Bears come out to play

INVESTORS who thought the bursting of the technology bubble was over have been mistaken. Weak trading reports from firms on both sides of the Atlantic and the slide of Global Crossing towards bankruptcy protection are again creating a sea of red ink on equity markets, with the Dow Jones Industrial Average falling 2.5%.

Despite a slew of better economic news from the US, including stronger consumer confidence, analysts are not yet convinced that this is any more than a suckers' recovery. There is a worry that Fed chairman Alan Greenspan may now refuse to deliver the next quarter point cut in American interest rates when the policy-making Open Market Committee pronounces today.

The tech danger was the chief factor driving London shares down 92.2 points to 5131.4. Prices are off their bottom for the year, but the FTSE 100 has been stuck around these levels since its bounce back from the shock of 11 September. The concern must now be, as the full impact of the latest tech gloom is absorbed, that it will fall below 5000.

In many ways, Vodafone and Orange are seen as the great hopes for the telecoms sector. The theory is that, over time, data as well as voice calls will migrate from the mother-coms like BT to their upstart cellular counterparts. Unfortunately, the subscriber and revenue growth seen from these two trailblazers is failing to impress. Average revenue per user at both companies is slipping at the same time as subscriber growth eases off.

This disappointment comes hard on the heels of profit warnings from Carphone and Energis last week. The belief that newcomers such as Energis, Colt and Global Crossing would knock out the existing carriers has ebbed.

Global Crossing is a fascinating case in point. Its huge investment in internet backbone has landed it in Chapter 11 protection. This is not a good portent for Cable & Wireless, which has also been a big investor in backbone since it took over MCI's internet stations in the US.

It is not just the big boys that are being squeezed. One by one, small telecoms and equipment firms are trading themselves into difficulty. Celltalk has just called in the administrators and it may not be the last. Cable companies are being sucked into the vortex. Telewest is much better placed than its main competitor, NTL, but NTL's capital reconstruction has sent Telewest shares to new lows.

What analysts appeared to have missed in their assessment of the cellular, fibre optic and digital sectors is that demand for faster and better communications is not infinite and the constant upgrading of equipment that took place does not go on forever. So we are seeing a permanent diminution in growth prospects and share values for the tech sector of the market, which even an American upturn may not remove.

Stock markets on both sides of the Atlantic are heading south and the bear market may begin to find the bottom, which it has shied away from in recent months.

Reinsurance timebomb
SOME might regard Sir Howard Davies, chairman of the Financial Services Authority, as something of a prophet of doom. But his words are worth heeding. Two years ago, he first began to issue warnings about credit explosion and over-lending for house purchase, a trend that is now starting to cause some distress.

Last night, at the Insurance and Risk Managers lecture in London, Davies expressed concern about 'insurance-based investment banking', in which all manner of insurers take on financial risk from the banks and others. Fancy new financial instruments allow banks to hide their losses. This is why banks and insurers are able to declare proudly that their losses from 11 September - or Enron's collapse - are negligible.

The obvious point here is that someone somewhere will eventually have to take the hit.

One of the most important lessons of Enron is that banks, such as JP Morgan Chase, who seek to hide their exposure in offshore vehicles and pretend it is something else will no longer be able to get away with such devices. Auditors, after the Andersen experience, will be forced to be far more cautious.

Davies argues that much of the financial reinsurance put in place is purely for show. He wants some hard questions asked and wants to see a strengthening of the capital base of some insurers. Indeed, so worried has the FSA become that it has ordered certain companies to act immediately to improve their balance sheets.

Debt can be hidden over the short term, but this is storing up trouble for the future.