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Minyan Mailbag: Why Trust Tech?


You should not be in Tech because it's a safe haven, but you should be in Tech if you believe on a fundamental and technical basis the sector will continue to outperform.


Prof. Udall,

How come there hasn't been any talk of the potential impact to the IT budgets of these financial services companies? I know that as jobs are being cut at Citigroup (C), Lehman Brothers (LEH), Bank of America (BAC), Bear (BSC), Wamu (WM) etc., so goes the IT budget as well. Or at least put on hold anyway. Financial service companies have always been big spenders as far as IT is concerned and if they upgraded already then that's money already reflected within the earnings and short term guidance.

The "Tech Safe Heaven" will be short-lived once this massive rotation is over and CIO's start reassessing their capital outlays. Also, weren't the Tech names believed to be a "safe heaven" back in 2000? How can the CIO at C be planning for a big IT upgrade if there are concerns about paying its dividend? Recent earnings have been good but there are warning signs being ignored within the semi and semi cap group which are not participating in this rally, which has been primarily driven by Google (GOOG), Apple (AAPL) and recently Microsoft (MSFT) and Intel (INTC).

Semis have always been the leaders as far as tech is concerned and have been through a massive correction. I can't see how the leadership within this sector can honestly believe that this meltdown in the financial services complex wont have future repercussions throughout the "finance based" economy (as MV Profs have been pointing out), which includes the technology sector.

-Minyan Jack

Minyan Jack.

The short answer is that there are many reasons to own Tech currently beyond corporate IT. So far as IT spending from the finance shops goes, your logic sounds good and could result in lower IT spending.

On the other hand, this whole episode could result in findings that the big banks did not properly model their "tail" risks and therefore need to beef up analysis and computational power immensely to better calculate and mitigate these multi-billion exposures. Further, my take is you should not be in Tech because it's a safe haven, but you should be in Tech if you believe on a fundamental and technical basis the sector will continue to outperform.

Broadly speaking Tech shares will be more volatile and therefore more risky. The outperformance will probably come with increased vols. Lastly, trader opportunities increase in sectors with higher vols.

Good luck,

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