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Whistling a Happy Tune
Embracing Mediocrity, Tech Investors Sing a Hopeful Tune
Have you ever heard the old standby tune that runs "I whistle a happy tune and every single time the happiness in the tune convinces me that I'm not afraid. When shivering in my shoes, I strike a careless pose and..." I could be wrong, but I think it was by
As you may have guessed from the song, I'm an old coot. I was there in '74-'75 and '81-'82, and anyone who thinks this is over is kidding himself. The glut of manufacturing capacity and the stupefying load of debt -- much of it varying from dodgy to outright nonperforming -- is not going to go away, not any time soon. The liquidity that
is pouring on the economy will come back to haunt us -- trust me, it will.
Alan Greenspan is like a man whose car skids and tries to steer out of it. The problem is that he oversteers and the car fishtails. The worse it gets, the more he oversteers until he rolls it. Mind you, I'm not a bear, I'm an old bull for whom this is deja vu all over again. The longer we stave off the day of reckoning, the worse it will be when it comes. Try to have a nice day.
-- Jim Bennett
Playing Follow the Leader
Harley's Sales Are Born to Be Mild
You seem to think "Harley's Sales Are Born to Be Mild" for all of the same reasons we keep hearing from everyone else who doesn't understand the mojo that fuels Hog sales.
The specific reasons you list about the Japanese knockoffs, non-
that "sound and look very much like Harleys," being a threat to Harley sales is more of a tribute to the leader than a threat. After all, those knockoffs weren' t produced by accident. All of the "V-Twin Knockoffs" are out there because of the high price of the "McCoy." Ask anyone who owns either about what they really want to ride. In many cases you'll find the knockoff bike is entry level and the real one is still the goal. As in "yet to be purchased."
You also fail to address the company's most recent venture into safety training for prospective riders wishing to get cycle endorsements. Creating more market for sales and even more brand loyalty. Witness the new low-cost "trainer" model and buyback guarantee for full value in trade for another Harley.
Check out the MSRP on those Big Twins and let me know if you find any Harley-Davidson dealership in the U.S. that will let one out the door for that price or less.
Coming In for a Crash Landing
The Keys to Success in a Post-Tech World
I appreciate your thoughts on the tech sector and find your thoughts interesting. However, how do your thoughts change, if at all, if the economy heads into a hard landing? My thought is that with the dramatic excesses built up in the U.S., a hard landing would set us much further back in our restructuring. Even with an aggressive
, a hard landing is likely. Looking at the recent jobless report, lower rates have not made their way into the economy yet. There are some economists who believe that Fed funds may go down to 2.5%! A frightful indication of how bad things may get. The situation in the U.S. seems oddly similar to that of Japan in the early '90s and they still haven't gotten out of their recession yet - - even with 0% interest rates. If there is to be a replacement cycle in the PC market, I think it would happen in Japan before the U.S.
-- Peter Yuen
Value of Analysis
Sniffing Out Bad Stocks
You should have been more complete in your reporting and mentioned that the
books and not found anything significant.
Certainly no one can fault the need for analysis, but it is virtually impossible to counter the damage that can be done when those opinions are published.
report prompted a large decline in the value of Tyco stock, which resulted in the SEC conducting an informal investigation. Nine months after the Tice report was released, the SEC concluded the Tyco investigation after finding that only a few minor below-the-line adjustments had to be made.
I agree with your premise that it is important to do analysis, but it is more important to be responsible when publishing anything about any stock.
If you want to use examples of the harm that can be done when a good stock is slammed, report on the millions of dollars it cost Tyco to reply to the SEC investigation, as well as the billions of dollars lost when stockholders believed that the Tice report was "sniffing out a bad stock" and sold Tyco at artificially depressed prices.
There is also the ongoing damage done due to investors who abandoned Tyco, sold their positions and invested elsewhere. The law of supply and demand is still operative and continues to reduce the demand for Tyco stock to this day.
-- George Auger
Don't Buy the Hype
Streetside Chat: Ravi Suria
That chat shed much-needed light on a very dark subject! Although many of today's young CEOs would love to shoot the messenger instead of consulting him for advice.
articulate and forthright manner has given this reader some reassurance in a world that seems to be buying more hype than knowledge. "You can pray all you want, but the debt is not going away" ... "These companies are in denial, and so they are laying off people when they should be seeking protection from creditors." As a former
employee, I can relate.
-- Eric Gill
Ravi was entirely too kind. The consumers have been doing a bit of debt financing on their own, too ... With bad debt being the backdrop, why stick to bank stocks? I mean, real estate is going to be the last shoe to drop, and they've gone way beyond any historic all-time highs! The banks are financing the real estate bubble.
Still Playing the Bounce
A Longtime Bear Turns Bull
Don't believe all the talking heads you see on TV and the Net when you go looking for negativity.
Look for how people are betting with their money. Despite what you hear day to day, they are buying calls! Look at the long-term call/put ratios on the QQQ. All the way up: put buying. All the way down: call buying. We still have lots of call buying. You may think everyone's negative, but the markets are showing lots of bounce-players, even now. These guys have to go away. It's not any different this time.
The Issue at Cisco
UBS Sees More Weakness at Cisco
Your article smacks of trying to pick a bottom. While I agree that the stock could drop more, at $20 , many "long-term investors" will begin to see it as attractive based on assumptions of a return to a "normal" growth rate. The issue for
is macro, not company specific. When the macro fundamentals turn up, CSCO will also turn up. Waiting for the stock to hit $15 is a poor strategy bottom fishing. A better argument may have been: "Where else should I put my money?" Or possibly "CSCO: short-term dead money?"
-- Paul Webber
You Missed One
Fuel Cells' Technology, Economics Shape Coming Market
You missed one in your look at the fuel cell investment landscape. We had to write to you and point out that there is a fast-growing, fifth, publicly traded player in the sector --
-- Joel Pomerantz
A Better Bill
Scrap Bush's Tax Bill
James K. Galbraith:
Perhaps a simpler but more innovative idea would be to provide a tax write-off or even better, a tax credit towards computer purchase for all individuals and perhaps even a year or two of Internet access to get people started on the Net. Perhaps for those who have computers it can be used toward upgrades or peripherals or high-speed Net access. Not only does this give an added boost to that sector of the economy most in need -- technology -- but has the added benefit of ending the digital divide. Plus with all households having a computer, the government could consider actions using the Net for communications therefore streamlining some aspects of local and federal government, perhaps saving a lot of money besides the obvious productivity and/or efficiency benefits. Also, certain applications might be spurred on whether in software or broadband access as the potential end market and therefore potential profit is larger. I could go on forever with all the benefits of having a computer in every household as I'm certain you could also.
Perhaps most compelling argument is the above-mentioned point, that it would give a possible boost to the technology sector.
-- Richard Grossman
Mining for Gold
Tech Firings' Silver Lining: Talent Is More Likely to Stay Put
I'm a software engineer who has recently quit from a start-up.
The situation that you describe is not going to have a significant effect on tech companies' budgets. They will save for the next six-nine months by laying off and by not giving anyone a raise. But then they will be short of people again, and engineers will then want money, not stock options. You will probably see a trend in which engineers want to be contractors or consultants, and in which very few want to have ISOs in start-ups anymore.
In the last few years, engineers' salaries have risen less quickly than would be explained by supply and demand. Many people will now want cash. Some of this will have to do with immigration policy; if the U.S. cuts back on immigration, engineering prices here will go up.
In the past, I have made trade-offs between stock and cash when taking a new job at a start-up. I have been at seven start-ups and have been through three
IPOs in 19 years. I can tell you that the majority of engineers don't do this, especially the younger ones who have no experience with negotiation. They go with what is offered or they don't take the job at all.
I have been trading off in favor of stock and against cash, a mistake I won't make again for a while. The last time it worked well for me was when I was at
, which had its IPO in 1993. I have been at three other start-ups since then. These days, I am going to take cash, and I won't work for a start-up for a few years, because the executives in start-ups don't know how to manage risks properly. They don't know how to set expectations.
The best way tech companies can save money is by firing bad managers, but in many cases that means you have to get rid of the CEO. Managers' mistakes are leveraged through many layers of people, and are far more costly than individual contributors' mistakes.
Keeping Options Open
Employee Options Repricing at Inktomi Strikes Watchers as Troubling
That's a well-written piece on
. I think there should be a footnote to its position however.
I like Inktomi's business model and management. I sold it at 116.00 -- when they lost
as a client.
I agree with the position that repricing opens the door to abuses and counterproductive incentives, but let's remember this ridiculous market and its fluctuations. In any other market I would agree with your criticisms. But the
made it difficult for companies like Inktomi to hire their key employees and give them proper incentives.
Just think, an extremely valuable body/mind is hired on the day the stock was at 241.00. What are they going to do other than give him a commiserate options package? As insanely as the stock skyrocketed, it fell, and this guy could be a key employee who needs
to be retained.
of the world are invaluable. I think
should be repricing their options!
If you were discussing "Old Economy" stocks, I would agree. But tech employees have been unfairly punished. I think they can be rewarded without punishing the shareholder.
Do the Math
Bubble Math and How to Avoid It Next Time
Your story was a good start. But I have some points to add, as I think the entire country needs to take a hard look at the craziness that the market has taken the U.S. economy through in the past two years.
The Individual Investors: I am all for democratic, do-it-yourself trading, but this got way out of control. Aside from the fact that it pumped up the market by putting a lot of new cash into it, it also had negative effects. One individual investor making a misinformed mistake -- misinformed being big here -- does not present problems for anyone else besides the individual. However, we saw a "Net-effect" where all the novices were making the same mistakes, and thereby driving up the price of the tech stocks as a whole. That just stimulated more mistakes, and thus a vicious cycle was running until the companies finally ran out of operating cash.
These people were also blinded by the fact that since they could now do online trading, they felt that everything tech was gold. This pushed an inordinate amount of money to the tech stocks and continued to inflate the bubble. This is a cycle of the buyer projecting his experience onto the rest of the market. For awhile it seemed that the only function of the economy was to put more money into technology so we could have more technology so we could put more money into technology.
The Geeks: those who actually thought that the dis-intermediation that online commerce brought would actually push out Old Economy brick-and-mortar businesses. This is typical of technical efforts of people who watch too much
and focus on the ideal vision but don't temper it with reality.
They believed that the online customers would be more loyal to the dot-coms than to the brick-and-mortars. They invested in advertising to obtain brand loyalty, get early market share and provide barriers of entry to new players. This is reasonable; the amount spent was not. The very nature of online business means that it is easier than before for a buyer to switch brands -- only a couple more mouse clicks, vs. finding and driving to a new store.
Ignorance: Too many were ignoring the facts. Not only did people ignore the nonexistent business models of the companies, they neglected to look at their cash flows. Ex: Q3 1999
-- which was in the peak of the bubble -- $197,080,000 loss on revenue of $355,777,000. Would you buy a business with these results? How were they going to get the cash to keep going? Simple. The stock price was the only thing that mattered.
The Media: yes, you and most anybody who publishes. Hype is your bread and butter. When
was made man of the year I had to stop myself from regurgitating. Amazon is actually one of my favorite online sites, but that doesn't mean they don't have to make a profit to stay alive. They have made many contributions to the online world in general, but anyone who took even a quick look at their finances knew that something was wrong. In my opinion his hanging -- real or in effigy -- would be a nice end to the bubble bursting and maybe help some people to start looking forward again. The overloading of the investors with information --
, email, Web sites, palm pilots, now wireless -- only pump up the frenzy and the hype.
I had a long discussion with a friend of mine with a newly acquired
MBA in summer '99, and he couldn't justify the high prices for these stocks, yet wouldn't disagree with them. That literally scared the money back into my old funds, never to see a dot-com again. His head was spinning just like everyone else's, and he couldn't even use his incredibly sharp brain and well-honed intellect to look past the greed.
Why did we let all of this pull the wool over an entire nation's economic eyes? Because we were so fascinated with the new technology that we would believe anything we were told, so much so that our instincts and basic reason were worthless! Because the new hip commercials with kids with green hair made us feel old and stodgy?