Wednesday, April 15, 2009

2nd Half Rally?

Over the past few days, right here in the midst of earnings season, I have had considerable discussion with semi industry folks about the bullish forecast from IC Insights - the pent-up demand part. If you have an interest, there's a story over on the EE Times website that talks about the forecast.

I realize inventories need to be rebuilt but the weakened financial state of corporations and consumers will have a significant impact on final demand. I fear, unless there is a "killer app" lurking in the wings, the strength of end demand will not be as healthy as it has been coming out of past down cycles. This is merely a product of the macro-econ equation. Today, the data I see on that front makes a huge recovery very questionable. Believe me, I'd love to say that the "stimulus" is going to work but frankly I don't find precedents that suggest *spending your way out of the downturn* is the approach to pursue. Personally, and I believe I have made this clear in past musings, we are tossing around good money after bad. Until we reign in spending, which also includes the bailout programs, I have my doubts about a sustainable upturn.

Sadly the mathematics of stimulative spending don't work. Sure, the $2 trillion Bill cites in his missive will bring extremely short-lived and fleeting "benefits", if it brings any benefit at all, but when one considers the scope of the current plan(s) our country runs the severe and immediate risk of pushing the "contribution to GDP per dollar of debt" value into negative territory. Call it, "pushing a string" - I'm lacking a more eloquent description but that's what it appears to be.

Here's a fascinating chart that shows the declining impact of Newly Issued Debt on US GDP (sorry for the fuzziness):


Clearly the ratio of Debt to GDP must come down to sustainable levels so that the contribution that debt makes to GDP rises, avoiding the disastrous circumstance where a new dollar of debt creates a negative impact on GDP. This means difficult choices must be faced -- and part of building that foundation must be the clearing of unsustainable debt through default.

At this point this discussion is moot because we are going to try and spend are way out of these problems... And that brings me back to some comments and a question I wrote to a friend about the "stimulus" yesterday. Perhaps someone can answer this: Will there be, or is there already, a public listing anywhere of the science/applications/infrastructure projects, the awards and the amounts earmarked for stimulus spending? And of equal interest, is there a list of those sciences/applications/infrastructure projects that have already been deemed unworthy or outright denied? Speaking from a business strategy perspective it strikes me that a summary like this would be very useful in finding what should and what should not be pursued.

Of course, any info like that would have to be placed in hands that might actually pursue those opportunities. That's another story in and of itself.

Ramble off - at least for now....

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