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back to article And so we begin the tech sector's journey into the Heart of Darkness

Does anyone else remember when technology companies were propping up this economy? Yeah, that's right. Oil prices were surging. Housing prices were plummeting. But there was the resilient technology sector, making us think things might be okay. No companies missing earnings. No layoffs. Hope at the end of the fab. Um, well, I …

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Pirate

One sector that doing great

Crime, in all its forms.

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Holy Crap

Talk about a buzz kill. Good God, you're never invited to any my parties!

BTW, I have been asking why in hell Hector Ruiz is still running anything for nearly two years. A year ago I wrote an article on another site poking the financial house of cards that is AMD and pointing out that they paid more for ATI than their own annual revenues right after investing a similar sum in new FAB and for about the last two years have been losing more money per quarter than Intel spends on R&D. How anyone in their right mind is still sending money in the general direction of AMD is beyond me.

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Flame

EVerybody go out and buy

a new PC with Vista on it and then everybody will be happy again, especially the far eastern companies who make most of what we buy these days.

Unless you do the cost/benefit analysis first, in which case you won't do it and nor will any sensible person who already has a working PC.

Hard times ahead for the tech sector and others. But then the credit/property/hedge bubble was never going to end nicely.

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Dead Vulture

Could be worse

You could have invested in banking stocks a year ago. Or put some of your retirement dollars into ethanol stocks 2 years ago. Some of us did.

Is it just me, or does it seem like the grasshoppers are playing it smart spending their money now, while I'm being played for a chump? It looks like the millenials may be onto something (they're spurning the market to a sharp degree).

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Anonymous Coward

Re: Crime

@1: yeah, but we can't all make a living taking other people's washing.

here-all-week, try-the-salmon-mousse, it's the blue one with the Post Office-issue red piping, thanks.

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In Mortis Lucrum.

Take my advice: offload the tech stocks and invest in those legal/conslutancy businesses that offer a range of bankruptcy-management services.

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Anonymous Coward

The US dollar falling......

....16% against the Euro in the last 12 months makes shares traded in US dollars extremely unattractive now. Expect reality to return when the US dollar's devaluation is complete but until then......

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Anonymous Coward

I'm confused by share prices

Stocks and Shares were originally meant to be devices whereby a company could raise liquid capital to run the business by selling off 'stakes' in the business.

The business then had to listen to the shareholders, hold AGMs for them to air their views, and pay them a percentage of the net profit as an annual dividend.

- I note that a few banks decided to try to use shares the 'old-fashioned' way recently, and were basically laughed at.

After that initial transaction to raise capital, all shares in a given company appear to be 'nominally' worth whatever was paid for them the last time they changed hands.

Also, if someone sells lots of shares, the value of each one falls, often drastically.

Ergo, if someone owns a billion dollars of shares in a given company, they can't sell them and realise that billion dollars, because the price will fall.

Therefore, any 'valuation' that simply tots up the sum total of large numbers of shares is laughably naive, because there is no way of releasing that value as liquid capital.

Ergo, the entire stock market is based on capital that doesn't exist - they're just playing with big numbers over there that don't actually mean anything.

Share traders don't need to be economists - they need to be psychologists, because the whole thing appears to work on the "I'm scared because he's scared, I'm confident because he's confident" principle.

Share values now seem to have almost nothing to do with the company they're issued on.

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@AC: Warren Buffett, the sage of Omaha

You're nearly on the way to making yourself rich, much like Mr. Buffett. Once you know that most of the stock market is based on psychology, and nothing else, then you can start looking beyond the share price.

You need to look for companies that are making money, but who's share price has tanked. Nobody who's making real money ever went bust.

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Dead Vulture

Tech Bubble 2.0

Is gonna hurt more than the first one. In Y2K I had share options worth $5000 then cashed them in 2 weeks later for $800. The price drop was largely because the CEO had cashed in his overpriced shares for $100 million and promptly retired to California. Bastard.

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Anonymous Coward

"Nobody who's making real money ever went bust"

Tell that to the former employees of the former GEC empire. While Lord Weinstock may have had his financial merits and engineering challenges, preferring to buy R+D rather than do it in-house, and later on the financials of the multinational GEC empire were simply too complex to be transparent never mind manageable, I;m not at all sure GEC deserved what eventually happened to them. They're not the only one either.

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Bronze badge

Moving on up....

Weird... Some people "cash out" and then go on. Some just "cash out". It looks as if the guy who sold MySQL to Sun did just "cash out". He moved out of his "rental" and now is looking for a bigger house (one he can throw BIG parties at without the neighbors complaining). Maybe Sun over paid for that as well.

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Paris Hilton

@AC origin of stock market

Stocks were originally conceived to share risk when trading with India. Anybody could send a boat over there to trade local goods for things which were rare over here, but the reason indian dyes, spices etc were rare over here was partly the hazardous waters boats had to sail through. For small traders one shipwreck could lose you everything. So people started grouping together and trading equal shares in each other's boats such that the risk of one shipwreck wouldn't clean anyone out.

Pretty quickly people came to realising that the pieces of paper promising 25% of the profit of the good ship Paris Hilton was worth a lot of money and, when your eldest daughter was getting married or your home needed a new roof, it was convenient just to walk into a local chocolate house and see what people would offer for it. Thus the stock market was born and the East India Company grew to prominence.

Stocks never actually had a fixed value, those were bonds. Stocks have always been chaotic and never really evolved past the shady haggling in dockside taverns under the watchful eye of gold-digging seamstresses.

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Anonymous Coward

Pot Noodle TV Ads

That is the indication we are in recession, as soon as a new lot appear then you know we are all scuppered :)

Everyone is in commodities at the moment which is causing the inflation problem.

Need to up the interest rates and make cash king, then move into disavings to kick the economy back. Oh is that going to hurt people who have got a mortgage in the last few years. The banks will get the repossessions, keep putting the interest rates up, then slash them just when enough have been burnt, and the banks can recoup their loses on the imaginary money they lent.

Economic immigrants will start leaving the country in droves, as the food prices rocket and the pound continues to plummet. By leaving they will be exchanging their pounds back to their currency, accelerating the pound's descent. They will also miss out the last few tax payments, as they won't be coming back. This will reduce the amount of money the government will have to spend, and will probably mean the police are reduced to a skeleton staff, which could be good for putting the kerbosh on the surveillance systems and ID cards, just too expensive now.

I am not surprised Blair has fled the country, he may find himself in exile before this is all over.

As for techs well, this is the problem, you leave tech unemployed and they start to tinker, now that tinkering can create a lot of interesting stuff, but it can also mean cracking. And with a smaller budget for most companies, that will mean tighter deadlines and productivity favored over security.

Not only will systems be more vulnerable, there will be less people who are monitoring, companies will buy a generic security system, and people will learn how to evade that. And it will get nastier as markets shrink. We may actually see a reduction in spam, as disposable income reduces, but the attacks that will be used will be more inventive in the way that will be used to take a market from a company.

So security should boomerang fast, quick and cheap developers will be in demand, a lot of system admins will lose out to the cloud, then they will boomerang as people realise the cloud problems but be smaller in number on return.

It would appear we live in interesting, off to nosh on my pot noddle.

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Lou
Alien

Its all based on hot air ....

The Shares and the actual value of a company in the tech area have no relationship.

Sun was pre the crash worth an unbelievable amount of money based on what? Sparc and Solaris? Now they have an extended protfolio and they are in the penny stocks range. Google - what are they selling?

Analysts predicts what companies will do and then when they don't penalize them?

We have an oil price at $140 without any real delivery constraints or new wars, housing prices went nuts based on motgage lenders stupidity - why are we surprised.

Next big one - carbon trading - now at least we know that smoke is mostly hot air and carbon - so at least they are pretty open with that scam.

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Not so bad

Ashlee,

I think you've taken a small selection of tech companies and focused on the bad ones. Intel released their numbers and beat analysts expectations. Oracle has consistently smashed earnings records. Google is a newer company and freely states in their annual reports that everything they do is pretty darn risky and in new territory. Speaking of Google has missed earnings expections in the past, and it didn't phase them.

Then you look at the companies that put all these technologies together like IBM and Accenture and notice that they continue to post very strong results. The "mature" players have grown up from the dot com bubble and learned the importance of running your tech company like an actual business and not have razer scooters as a form of transportation at the office (Lycos anyone?). And the companies with an international presence have learned how to diversify themselves to weather a slowing US economy.

The overall downward trend is to be expected as investors become risk averse. All stocks are taking a hit. Basing the performance of a company purely on its stock price and a single quater of results doesn't make for a very good propectus.

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Economics is all wrong

Economists measure bullshit indicators like GDP which are easy to measure, but are poor indicators of true economic performance.

One of the largest industries that drive the US GDP is the health industry. By these measures, the health industry is making the US rich.

But, hang on, surely high health care spending should be made possible by a healthy economy. Healthcare is a drain on the true economy and should not be a prime driver.

"We are rich and can therefore afford to spend on healthcare" makes sense.

"We can afford to buy food, cars and houses because we spend so much on healthcare" does not.

What is making the USA appear more productive is the high cost of USA healthcare relative to other countries. An operation that costs $1000 in India costs $25000 in USA. Therefore the USA is 25 times more productive (as measured by GDP) than India.

Tech stocks might fall, but they will be replaced by stocks in healthcare and other areas.

With such out-of-whack indicators and measurements, is it at all suprising that the bean counters don't see a shift in the wind?

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Coat

@EVerybody go out and buy (Vista boxes)

Yes, please do... I'll despise working on them, but it will guarantee job security if nothing else. Long as I get to keep my XP and Linux boxes.

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Meh.

Share prices and therefore recessions are psychological. So can you guys please cheer the fuck up.

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And when it doesn't sell, for the same reasons as last time

They will drop their prices. Shit, I thought Apple put SOME value on what customers thought, obviously not.

If this is the way operators are going to treat their customers, this iPhone will flop just like the last one did (outside of America). Purses are being tightened and people know what extortion is when they see it.

I was going to buy one but I am off to get an N95 instead... better phone too.

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The important thing.....

...... is not the share price, it's whether companies are making profits or not. As others have pointed out, share prices are driven by fear and greed.

The time to worry is when companies all find it difficult to make a profit, as happened in 2002-03.

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Coat

The stock market.

Billy Ray Valentine: Okay, tech stock prices have been dropping all morning, which means that everybody is waiting for them to hit rock bottom, so they can buy low. Which means that the people who own the tech stocks are saying, "Hey, we're losing all our damn money, and Christmas is around the corner, and I ain't gonna have no money to buy my son the G.I. Joe with the kung-fu grip! And my wife ain't gonna f... my wife ain't gonna make love to me if I got no money!" So they're panicking right now, they're screaming "SELL! SELL!" to get out before the price keeps dropping. They're panicking out there right now, I can feel it.

Randolph Duke: He's right, Mortimer! My God, look at it!

Mine's is the grubby Santa-Claus costume with a whole smoked salmon and an .45 in the pocket.

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Indeed

Share prices are more correlated with each other than with the performance of their companies.

An ebbing tide lowers all boats.

Therefore, any analysis of the health of the tech industry based on the absolute "performance" of a few share prices alone is, er, not very worthwhile.

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Boffin

Re: I'm confused by share prices

You shouldn't be, the stock markets, and share prices in general are pretty trivial. You are quite right in the assertion that they are about generating money for companies, but unlike corporate bonds, money made from IPOs is generally not repaid. All you are buying is the income stream from dividends. Now, unlike Bonds, that income stream is not fixed up front - it's up to the company to set it.

Now, the secondary market (which is what the stock market is) is a key part of the system. If you didn't have a secondary market, people would be less willing to part with money at an IPO, since they would have no way of getting the capital outlayed back. The liquidity of shares is a key part of what makes them popular. Your capital doesn't have to be tied up for a long period of time.

And your assertion that it isn't possible to dump big positions isn't true. So long as you trade out of positions over enough time, you can do so with minimal market impact. Big hedge funds and pensions funds do this all the time. Every time a stock enters or leaves the FTSE 100 a whole stack of index tracker funds will trade in and out of huge positions, without overly affecting the market.

So, finally, how does the stock market price shares. Well, it's all based on the efficient market hypothesis. The market is going to pay a reasonable price depending on how many people are willing to buy or sell. That to a large extent is based on 2 main things: what the people in the market think the stock will be worth in the future; and what the dividend stream looks like. For an established company with a dividend stream, analysts often estimate the price by using a discount of future earnings model. So a dividend 20 years down track is worth the dividend you expect to be paid in that year (at least an estimate of it), discounted by inflation for each intervening year. You can sum all dividends up from now until the end of time, and that is the stock price. For a company like Google that has yet to pay dividends, you are looking at their growth model and trying to predict when they will start to pay dividends, and what dividends they will actually pay. If Google growth stops significantly, and they don't start to pay dividends, their share price would tumble. Remembering that all the top people at Google have a large section of their own money tied up in shares means that Google won't want that.

Of course, the reality is a little more complex, but the basic principles are simple.

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Alien

The View from other There .... the OverKant*

"What is making the USA appear more productive is the high cost of USA healthcare relative to other countries. An operation that costs $1000 in India costs $25000 in USA. Therefore the USA is 25 times more productive (as measured by GDP) than India." .... By Charles Manning

Posted Wednesday 16th July 2008 02:08 GMT

I would agree with you, Charles, that it is an Apparition which Burdens Great Games Play with 25 times more Inefficiency and/or Insufficiency than India (as measured by GDP) .... which is a Crooked and QuITe Inappropriate Yardstick by which to Think 42 Measure anything of Deep and Significant Intrinsic Value.

* Honey Bear Baiting, Flying dDutchman Stijl ....... Tentative First Steps in Harry LimeLight through to Dark Matter Masteries in the Most Original and Ancient of Earthy Mysteries ...... The Pleasure of Viceless Sins ...... Zero Collateral dDamage.

*Daniel in the Lioness's Den? :-) ... http://www.youtube.com/watch?v=Y_HaXCCjSD8

Wow, something ESPecial to Live for.

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Time to buy a tent?

Buy a tent and an airgun a solar panel to run your laptop, then head to the hills?

Can it be as bad as he is saying and not get a lot worse?

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"demand a meatier share price"

Uh, if the company is making a profit, you will get a share of that profit. It's called "investing in a company". Trading shares is NOT investing. It's market speculation.

The share price is basically irrelevant: at some point, if the share price keeps increasing (as per demands of these carpet-/tea- baggers) then at some point in the future each share will cost more money than you have available and will be unable to sell it to anyone with less money than yourself.

So at some point, share increases will (and MUST) become irrelevant. Whether the company is still profitable is the metric you must use to decide whether you will invest.

Its this sort of idiocy that makes the housing market crash (demand that the house price ALWAYS increases by more than inflation). Result: if not checked, nobody will be able to afford the rent for the house nor buy it from you and you now have a house you can't use and can't sell.

In any investment, anything you make more than inflation is gravy. And that gravy has to be taken from someone else or it will increase inflation (because someone needs to print more money).

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"Blair has fled the country"

I suspect he's trying to get presidentship in the EU parliament for his sterling work in gettin ghte UK to agree (mostly by answering on our behalf) to the EU getting a full parliament and so on.

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Banks desperate to cash in their shares drive down the markets

The price of shares is also being pushed down by all these funds and banks HAVING to sell shares to improve their reserves. As everyone knows if you have to sell something to stave off bankruptcy then the person on the other side of the table will drive a hard bargain...

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Silver badge

The whole US economy is on the skids

As I see it, Ashlee's article shows that many good tech companies are suffering from a lack of demand. It doesn't matter how good, fast, and cheap your product is, if no one feels they can afford to buy it. Or if they already have something similar that they figure will do for a while.

Personally, I can't see why people buy PCs any more. Back in the 1990s, I actually subscribed to two or three monthly PC magazines, and spent a lot of time reading up on all the new products. I haven't done that for years now. Moreover, what I mostly got excited about was the annual Hertz hike - 25MHz to 50MHz, the 200MHz, 1 GHz, etc. Try finding out which processors give you the most performance nowadays! It's a recipe for a nervous breakdown, what with counting processors, cores within processors, clock speeds, FSB speeds, first, second, and third level cache speeds and sizes, etc., etc.

If the US economy as a whole is in the tank - and I suspect it is, in a big way - it stands to reason tech companies whose biggest market is in the USA will also feel the pinch. How is Lenovo doing, by the way?

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@Charles Manning

I don't blame you for getting confused between microeconomics (what is good for you) and macroeconomics (what is good for the economy) - High healthcare costs does boost the economy as a whole because the people who are raking it in are also spending it on things your company produces (or on things made by people who buy from your company) but it's bad for you because you have to pay more and your company just uses the extra profits to employ more people and/or take executive training holidays in Vegas.

The problem is that things which are good for the economy tend to benefit the big players and things that are bad for the economy tend to hit everyone.

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Fuji !!!

Wanna know what I think ?

I think that Fuji IS indeed considering buying Sun but decided that although the JAVA stock is already very low; it would be even more tastier and less risk to buy them when it would be even lower.

So they then contacted a TheRegister editor and promised him a few million $ (or Fuji shares) if he could somehow, by posting a few filtered well-known facts (economy has been in the slumps for a year or 2 now, hadn't you noticed ?), through the TheRegister distribution channel.

Hey. I can invent stuff too, you know. but just think of the consequences ...

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Coat

Stockmarket bears no relation to reality: it is just seen as an abstract

When the Paxman underpants e-mail broke, M&S shares fell 9 points. However, the other day women compalined about bra prices (i.e. a bigger bra cost £2 more for each bigger size, but not clothes), the share value went up a couple of points. Governments like to think they have control over the economy and jobs, the reality being the opposite, the irony being that most of them studied economics along with politics and philosophy at Oxbridge (the only two that teach such an educational package).

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Flame

This is why the stock market needs to be destroyed

I mean completely, utterly, obsoleted.

Its nothing more than gambling for idiots. Except that the real losers are innocent employees axed because of some mythical number on a board somewhere that was influenced by some moronic exec or newspaper headline.

I can't understand why companies continue to take part in such a ridiculous scheme. Oh wait, yes i can, a quick payoff. Fucking America.

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Paris Hilton

Meh, whatever

Pretty much the whole market is near a 52 week low, so singling out a few stocks and mumbling about it being the end of the tech world is ludicrous.

Also, as mentioned by plenty of other people here, stock market valuations don't mean Jack. Stock prices, like house prices, are going down because no-one wants to, or can, buy them, not because they have suddenly become less intrinsically valuable. It's a bear market Ashlee.

Paris, because she understands that prices go down as well as up.

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Paris Hilton

PCs are now fast enough

Unlike in the past when you were dissatisfied with your PCs performance and you were constantly thinking about upgrading memory/cpu/graphics purely to achieve what you do everyday quickly, if you have a recently purchased PC then it will do virtually anything you can throw at it with satisfactory performance.

The only sector where this is not the case is gaming, but lets face it, the prospect of buying 2x $200-$500 to play the latest $50 game is not something Joe or indeed Jill average is going to do. New software releases don't offer the huge steps forward that we have seen in the past and many people are using OSes and production software that is 5 or more years old. You can now buy an affordable machine that will actually have more memory than the leading OS can actually use. If the tech market is to be boosted then a high demand (in terms of hardware) killer app and or OS is needed pronto, plus it needs to work as advertised (take note MS), I find it interesting that the eee machines have garnered such interest, I see this as confirmation that the general user is pretty much happy with the hardware they use everyday and are spending their upgrade bucks on toys not always in the tech area.

Paris cos her toys vibrate, that's when the ringer is turned off.

Efros

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Tom
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Wow. Such total and complete economic ignorance.

I thought things were bad in here in The States, but wowser! Not a poster here could pass an introductory econ class, even the ones pretending to knowledge. It's really sad to see the nation which produced Adam Smith has fallen so low.

I'd like to help, but I don't have time. I'm at work, and trying to start with the basics and get you all up to speed... Well, it takes at least a semester of study and other people have written better books than I could manage in a single post.

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@Tom

Well, instead of talking out your arse (which I admit is some skill when you're talking down to us at the same time), why not elucidate?

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Economics

If economists were so understanding of economics how come we end up in this shit every 20 years or so.

Efros

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Economics

The job of an economist is to explain why control of an economy is impossible, and to understand aspects of it. Not stop recessions. Oh and nasty american guy; some of the posters have not understood economics, but your post is even less informative.

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Go

@ AC

Touche my good man! But Ah, Do we not seek alternative means to make exponential funds in unclaimed territories? Housing was good, and then EVERYBODY jumped on board, and it got bad, and everyone got off at the next stop. Dropping the housing market seemingly overnight (and at the expense of many "false" mortgages) Tech stock were good in the late 90's, and everybody jumped on board with whatever pennies they could scrounge up. And then they realised they were buying stock in the 15 year old next door, and EVERYBODY got off. No, I repeat NO economic indicator, Can judge a fad or "Trendy" Economy. Which is how we got to where we are. People buy into something because somebody else made it profitable, and then try and take the reigns themselves with false hope that can keep you up for awhile, but will inevitably bring you down (The higher you are, the harder you fall). Old adages such as "putting all your eggs in one basket" Have been around for ages for very good reasons. Do I have a solution to fixing the human pysche? No, not at all. People do what they think they have to do to strike it rich. But I will always tell people to invest in an economic foundation, and Play with as much as your willing to lose. Until people do such, and until other people stop INFLUENCING people to do otherwise, We will have the rollercoaster that is the current economic situation.

Because I never took college econ, but I am not a blind puppet.

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@Thomas

Couldn't have put it better.

Wonder why Sam Smith's pubs are doing so well now? Because they sell (have always sold) affordable beer. Just because it's not your trendy label £4 a bottle (half pint), doesn't mean it's crap 'cos it's also very good quality beer, just not advertised.

When people have cash, they will splash, but for what advantage?

Meh, it's still pants if I lose my job because of sheep mentality at large.

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Go

It's All Opportunity

Sometimes you have to get a slap in the face to realize the current strategy no longer works.

These companies can survive and even flourish. They just have to have the will to adopt the proper paradigm. Finding the right fit always the classic "agonizing reappraisal". I guess we'll see who has the balls to do take the right road.

Economies are like bowels. Every now and them they have to get rid of the crap and sometimes it's a smelly unpleasant process.

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Anonymous Coward

Cyclical...

Just like the tides and the refilling of a toilet after you flush.

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Anonymous Coward

Cyclical...

After the flush, some turds will have left the bowl, some however seem to miraculously float on..

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Wow. Such total and complete cultural ignorance.

@Tom

"It's really sad to see the nation which produced Adam Smith has fallen so low."

And how do you know that they're all Scottish?

The word "nation" has never been in common use to describe the UK as a whole.

Country, yes -- depending on who you talk to.

State, yes -- depending on who you talk to.

Nation, no -- unless you speak to people with less of a clue than your average 8-year-old.

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Happy

doom and gloom

I think the doom and gloom view is a bit flawed.

Yes share prices are plummeting, yes oil is high and yes inflation is climbing which causes an unstable enviroment for business but.

Share prices were over valued in most industries for a long time and were in need of correction, this is now underway and an equilibrium will be found in the comming months and a more stable and safe enviroment will provail.

as global growth slows as it at this very moment demand for oil will plummet and so will its price just that a time when production is being raised! opec are resisting raising output for this very reason.

as sterling corrects itself all of a sudden we are becomming more viable as a country, British manufactuiring may even return! in the tech industry we may well see many of those offshore jobs comming back over the next few years as we become more price competative.

In summary what is happening in the world at the moment is good for britian and the tech sector in this country. Finally wiping away the damage Mr brown has done the cost for this will be picked up by the banking sector and home owners. then it's back to business...

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What's a stock market?

No, really. What is a stock market?

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Flame

Stock market

Where tasty, flavour enhancing liquids are bought and sold?

Where cows, pigs and sheep etc. are bought and sold?

Where cut and shut cars are sold for banger racing?

Where distressed inventory is sold?

Where imprisonment devices for public merriment are sold?

A: none of the above.

Real A: Where smoke and mirrors are bought and sold.

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Heart of Darkness

We are all watching this one. This is a critical couple of weeks. Mood pretty grim in the Bay Area huh?

The folks at other companies that I know are not reporting hard times for revenue. The stock prices are dropping overall, but that does not necessarily correlate into layoffs until targets start getting missed. If revenue reporting stays strong or at least not miserably off target, then we might be looking at something new for the tech sector.

Household commodity.

This is pure speculation on my part, but the way that smart companies these days are looking at IT is as the bread and milk of their daily business (e.g. watch P&G historical earnings and stock performance during economic downturns.) Better technology makes companies more competitive. Perhaps customers will be looking to save a Quid, Euro, Yen, Ruble, or a Buck here and there, but at this point saving too much or deferring a purchase may result in harming their competitive ability, efficiency, and productivity.

The devaluation in the stock price is looking very dollar linked. Companies with strong revenue outside the US are still reporting in Dollars and paying staff in [insert local currency here.] Revenue may seem high, but operating expenses are too.

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