Monday, March 6, 2000

Market Note

March 6, 2000

The new mantra on Wall Street is “the new economy” versus “the old economy”. The new economy is good, while the old economy is bad. Certainly the new economy represents everything that is new, exciting and technologically correct. The old economy, by contrast, seems tired, dusty and stodgy. None of this has gone unnoticed in the market. Last year internet stocks sizzled with many showing gains of multiple hundreds of percent. So far this year chip companies, wireless and bio-tech stocks have captured the lead. In the meantime, through February, the Dow Jones has had its worse start in years, down 11.9%. In the same time frame the NASDAQ Composite is up 15.4% and , the real surprise, the Russell 2000 is up 14.5%. How long this divergence can go on is unknown. Investors who have attempted to predict the end of this schizophrenic market have lost a lot of money. Money flows suggest that this trend will continue, at least for the time being.

However, in the real world there are signs of shifting sands. Old economy companies seem to be entering the realm of the new economies. And it increasingly is apparent that the two economies have a mutual interest in one another’s success. The C.E.O. of a trucking company [Celadon Group, NASD:CLDN] visited our office recently. They have established a company called Truckers The company has a web site that will permit independent truckers to participate in cost benefit programs for the purchase of items such as fuel, tires, insurance, credit cards, motels etc. There partners include companies such as G.E. Capital, Qualcomm and Comdata. We recently received a fax from American Aircarriers Support [NASD : AIRS, a maintenance, repair and service provider to the aerospace industry. They recently invested in a new company, SupplyAccess, a spin off from En Pointe Technologies [NASD:ENPT]. American Aircarriers, along with En Pointe, will develop and market a business to business e-procurement solution for the aerospace industry. Last week the three big auto companies Ford, GM and Daimler Chrysler, announced that they were forming a new company that will allow for the electronic purchasing of parts and supplies. They will be utilizing the services of companies such as Commerce One and Oracle, but the new venture will be owned and operated by the three auto companies. Newspaper reports have suggested that , should this new company go public, this new company would command a market capitalization between 30 and 40 billion dollars, not far below the 45-50 billion dollar market capitalization now carried by Ford and General Motors.

These three isolated situations suggest that older companies are looking at the “new economy companies”, and they are actively considering ways in which to employ their products and services to enhance their own returns. Certainly the “ new economy companies” need the “old economy companies” to buy their products and services. Theirs is a symbiotic relationship. There is no question that, to survive, old economy companies” must adapt or die. Most will adapt. The world will continue to need aircraft, autos and a myriad of other products. These products, and the companies that will produce them, will not disappear. Many, in fact, will operate more efficiently and more profitably because of the tools and services they will buy and employ from the “new economy companies”.

The market, at some point, will begin to recognize that it is not only the providers of such services that should do well, but also the companies that employ those products and services for the benefit of their shareholders.

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