last very long, and tax proposals last only a couple of months.

So I guess, despite the indicators of a turnaround, I don't think there will be a good climate for long term investment in production or complex organizations for quite some while. Safe businesses may continue to be quick-delivery quick-profits operations, favouring the distributor vs the manufacturer, the intermediary vs the originator. ROE for the nimble may look pretty good as long as some other sucker is willing to anchor it by investing in low ROIC portions. The optimal deployment of one's investing capital may have to be similarly nimble, STBS not LTBH, at least for the small non-influencing investor.

Thanks Zenvestor for the link to your AOL site. Very interesting reading.

Woodstove

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