In 2000 the signal was given on February 17 when we heard: "With foreign economies strengthening and labor markets already tight," Mr. Greenspan warned, "how the current wealth effect is finally contained will determine whether the extraordinary expansion that it has helped foster can slow to a sustainable pace, without destabilizing the economy in the process." To us it presages a period of monthly lowering of interest rates. Mr. Greenspan has recently maintained interest rates of just above one per cent, a policy aimed at stimulating the economy. The program seems to be having an impact.
Most recently, Mr. Greenspan announced that he does not rule out the possibility of raising interest rates at some future date. We are convinced he will not make that move unless he is sure that the US economy is overheating as a result of excessive economic activity. Yet many believe that the day of higher interest rates is not that far away.
Israel has experienced a fairly severe recession over the past three years. Unemployment has peaked at 11.5% and per capita income has fallen to levels of nearly a decade ago. A severe drop in global tourism and more specifically, because of Arab violence in this area, has hurt its tourist industry. The high-tech sector an important part of the economy, accounting for nearly 50% of the country's GNP, was badly affected by a drop in worldwide business.
In the middle of March the Bank of Israel announced that it supports the Minister of Finance Mr. Benjamin Netanyahu's previous public statement that Israel's recession is officially ended.
First signs are appearing indicating the beginning of a new period of growth, perhaps as early as the late summer months.
A study conducted by a leading Israeli daily indicates that sales, investments, profit-taking, man power, infrastructure, real estate and wages - showed increases in the past few months.
The recovery process in Israel began in the first half of 2003 with the microchip companies - thanks to the increased demand in the consumer market for memory and microprocessors for various fields, such as wireless communication, telephones and handheld devices. Companies like DSPG, which develops and manufacturers processors for home telephones, were not affected during the high-tech crisis and continued to grow. Other companies, such as Tower Semiconductor, Zoran Microelectronics and Audio Codes, also began to recover sooner than the rest of the industry.
Moreover, fund-raising by startups in the first two months of 2004 reached levels similar to those recorded in early 2001 - some $300 million per quarter. The VC funds are reporting a substantial increase in seed investments. More high-tech companies were established in 2003 than closed down - after three years in which the opposite was the case - and the industry is starting to feel the return of the good days.
Investors are having to compromise - a recently published survey reveals that 25 percent of financing rounds in the past quarter were held at higher company values than in previous rounds.
Joel Maryles, managing director of the Israeli based investment bank Citigroup Global Markets estimated that ten to fifteen Israeli companies will raise $1.0 billion in US markets over the coming year. Our own research indicates that this figure will be considerably higher.
After a long lull there is a renewed demand for high-tech workers, including for those with BAs and no previous experience.
Workers in the high-tech sector now number 140,000, compared to 150,000 during the height of the high-tech bubble. Although employee bonuses have increased, wages are lower than they were in 2000 and are at 5-20 percent below their record highs.
The life sciences and computer departments of universities, which in recent years suffered from a decline in enrollment, are attracting more students again. Jerusalem's Hebrew University reports a 100 percent increase over last year in applications for its life sciences and computer departments, in the first month of registration for B.A. programs.
The Central Bureau of Statistics recent report indicates that investment in Israel rose 2,5 fold to $6.0 billion in 2003. The trend has continued in 2004. However, it should be kept in mind that a fairly large portion of the foreign investment was due to large State of Israel bond flotations on the international financial markets. Yet we read daily of reports of foreign investors taking positions in Israeli companies, especially in the communications field, a known Israeli strength.
Towards the end of 1999, in advance of the Nasdaq Crash, in the pages of this newsletter we predicted that event. Not long afterwards in April 2000, prices did crash. The crash was one of major proportions as measured by indices. The Nasdaq currently trading at 2,000 was then at its all-time peak at 5,132.
Predicting the movements of stock markets is a hazardous activity and perhaps is best to be avoided. Yet, that is one of the roles of newsletters. We are expected to be insightful. Emboldened by our success in having predicted a major crash we are moving into a new prediction mode, which foresees a return to growth on the part of the Israeli high-tech sector.