While I'm loving our little bounce in insurance and real estate - two nice, stable, recession resistant business lines - to everything there is a season.
Yes...there are problems with tech right now. They're deflating from a bubble the likes of which we'll be telling our grandkids about. Competitive advantage in that arena is fleeting at best - at the mercy of the next 25-year-old grad student with a good idea.
Heck...I'll even stand here and state that there is another big wave downwards in tech before the bottom. John Q. Public is doing his taxes this week - he will be getting two ugly surprises. First...most of his tech funds are probably down at least 20% to 30%. Ouch. And to add insult to injury...at least one of those funds slapped him with a taxable capital gain. Despite the fact the drop just wiped out last year's contributions...or more. Think he's gonna like that?
Prepare to watch the fund flow divert (even further) into income bearing investments and get ready for a redemption cycle in the mutuals - as each round of customer redemptions forces management to raise cash and pushes NAV down further. Of course...a lower NAV will convince more investors to sell - pushing things down even further. Heck, even a slowdown in new contributions into the sector could start to drive redemptions. Think anyone's gonna hold tech stocks these days unless they think they can make a quick buck? Flat market action is probably as good as down for driving redemption activity.
And there are going to be more earnings warnings too. Wanna know what drove some of that wonderful profit growth during the 90s? Employee stock options taken in lieu of cash. Ain't gonna work anymore. I suspect employees these days are gonna want good old American cash - paid when services are rendered - instead of dilutive equity funny money. Expect to see a jump in employee compensation and G&A costs...or a bunch of option re-pricings that will tick off investors. And another thing...remember growth via acquisition and using your overpriced stock as currency? Forget about it. Ain't gonna happen. Expect to see more cash and a lower premium placed on equity exchanges. Especially within the tech sector.
My personal forecast for the Nasdaq is about 1000. I'd guess that trend is probably between 1500 and 2000...but we've got enough ignorant yahoos sucked into the bubble that I think we're going to punch it big time.
I think a lot of the stuff I said could also apply to index funds and the S&P 500...folks keep pumping the money into index funds that "match the market." Guess what? "The market" remains overpriced...junk is junk. Held to maturity (20 years), an S&P 500 index might be able to provide a 5% return over the next 20 years. With a big nasty dip in the next few years once folks realize they can get a better deal with a T-bill.
Index funds represent di-worsification rather than true diversification...market baskets of overpriced stocks bought in hope they will get more overvalued.
Now - having emptied the clip at tech stocks and the S&P index funds - there is a bottom and it will be a beautiful one.
You see, software, networking, genomics, e-commerce, and (gasp) even e-tailers aren't going away. And once they get down to the value of their assets...some of them will continue to have a positive cash flow. They will probably prove to be better bargains than these insurance companies and real estate businesses we all love around here.
And thus, the next value investor will be the one who understands the tech wreck and profits from it.