Wall Street Blues

Long before Law and Order there was Hill Street Blues, a cop drama that always began with officers coming on duty listening to the daily briefing. At the end of each briefing, the Sergeant would close with advising his men, “Let’s be careful out there.” Recently, as we receive our daily briefings, we keep thinking tech investors should keep those words in mind as well.

For the past couple of years, technology has been driven by consumer electronics – specifically digital cameras, flat-panel televisions, portable music players and wireless phones. Even purchases of personal computers, the dowdy staple of business spending, have been dominated by consumer purchases.

Alas, all good things must come to an end – and it looks like the end of consumer-driven tech spending is nigh. Cell phone inventories appear to be building in Asia, suggesting that market may have peaked. While big-screen TVs are still going strong at Best Buy, the strength is likely driven by their generous financing terms. It seems logical that home theater sales are related to home sales, much as other appliances are. And appliances ain’t lookin’ too hot in the latest durable goods report.

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Likewise, the latest GDP revision confirms that housing weakness started before June.

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Meanwhile, it is clear that business is not yet picking up the slack. Second-quarter GDP showed decent but slowing spending on equipment and software.

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But things continued to slow further, as the durable goods report shows all too clearly.

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There is still hope that business spending will step in just in the nick of time. Microsoft’s strong deferred revenue trends indicate there may be more to Vista than the skeptics think.  And the chart of GDP components shows a comforting tendency for one driver’s weakness to be offset by another’s strength.
But let’s be careful out there.

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One Comment on “Wall Street Blues”

  1. [...] Still, the survey confirms other data we have been seeing, both from the consumer and business sides. All of which adds up to expectations that the semiconductor glut is going to be a big one. The author may hold a position in the securities discussed. A current list of the author’s holdings is available here. [...]

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