Forum Archive Index - July 2002

["Ben Dutton" <bendutton@sharechat.co.nz>]

Hi Chris,

Great post, I thought I'd take you up on issue three tho - your so called
"dot-com" era of growth.  Dot-com's didn't really have much to do with it -
that's kind of the wrong terminology to use.  Rather, it was "real"
technology companies (MS, Sun, Oracle, Cisco, Wal-Mart) that were fuelling
the fire (and in fact that is debatable in itself - see the McKinsey article
below).  The pets.com's, buyeverythingyoucouldeverneed.com's had (in the
scheme of things) a negligible effect on overall productivity and growth.
Most companies have now written down any "classic" internet investments they
may have made, or ditched them completely so I don't think we'll see many
more ramifications from the "dot.com" era.

Check out this fascinating McKinsey article on what *really* has driven the
new economy.  The only thing that makes me somewhat skeptical about the
article is that, as a consulting company, McKinsey sell the IP of
"managerial innovation" etc. to companies (ie. that's their business) so it
may be skewed towards that.  Nevertheless, it's a good read (you may have to
register to gain access).

What's right with the US economy
http://www.mckinseyquarterly.com/article_page.asp?ar=1151&L2=19&L3=67

Best Regards

Ben Dutton

----- Original Message -----
From: "Christopher Scott" <christopher.scott@clear.net.nz>
To: <sharechat@sharechat.co.nz>
Sent: Tuesday, July 23, 2002 1:06 PM
Subject: [sharechat]


> Firstly a snippet from Allan Greenspan in 1996 when the DOW was under 7000
> - He warned of "irrational exuberance" in the market.
>
> Big question: Is it still there?
>
> My view: Absolutely !!!
>
> My Reasons:
>
> 1. If indexes do reflect the "value" of a market (this is open to debate)
> then what's the difference between 1996 and now? Not much I feel except
> perhaps one very, very significant thing - There is serious distrust in
all
> things reported. This distrust has now extended itself to the cornerstone
> of the markets - the big Life and Mutual insurers. You know the guys who
> own and manage the majority of stocks in the market and make individual
> claims like "400 billion dollars of assets under management". The question
> comes back to valuation - is this real value/worth or is it just on paper?
>
> 2. The multiplier effect. When you deposit $1 in the bank, the bank is
then
> able to lend, not just your dollar, but a multiple more based upon the
> "guess/prediction/bet" that you'll probably not need it for a while. The
> same can apply to corporations with over inflated share prices - they use
> the same principle - until the bubble bursts and their share price
plummets
> (if they're lucky, if they're unlucky ? Enron, WorldCom, etc). Now what
> happens if large number of people have used their shares as asset backing
> to loans? A serious contraction of the money supply and continuing
> recession? Central bank response: lower interest rates. It was enough
after
> 9/11 but will it be enough now?
>
> 3. Was it real growth between 96-2001? Or another way of looking at it is
> to ask the question: What has really been produced in the Dot Com era that
> was of real value? Billions of web pages built at highly inflated prices
> because of the severe shortage of trained secretaries! (No disrespect to
> secretaries intended it's just that with a couple of days training the
vast
> majority of web sites could be developed and managed by secretaries).
> Static web pages are little more than brochures and should not be valued
> much more highly. No - the amount of real value created in the dot com era
> was actually quite small. Truly useful software takes a considerable time
> to develop and I'd argue that the entire process has been interrupted
> (slowed down) by the dot com era. Yea, yea, you can buy internet enabled
> software everywhere - problem is that it's underlying architecture is
> routed 7+ years ago and it (the software) doesn't even understand the
> complex relationships that can be enabled by the internet. In summary the
> question is: How many companies are valuing (or hiding) out-of-date,
> non-productive web investments as assets on their balance sheets?  Too
many
> I'd suggest!
>
> 4. The NZ Bourse: Is it really as immune as it appears to be? Nope - It's
> coming here too it's just that investors here are fooled by Telecom's
> apparent immunity to the forces that are affecting every other telco but
> Telecom dominates the NZSE40. My view is that Telecom needs to seriously
> write down its assets related to copper under the ground as it is
seriously
> under threat from the airwaves. There doesn't appear to be pressure to do
> this. Why not? I'd argue that setting up a competing network based upon
> wireless technologies could be done very quickly and inexpensively
> (relative to "assets" that telecom thinks it has in it's copper network).
> Or phased another way: How much of the $5 billion TNZ reports as assets
> will need to be written off to reflect it's true value? In Summary: If
many
> other companies are valuing assets like Telecom does, then their asset
> backing is overstated and they will be forced to right down these assets
as
> Telecom will probably be forced to do.
>
> Enough raving . . . Time will tell where the markets will go and whether
my
> (partial) analysis is correct.
>
> Anyone else got thoughts on where we'll be in 6 months time?
>
> NZ Bourse -  a correction coming? (Thank God we'll have Helen at the helm
> to deal with it - Bill can believe all he likes but I think he'd probably
> fall apart ;-)
>
>
>
>
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