drevno

Telecom ETFs Weather the Worst 3 Months in Recent Memory

In explaining the relatively smaller loss of the telecom ETFs versus the broader market - including the telecom equipment makers - It is important to realize the big difference between the telecom service companies and the telecom equipment makers, for instance.

The difference lies in what is offered to the consumer. Whether Joe, Mary or Ali uses iPhone or Storm or Nokia whatever is vitally important to APL or RIMM or NOK, but makes much less difference to the telecom service provider whose lines, towers, cables or switches or used in any case.

Similarly, a telecom service provider can postpone purchases of new cables or towers or other gear, making NT or Alcate-Lucent rich or disappear, but it does not work the other way around: the gear makers do not wag the service providers.

Does that make the telecoms ETFs a good buy at this time or these levels? I think so. People cannot really postpone their calls or sending their data, even though their content may have changed during the current recession. And the telecoms are postponing their capital expenditures, improving their balance sheets. And if people travel less, they use more internet for entertainment and for business. That is also good for telecoms. Demand for bandwidth is increasing, attesting to that.

The Euro Bubble Is Gone. It Will Not Reflate.

It is important to distinguish between true and speculative demand that is behind every bubble.

Bubbles are started by speculators who figured out where are willing punters (the British for 'gamblers' or anyone who's making a bet on something). Every bubble is a pyramid scheme, and as such, it will always collapse. Whether it is from the overinflation of the bubble to the point of losing coherency and the required opaqueness that makes it exciting to bet, or from running out of punters, or the inability of the operators to juggle the ever increasing number of participants and the ever increasing value of the thing associated with the bubble. From this perspective, ANYTHING that grows at anything greater than some mild linear fashion or stays put, is an explosion, and as such, it must reach its peak and than collapse on itself. In economics, not every bubble is the same in terms of duration or size. It is the irrational exuberance (aka an unusual and mostly ill-founded propensity) to buy a particular thing for some reason right NOW.

It is important to distinguish and separate the legitimate demand from the speculative one. For example, there's a real demand for houses from people who wish to live in them and are able to pay for them on mutually understood terms. And there is speculative demand from people who buy and flip them for profit to the next punter. Or a speculator (and here I hate using this terms, although it is a correct one), who bets that he/she can live in a house that is only marginally or actually not at all affordable, and acquires it with a mortgage from a willing pyramid scheme operator (e.g. a sub prime mortgage lender) against any reasonable odds.

The problem with these bubbles for a majority of people - including some working in responsible positions in the government - is that they come to them largely unnoticed and tend to become too large too quickly to deal with conveniently.

Fortunately, there's a possible way to identify and predict bubbles and the crises that they entail. It is possible to monitor from existing statistics and with existing resources the activities in all industries, all sectors, for deviations from a long-term average trend. A deviaton, say 2-sigma would automatically trigger a government, industry and public scrutiny as a MATTER OF POLICY. Representatives of the industry/activity, government and the consuming public - with equal 'voting' rights, would get together and discuss the matter with a full attendance of all sorts of media. The feedback is than rolled into legislative or regulatory actions and immediately implemented, if so agreed by the majority.

This suggestion has the added advantage that by including the 3 principal factors of economic coexistence - demand, supply, and rational governance, maximum degree of transparency is obtained.

Demand should always demand (in the lead), supply always supply as demanded, and the governance see to it that the common resources from taxation and the natural heritage (aka the social and public goods infrastructure, the land, the oceans of air and water) are fairly and effectively used to support the demand-supply equilibrium.

Yes, equilibrium. Even in the long term. Only that is sustainable, only that is democratic, and only that might offer a good and stable economic platform for the sustained presence of humans on this planet.