Is the stock market close to topping out?  Bulls and bears are in disagreement as to which way the market will go after the Dow hit new highs recently.  The Dow may go higher from here, or drop lower, but the one exchange which should be the strongest in the coming 2-3 years is the NASDAQ.  If you remember, the NASDAQ reached its all-time high at the peak of the dot.com bubble as it was the visible manifestation of that bubble.  The NASDAQ topped 5000 in early 2000, and hit an intraday high of a couple hundred points higher than that.  Currently around 2500, it would appear that the NASDAQ is less than half of its previous best.  Not quite.  To get an accurate picture, inflation has to be factored into the picture.  Using the Consumer Price Index as a proxy for inflation, we see that inflation has risen approximately 22 percent since the NASDAQ reached its all-time high.  So for the NASDAQ to approach this benchmark in real numbers, it would have to top 6100 to 6400 points (the larger number is for those who like intra-day marks).   The NASDAQ is nowhere near that number – it is far below half of the inflation-adjusted high. 

Although the NASDAQ is well under water, it may get some serious help on a move back toward those lofty heights that the Dow and the Standard & Poor’s 500 are frequently tapping out.  How?  Telecommunications and technology will elicit a huge burst of spending in the near future..  The telco world is ramping up to receive benefit from the United States Government’s super spending awards.  Tabbed as “Networx” and coming from the General Services Administration, the total amount of cash put out from the government is estimated to be $80 billion over the life of the contracts.  Several companies have joined forces to bid for the contracts, and the GSA awarded the first round to AT&T, Qwest, and MCI Communications.  However, each of these big telcos actually comprises an entire team of smaller companies that are working together to put the new product on the market.  The impact for the telcos will be enormous.  For instance, Qwest points out that Networx is their number one priority.  Charles Lee, CTO for Verizon Federal, sees the new contracts as a setting stage for technology advances (WashingtonTechnology).  And there will be a lot of technology changes as the Networx gets rolling toward the end of 2007.  Also factor in the element that whatever the government does usually ends up costing twice as much, and you have a huge amount of money rolling down the road into 2008-2010.

Telecommunications is not the only place where the government will be spending significant amounts of money.   The transition of government computer systems to a safer, more secure environment is one of the goals for IPV6.  This is the next version of the Internet, and China is already underway building on the new system.  Again, the GSA is spending big bucks.  It is awarding $125 billion in contracts by the summer of 2008 to overhaul the IT infrastructure, and also throwing on a $25 billion amount for small or minority businesses to get into the act.  “These are big numbers even when you look across the federal government” noted one federal agent.   Again, factor in the idea that government’s initial estimates are usually below water, and you have some absolutely huge amounts of money coming into the technology sector.   If you want to dig deeper, check out what Wiki says on IPV6, as well as running a google on Networx.  And government spending is not the only push here – Sprint will be bringing a massive build out of the new wireless technology (WiMax) across the United States in 2008.  Video will be larger than ever, as cell phones begin to integrate full size screens into their package (via projected lasers).  Telco is just beginning to take off.

At the same time that all of the government spending is being cut loose, another tidal wave of tech will hit – a perfect storm of upgrades coming from Apple, Microsoft, Intel, and AMD.  Both the hardware and software are going to get elevated at the same time via a plethora of new systems and advances.  CMP Channel’s recent study found that most businesses will start adopting Vista in late 2007 and early 2008.  That is also the same time the new Apple system will hit the street, as well as the availability of quad-core processors from AMD and Intel.  We are on a quantum leap in the power of computer and efficiency of computers, a generational upgrade that features the media.  A Business 2.0 article noted .  “Vista will make it easier for people to find, consume, and create high-definition content.  The user interface is media-oriented.” The new Vista system automatically provides much more sophisticated offerings, such as video-editing software (built-in) and vastly superior photo and video organizing, TV recording and a quantum leap in graphics processing.  This will in turn prod consumers to buy better hardware, fancy peripherals (especially speakers, screens, and HD-DVD drives) and more graphics-rich software and Web services. For every $1 that Vista earns for Microsoft, IDC analyst Marcel Warmerdam says, it will pump a minimum of $12 into the global economy, as noted in Business 2.0.  So if the OS generates $9 billion in revenue for Redmond, that’ll mean about $110 billion for other tech firms worldwide. . . then there is the $40 billion boom effect that Vista is likely to have on the software market, as everything from PC video-games to business apps begin to take advantage of Vista’s improved graphics.

 The consumer is literally being pushed toward more video involvement.  Again, the main thrust of this change will come toward the end of 2007 and the first of 2008.

Just as tech and telco start to really take off, global liquidity adds its part to the package.  And it is a big part.  According to a very recent Reuters article, “central banks around the world are looking to invest more of their $4.75 trillion foreign exchanges reserves in equities.”  Since the United States stock market makes up about half of the world market, that’s good news for stock holders.  The head of HSBC in London points out that central banks are so flush with reserves that they barely know what to do with them.  Norway’s massive pension fund, for instance, plans on elevating its equity holdings by 50 percent.  And the behemoth from the East, China, is also going to start going global with its investments.  One editor featured in MarketWatch puts the amount that China will be moving into equities abroad at  $2.3 trillion.  And he points to further parabolic advances in equities.  No kidding.  The perfect storm – massive capital infusion just about the time that tech and telcos really start to blossom.  This tsunami will make the bubble look miniscule, and perhaps NASDAQ 7000 isn’t so improbable.

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