Truth, Justice and the NDX Way: More Tech Outlook Reflections
And perhaps, to be both fair and honest, we should add Schadenfreude. If you look at the chart it
shows the relative six- and three-month performances of the NDX, AAPL, GOOG, and RIMM. Now we've been warning for some time that that the markets have "fluffed" or "bubbled" up over their long-term trends, irrespective of the underlying economic fundamentals.Most recently here. And that techs in particular and the big techs most especially had exaggerated that fluffing process considerably. Well those chickens came home to roost big time last week with a drop in the NDX since last Mon. of about -8%, along with similar drops in AAPL and GOOG coupled with an -18% drop in RIMM. Whee....are we having fun now or what ?
Our argument has been basically the logic that a slowing economy meant slowing capex spending which meant lower tech demand and investment. A thesis which is beginning to be reflected on a worldwide basis with last week's downgrade, for example, of INTC as well. To that we should have added another - which is that there's been a dramatic shift in some tech dynamics as companies like Apple make major efforts to enter what amounts to the Consumer Electronics industry. Which falls under the sector heading of Consumer Discretionary - a sector even more hardhit than any but Financials.
Now we need to be a little careful here. All three companies are genuinely excellent operational performers with some distinct differences. RIM appears to be still a dominant player in smart-phones for the business sector and also to have gotten a major halo uplift from the iPhone, which opened up the "smart phone" appeal to a much wider audience. Google continues to be a great company which continues to achieve superb results in its' core business. Please note though that in terms of long-run value that it hasn't had any, that we can find, major new innovations that have driven increased penetration of new markets. Though it continues to introduce and testfly many new inventions none have established new markets. Apple on the other hand continues to demonstrate a relatively rare combination of strategic innovation - defined as delivery new products and solutions to markets that actually solve customer problems and provide new value as opposed to just introducing new technology per se. And to couple that with continued operational performance and delivery.
Nonetheless the bloom is indeed off of these roses for reasons we've waxed poetic about, repeatedly in fact, before. Barry Ritholz posted a delightful and insightful assessment of the gap between fundamentals and market perceptions today that compared much of the thinking going on by Mr. Market as fitting Kubler-Ross's well-known stages of denial (an analogy we've also used before).
5 Stages of Market Grief One of the most intriguing things I find about the market is how the collective psyche sometimes resembles a singular entity. In particular, I have been fascinated by the commentary we have heard from some quarters regarding deep and obvious flaws in the present macro environment. I spent a lot of time over the holidays (skeptically) reading commentary from various pundits. There was something strangely familiar in the absurdly erroneous observations, but I couldn't place my finger on what it was. Until Friday. I don't know who or what actually triggered my memory, but it finally dawned on me what the parallel was: The Kübler-Ross model of 5 stages of grief. For those of you who never took any psych in college, that is the process by which Humans deal with grief and tragedy. It was introduced by Elisabeth Kübler-Ross in her 1969 book "On Death and Dying". This has become well-known as the "Five Stages of Grief". Reviewing recent market commentary, it appears that the investors, traders and pundits alike have been working their way through each of these 5 stages.
As the recent unpleasantness, as they say, continues to work its' way forward that's a worthwhile model to keep in mind. And not just for tech but for all the other sectors, industries and firms. On the continuation you'll find another interesting excerpt on the overall outlook for tech spending that resonates with these points.