| Sorry
but bad news just keeps rolling in necessitating an updated estimate corrected
downward. Corporate profits are down, consumer spending is down, construction
is down, corporate investment is way down, and tax cuts at a time when
revenue is down because the economy is down means that the government’s
surplus is in jeopardy; that means pressure on interest rates down the
line. US domestic growth would be negative this past quarter if not
for an unexpected increase in government spending. There is also substantial
economic weakness in Europe, Japan and emerging countries such as Argentina,
Brazil and Turkey. Default in Argentina is just a matter of time even though
the leadership is doing what it can to avoid it (it’s just that the system
has been broken for so long). This is important because in earlier times
the economies were not all performing badly at the same time and the markets
were not as linked (ie: the day after Argentina defaults, hedge traders
will dump Mexican holdings and attack the Hong Kong dollar). There is also
social unrest in Argentina which should not be underestimated; severe economic
hardship in Latin America will revive left-leaning movements that were
thought to be diffused during the 80's. Both Indonesia and Japan have reform-minded
people at the top but they are given 35% probability of success due to
internal obstacles.
It is very disturbing that after all the advertising
and money thrown at infrastructure, only 8% of Americans have gone to broadband
(meaning hi-speed internet connections). There is a significant percentage
of the population everywhere that simply is not interested in Internet,
cellular telephony and/or e-mail. Some of my good friends will never see
this article because although they are “with it” in many ways, they fall
into this category. One important way to solve this problem is to really
open up local markets to competition; right now in the US there is no true
competition for local broadband providers and, in the rest of the world,
the same is true. I have broadband at home and in the office in Manhattan
because I demand it and put up with awful service for a year from our local
telco at a ridiculous price because I had no choice. True there were a
dozen companies reselling DSL lines but they were all at the mercy of the
local telcos which held up their orders for 6-8 weeks and which would leave
you without service for a month if for some reason you switched companies
or your provider went bankrupt.
I have not bought anything in equities for over
a year and I don’t think I will be buying for now. Equities in technology
stocks are still overvalued because they are still based on continued growth
of earnings, something that is out of the question in the current environment.
I expect markets to fall further over the next quarter. |