Regression to the Mean
If it comes to pass, 2009 should produce materially highers returns.
Broadly, I think the next year will be dictated by the finalization of the various financial stimulus packages and how effectively they work. In addition, many government work programs will be enacted to spur the rebuilding and repair of infrastructure throughout the country. Finally, while certain technologies and product categories have grabbed a strong foothold, others are in the last phase of their life cycle. The poor economy will exacerbate this.
1. President Barack Obama's policies will essentially remove many of the policies and decisions that were put in place over the last few years, the reversal of which will be critical to restoring health to many sectors and the equity markets in general. The uptick rule is reinstated within the first half of the year and serves to solidify an emerging breakout in the market.
2. We already have approved a $45 to $50 billion government broadband and security infrastructure package that's ready to roll over the next few years. Networking, security and strong ERP and data storage firms will benefit most.
3. Oil won't see 2007 prices as long as Obama's in the White House due to SPR (strategic petroleum reserve) purchase activity, as I believe the new president would stop SPR purchases if crude were to rise much above $90 again. This may not prevent oil from trading above $100, but it would likely keep it well off former highs.
4. Many technology stocks that probably should have died during the post-2000 period -- but stayed alive due to well-timed secondary offerings -- will say their last goodbyes during the cleansing period that's currently in process.
5. From an industry group perspective, technology stocks still have the best balance sheets and many of the large-cap names will exhibit a level of dominance we haven't seen since the 1970s.
6. The IPO market isn't dead, but will stay nearly so for at least another year. Only the very best deals -- the ones that produce prodigious cash flow or exhibit insane raw growth -- will get done for any premium. This is noteworthy in that, if you can receive an allocation, it will be well worth the trouble. This is exactly the same type of environment in which Google (GOOG) emerged just years ago.
7. In the sub-sectors of Tech Land, the same question always seems to persist: Software or Hardware? So, which will outperform in the coming year? It may be more mixed as tougher conditions create opportunities for certain individual products, processes and even management teams to shine.
Really strong inventory control, quality control and an innovative product or 2 may mean the difference between a big comeback and stale or declining performance. Technologies with the greatest cost saving and scalability (such as virtualization, infiniband, Wimax and telepresence) should lead the sector. Names such as EMC Corporation (EMC), VMware (VMW), Cisco (CSCO), Rightnow Technologies (RNOW), Minex Resources (MINX), Alvarion Ltd. (ALVR), Ceragon Networks (CRNT) and QLogic Corp. (QLGC) come to mind.
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