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Jeff Saut: Tech Mania Nothing New


History urges caution.


Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

"There you go again" is a phrase lionized by Ronald Reagan during his 1980 presidential campaign, and we could not help recalling said phrase in anticipation of today's release of regulations that will be the broadest overhaul of Wall Street since the Great Depression.

Bafflingly, the recent measures being taken by the politicos – the Federal Reserve, the Treasury Department, et al. – are occurring when the U.S. economy isn't even in a recession, let alone a depression! Moreover, most of the time the powers that be try to "fix" something, the damage has already been done and the resulting collateral damage is legion. Case in point is the Sarbanes-Oxley Act of 2002 (Sarbox), which was enacted after the technology/telecom bubble had already burst, the marketplace was already cleaning up corporate America and Wall Street, and the equity markets were setting the "footings" that would allow the senior index to gain roughly 100%.

As for Sarbox's collateral damage, the increased cost of audit fees, board compensation, legal fees, etc. continue to cause companies to go private. This is a primary reason the financial capital of the world is moving from New York City to London. So, yes, "There you go again!"

And here "we" go again, as this morning I reprise a report that I penned back in November of 1999. At the time, stock market participants were giddy with the notion that "this time it's different" and that stocks would rise forever.

I, on the other hand, was writing about the Dow Theory "sell signal" registered in September of that year and advised participants to not let anything go against them by more than 15-20%. For the most part, those warnings went unheeded amid the mantra that the "Internet's the greatest invention of all time," to which I wrote (in November 1999):

The number of Internet users:

  • 142 million worldwide in 1998
  • 502 million worldwide estimated in 2003

That's 72 million "adds" per year, or 197,000 a day

With numbers like these, the Internet has been heralded as the greatest innovation in history, a statement with which I take issue since its "footings" began around 1455 A.D.

Indeed, higher civilization first emerged at the close of the fourth millennium B.C. in Mesopotamia with the Sumerians, who developed the first efficient writing system. The Sumerians were absorbed into the Babylonian civilization, as was their writing system, and the first information revolution began. The Sumerians' clay writing tablets, however, were breakable and bulky. It took another 2,000 years for the Egyptians to turn the papyrus plant into a paper-like material, which still had a tendency to crack, but made long-distance communication possible for the first time. The Greeks, who made parchment from stretched animal skins that could be folded, overcame the disadvantages of papyrus, hence the development of books.

However, it took a monk over two months, and many sheep, to copy one manuscript, making said book an expensive luxury item. All of that changed around 1455 A.D. Johannes Gutenberg invented the printing press, with movable metal type, which was and is by far the most important innovation in history. The impact of Gutenberg's invention led to an information revolution as it cut the cost of producing an additional copy of text by at least 99%. The result was that by 1500 A.D., Europe had produced about ten million copies of some 35,000 different titles at affordable prices. This staggering accomplishment represented more material than was produced since the Sumerians invented the clay tablet writing system! Thus began the Renaissance, and with it the Scientific Revolution of the 16th and 17th centuries, upon which the Industrial Revolution of the late 18th and 19th centuries was based.

Printing solved the problem of accurate and cost-effective information recording, which permitted the passing on of information from one generation to another. It also laid the groundwork for the newspaper revolution of the late 17th and early 18th centuries. This clearly advanced the dissemination of information, leading to the scientific advances of the 19th century. Samuel Morse's invention of the telegraph in 1837 was followed by Alexander Graham Bell's first telephone in 1876.

Then Marconi's radio communication led to commercial broadcasting, and subsequently the television revolution, ushering in computers, software programs and the Internet. However, all the groundwork was laid by Gutenberg's invention, which dramatically changed the world and fostered the first communication revolution.

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