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Saturday morning, November 11, 2000
SPECIAL ELECTION CONFERENCE CALL: On Friday, Nov. 10, Mark Melcher, an independent political analyst, and I discussed the likely consequences of the Presidential election mess. You can listen to the rebroadcast at www.yardeni.com/waf.asp. DEUTSCHE BANC ALEX. BROWN'S TECH 2000 CONFERENCE: Watch this premier annual tech conference live from Nov. 13-16. I will speak on the outlook for the tech industry on Tuesday, Nov. 14 at 11:30 am (est). Register now at www.webevents.broadcast.com/db/techconf1100/frameset.html. COMMENT: In the latest Congressional elections, the Republicans still held on to their majorities in the Senate and the House, but barely. Whoever is the next President has no mandate whatsoever. The voters in their collective wisdom have given us the most gridlocked political system in our nation's history. This suggests that the country is evenly and hopelessly split into two factions with very different agendas. Or else, the country is mostly satisfied and prefers to veto both the Gore and the Bush agendas. I think the latter is a more accurate interpretation of the Presidential and Congressional votes. Obviously, this political stalemate could be a decidedly bearish outcome, especially if the legitimacy of the new president is questioned. More likely, the new president and Congress will seek out common ground for bipartisan legislative initiatives. The stock market may remain on the defensive until this outcome is clearer. In any event, extreme policy changes are now almost certainly extremely unlikely. This should ultimately be bullish for both bonds and stocks. SUBSCRIBERS: For more of my thoughts on the election, see my latest GLOBAL PORTFOLIO STRATEGY, which also includes my outlook for profits in 2000. The latest EARNINGS WEEK reviews the significant drop in consensus earnings expectations. EXCERPT (Nov. 6 GPS): "Last week, I had the opportunity to speak at a conference in Santa Clara, California on the impact of new technologies on the real estate industry. While I was in Silicon Valley, I also stopped by the Deutsche Bank office in Menlo Park. It is located on Sand Hill Road, the West Coast's Wall Street for high-tech startups. The well-manicured road is lined with the offices of venture capitalists (VCs). I am happy to report that while the tech wreck in the stock market may have wiped out most dot-coms, their financiers are alive and well. They are regrouping and working hard to find and incubate the next New New Thing. The VC phenomenon is a vital and unique aspect of the New Economy. The New Economy is driven by a New Paradigm. The New Paradigm is actually a very old paradigm called Competition. The most important characteristic of a competitive market is that there are no barriers to entry. One of the greatest barriers to entry is the availability of financing. The VCs have virtually eliminated this barrier in the technology industry. Of course, the Sand Hill Gang went too far over the past year. Money was too easily available for any startup with a dot-com included in the company's name. Early in their studies, economists are taught that in competitive markets, marginal cost equals marginal revenue. The VCs gave away too much money to too many harebrained entrepreneurs, and the result was probably close to a zero marginal return averaging the many small losers with the few really big winners. The willingness of VCs and their limited partners to take on enormous risk to finance entrepreneurs with untested ideas and innovations is a great source of the New Economy's creativity, strength, and productivity. In the past, entrepreneurs were stymied by the unwillingness of bankers to take a chance on them. In the 1980s, Michael Milken revolutionized this process by raising money for entrepreneurs directly in the capital markets. He invented the concept of issuing high-yield bonds as an alternative to bank financing. The VCs have taken this concept to the next level. Instead of entrepreneurs searching for financing, the VCs are searching for entrepreneurs to finance. Many of the VCs are relatively young, in their 20s and 30s. So are many of the portfolio managers of the technology mutual funds. Just for fun, I often ask these folks if they know what VC once meant before venture capitalists. Most of them are stumped. During the bad old days during the war in Vietnam, it stood for Viet Cong. Today's VCs are also well trained in the art of the ambush. They are constantly on the hunt for new-new companies that can put old new-new companies out of business. They are today's financiers of the process of "creative destruction," which was brilliantly explained by Joseph Schumpeter. This means that no business is safe from competition. Indeed, the most successful and most profitable businesses are the ones that are most at risk from a deluge of VC money financing wanna-be competitors. The bottom line is that technology will continue to be the most innovative and the most competitive industry, with great rewards and great risk." Dr. Ed ******************** 1) Stop these updates: http://www.yardeni.com/LeaveList.asp 3) Subscriber-level access: http://www.yardeni.com/yardeni1/userAuth2/idpass.htm 4) Reports for subscribers by e-mail. 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Information herein is believed to be reliable and has been obtained from sources believed to be reliable, but its accuracy and completeness cannot be guaranteed. Opinions, estimates, and projections constitute our judgment and are subject to change without notice. This message is provided to you for information purposes only and is not intended as an offer or solicitation for the sale of any financial instrument. Deutsche Bank Securities Inc., DB Alex. Brown LLC., and their affiliates worldwide, may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as advisor or lender to such issuer. Transactions should be executed through a Deutsche Bank entity in the client's home jurisdiction unless otherwise permitted by law. Deutsche Bank Securities Inc., and DB Alex. Brown LLC., are members of NYSE and NASD. Copyright 2000 Deutsche Bank Securities Inc., and DB Alex. Brown LLC. 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