Why the Market Loves Y2K
We’ve wasted a lot of lime dreading the new year because of all those predictions about computers freezing and ATMs locking up. The stock market, however, has really been looking forward to Y2K, mainly because it’s an election year. Congressmen aren”t threatening to raise taxes; more likely they’ll be talking tax cuts. We might even be able to ignore Alan Greenspan for a while, instead of holding our breath every six weeks to see whether the Federal Reserve Open Market Committee will raise interest rates yet again. The Fed knows it’s an election year, and it usually refrains from diddling with interest rates during campaigns. You don’t have to go back any farther than when Dubya’s father. George Bush, a sitting president who had the misfortune to oversee a slumping economy, was running for re-election. The economy was showing signs of strength and really just needed the stimulus of a rate cut to nudge it back into full swing. A rate cut came but after the election. The economy improved steadily, productivity soared, growth soared, and Bill Clinton got all the credit. To this day George Herbert Walker Bush blames Greenspan as much as anything else for costing him the election, So as 2000 begins, the market is unlikely to do anything but keep on percolating. One reason is the steady gain in productivity. This is one of those subjects that makes people’s eyes glaze over, but investors know to pay attention. How it works is really quite simple: Let’s say you have 100 people making 10.000 widgets. But now the economy is booming, and you have orders for 12,000 widgets. So do you hire more people? No, that’s too expensive. But what if those same 100 people, with just a little bit of help from computers, robots, or whatever, could produce 12,000 widgets? You give them a little raise because their output is greater, but that doesn’t cost as much as bringing in more people. Now you’ve got the same 100 people who produced 10,000 widgets making 12,000. That’s a gain in productivity. Wages have gone up a bit, but not so much as to cause inflation and force the Fed to step in to keep the economy from overheating. What investors want to keep seeing are productivity gains, something that Greenspan says probably can”t be sustained. Dallas Fed chairman Bob McTear, on the other hand, is very bullish on the new economy’s ability to generate new gains in productivity. So when productivity figures come out quarterly, pay attention to them-for a second. Then go on with your life.
All Tandy Needs Now Is a Big P.O. Box
The beginning of the new year is also an anniversary. During the first week of January 1998, Len Roberts took over the helm of Tandy Corp. from the very popular John Roach. Since then, the stock price has tripled as Roberts has built alliances with some of the world’s best-known companies. Radio Shack stores now sell telephones for Sprint, satellite dishes for RCA, computers for Compaq, and will soon be featuring Microsoft products in a store within the store. In a place that used to just push batteries that didn’t last longer than 20 minutes, Roberts has structured a continuing flow of income for Radio Shack. They’ll happily sell you the Sprint telephone, program it, and show you how to use it. Then every month when you pay your bill. Tandy will get a cut. Radio Shack will happily sell you an RCA satellite dish, install it for you, and sign you up for service. Then every month when you pay your bill. Tandy will get a cut. Radio Shack even more happily will sign you up for Internet service with MSN, show you how to get on the Internet, and sell you support software. Then every month when you pay your bill, Tandy will get a cut. How much? Hundreds of millions of dollars a year, with each sale at each store adding to a nice fat royalty check to Tandy. With all those checks flowing in, who needs stores’? Someday Tandy might become just one big post office box.
