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Nothing to post, just wanted to grab post #100
LOL
Yep Ben, Crude Oil reaching and staying in the $35-$36 range will have a direct impact on us.
BTW check this out:
Indexes resuming nose-dive, we may erase yesterday's gains if this keeps up.
Good morning Teletruth,
No need to make money everyday. Not losing any is the key.
BTW I share your concern about the indexes right now.
Dino,
Options can be very rewarding but also very deadly. I suggest that you start here:
http://www.cboe.com/LearnCenter/
and then if you want to learn more read this book:
http://www.amazon.com/exec/obidos/tg/detail/-/0130996610/qid=1075214152/sr=1-1/ref=sr_1_1/104-828959....
and before trading options for real do some paper trading for simulation.
Dell pumps money into NextIO
http://austin.bizjournals.com/austin/stories/2004/01/26/daily2.html
I want my VoIP
January 27, 2004, 4:00 AM PT
By Jon Arnold
It's been 20 years since the breakup of AT&T, and with it, the first wave of deregulation in the modern era of digital communications.
A year after that 1984 breakup, Dire Straits released their biggest hit, "Money For Nothing," with the never-can-get-enough mantra "I want my MTV."
Fast forward to 2004, and with the recent flurry of news from virtually all the major North American telecom and cable operators, one would think the world was singing a different tune--"I want my VoIP."
For a variety of reasons, not the least of which is the emerging view that the Federal Communications Commission will leave voice over Internet Protocol unregulated, the telecommunications and cable companies have all decided this is the year for VoIP.
The domino effect of recent VoIP announcements is not unexpected, and has elicited a huge collective sigh of relief from the vendor community. For the most part, their promise and hype has been replaced by performance, and VoIP solutions have now matured to the point where the value proposition can move beyond cost reduction to revenue generation. Indeed, the stars seem to be aligning in 2004.
For some time, we have been advocating that the biggest holdback for VoIP was not technology--it was the lack of competition. Market power has long been in the hands of a few service providers, whether for local access, long distance, wireless, Internet service providers (ISPs) or cable.
So why are the RBOCs (regional Bell operating companies) and Canadian incumbents getting serious about VoIP now? Competition.
So why are the long-distance carriers (IXCs) getting serious about VoIP now? Competition.
So why are the cable operators getting serious about VoIP now?
Competition.
What has changed to create this environment? The 1996 Telecommunications Act served to address the shortcomings of the 1984 breakup by encouraging competition. Early on after 1996, this was the case, but most efforts failed, and what we're left with is a world that looks more and more like it did before 1984.
The incumbents still control local access, the IXCs (inter-exchange carriers) still control long distance, and in the cable world, a handful of multiple-service operators (MSOs) still dominate. Furthermore, this concentration of market power makes life nearly impossible for new entrants, leaving it largely up to the incumbents to determine how far to go in living up to the spirit of the 1996 Telecom Act.
For vendors, the scenario is quite similar. The next-generation market initially supported a healthy vendor pool, but the reduction in capital expenditures by major telecommunications and cable companies, and subsequent absence of revenue for next-generation vendors, has led to the inevitable winnowing out, where only the strongest survive.
IP is very quickly changing the ground rules.
For the tier one service provider market, this essentially translates to the incumbent vendors such as Nortel and Lucent, and a handful of next-generation vendors whose technology has proven too effective to ignore. Vendors such as Sonus, Veraz, Telica and VocalTec certainly come to mind in the latter case. Cisco is in the mix as well, but even it is having trouble penetrating North American carriers.
Back to the question. Why now for competition driving the market? What is different this time around? In short, two words: VoIP and Vonage.
VoIP was not enough of a factor to drive competition in 1996, but it is today. Since that time, carriers have successfully used VoIP to reduce costs--not so much to create competition, but to gain efficiencies, and essentially maintain the status quo among incumbents. However, VoIP is turning out to be very pluralistic, and in our view, will be the great leveler in creating a dynamic marketplace.
VoIP is really a double-edged sword, since it allows carriers to become more efficient, but it also enables other carriers to compete in areas that were not previously viable. IP is very quickly changing the ground rules, as everyone is now competing against everyone else, and challenging the very definition of a carrier. What's the difference among RBOCs, IXCs, ISPs and MSOs, when they can all offer the same set of services?
Vonage is the second answer to the question of competition. More than any other entity, Vonage has validated two critical success factors for VoIP. First, it has demonstrated that real alternatives exist today to conventional circuit-switched voice, and second, it has proven there is a market of consumers out there who are willing to pay for such as a service, and even forgo their RBOC ties.
This scenario was inconceivable even a year ago, and the speed with which it is happening is proving to be a real wakeup call for carriers. Of course, Vonage shares the stage with similar offerings such as 8x8, VoicePulse, VoiceGlo and Galaxy, as well as the even more disruptive, free VoIP services, namely Skype and Free World Dialup. The common denominator here is proof-of-concept--VoIP works, people are using it, and consumers are saving money.
All of this grassroots activity is putting VoIP on the map, but in time, we believe facilities-based carriers will supplant these pioneers. Aside from having deep pockets, they will counter with a more reliable offering that travels over their own managed networks rather than the "best efforts" public Internet.
Until then, however, this first wave of VoIP providers is the real vanguard that is creating a nascent market, developing a viable business model and accelerating the demand for broadband, upon which the future of VoIP for everyone depends. Out of this milieu, we are now hearing the first cries of "I want my VoIP."
Just as MTV was viewed as a radical way to experience music back in 1981, VoIP will provide an equivalent jolt to the way we experience communications. The process is just beginning to unfold, and Vonage et al are much like the indie video producers, who helped shape a new visual vocabulary in the 1980s. Of course, the music-video business looks very different today, and we expect VoIP will follow the same path.
Broadband pure plays such as Vonage will pave the way, but we believe that facilities-based carriers will prevail and upstarts will be acquired, or find a solid niche in the tier two and tier three markets. However, there will be many twists along the way, including new entrants trying to cash in on the gold rush. With the barriers to entry being low, and regulatory restrictions being few, we are already seeing new Vonage-type offerings from start-ups, as well as established service providers offering VoIP for the first time.
These are exciting times for VoIP, and while only a handful will survive, there no doubt is more than one aspiring Vonage wanna-be out there humming along with Dire Straits' Mark Knopfler, thinking "that ain't working, that's the way to do it, your money for nothing..."
Temporary cell standard finds fans
Last modified: January 26, 2004, 8:38 PM PST
By Ben Charny
Staff Writer, CNET News.com
The cell phone standard EDGE is surprising many by becoming a permanent part of many cell phone networks.
The 100Kbps cell phone technology was meant as a temporary stop for cell phone carrier as they progress toward 3G, or third-generation telephone networks that at 2.4 megabits per second rival landline broadband service providers. Carriers are speeding up their networks to increase their own capacity for phone calls and to create more attractive wireless Web services.
Yet in the past few months, carriers have announced plans to launch networks that use both EDGE and the 3G standard names w-CDMA. The largest to do so was also the latest, Telia Sonera in Sweden, which late last week said it will deploy 3G standard network equipment in urban areas, where the number of possible customers is large enough to risk deploying the expensive equipment, while less expensive EDGE will serve rural areas.
Many newcomers to the "oceans of EDGE, islands of W-CDMA" deployment philosophy, as Deutsche Bank put it in a research note, are from Asia and Europe where providers were focused more on 3G and had planned only minimal EDGE deployments.
Why the change? At 100Kpbs, EDGE "hits a wireless data sweet spot" in rural areas, which are traditionally overlooked by wired broadband service providers that mainly focus their digital subscriber line (DSL) and cable modems lines in urban areas, said Chris Pearson, executive vice president of 3G Americas, a cell phone industry organization. In many areas where wired broadband hasn't reached, an EDGE service would be among the fastest Web experiences of any kind, he said.
There is another reason: economics. While there are signs of improving financial conditions overall, cell phone service providers have announced conservative capital expense budgets for this year. EDGE is "a low priced complementary solution to" the more expensive 3G technologies, Deutsche Bank said in its note.
EDGE equipment makers that stand to benefit by this shift include Nokia's struggling network division, which forecasts a slight improvement in 2004 from the 15 percent revenue decline reported in 2003. Other major makers of EDGE equipment include Ericsson, Nortel Networks, Siemens, Alcatel and Motorola.
Cisco Chief Calls Productivity New Engine of Wealth
http://www.nytimes.com/2004/01/27/business/27growth.html?ei=5062&en=d6b9560dd258d7e6&ex=1075...
Interestings stuff:
Instant messengers send voice calls using VoIP
http://www.in-sourced.com/article/articleview/1230/1/1/
Diversified telecom sector to report revenue declines
Monday, January 26, 2004 6:23:48 AM ET
J.P. Morgan Securities
LONDON, January 26 (New Ratings) – Analysts at JP Morgan Securities maintain a cautious stance on the global telecom segment.
In a research note published this morning, the analysts mention that the diversified telecom sector is likely to report revenue declines in the near-term. The analysts remain optimistic regarding the near-term revenues in the global wireless sector. JP Morgan upgrades the wireless telecom sector to "neutral," while downgrading the diversified telecom segment from "neutral" to "underweight."
Standards penetrate telecom industry
http://www.computerworld.com/developmenttopics/development/story/0,10801,89274,00.html
Mexico's TV Azteca Faces US Class Action Suit Over Unefon
...The law firm said TV Azteca "stunned the markets" by acknowledging a few weeks ago that Salinas Pliego and Saba were the ones who bought $325 million in Unefon debt to Canadian supplier Nortel Networks for $107 million, later selling the debt back to Unefon at face value.
http://biz.yahoo.com/djus/040126/1317001082_2.html
Ben,
I am still holding two positions in QQQ JAN05 puts. Naz has gone up since then but the options have hardly moved at all.
I still think that we will see Naz under 2000 soon.
Remarks by Chairman Alan Greenspan
Economic flexibility
Before the HM Treasure Enterprise Conference, London, England
(via satellite)
January 26, 2004
As the Great Depression of the 1930s deepened, John Maynard Keynes offered an explanation for the then-bewildering series of events that was to engage economists for generations to come. Market systems, he argued, contrary to the conventional wisdom, did not at all times converge to full employment. They often, in economists' jargon, found equilibrium with significant segments of the workforce unable to find jobs. His insight rested largely on certain perceived rigidities in labor and product markets. The notion prevalent in the 1920s and earlier--that economies, when confronted with unanticipated shocks, would quickly return to full employment--fell into disrepute as the depression festered. In its place arose the view that government action was required to restore full employment.
More broadly, government intervention was increasingly seen as necessary to correct the failures and deficiencies viewed as inherent in market economies. Laissez-faire was rapidly abandoned and a tidal wave of regulation swept over much of the world's business community. In the United States, labor practices, securities issuance, banking, agricultural pricing, and many other segments of the American economy, fell under the oversight of government. With the onset of World War II, both the U.S. and the U.K. economies went on a regimented war footing. Military production ramped up rapidly and output reached impressive levels. Central planning, in one sense, had its finest hour. The pattern of production and distribution depended on plans devised by a small, elite group rather than responding to the myriad choices of consumers that rule a market economy.
The ostensible success of wartime economies operating at full employment, in contrast to the earlier frightening developments of the depression years, thwarted a full dismantlement of wartime regimens when hostilities came to an end. Wage and price controls, coupled with rationing, lingered in many economies well into the first postwar decade. Because full employment was no longer perceived as ensured by the marketplace, government initiatives promoting job growth dominated the postwar economic policy framework of the Western democracies. In the United States, the Congress passed, and the President signed, the "Employment Act of 1946."
However, cracks in the facade of government economic management emerged early in the postwar years, and those cracks were to continue widening as time passed. Britain's heavily controlled economy was under persistent stress as it vaulted from one crisis to another in the early postwar decades. In the United States, unbalanced macroeconomic policies led to a gradual uptrend in the rate of inflation in the 1960s. The imposition of wage and price controls in the 1970s to deal with the problem of inflation proved unworkable and ineffective. The notion that the centrally planned Soviet economy was catching up with the West was, by the early 1980s, increasingly viewed as dubious, though it was not fully discarded until the collapse of the Berlin Wall in 1989 exposing the economic ruin behind the iron curtain.
The East-West divisions following World War II engendered an unintended four-decades-long experiment in comparative economic systems, which led, in the end, to a judgment by the vast majority of policymakers that market economies were unequivocally superior to those managed by central planning. Many developing nations abandoned their Soviet-type economic systems for more market-based regimes.
But even earlier in the developed world, distortions induced by regulation were more and more disturbing. In response, starting in the 1970s, American Presidents, supported by bipartisan majorities in the Congress, deregulated large segments of the transportation, communications, energy, and financial services industries. The stated purpose was to enhance competition, which was increasingly seen as a significant spur to productivity growth and elevated standards of living. Assisting in the dismantling of economic rigidities was the seemingly glacial, but persistent, lowering of barriers to cross-border trade and finance.
As a consequence, the United States, then widely seen as a once great economic power that had lost its way, gradually moved back to the forefront of what Joseph Schumpeter, the renowned Harvard professor, called "creative destruction," the continuous scrapping of old technologies to make way for the innovative. In that paradigm, standards of living rise because depreciation and other cash flows of industries employing older, increasingly obsolescent, technologies are marshaled, along with new savings, to finance the production of capital assets that almost always embody cutting-edge technologies. Workers, of necessity, migrate with the capital.
Through this process, wealth is created, incremental step by incremental step, as high levels of productivity associated with innovative technologies displace lesser productive capabilities. The model presupposes the continuous churning of a flexible competitive economy in which the new displaces the old.
The success of that strategy in the United States confirmed, by the 1980s, the earlier views that a loosening of regulatory restraint on business would improve the flexibility of our economy. Flexibility implies a faster response to shocks and a correspondingly greater ability to absorb their downside consequences and to recover from their aftermath. No specific program encompassed and coordinated initiatives to enhance flexibility, but there was a growing recognition, both in the United States and among many of our trading partners, that a market economy could best withstand and recover from shocks when provided maximum flexibility.
Developments that enhanced flexibility ranged far beyond regulatory or statutory change. For example, employers have long been able to legally discharge employees at modest cost. But in the early postwar years, profitable large corporations were dissuaded from wholesale job reduction. Contractual inhibitions, to be sure, were then decidedly more prevalent than today, but of far greater importance, our culture in the aftermath of depression frowned on such action. Only when bankruptcy threatened was it perceived to be acceptable.
But as the depression receded into history, attitudes toward job security and tenure changed. The change was first evidenced by the eventual acceptance by the American public of President Reagan's discharge of federally employed air traffic controllers in 1981 when they engaged in an illegal strike. Job security, not a major concern of the average worker in earlier years, became a significant issue especially in labor negotiations. By the early 1990s, the climate had so changed that laying off workers to facilitate cost reduction had become a prevalent practice. Whether this seeming greater capacity to discharge workers would increase or decrease the level of structural unemployment was uncertain, however. In the event, structural unemployment decreased because the broadened freedom to discharge workers rendered hiring them less of a potentially costly long-term commitment.
The increased flexibility of our labor market is now judged an important contributor to economic resilience and growth. American workers, to a large extent, see this connection and, despite the evident tradeoff between flexibility and job security, have not opposed innovation. An appreciation of the benefits of flexibility also has been growing elsewhere. Germany recently passed labor reforms, as have other continental European nations. U.K. labor markets, of course, have also experienced significant increases in flexibility in recent years.
Beyond deregulation and culture change, innovative technologies, especially information technology, have been major contributors to enhanced flexibility. A quarter-century ago, companies often required weeks to unearth a possible inventory imbalance, allowing production to continue to exacerbate the excess. Excessive inventories, in turn, necessitated a deeper decline in output for a time than would have been necessary had the knowledge of their status been fully current. The advent of innovative information technologies has significantly foreshortened the reporting lag, enabling flexible real-time responses to emerging imbalances.
Deregulation and the newer information technologies have joined, in the United States and elsewhere, to advance financial flexibility, which in the end may be the most important contributor to the evident significant gains in economic stability over the past two decades.
Historically, banks have been at the forefront of financial intermediation, in part because their ability to leverage offered an efficient source of funding. But too often in periods of severe financial stress, such leverage brought down numerous, previously vaunted banking institutions, and precipitated a financial crisis that led to recession or worse. But recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among many other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps.
Financial derivatives, more generally, have grown throughout the world at a phenomenal rate of 17 percent per year over the past decade. Conceptual advances in pricing options and other complex financial products, along with improvements in computer and telecommunications technologies, have significantly lowered the costs of, and expanded the opportunities for, hedging risks that were not readily deflected in earlier decades. The new instruments of risk dispersion have enabled the largest and most sophisticated banks in their credit-granting role to divest themselves of much credit risk by passing it to institutions with far less leverage. Insurance companies, especially those in reinsurance, pension funds, and hedge funds continue to be willing, at a price, to supply this credit protection, despite the significant losses on such products that some of these investors experienced during the past three years.
These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago. One prominent example was the response of financial markets to a burgeoning and then deflating telecommunications sector. Worldwide borrowing by telecommunications firms in all currencies amounted to more than the equivalent of one trillion U.S. dollars during the years 1998 to 2001. The financing of the massive expansion of fiber-optic networks and heavy investments in third-generation mobile-phone licenses by European firms strained debt markets.
At the time, the financing of these investments was widely seen as prudent because the telecommunications borrowers had very high valuations in equity markets, which could facilitate a stock issuance, if needed, to pay down bank loans and other debt. In the event, of course, prices of telecommunications stocks collapsed, and many firms went bankrupt. Write-downs were heavy, especially in continental Europe, but unlike in previous periods of large financial distress, no major financial institution defaulted, and the world economy was not threatened. Thus, in stark contrast to many previous episodes, the global financial system exhibited a remarkable ability to absorb and recover from shocks.
* * *
The most significant lesson to be learned from recent economic history is arguably the importance of structural flexibility and the resilience to economic shocks that it imparts. The more flexible an economy, the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances and thus to contain the size and consequences of cyclical imbalances. Enhanced flexibility has the advantage of being able to adjust automatically and not having to rest on policymakers' initiatives, which often come too late or are misguided.
I do not claim to be able to judge the relative importance of conventional stimulus and increased economic flexibility to our ability to weather the shocks of the past few years. But it is difficult to dismiss improved flexibility as having played a key role in the U.S. economy's recent relative stability. In fact, the past two recessions in the United States were the mildest in the postwar period. The experience of Britain and many others during this period of time have been similar.
* * *
I do not doubt that the vast majority of us would prefer to work in an environment that was less stressful and less competitive than the one with which we currently engage. The cries of distress amply demonstrate that flexibility and its consequence, rigorous competition, are not universally embraced. Flexibility in labor policies, for example, appears in some contexts to be the antithesis of job security. Yet, in our roles as consumers, we seem to insist on the low product prices and high quality that are the most prominent features of our current frenetic economic structure. If a producer can offer quality at a lower price than the competition, retailers are pressed to respond because the consumer will otherwise choose a shopkeeper who does. Retailers are afforded little leeway in product sourcing and will seek out low-cost producers, whether they are located in Guangdong province in China or northern England.
If consumers are stern taskmasters of their marketplace, business purchasers of capital equipment and production materials inputs have taken the competitive paradigm a step further and applied it on a global scale.
From an economic perspective, the globe has indeed shrunk. Not only have the costs of transporting goods and services, relative to the total value of trade, declined over most of the postwar period, but international travel costs, relative to incomes, are down, and cross-border communications capabilities have risen dramatically with the introduction of the Internet and the use of satellites. National boundaries are less and less a barrier to trade as companies more and more manufacture in many countries and move parts and components across national boundaries with the same ease of movement exhibited a half century ago within national economies. A consequence, in the eyes of many, if not most, economists, world per capita real GDP over the past three decades has risen almost 1-1/2 percent annually, and the proportion of the developing world's population that live on less than one dollar per day has markedly declined.
Yet globalization is by no means universally admired. The frenetic pace of the competition that has characterized markets' extended global reach has engendered major churnings in labor and product markets.
The sensitivity of the U.S. economy and many of our trading partners to foreign competition appears to have intensified recently as technological obsolescence has continued to foreshorten the expected profitable life of each nation's capital stock. The more rapid turnover of our equipment and plant, as one might expect, is mirrored in an increased turnover of jobs. A million American workers, for example, currently leave their jobs every week, two-fifths involuntarily, often in association with facilities that have been displaced or abandoned. A million, more or less, are also newly hired or returned from layoffs every week, in part as new facilities come on stream.
Related to this process, jobs in the United States have been perceived as migrating abroad over the years, to low-wage Japan in the 1950s and 1960s, to low-wage Mexico in the 1990s, and most recently to low-wage China. Japan, of course, is no longer characterized by a low-wage workforce, and many in Mexico are now complaining of job losses to low-wage China.
In developed countries, conceptual jobs, fostered by cutting-edge technologies, are occupying an ever-increasing share of the workforce and are gradually replacing work that requires manual skills. Those industries in which labor costs are a significant part of overall costs have been under greater competition from foreign producers with lower labor costs, adjusted for productivity.
This process is not new. For generations human ingenuity has been creating industries and jobs that never before existed, from vehicle assembling to computer software engineering. With those jobs come new opportunities for workers with the necessary skills. In recent years, competition from abroad has risen to a point at which developed countries' lowest skilled workers are being priced out of the global labor market. This diminishing of opportunities for such workers is why retraining for new job skills that meet the evolving opportunities created by our economies has become so urgent a priority. A major source of such retraining in the United States has been our community colleges, which have proliferated over the past two decades.
We can usually identify somewhat in advance which tasks are most vulnerable to being displaced by foreign or domestic competition. But in economies at the forefront of technology, most new jobs are the consequence of innovation, which by its nature is not easily predictable. What we in the United States do know is that, over the years, more than 94 percent of our workforce, on average, has been employed as markets matched idled workers seeking employment to new jobs. We can thus be confident that new jobs will displace old ones as they always have, but not without a high degree of pain for those caught in the job-losing segment of America's massive job-turnover process.
* * *
The onset of far greater flexibility in recent years in the labor and product markets of the United States and the United Kingdom, to name just two economies, raises the possibility of the resurrection of confidence in the automatic rebalancing ability of markets, so prevalent in the period before Keynes. In its modern incarnation, the reliance on markets acknowledges limited roles for both countercyclical macroeconomic policies and market-sensitive regulatory frameworks. The central burden of adjustment, however, is left to economic agents operating freely and in their own self-interest in dynamic and interrelated markets. The benefits of having moved in this direction over the past couple of decades are increasingly apparent. The United States has experienced quarterly declines in real GDP exceeding 1 percent at an annual rate on only three occasions over the past twenty years. Britain has gone forty-six quarters without a downturn.
Nonetheless, so long as markets are free and human beings exhibit swings of euphoria and distress, the business cycle will continue to plague us. But even granting human imperfections, flexible economic institutions appear to significantly ameliorate the amplitude and duration of the business cycle. The benefits seem sufficiently large that special emphasis should be placed on searching for policies that will foster still greater economic flexibility while seeking opportunities to dismantle policies that contribute to unnecessary rigidity.
Let me raise one final caution in this otherwise decidedly promising scenario.
Disoriented by the quickened pace of today's competition, some in the United States look back with nostalgia to the seemingly more tranquil years of the early post-World War II period, when tariff walls were perceived as providing job security from imports. Were we to yield to such selective nostalgia and shut out a large part, or all, of imports of manufactured goods and produce those goods ourselves, our overall standards of living would fall. In today's flexible markets, our large, but finite, capital and labor resources are generally employed most effectively. Any diversion of resources from the market-guided activities would, of necessity, engender a less-productive mix.
For the most part, we in the United States have not engaged in significant and widespread protectionism for more than five decades. The consequences of moving in that direction in today's far more globalized financial world could be unexpectedly destabilizing.
I remain optimistic that we and our global trading partners will shun that path. The evidence is simply too compelling that out mutual interests are best served by promoting the free flow of goods and services among our increasingly flexible and dynamic market economies.
Good day Ben,
IMO today could be one of the last few good opportunities for gold stocks.
Interview: VoIP set to transform communications in the enterprise
http://www.infoworld.com/article/04/01/26/HNnealshactint_1.html
Good morning Dart,
Welcome to I-Hub, glad to see you here. I think that you'll find this place "refreshing".
Good question! Anyone has any opinion on that?
Rich Americans cautiously upbeat on U.S. economy
http://biz.yahoo.com/rf/040126/economy_confidence_rich_1.html
That Five-Year Forecast Looks Great, or Does It?
By MARK HULBERT
Published: January 25, 2004
ALTHOUGH the stock market is not as expensive as it was in early 2000, it has many "pockets of craziness," in the view of Josef Lakonishok, a finance professor at the University of Illinois at Urbana-Champaign.
Professor Lakonishok bases his assessment on a historical study that found that companies trading at high price-to-earnings ratios almost never grow as quickly as they need to justify their high valuations. The study, published last April in The Journal of Finance, was written by Professor Lakonishok and two other finance professors: Louis K. C. Chan, also at Illinois, and Jason J. Karceski at the University of Florida.
As part of their research, the professors checked a database of all publicly traded domestic companies for those whose earnings at any time from 1951 to 1998 grew at more than the median annual rate for five consecutive years. That may seem a modest prerequisite, since that median over those 48 years was around 6 percent. But very few companies met that condition, and those that did were rarely those that investors had valued at the high end of the spectrum. The professors concluded that very high P/E ratios were hardly ever justified.
In 2004, however, many investors evidently expect that some companies' earnings will grow much faster than 6 percent a year. To show that, it's necessary to do some math. Consider eBay, whose P/E ratio, based on earnings for the 2003 calendar year, is around 102. Assuming that eBay's stock price grows just 8 percent a year for the next five years, to $102 from its current $69.35, and that its P/E ratio in early 2009 is 40, then its earnings per share will have to grow 30 percent, annualized, for the next five years to justify its current valuation, according to Professor Lakonishok.
He says these assumptions are conservative. An 8 percent return is below the stock market's annual average over the last century. And a company's P/E ratio almost always declines as its business grows and matures. Over the long term, the market's average ratio is below 20. To the extent that eBay's ratio five years from now is lower than 40, or that its stock price grows faster than 8 percent, annualized, its earnings will have to grow even more than 30 percent a year to support its current valuation.
Professor Lakonishok has not studied eBay's business in particular, so he does not want to estimate its earnings growth over five years. But, he said, "based on the experience of U.S. companies over the last 50 years, the probability that a large company will achieve such a growth rate is probably not higher than winning the lottery."
Of course, eBay is not the only company for which investors have huge growth expectations. According to Thomson First Call, consensus forecasts of analysts now project that more than 100 other companies will have earnings growth of at least 40 percent, annualized, over the next five years.
While the professors' study was published only last spring, they completed the supporting research in early 2000, as the Internet bubble was bursting. In an interview in May that year, Professor Lakonishok focused on Cisco Systems, whose stock had a P/E of about 190 at the time and was trading near $67 a share. Assuming that its ratio in five years would be 50, and that its stock price would grow 22 percent, annualized, through May 2005, he calculated that Cisco's earnings would have to grow nearly 60 percent a year to support that high ratio. He argued at the time that this was very unlikely.
THOUGH a little more than a year remains on those five-year forecasts, it is clear that investors' growth expectations for Cisco were much too optimistic. Over the last four years, its earnings have grown just 11 percent, annualized. And though its P/E is close to 50, the number used in the professor's illustration, its current stock price, $27.33, is 59 percent lower than in May 2000.
Professor Lakonishok says he believes that investors will be similarly disappointed today if they build a stock portfolio from the many companies whose earnings are projected to grow at very high rates over the next five years.
Cisco stock may need strong net growth-Barron's
1/25/2004 3:00:37 PM
NEW YORK, Jan 25 (Reuters) - Shares of Cisco Systems Inc. (CSCO) , currently riding a wave of optimism over prospects for the technology sector, may need a strong fourth-quarter earnings report to justify its lofty heights, Barron's reported in its Jan. 26 edition.
Cisco, the world's largest maker of gear that directs Internet traffic, is due to report earnings next week.
Barron's reported the company's stock is currently trading at 38 times expected earnings for the July 2004 fiscal year.
That lofty price, columnist Bill Alpert said, "hasn't been justified by any growth that Cisco's shown in recent eons -- pending next week's report, of course."
On Friday, Cisco's stock closed at $27.33, down 89 cents on Nasdaq, just below its 52-week peak of $29.39.
Alpert believes Cisco's earnings are set to rise, since businesses have begun spending again. He cited its new Internet Protocol Version 6 -- IPv6 for short. The technology is the next generation communications standard for the Internet, and Cisco has been offering the necessary technology for longer than other vendors.
VOIP No Longer Just For The Geeky
http://www.usnews.com/usnews/issue/040202/biztech/2voice.b.htm
Bay St Week Ahead-Blue skies forecast for Toronto stocks
http://www.reuters.com/financeArticle.jhtml?storyID=4201905&newsType=usGoldRpt&menuType=mark...
Stocks to watch Monday - CBS MarketWatch
Lucent Technologies (LU: news, chart, profile), the telecom equipment maker that evolved from the old Bell Labs, is a less speculative stock play after two consecutive quarter of profits, says Barron's. But stock gyrations could continue, says Lucent CFO Frank D'Amelio, as $631 million worth of warrants come into play. They are set aside as compensation in a stockholder suit over accounting irregularities. Merrill Lynch, says Barron's, estimates an 8 percent stock dilution from the warrants. Other shares are marketable, says Barron's, as Lucent pays off convertible debt, in part with shares.
A Wireless Deal Could Trouble Gear Makers
http://www.nytimes.com/2004/01/24/technology/24gear.html?ex=1161320400&en=5b8584e7eafe2cf1&e...
INTERNET TELEPHONY Conference & EXPO Miami
Avaya, AT&T, Cisco, Nortel Networks, Lucent Technologies, Net2Phone, ITXC, Alcatel, Level 3, British Telecom, Siemens Highlight Program at INTERNET TELEPHONY Conference & EXPO Miami
NORWALK, Conn.--(BUSINESS WIRE)--Jan. 22, 2004--
Leading Companies Present Sessions, Deliver Keynotes at First Major VoIP Conference of 2004
Technology Marketing Corporation (TMC(R)) released today the impressive list of presenters to appear at this year's first major VoIP conference, INTERNET TELEPHONY(R) Conference & EXPO. The event takes place February 11-13, 2004 at the Hyatt Regency Hotel in downtown Miami.
Among the participating companies are industry leaders Avaya, AT&T, Cisco Systems, Nortel Networks, Lucent Technologies, Net2Phone, ITXC, Alcatel, British Telecom, Siemens, Quintum, AltiGen, Alcatel, AudioCodes, Texas Instruments, CITEL, RADVision, dynamicsoft, Motorola, Level 3, and Qwest.
For a complete list of sessions and their presenters, please visit www.itexpo.com.
INTERNET TELEPHONY(R) Conference & EXPO is a targeted and innovative conference featuring what many believe to be the most comprehensive education available in regard to selecting and deploying VoIP solutions. IP telephony voice and data products offer businesses and telecommunications service providers a lower-cost, more feature-rich alternative to traditional telecom services.
The show features three days of conferences, top notch keynote speeches from AT&T, Nortel Networks, Avaya, Siemens, and 3Com, the best networking opportunities, and an Exhibit Hall featuring more than 60 vendors showcasing all of the latest in IP telephony technology.
"The powerful lineup of presenting companies we're releasing today is a clear indication that this, our ninth INTERNET TELEPHONY(R) event, is one of the strongest so far. VoIP is clearly leading the telecom resurgence in recent months and continues to gain traction as a cost-effective alternative to traditional phone services," said TMC president Rich Tehrani.
"Small and large enterprises, the Government, public sector organizations -- as well as service providers and resellers -- gather in sunny Miami for this event because they know they'll leave with tangible solutions and ideas they can implement immediately. And this year's impressive speaker roster only adds to the value," added Tehrani.
Mindready Solutions warns of revenue fallout from Nortel outsourcing
http://www.cbc.ca/stories/2004/01/23/mindready_040123
Dino,
I am willing to give I-Hub a try for a while. If I like it and enough people move over from RB I will buy a premium membership. I like that feature where you can view from 10-100 posts at a time and just scoll down. Much better than clicking on NEXT 100 times.
Tele, I second your suggestion to have Ben as the board chairman. Let's hope that he moves over here quickly.
Nortel to divest of manufacturing activities
http://www.telecom.paper.nl/index.asp?location=http%3A//www.telecom.paper.nl/site/news_ta.asp%3Ftype...