That 1998-1999 Analog Again

At the bottom of the 2018 decline I wondered, could it be 1998 again? What a Tantrum, Is 1998 in Play? Things were proceeding somewhat similarly by May: 1998 Redux: Bonds Not Behaving Yet, 1966 Rising?. The Federal Reserve wouldn't go "full 1998" until October 2019, when it started doing repo operations and expanding the balance sheet. That move lines up with 1999 though, when the Fed eased on Y2K fears.

Here's the 2019 analog with QQQ:

To press the inexact analogy, coronavirus is the new Y2K. Clearly these are different issues, but they absorb attention. Both are unknowns. There was concern about what would happen when the year 2000 started. Companies were spending money on the problem. COBOL programmers were being paid. Today, we don't know how long the Chinese economy will be hampered. Companies have shut their doors or announced delays in production because of supply chain problems.

Analogs tend to play out because of higher order factors though. History doesn't literally repeat. History rhymes because human nature and human psychology do not change. What's going on when bull markets enter their final phase? I'm reminded of the line from The Matrix when Agent Smith tells Morpheus that the early versions of the matrix were a paradise, but humans were waking up because they realized it was a false reality. Similarly, let me posit that even bullish investors start having a nagging feeling that the good times can't go on. Y2K and now coronavirus become this great fear that causes authorities such as the Federal Reserve to overreact. Their actions to keep the bull market alive in the face of a threat become the factor that brings about the bull market's suicide.

In 2000, it was the turn of the calendar that revealed no apocalypse. Stocks ran into March, the Fed announced it would no longer provide liquidity, and then it was all over. If the analog fits and coronavirus proves to be an overblown risk, stocks will rally off their highs with the Fed providing liquidity. Supply chain disruptions in China will create pricing pressure later this year. The Fed will turn hawkish, either discuss rate hikes or announce the end of repo, and the advance will terminate.

More immediately, if the analog holds, there's still a great deal of stock-specific risk should companies announce an earnings hit from coronavirus. The hit won't come until the April reporting season, though firms could warn earlier. The market has not priced this risk in, outside of sectors directly hit such as Macau casinos and airlines.

Here's an example from 1999, in the midst of the melt-up. IBM share plummeted 19.3 percent on Y2K fears and an earnings warning.

Wired: IBM's Y2K Fears Drop Stocks

Wall Street was stunned by news that the world's biggest computer maker, IBM, will have poor earnings in the fourth quarter and the first quarter of 2000. IBM, one of the 30 Dow components, slumped 21-3/4 to 91. The company posted mixed third-quarter results due to slower spending as big clients made fixes related to computer problems associated with the year 2000.

But more importantly, IBM warned of much lower than expected earnings into early next year.

..."I think when IBM said it would take a couple of quarters to get over the Y2K problem, it bothered a lot of people. I just believe the Street is interpreting that there are deeper problems," said Charles Payne, head analyst at Wall Street Strategies.

Payne said despite a slew of strong earnings from top companies, firms reporting profits a penny or two above consensus estimates "are being greeted with a yawn."

I highlighted the drop in the chart below:

The Federal Reserve was on everyone's minds too:

"Those statements that the Fed is not going to target asset prices suggests the market doesn't have to worry about Fed tightening if the market goes higher," Ascani said. "It probably helped the market. The Nasdaq just didn't want to give up its gains."

At a gathering of financial analysts, Kelley said he was concerned that the nation's tight labor market might lead to a boom-and-bust cycle in the US economy. But he said the Fed's primary responsibility was to tailor its interest rate policy to conditions in the overall economy and that targeting asset prices is "not the business that we're in."

Another Trend Changes: Peak Debt for Blue Chip Companies, Buybacks Peak

American companies are the marginal buyer in the stock market, accounting for 2% of total market volume in February. They have been a consistent buyer of stocks since 2008, many using leverage at historically low interest rates to repurchase stock. Higher interest rates threaten this buying because companies will curtail their borrowing. Even without higher rates, some companies are hitting the point at which financial prudence dictates they stop leveraging their balance sheets. This leaves the companies financially impaired regardless of which way interest rates move because if they add more debt (holding equity constant), they will lose their investment grade status. Once that happens, their financial outlook sours and they could suddenly fall into financial trouble.

Bloomberg: American Companies Are in Love With Themselves

Stock buybacks, which along with dividends eat up sums of money equal to almost all the Standard & Poor’s 500 Index’s earnings, vaulted to a record in February, with chief executive officers announcing $104.3 billion in planned repurchases. That’s the most since TrimTabs Investment Research began tracking the data in 1995 and almost twice the $55 billion bought a year earlier.
Even with 10-year Treasury yields holding below 2.1 percent, economic growth trailing forecasts and earnings estimates deteriorating, the stock market snapped back last month as companies announced an average of more than $5 billion in buybacks each day. That’s enough to cover about 2 percent of the value of shares traded on U.S. exchanges, data compiled by Bloomberg show.

Investment News:Stock buybacks, now propping up the market, could become a victim of rising interest rates

Mr. Rice is among a growing chorus of market watchers who are warning that share buybacks will drop once interest rates start to move higher.

Higher rates are expected to put a damper on share buybacks on two main fronts. First, higher borrowing costs will slow the pattern of corporate borrowing for the purpose of repurchasing shares. Second, higher interest rates will likely mean companies will be able to find better uses for cash stockpiles, which, for companies in the S&P 500 Index, currently total $1.33 trillion.

“It's another reason higher rates will be bad for the stock market, because right now so much of share buybacks is driven by the interest-rate arbitrage that low rates enables,” Mr. Rice said. “Right now companies can borrow at cheap rates and use the proceeds to buy their own shares, and it all helps to explain why stock prices keep rising while investor interest has remained the same.”

This chart accompanied the article. The S&P 500 looks similar with a 3-month delay.

One of the companies that just hit its debt limit is Viacom.

ZeroHedge: After Viacom's "Shocker", These Companies Are Most At Risk Of Early Terminating Their Stock Buyback Programs

Which means that as soon as the buyback quiet period ends in the first week of May, the next catalyst concerned shareholders will focus on will be which company will follow in Viacom and IBM's footsteps, and likewise announce that in order to preserve their IG rating, will be "forced" to halt stock buybacks for the indefinite future.

To make our readers' lives easier, here is a quick and dirty CapIQ screen looking at the largest S&P companies which have repurchased $2 billion or more in stock in the last 12 months, and whose net debt/EBITDA is dangerously close to the "fallen angel" category. Not surprisingly, the top 20 results feature both IBM and Viacom. Expect many more companies on this list, especially those with higher net leverage, to announce that their stock buybacks are also put on hiatus until further notice, leading to a sudden and sharp air pocket in their stock price.

ZeroHedge has this chart of companies also likely to stop their buybacks due to hitting their debt limits:

IBM Competitors Limit Up Again on Mainland; Inspur Up 15% in HK After It Poaches IBM Talent

Yesterday there was this headline: IBM Challenger Inspur Woos China Customers Amid Dispute

Chinese server maker Inspur Group Ltd. started a campaign to lure customers from International Business Machines Corp. as the government studies if domestic banks’ reliance on IBM technology threatens national security.

Today, there are reports the firm is also poaching IBM's employees, another story puts the number at 80 so far.

浪潮确认“挖角”IBM 多名员工跳槽至浪潮 (Inspur confirms it is raiding IBM; Many Employees Have Joined Inspur)

Yesterday, news that a comprehensive plan to replace the wave of IBM server business in China, there are more than 80 IBM employees switched to wave. Inspur Group confirmed to the Beijing News reporter "This is true." As of yesterday, the wave of the Group's wave of software [ 6.13% funding research report ] has daily limit for three consecutive days.

IBM was "poaching"

In assessing whether the Chinese government research and reliance on domestic commercial banks IBM Corporation (IBM) server is a threat to national security, the Chinese server manufacturers launched the wave of the Group of IBM customers, "erosion" action.

IPG to Beijing News reporter sent an information display, May 27, the tide started nationwide innovative data centers nationwide tour to show the wave of high-end servers, generic servers, storage systems, cloud computing, big data, high-performance computing and mainframe 18 of the models the safety of the six modules, 12 solutions and applications demonstrate full debut.

At the same time, the tide station in Jinan, first published a study entitled "I2I program" (IBM to Inspur) plan aims to take full control of IBM X business.

Wave that began last year, the wave of the financial replace part of IBM servers and related facilities and other industries. Including China Construction Bank [ -0.25% funding research report ] , a number of state-owned postal savings banks, savings banks have been using since last year pilot wave produced domestically server.

Left Bai Chen, vice president, said the wave, the wave of the server and minicomputer products, has had the ability to fully take over IBM products. In terms of talent pool, the tide had already recruited a large number of professionals from IBM and other foreign server vendors. Wave through products, channels, services, prices of full-force, a comprehensive alternative to IBM's server business in China to accelerate China's server market share in the first goal.

At the same time though there is news that this year a large number of IBM employee turnover. On the news, IBM China, PR Director Shen Xiao Yi said, IBM does not comment on this temporarily.

IBM results have been eight consecutive quarters of decline, last year IBM decline in performance was attributed to weakness in the Chinese market. Foreign media will be Microsoft, IBM, Cisco China were attributed to declining performance by the "prism incident" affected.

Wave of hundreds of millions each year by the Government-funded

Left Bai Chen said that from the beginning of last year, the government increasing importance of information security, the extent of the wave beyond expectations. According to reports, beginning in 2009, the wave of several hundred million dollars every year to get financial support from the government, mainly through 863 projects, nuclear high base, the results of the NDRC's transformation and so on.


In addition, the government has also set up a wave of high-performance server storage group and facilities, the ministry also has a wave Laboratory, to undertake country missions. In addition, there are many preferential policies. "For example, the wave of foreign companies setting is not compatible with obstacles, the Ministry will allocate 200 million yuan wave R & D funding, requiring the wave of 2015 to reach the same level as international." Left Bai Chen said.

March 2013, China started the wave of domestic manufacturing in the Postal Savings Bank pilot server, the same year in May, the country's three data centers Construction Bank data center in Wuhan, the tide has made ​​large-scale applications. Subsequently, the wave-related products in the China Banking Regulatory Commission , China's central bank, part of the policy banks, a number of provinces and the City firm to obtain applications. Analysts said the Chinese government to strengthen information security initiatives are gradually implementing corporate action.

However, industry insiders believe that the wave group wanted to overthrow IBM's leading position in China is not easy. In 2012, total revenue of 401 billion wave yuan , only 6.2% IBM year income.

Chinese Server and Software Firms Spike Limit Up on IBM News

The number in the brackets is the gain for today. Chinese A-shares cannot increase more than 10% in a day.

外媒称中国商业银行或禁用IBM 浪潮信息等13股涨停

Yesterday, there was news that the Chinese government is promoting the use of domestic banks to abandon the production of high-end IBM servers with a domestic brand instead.

Affected by domestic server and software services stocks rose, including computer equipment sector rose more than 5 percent, led the two cities, and software services sector rose more than 4%, in second.

At the close, the wave of information [ 10.00% funding research report ] , Royal Bank shares [ 10.02% of the fund research report ] , the wave of software [ 10.01% funding research report ] , GRG [ 9.98% funding research report ] , Xiang-mail technology [ 10.03% funding research report ] , have the same technology [ 9.99% funding research report ] , Shi Ji Dingli [ 10.01% funding research report ] , silver Inchcape [ 10.01% funding research report ] , Highlander [ 9.99% funding research report ] , Han get information [ 9.98% funding research report ] , Chinese software [ 9.98% funding research report ] , Tianjin card [ 10.02% funding research report ] , the National Information and other 13 stocks daily limit, Boco [ 9.25% funding research report ] , ultra- Software [ 8.59% funding research report ] , in the new century [ 8.50% funding research report ] , UF Software [ 7.82% funding research report ] and other stocks among the biggest gainers.

Bloomberg reported that informed sources, the Chinese government is studying and assessing IBM mainframe servers in the domestic financial monopoly position if the field will adversely affect national financial security, and will also take measures to gradually expand the domestic large-scale server applications in commercial banks .

August 22, 2013, the National Development and Reform Commission published the "Notice 2013 special national information security related matters" for financial information security, cloud computing and big data, information security management systems, industrial control and other areas faced with the actual needs of the State Development and Reform Commission decided to continue to organize national information security projects.

The assessment involves China's Ministry of Industry, Science and Technology, Development and Reform Commission, Ministry of Finance, Bank of China, China Banking Regulatory Commission and many other government departments.

In view of the factors that the United States "Prism" incident, etc., China's official financial institutions are widely used IBM servers will affect national financial security concern.

Insiders said that since last June Snowden outbreak, information security issues have been unprecedented attention. Last November, eighteen Third Plenary Session of the National Security Council decided to establish, in February this year, the central network security and information technology leadership team was established, information security has been put to unprecedented heights.

Assessment of major financial institutions in the case against the widespread use of IBM mainframe servers, whether they would produce a potential threat to China's financial security, but also to assess whether China's large server price too high compared to other regions in the problem of IBM.

According to IDC data, IBM Power Systems 15 consecutive years ranked in the Unix server market share in China first, as the fourth quarter of 2012 had reached 76 percent, meaning that IBM is currently in the Unix server market, a dominant 2-3 years will difficult to appear a threat to its competitors; according to Gartner in the March 2013 release of "Market Share: 2012 Global Software Market Report" that, in 2012, Oracle's market share to 40.7%, again occupy the first application server market.

March 2013, China started the wave of domestic manufacturing servers Postal Savings Bank pilot.

Guotai JunanThe researchers pointed out that the wave of information is worthy of domestic alternative leader, domestic alternative to the tide and high-end servers heavy volume will promote sustained and rapid growth performance. Compared to foreign giants, the lack of local IT companies, one skilled, stable and reliable product performance, and second, to open up the upstream and downstream industry ecosystem. The tide leader in both regards local businesses.

Chinese financial institutions will reduce dependence on the IBM server news, the international wave of domestic server market rose 2 percent in Hong Kong, the wave of information rose nearly 40 percent in two weeks, constantly refreshed 14-year highs.

Storage market, this year May 21, according to the latest Gartner research shows channels, storage channels 21 November 2013 global sales market share ranking of the top six, IB M1 6%, EMC11%; 2012, IBM storage in China market share in the first nine consecutive years.


In addition, the industry believes that the current high import dependence of financial tools, easy-financial data stolen by foreign manufacturers, has constituted a direct threat to China's monetary supervision and financial security. Financial tools, including "cash flow" and "notes flow" categories, the former as ATM machines, banknote sorter, the latter as payment password and so on.

From the size of the market to see, ATM machines currently foreign brand market share close to 60%, a huge demand for the release of import substitution, because the high technical barriers to trade, leading to benefit from existing domestic obvious, such as GRG, Royal Bank shares and so on.

May 26, the People's Bank of China issued the "2014 first quarter, overall pay system operation" on its website. The report shows that China's payment system is running smoothly, pay to maintain steady growth in business volume. Rapid growth of electronic payment services, in which the amount of mobile payment services nearly 4 trillion yuan, the amount of business growth for five consecutive quarters of more than 200%.

IBM partner Government's response to the ban: more harm to Chinese state-owned enterprises (IBM合伙人回应政府禁令：对中国国企伤害更大)

interaction between China refers to fermented with espionage, the Chinese government initiatives to maintain corporate security information is also escalating. According to the British Financial Times on May 26 reported that the Chinese government has banned the use of state-owned enterprises serving the American consulting firm. Yesterday, Bloomberg revealed that the Chinese government is using the state-owned banks to clean up American company manufacturing high-end servers. Phoenix Finance interviewed in the 28th IBM Global Business Services partner Xu Yonghua. Xu Yonghua, said the Chinese government's ban on the larger state-owned enterprises injury.

徐永华 in an interview said that at present the number of IBM Greater China's state-owned consulting business customers account for about one-third, but he said that if the ban is true, IBM lost a third of customers "not important." Importantly, "lost the foreign consulting firm to help after their state-owned enterprises will be even greater harm."

Xu Yonghua that most state-owned enterprises are facing issue is how to grow to become globally competitive enterprises, and most are doing is not good enough, need to come from IBM and other foreign consulting firm to help, and thus participate in global competition, into the world leading ranks. "Now what SOE say there is no problem? Which is the world's leading state-owned enterprises dared call it?" 徐永华 said in an interview.

For the Financial Times said the Chinese government to build the local consulting team issue, Xu Yonghua said they were not optimistic. "SOEs need to globalization. Local team they have global experience?"

In addition, 徐永华 that China considers part of U.S. companies suspected of espionage, and the U.S. consulting firm providing services to state-owned enterprises are "two different things." He said: "It's like driving a car accident and will be out because of an accident, so you can not drive yet.?"

When asked whether IBM received the relevant notification from the government or state-owned enterprises, told reporters 徐永华 not yet received any notification. "But this circle has been talking about," Xu Yonghua said.

New Protectionism Vector: Software

The NSA spying scandal could cost the United States billions in exports from one of its top export industries: technology. This isn't a new topic, but IBM's third quarter earnings confirm that it is a serious issue. I'm looking for an economic slowdown by early 2014 and if that happens, many countries and companies will look to cut what is politically unpopular: American tech imports.

NSA Revelations Kill IBM Hardware Sales in China

But the fiasco was tucked away under the lesser debacle of IBM’s overall revenues, which fell 4.1% from prior year, the sixth straight quarter of declines in a row. Software revenue inched up 1%, service revenue skidded 3%. At the hardware unit, Systems and Technology, revenue plunged 17%. Within that, sales of UNIX and Linux Power System servers plummeted a dizzying 38%. Governmental and corporate IT departments had just about stopped buying these machines.

IBM quickly pointed out that there were some pockets of growth in its lineup: business analytics sales rose 8%, Smarter Planet 20%, and Cloud, that new Nirvana for tech, jumped 70%. But in the overall scheme of things, they didn’t amount to enough to make a big difference.

All regions were crummy. Revenues in Europe/Middle East/Africa ticked up 1%. In the Americas, they ticked down 1% – “The improvement came equally from the US and Canada and once again, we had strong performance in Latin America,” is how CFO Mark Loughridge spun the situation during the earnings call because it was less bad than last quarter.

But there was nothing to spin in Asia-Pacific, where revenues plunged 15%. Revenues in IBM’s “growth markets” dropped 9%. They include the BRIC countries – Brazil, Russia, India, and China – where revenues sagged 15%. In China, which accounts for 5% of IBM’s total revenues, sales dropped 22%, with hardware sales, nearly half of IBM’s business there, falling off a cliff: down 40%.

IBM's earnings: The worst thing about IBM's bad earnings report? China

Loughridge went on to say that the China hardware implosion accounted for a whopping 1.2 points of the 1.6-point constant-currency revenue decline across IBM -- roughly $300 million. IBM stock tanked on the news, falling 6 percent after hours to $175.45.

Vox Day has some first hand anecdotes out of Europe: Anti-Americanism in Europe

When I explained I was originally from America, the man made a face, held his hand up to his ear like a telephone, and said, "USA? Why are you listening to my mobile phone? Why are you listening to my phone calls?" He was joking, of course, as he promptly laughed, slapped me on the shoulder, and provided directions to the field, but it really startled me to discover that in a tiny village in the middle of nowhere, the immediate reaction to an American would be to bring up the NSA.

And the more elite Europeans aren't blind to the opportunities presented by the scandal either. I spoke to several high-level investment executives over the last few weeks, and to a man, they see the scandal as being a reason for Europe to make a serious effort to break away from the technology chains of Google, Microsoft, Oracle, Twitter, Facebook, and other American companies that have dominated the world. The larger the corporation, the more determined they are to keep the US out of their emails and servers.

The great thing about the spying scandal is it allows a non-economic justification for protectionism. One point I pound over and over with regards to making socionomic forecasts is to look for the established trends, the emerging trends, the paths of least resistance. Throwing up trade barriers across the board will get a nation kicked out of the WTO and make them persona non grata at events like the G20. In contrast, claims of national security, environmental protection or health standards are excellent justifications to restrict U.S. software or Chinese food imports. A global scandal that has many nations in agreement against a single bad actor? Even better. I wouldn't short U.S. technology exporters yet, but consider this: technology companies have the largest portion of foreign revenues of any major sector in the U.S. They are the most exposed to this type of retaliation and the NSA scandal has now put them in the crosshairs. For less risk, the better approach for now is to buy native technology producers who will take market share from American companies.

NSA spying disclosures could cost companies billions

Just as the Shenzhen, China-based Huawei lost business after the report urged U.S. companies not to use its equipment, the NSA disclosures may reduce U.S. technology sales overseas by as much as $180 billion, or 25 percent of information technology services, by 2016, according to Forrester Research Inc., a research group in Cambridge, Massachusetts.

“The National Security Agency will kill the U.S. technology industry singlehandedly,” Rob Enderle, a technology analyst in San Jose, California, said in an interview. “These companies may be just dealing with the difficulty in meeting our numbers through the end of the decade.”

Internet companies, network equipment manufacturers and encryption tool makers receive significant shares of their revenue from overseas companies and governments.

Cisco Systems Inc., the world’s biggest networking equipment maker, received 42 percent of its $46.1 billion in fiscal 2012 revenue from outside the U.S., according to data compiled by Bloomberg. Symantec Corp., the biggest maker of computer-security software based in Mountain View, California, reported 46 percent of its fiscal 2013 revenue of $6.9 billion from markets other than the U.S., Canada and Latin America.

Intel Corp., the world’s largest semiconductor maker, reported 84 percent of its $53.3 billion in fiscal 2012 revenue came from outside the U.S., according to data compiled by Bloomberg.

These are serious numbers. Even a small loss in sales could make it very hard for technology companies to grow their earnings (leaving aside all other economic forecasts for a moment). Technology companies are the largest sector of the S&P 500 Index. If these losses are front-loaded, this scandal could be the catalyst that ends the bull market it stocks.

Also consider the secondary effects of foreign nations banning U.S. tech imports, especially European nations: Americans will likely respond by wanting to punish Europe. This could develop in unforseen ways, such as the U.S. deciding to reduce military expenditures in Europe. That would mean more support for candidates such as Rand Paul, who seek to curtail U.S. military adventurism.

NSA Spying Scandal Could Cost U.S. Cloud Computing Firms $35 Billion

Much of the cloud industry currently resides in the U.S., with major players including Google (GOOG), Amazon (AMZN) and Microsoft (MSFT). But the report notes that other countries are racing to seize a share of what's projected to be a $207 billion industry by 2016. And a scandal that calls into question the privacy of data stored with American companies could provide these foreign competitors with an opening.

To that point, the report quotes Neelie Kroes, the European Commissioner of Digital Affairs, who last month observed that "If European cloud customers cannot trust the United States government, then maybe they won't trust U.S.cloud providers either."

...The report estimates that the ongoing controversy could cost American companies anywhere from 10 percent to 20 percent of the foreign market, which adds up to somewhere between $21.5 billion and $35 billion in lost market share over the next three years. And those numbers aren't pulled out of thin air -- the organization notes that when the Cloud Security Alliance polled its members in June and July, 10 percent of foreign members said they had canceled a project with a U.S. based cloud service. And 36 percent of U.S. residents polled said that they were having more trouble doing business outside the country following the PRISM revelations.

The main point reiterated: stocks are priced based on forward earnings estimates. Even if firms continue to grow, missing expectations will lead to earnings forecast revisions that will bring share prices down.

Coca-Cola splits: what does Coke's chart signal?

One of the most interesting charts to me, in part because I own the stock, is Coca-Cola. Unlike the broader stock market, shares bottomed during the bear market of the early 2000s, and formed a major cup and handle chart since the peak in 1998. The chart is interesting in itself, in what it might mean and also because I'm bearish overall and this chart makes me question my assumptions.

First, the cup-and-handle typically leads to a major rally when the previous peak (the first edge of the cup) is broken. This cup forming phase is a long basing pattern and fits into Elliot Wave theory as a larger order corrective wave 2 or wave 4. Second, the chart shows a different pattern from the broader market.

In trying to think of why Coca-Cola could diverge from the market, or how it could stage a breakout (it must exceed 1998's high of 88.94, a gain of 19% from the current price) when it already has a relatively high P/E of about 20, calls for some explaining. First, I fully accept that KO may not breakout and we could see shares tumble along with the broader market. In the examples below, KO actually lags some strong performance by McDonald's and Nike. Even in this case, however, the fact that these companies did not make new lows in 2008 is interesting and implies strength that is lacking in the broader market.

I have two ideas I'm mulling on Coke and other multinationals: since China's entry into the WTO, emerging markets have made up an increasingly large share of the global economy and U.S. firms that sell globally could decouple from the U.S. market, if the U.S. were to continue its slow growth (taking a long-term view of a decade and more). The performance of some brand name firms suggests this is already happening.

Thinking in negative terms (what would cause KO to breakout when there's no positive reason), another possibility is that we are on the verge of hyperinflation. Gold (precious metals) performs best in hyperinflation, followed by hard assets, real estate and stocks. A company such as Coca-Cola is more than a drink seller, it owns an intangible asset in its brand and if hyperinflation leads to stock buying, the public will probably overload on blue chips.

I believe the economy on the other side of this crisis will increasingly be built upon intangible assets as manufacturing costs decline and software increasingly controls and customizes our experience with products. Imagine a world where the cost of manufacturing drops to zero: what is left is the image, the brand. Apple is perhaps the best example of this today and the performance of major brand names may be evidence that the market recognizes this ongoing shift to an information economy.

Here are some other companies that rely on their global brand name. In comparing them to KO, I'm looking for firms that did not hit a new low in 2008 or 2009; firms making the cut include global brand names such as IBM, McDonald's, Disney, Pepsi and Nike. Two brands that fail to make the cut are Microsoft and General Electric.

Maybe a major deflationary wave will take all of these stocks below their early 2000s lows. One reason many firms may have not hit a new low in 2008 is due to rapid growth during the decade. However, this brings me back to Coca-Cola, which didn't put up massive growth during the 2000s.

I have owned Coca-Cola since 1994 and have no plans to sell.