RE: "nervous nellie"OK -- here goes -- "it's a done deal"!! Thats the first time I said that -- swoosh -- that felt good to say!!!
But .... in all reality the fat lady has yet to sing --- who knows at this point -- I am still very concerned there could be some trouble raising the cash --- the timing is terrible -- Nazdaq is down over 8.5% this week alone -- and to add insult to injury it is down 30% from it's highs this year -- that is bloody ugly!! We are definitely in a bear market -- the worst we have seen for a very long time --- I am really concerned that it is far from over. Take for example Cisco (the Nazdaq leader and heavy weight) -- despite being down over 31% from it's high it still trades at a PE multiple of 75 based on current year projected earnings (July/01). Then take the TSE darling Nortel -- It is down about the same amount (just over 30% from it's high -- so far) and it is trading at a multiple of about 85 based on projected current year earnings (Dec/00). These two companies are forecast to grow by 25-34% per year depending which company you look at and which analyst you believe. Just like the growth in computers (IE-Intel, Dell, Apple) is slowing so will CSCO and NT -- it is inevidible -- it will happen -- it is not a matter of if -- it is a matter of when. What kind of turmoil are we going to have on our hands when these two extreme heavy weights announce profit warnings ---- that is going to be the biggie!! And then again perhaps NT and CSCO have a few years of this kind of growth yet ahead of them before they slow. The market slowly seems to be starting to understand the risk in paying such high multiples for growth that really is not an infinite kind of thing -- perhaps the biggie will be avoided if they are not to disappoint until a few years from now -- but in the mean time I think the market is going to anticipate for it and these stocks will go sideways for some times to come -- sure there are going to be pops but they are only going to fake people out so they can lose even more money (thats how a bear markets work). And the worst thing is that we are in a situation where we cannot avoid it -- either we have a long drawn out bear market if heavy weights like NT and CSCO can continue to grow for a few more years or god forbid -- if they dissapoint sooner rather than later -- it's 1929 all over again -- and we go into a quick and deep deep hole. But the more I think about it -- it will be very different than 1929.
It really is a damned if you do -- damned if you don't scenario:
Scenario 1: Greenspan cannot control this huge economic expansion and the heavy weights continue to grow like they are. There simply are not enough people to support this tremendous global expansion (never before in our history have we had so many new businesses/technologies in the making). So if the economy cannot be slowed then hyper-inflation kicks in -- It is real fun to make money when you have next to zero inflation like we have had over the last decade or two -- but when your investments turn south while things are costing you an 10-15% (or more) each year that really hurts. The only silver lining in this scenario is that with the extreme expansion -- jobs should be plentiful (as they are now) and the wage increases should be fairly healthy (but they will hardly keep up to inflation). This scenario is horrible for most investments and especially for the overvalued ones.
Scenario 2: Greenspan will want to avoid a recession at all costs and if he is unable to avoid it he will opt for scenario 1. But supposing he is successful in cooling down this huge expansion then without a question those terrific growth rates that NT, CSCO and all the other heavy weights will be a thing of the past (at least for the time being). Remember what carnage we had with Intel -- that is only the tip of the ice berg if we see NT and CSCO start to miss their projections.
Greenspan is walking a very tight rope -- but somehow I think he will be successful in Scenario 2 - Scenario 1 (from my point of view) is much much worse it impacts a whole society and the foundation of Corporate American Business (and therefore the well being of that Nation) whereas successful execution of Scenario 2 hurts only the holders of those substantially overvalued stocks and maybe 1% or so of the general population in jobs lost. So even though I compare this devestation to 1929 (keep in mind that history never repeats) it is not (in my mind) the kind of depression thing we are likely to see (as I think this will be avoided at all costs) -- but rather a lot of fortunes are going to be devestated in a very potent teck reck (ie- it will make 1987 look like a picnic) and it will take the next 5 or 10 (perhaps even 15 years) to restore investor confidence. This is very similar to the 1929 scenario -- except this time I think a depression is avoided -- again it will be at all cost -- remember Greenspan can opt for inflation at any time he likes -- that is still ugly but believe it or not it is preferable.
Now there is one ray of hope in all this gloom --- and that is we can hope that I-Data comes up with some cash (and dishes it out soon) before this whole scenario gets too bloody -- I can certainly understand the market activity on EIC -- I certainly would not be buying at anywhere close to these levels --- like you stand to gain 16% in a very short time but you take a pretty significant risk of losing 50%(or more) in an even shorter time frame (assuming the deal falls apart quickly and it goes back down to $2.00 or less). I can totally understand any one trying to sell out at this point -- I actually tip my hat to you -- you are probably sleeping much better at night.
Wish I could offer you more surety than this -- but sorry I can't -- but I did try!!
Side note:
For anyone that is interested you might want to put some money into a good Apartent REIT. They are one of the few safe havens (other than your pillow), I can think of that should play out very well any way this thing works out. The two I like are REE.UN and CAR.UN. They are both buying properties (for up to as little as 40% of their replacement value) in the greater Toronto area and other areas where there is and should continue to be high employment. They provide an excellent dividend stream that grows very nicely each year as rents are increased and properties are added.