| home |
Editor: Carl M. Birkelbach
In as little time as nine months, the NASDAQ Composite has fallen 50%. Technology has gone from the toast of Wall Street to toast. I now believe a bottoming process is in it’s latter stages and the NASDAQ is primed to make an up move in the next three years to be as high as 8,000 and a tag-along Dow Industrial Average up to 16,000. Yes, I say this even though the market is currently suffering from a lot of negative news. You know, "A market bottom is formed when all the negative news is fully discounted. That is when everyone that could be frightened into selling has already done so. Discouragement, disappointment, apathy, fear, frustration and the most important ingredient, panic are all part of a typical market bottoming scenario," Notice the last several sentences are in quotation marks. It’s a quote from the first Lone Bull Letter dated September 11, 1981. That was when the Dow was below 800. In the middle of a negative environment The Lone Bull Letter predicted a new era, which would be reflected in three Bull Market Waves. The first wave would represent anticipation of better times, the second wave, the realization of better times and the third wave would reflect the full potential of this new era.
I believe we are now close to the beginning of the third wave in which, as far as the markets and economy is concerned, "you ain’t seen nothin’ yet". This of course is the famous line by Al Jolson at the end of the first talking movie. It’s appropriate because it was just the beginning of a new technology. The Lone Bull Revisited Letter, dated 2/24/92 (when the Dow was 3,000 and called for an 8,000 Dow) indicated some of the engine that would drive the second wave was the fall of the "evil empire", the effect of technology on productivity, the lag effect of lower taxes initiated by Reagan and a government environment conducive to business. The third wave will include all this and in addition be fueled by the long-term positive effects of the globalization of the marketplace (watch China), increased connectivity through easy communications and the internet, and the effect of the full utilization of new technology on productivity and our society.
This "third wave" should not be confused with Alvin Toffler’s 1970’s books The Third Wave or Future Shock which were a bit negative. The analysis of what we see as a third wave are more clearly spelled our in the books, Blur and Future Wealth by Stan Davis and Christopher Meyer. In our third wave "built to last" means "built to change". The problem with this kind of environment is that value will reside in intangibles such as intellectual capital, the speed in which changes can be made, service and relationships. This makes traditional stock evaluation difficult. For example, Microsoft’s sales to physical assets ratio is 12, for U.S. Steel it is 2. We believe this means that value of traditional assets should be reassessed. Earning will continue to be important, but the difficult evaluation of future growth rates will determine P/E multiples. Concepts have to be changed with each era. Perceptions have changed as we have moved from a hunting and gathering society to an agrarian society and to the industrial revolution. This era, which I will call the technological revolution, (for the lack of a better name) is calling for dynamic changes. Up until now technology and computers have been used as and valued as, "factories" to perform routine work. That’s the "Old Economy". In the real "New Economy" which I believe is just dawning, we are moving from hardware to software, from hard assets to intellectual creativity. Just as Dorothy in "The Wizard of Oz" suddenly realized "We’re not in Kansas anymore" I believe there will come a sudden realization among investors of this change. The recent NASDAQ up move to 5,000 was a bit premature. While the effect of new technology is difficult to assess, I believe that technology stocks will once again lead the way. Internet, wireless, fiber optic, video integration, voice recognition and advanced chips are probably where the action will be. The third wave will be driven by us, consumers. We will demand service anytime, anyplace, real time, on line, interactive, user friendly and customized. It’s just beginning.
Just as the economic sector has changed from agrarian to industrial (and now to technology) the financial sector has made similar dramatic changes. Historically, assets were held and controlled by the landed gentry and kings, then to corporate managers and recently to money managers and now with the democratization of information, to individuals. Individuals are realizing that net worth isn’t necessarily the outcome, but it can be the source of wealth. Put more plainly, financial wealth is shifting from money that you work for, toward money that works for you. Real wealth is not how much you spend, but how much you invest. The funds individuals commit to investment are growing quickly and will be the primary engine that drives that third wave.
Through individual ownership or through retirement plans, some 52% of Americans own investments. With this privilege comes responsibility. The more unearned income that people make, the more risk that they will bear. Depending on each individual situation, risk can be viewed not as a threat, but as an opportunity. The financial sector creates wealth by bearing, trading, and managing risk. As the average middle class family becomes millionaires, they will need more help in making financial decisions that are tailored to their needs. We believe this goal can best be made through the individual-to-individual broker/client relationship.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
This report has been prepared from original sources and data we believe reliable
but make no representations as to the accuracy or completeness. Birkelbach Investment
Securities, Inc., its affiliates and subsidiaries and/or their officers and
employees may from time to time acquire, hold or sell a position in the securities
discussed in this report, we may act as principal for our own account or as
agent for both the buyer and the seller.
Past performance is no guarantee of future success. Also, while the above suggested
prices are as listed on our reports and the sell dates and prices are as issued
by our research department, our brokers operate independently and as each individual
client has a unique risk tolerance level, the above list should not be deemed
as a representation of our clients purchases and sales. Some of our suggestions
are volatile and speculative. Therefore, these stocks are only for those investors
willing to assume risk. In addition, there may not be enough information available
in these reports to make an informed decision. Upon request, we will supply
additional information. Purchases should not be made until enough information
is obtained and risks understood.
| home |