Hard landing or soft? The value of new technology stocks twitched sharply this week; it was more like a spasm in the price of oil, as dealers hit the panic button after the events appraised above. On the hi-tech front, share movements may signal the start of much-needed realignment in the relationship between equities and commercial prospects. After spectacular movements on Wednesday, things calmed down yesterday, despite gloomy warnings from Motorola that worldwide growth in demand for mobile phones is now slowing.
Some people bathe in schadenfreude on such occasions. The possible liquidation of Boxman, set up three years ago to sell music and videos over the net, no doubt pleased those offended by the explosive growth in the perceived value of dot.com companies despite their lack of a track record in real (and often hotly competitive) markets. Boxman is unlikely to be the last collapse. According to a study last month, another 19 big start-ups are going to run out of cash before the end of the year. It is an irony that those who relish the pain of the Boos and the Boxmans are often most appreciative of how the "new economy" appears to have altered some fundamentals for the bet ter. Sushil Wadwhani's view, expressed yesterday, that the economy can be run at higher levels of demand without generating inflation relies on a positive appraisal of the internet's effects on competition. If he can persuade his colleagues on the Bank of England's interest setting committee and they stay their hand in the face of recent inflation figures, well and good. But one inference is that internet start-up companies are playing a sterling role in the process.
Broad-brush correction is much needed. American stocks are over- valued. Dot-commery needs the air let out. But of course everything depends on how readjustment is made. Wall Street valuations will affect the dollar, the hinge of the benign economic circumstances in which the American election is being fought. On the high dollar also depends the huge inflow of short and long-term capital into the United States, funding an extraordinary balance of payments deficit which in turn keeps the world economy ticking over nicely. Growth and employment in the euro zone win faint praise when compared to the US. But as Sir Samuel Brittan observes (we hope not too presciently), the American economy is "more precariously balanced".
