Wall Street is a gigantic promotion machine, always exhorting the greater fool to buy some paper at a slightly higher price. Now, after a grim two years during which the reputations of virtually all of the major investment houses and financial-services supermarkets were diminished, if not seriously damaged, the great machine is kicking back into gear.
The message is, Good times are coming. The more circumspect hedge that forecast and say that the worst is over. And who among us doesn't want to believe it? Two years was a long enough trough. After all of the layoffs and the bankruptcies, after all of the corruption and fraud, and after eight seemingly endless quarters of bad news, surely we've finally turned a corner. Things must be looking up, right?
Don't bet on it. Anyone who's a service provider to the corporate world will tell you that getting paid for your services is becoming a part-time job. Anyone who's a supplier to major manufacturers will tell you that getting paid is a full-time job.
Why? Because those kinds of corporations can't raise prices. They try and they try, but every time they do, some competitor comes in and hammers them with a better offer. Unable to raise prices, they look to the cost side of the ledger and whack away. Even after all of the downsizing and the plant closings and the streamlining, they still can't make their numbers. So they turn to accounts payable and begin delaying payments to their own suppliers and service providers for as long as possible.
Underlying all of this is one basic fact: The global economy continues to suffer from overcapacity. You see it everywhere. In the automobile industry, millions more units are produced every year than are actually purchased or leased. The high-quality producers, such as Toyota, are making cars and trucks that, if properly maintained, will last for at least 10 years. When leases turn over, the result is a glut of nearly perfectly manufactured cars and trucks with only 30,000 miles of use, which dealerships then sell at one-half of the list price of a new model. And those "previously owned" units are flying off the lots.
In the wireless-telephony business, there are seven major players spending incredible amounts of money advertising the fact that they are essentially giving away voice and data transmission. Pick up a copy of the national edition of the New York Times, or any local paper, and you'll find full-page ads that promote free phones and monthly service packages for less than $30. Buy wireless telephony through Wal-Mart, and the price comes down by one-third. There isn't room in the market for seven wireless-service providers. Four of them must die before any kind of rationalization of the market can commence.
In the airline business, nearly all of the major airlines, except JetBlue and Southwest, are broke. But because of the fear of flying engendered by the hijackings of September 11, most of them are spending vast amounts of money on local and national advertising to inform us all that they, too, are giving away their services.
In the media business, the Big Suits (like Rupert Murdoch and Sumner Redstone) say that advertising is up and that margins will be healthier for this year and next. Advertising did tick back up in the third and fourth quarters of 2002, but irrationally so. Advertisers paid more money to reach fewer viewers. The cost of a 30-second spot on Monday Night Football is now twice as much as it was 10 years ago, in inflation-adjusted dollars. The size of the audience has declined by roughly a third.
On and on it goes. Wherever you look, overcapacity combined with extraordinary technology is killing the ability of companies to raise prices. Well, you might say, at least health care will continue to grow: Medicare already pays for seniors and will soon take on all of the baby boomers, most of whom are turning 50 and beginning their sad decline to Depends.
Yes, Medicare will grow. But its growth will be constrained by two facts: One, state governments are in the worst financial shape since World War II, and two, the federal government has to restrain Medicare expenditures to help pay the cost of the war on terror.
Terror is the only category that actually holds promise for explosive growth. Companies that make vaccines; that manufacture surveillance equipment; that make better, faster, smarter weaponry — those companies will grow, because the United States will bear whatever cost is necessary to exterminate terrorists and their enablers.
If you're looking to get back into the stock market, start with the terror sector and stay there. Buy some shares in Wal-Mart while you're at it. Almost everything else is caught in a price squeeze.
John Ellis (firstname.lastname@example.org), a writer and consultant, works in media, politics, and technology. You can read his weekday musings on the Web (www.johnellis.blogspot.com).