Wednesday, 12 February 2003 8:30 am
In my first column published last November 4, I wrote: "Things are tough. The expected recovery in the second half of 2002 did not materialize. Deflation is well entrenched in Japan, and showing signs of spreading to other parts of Asia, Europe, and the US. Although interest rates are at 40 year lows, raising capital has become extremely difficult if not impossible for many businesses, large and small, young and old. Capital spending budgets are still being reduced. The consumer may be close to being tapped out. And war may be around the corner."

Now, four months later, all of these observations are unfortunately still true. The recovery in demand has still not materialized (at least for information technology). There was considerable hope in some quarters for a pickup in cell phone demand due to new G3 services and color displays around year end 2002, but we were disappointed. In the computer sector, Dell just warned its investors not to expect a significant pickup in PC demand in 2003. In other words, Dell has given up hope for a "replacement cycle" to kick in.

The threat of deflation is, if anything, more "top of mind" than it was four months ago, both here and abroad. Capital spending budgets are still being reduced. Capital is even scarcer. The consumer has held up well, but concerns persist as layoffs continue. And now we are being warned that war and further acts of terrorism could start any day.