Monday, October 09, 2006


The first half of the business cycle is the consumer half. The second half will start out with a bang in consumer stocks but the second half is the business half. In the past, I have used DELL and CAL as great examples of business service companies. DELL and CALboth sell a lot of product to consumers, but they both make their big money during the second half of the cycle. DELL makes 90% of its profits selling computers to businesses! CAL charges thousands of dollars per flight for first class and business class seating on half way around the world flights; business passengers fill most of these seats. Businesses think nothing of using huge quantities of bandwidth. The cost of one successful video conference would be extremely small relative to the cost of plane tickets, lost time and accommodation expenses

In the old days, AT&T and IBM were among the big solid companies that did well during the second half of the business cycle; what has changed? T still operates the big heavy duty truck lines to businesses. The percentage of voice traffic has fallen and the percentage of hoggish video traffic is climbing fast. SBC purchased AT&T and renamed itself AT&T Then it purchased BLS. Verizon purchased MCI. If you only looked at results a Rip Van Winkle of the 1970's would think that Verizon was spun off from AT&T to form the two dominate phone/data companies in America. Each has a growing cell phone business and there are many cell phone competitors but T and VZ carry the heavy duty business communications. Google is new competitor that has focused on connections to and from information servers.

Let me put it this way, those who purchased business phone services around the mid cycle corrections of the 1970's, 1980's and 1990's enjoyed a nice ride for at least 4 years. Those who stayed too long, got slammed around in 2000 but it was a fun ride during the cycle.

Comcast, TWX and other cable TV providers are having to adapt to the new environment. TWX took the big hit when it gave up its old model of charging extra for AOL Broadband. We have reached or are approaching the sweet spot for service providers. More and more video will be downloaded and more and more bandwidth will be required. TWX and Comcast have bets on content and on delivery. T and VZ are trying to add content but their focus is on very high capacity bandwidth. The picture phone is finally ready to explode onto the market.

Face to face meetings will remain important but face to face over broadband connections is growing by leaps and bounds. In a relative few number of years, children will grow up understanding a phone call to be a face to face video conference.

Many of the companies that did well .............(write me for more details on what's happening in today's business cycle Remember my comments are made from over 30 years of studying the markets, however, my comments are made solely for entertainment value. Investing in stocks or bonds needs individual attention. I'd be glad to discuss your account specifics if you want to write me )