Oops, We Did It Again

Got lost in the game, eh baby? The bad news is that if you did think this wouldn’t happen, then you are that innocent.

Intel’s sales to Europe fell, the company warned it wouldn’t make its number, and the “big cap” and “can’t miss” technology outfits (the Nasdaq 100 is today’s “Nifty 50”) all fell out of bed. Intel itself was “taken out and shot,” falling to 46 (about its level in January), and, this is important, all the damage was done before the U.S. markets opened, in so-called “after hours” trading. Those who play there will soon kill the old NYSE and its “bankers’ hours” specialists.

Now that I’ve wasted your time playing market analyst, let’s get serious. What we have here is an oil shock, a real economic event with real consequences. After Internet stocks fell in the spring, budgets were cut, advertising was reduced, and people were laid off. Assumptions also changed. Stories like this were conventional wisdom last year. Now you’d better make money.

With the past week’s events, even making money won’t save you. What we have here is compression – people paying less for the same earnings than they did before. (Intel’s price-earnings multiple fell from almost 60 to 40 in one night.) There’s fear that all our profits are being siphoned off to Middle East sheiks (remember them?), and the only winners are some bondholders.

These things also tend to feed on themselves. Just as there is a virtuous cycle of a rising tide lifting all boats, we’re now in a vicious cycle that won’t be easy to turn around. The government might let out some of its strategic oil reserve to stabilize prices (very controversial), the Federal Reserve might lower interest rates to stimulate demand (considered unlikely), and all that talk of budget surpluses just turned into new deficit fears.

“Yeah,” I hear you ask, “but Dana, what am I supposed to do about this?” If you’ve got cash, look for bargains. Companies with real sales and real profits are still worth real money, and if they need new investments, you can get them cheap. (If you need cash, you’re now on the auction block, and being on eBay won’t get you a better price.)

Yes, cash is king, and fear is going to keep that cash from being put to work. This is what happened to Japan in the late ’80s and, before that, America in the ’30s. Someone is going to have to step in and save the strong players, forcing the losers to take their losses but preparing the way for the next game.

Do you want some good news? In the long run this is great news for e-tailers, especially those like Webvan and Amazon, that have been putting their money into fulfillment. Efficiency will now start to pay off. Now is when the winners will truly be identified.

I started today’s column with a quote from a youngster, so let me end it with one from someone about 70 years older: “Fasten your seat belts, it’s going to be a bumpy night“.

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