What Today’s Trends Say About 2000
Who knows the future? Nobody. But sometimes if you look hard at events of today, you get an idea of what to expect tomorrow. Here are a handful of predictions on what to expect in 2000.
1. Reality Checkout for the Internet. A shakeout of Internet retailers is already happening. As 1999 drew to a close, the stock prices of such e-tailers as EToys, Amazon.com and EBay were dropping, and Value America was cutting its staff in half. This despite the fact that the Christmas season was seeing a record $10 billion of purchases online. Investors were asking whether the Internet retailers could handle the orders, deliver the goods and make a profit. Investor skepticism will continue in 2000, meaning fewer companies simply trying to sell items on the Net will enjoy skyrocketing stock prices.
Internet brokerage firms have met a similar fate as investors questioned whether firms such as Ameritrade, E-Trade or TD Waterhouse can really hold and serve long-term investing customers. To be sure, nobody doubts that the Internet will continue to develop as a powerful communications technology. But at the turn of the year, investors were favoring Merrill Lynch, Charles Schwab and other traditional full-line brokers. And a notable alliance between America Online’s Internet prowess and Wal-Mart’s retailing might indicates future patterns of cooperation. As one venture capital financier put it: “You will need an offline component to any online business to fully succeed in the coming year.”
2. U.S. Economy Blows Through Rate Hikes. The U.S. economy will continue rapid growth, at close to 4%, despite a rise or two in short-term interest rates by the Federal Reserve. One important reason for strong growth will be continuing high levels of business spending on research and development--up 10.6% to $187 billion this year--and overall capital spending of $1.2 trillion. Most of that spending will be for information equipment and services as companies upgrade Internet systems linking their operations throughout the world. In addition, the presidential election will provide an economic stimulant. Somehow the administration in power always finds extra money to pump into the economy in an election year. The Clinton-Gore administration will be no exception.
3. What’s Good for General Motors . . . . The big company could have a top-management shake-up this year. But given normal GM and Detroit inertia, Chairman Jack Smith’s job is probably safe for another year. Here’s the background: Incredible as it may sound, this will be another great year for the automobile industry, on top of the record sales of 17 million vehicles in the U.S. in 1999. The good times may soften visible dissatisfaction inside GM. Last month, GM Vice Chairman Harry Pearce publicly criticized the company for having let its share of the U.S. market fall to 29% from 36% a decade ago. Pearce’s statements sounded like the kind of criticism that preceded GM’s last management shake-up in 1992, when its board of directors sent Chairman Robert Stempel packing and installed Smith. But the focus of auto competition will shift to Europe and Asia in 2000, and GM may not want to make waves at home while pursuing business overseas.
4. Hughes and Satellites Change the Game. General Motors will make news on another front in 2000 as pressure from Wall Street builds for it to totally spin off its Hughes Electronics subsidiary. Hughes’ Direct Broadcast Satellite operation is more valuable than ever thanks to a new appreciation of wireless communications as well as a new federal ruling allowing satellite broadcasts to carry local news. Suddenly a competition that seemed limited to cable versus traditional telephone lines has opened to the possibilities of wireless transmission of all sorts of traffic, including the Internet. This year will see a reevaluation of telecommunications and entertainment companies because of the prospects for wireless in the next three to five years. That’s one reason the price of GM’s Class H stock, which represents Hughes Electronics, has risen dramatically recently.
5 & 6. Whither GE and Microsoft? The two companies with the highest stock market values--roughly $508 billion for General Electric and $606 billion for Microsoft--will suffer diminished esteem this year. Part of Microsoft’s future will be decided by the settlement of the U.S. government’s antitrust suit, which could come by spring. The company may have to split off some operations. But the biggest determinant of Microsoft’s fate will be new competitors and technologies that go beyond the personal computer and Microsoft’s operating systems. Change will hurt. The judgment of many high-tech entrepreneurs is that Microsoft does best where it has a monopoly and not so well where it doesn’t.
GE Chairman John F. Welch Jr., who took command of the giant diversified company in 1981, is a visionary who saw what a big U.S. company needed to do to adapt to a changing global economy. He built GE Capital into one of the most adroit finance companies in the world. He kept a company of aircraft engines, medical technologies, home appliances, light bulbs, locomotives and NBC television ahead of the pack most of the time. But Welch’s successor, who will be named from within GE’s management ranks later this year, will find it harder to hold such a conglomerate together in a new age that favors separate companies with separate issues of stock to reward managers and investors. Welch is reported to have built in two years of rising earnings for GE to ease the transition. But a year from now, as Welch’s April 2001 departure nears, GE’s future will attract more skepticism than reverence.
7. Europe Will Be Hot. Europe’s economies, led by Germany, will really get going on industrial restructuring this year. Key to those expectations is a change that Germany is now making in its tax law to allow major banks to sell shares of industrial companies without incurring high capital-gains taxes. The change will open the way for independent shareholder markets, on the U.S. model. Japan too is making similar tax changes to spur industrial restructuring. Which means that a lot of world investment in 2000 will flow to Siemens, Deutsche Bank, Sony and other foreign companies.
8. Airbus Thinks Big. Buoyed by vibrant economies in most of the world, Airbus Industrie, the aircraft company owned by French, German and British backers, will decide this year to go ahead with a project to build a 550-seat jumbo airplane, now dubbed the A3XX. It will be a major undertaking, costing at least $12 billion. But it will throw down a challenge to Boeing, which ultimately will have to decide whether it wants to invest such enormous sums to compete in the mass market for commercial aviation in the 21st century.
9. Oil Down, Gas Up. The price of oil, which ended 1999 at more than $26 a barrel, will retreat to around $20 a barrel in 2000. Natural gas prices will rise to $2.50 per thousand cubic feet. OPEC nations will increase their production to keep prices moderate. But Iraq will be key to price moderation. A world wanting low-priced oil will encourage Iraq to produce and sell more oil, irrespective of whether Saddam Hussein changes his policies or his hold on power lessens.
10. Global Healing. That’s the term economist Stephen Roach of Morgan Stanley gives to the outlook for simultaneous economic growth in Europe, non-Japan Asia and the United States this year. Mexico and Brazil, too, look forward to growth with stability in their economies this year. Japan’s huge economy has profound problems, says Kenneth Courtis, Tokyo-based economist of Deutsche Bank, but it, too, is restructuring for growth.
What do those visions mean in dollars and cents? Higher U.S. interest rates--6.6% long-term rates compared with 6.4% now. The dollar will strengthen against the yen, but weaken against the euro. Global healing won’t help the U.S. stock market race ahead as it did last year, but it will be very good for the real economy of jobs and incomes. The decade of the ‘00s is off to a good start.
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James Flanigan can be reached at jim.flanigan@latimes.com.
