From: John Conover <john@email.johncon.com>

Subject: Will Silicon Valley get its mojo back? - Tech News - CNET.com; Was Re: Fwd: [RT] Buffett Forecasts Eight Bad Years

Date: 18 Jan 2003 04:53:27 -0000

I had a request to make some comments on: http://news.com.com/2100-1017-981259.html?tag=fd_top for some clients and friends, and it occurred to me after running the numbers that I had been here before-specifically, regarding an article in Businessweek, on 9/3/2001, that was found by Jeff Haferman, and went through the NtropiX mailing list on August 28, 2001, (there were three messages involved.) Buffet made a pretty impressive call, saying in late August, 2001, that stocks would tumble, and he was looking for an eight year drought. He was probably right-at least for the NASDAQ; the numbers I just did today, (January 17, 2003,) say February 16, 2001, to late Q2, 2008, (50/50 chance,) a little over 7 years. Both e-mail follow, (the one from today, and the last-the three combined-from August 28, 2001; the first which references working out the prophecy of a crash from 1998, on, in one's head.) John John Conover writes on January 17, 2003: > The technology executives in the attached are right-there is > not much to be optimistic about for SV; caution would be an > appropriate strategy. > > Using the value of the NASDAQ as a barometer of the health of > the tech industry, the current deflation in the NASDAQ's value > started on February 16, 2001, when it dropped below its median > value on that date of 2425.38. That's when the NASDAQ became > under valued. On an annual basis, it would be expected that > there is a 50% chance of the NASDAQ remaining under valued for > less than 4.396233 years, and a 50% chance that it won't. So, > there is a 50% chance that on July 6, 2005, its value will be > back above its median value, which on that date would be > 3895.04. > > (Note: The NASDAQ, at is maximum, was 5048.62 on March 10, > 2000-that is the date of the top of the "bubble" when it was > overvalued by a factor of 2.4; that is NOT when the "bubble" > ended.) > > Also, there is a 50% chance that the NASDAQ will bottom before > about half the 4.396233 years, (i.e., by about April 29, 2003,) > and a 50% chance after. When it bottoms, there is a 15.87% > chance, (i.e., one standard deviation,) that the NASDAQ index > value would be below 2209.76, (and, also, a 15.87% chance that > it would be above than 4275.11 on that date.) Its median value > on April 29, 2003 would be 3073.59. > > Note that these values are very "sluggish" around the 50% > mark-the chance, that the bottom of the decline will occur by > a specific month is: > > 30% by March, 2002 > 40% by October, 2002 > 50% by April, 2003 > 55% by November, 2003 > 60% by April, 2004 > > John > > BTW, if you want to know how long it will take the median to > get back to the NASDAQ's high of 5048.62 on March 10, 2000, > the formula for it is 3073.59 * 1.00038272386^t = 5048.62, > where t is in trading days past April 29, 2003, (there are > about 253 trading days in a calendar year.) Just so you won't > have to dig out your scientific calculator, its 5.1 years past > late April, 2003, or about late Q2, 2008. In late Q2, 2008 > there is a 50% chance that the NASDAQ will be above 5048.62, > and a 50% chance, less. > > But for business operations, timing the bottom is what is > significant. For example, one would place (2 * 0.6) - 1 = > 0.2 = 20% of a development/marketing budget at risk for > a product intro in April, 2004 that depends on an economy > recovery-so that the economy would not have to be drug > uphill. That would be the optimal and maximal scenario. > And: John Conover writes on August 28, 2001: > BTW, that is the way: > > http://www.johncon.com/ntropix/FAQs.html#calculation > > was done-which turned out to be prophetic. > > If you look at it, it was not that difficult. The last loosing year > for the US indices was 1993. By 1998, (when that series of > prognostications started,) which was about 5 years into the "bubble", > the chances of it continuing at least one more year would be > approximately 1 / sqrt (5), or call it about 50%. So, forecasting a > downturn was my best choice. > > John Conover writes: > > How about 1 / sqrt (8) = 35.35%, or about 1 in 3. > > > > So, if you wanted to wager against Mr. Buffett's analysis, you would > > bet that he has a 65.65% chance of being wrong. > > > > And, you would bet 2 * 0.6565 - 1 = 29.29% of what you could afford to > > loose on the wager. > > > > John > > > > Jeff Haferman writes: > > > > > > Hmmm, I don't believe an entropic analysis would give a very > > > high probability to 8 years of stagnation.... > > > -- John Conover, john@email.johncon.com, http://www.johncon.com/

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