Within the next six months the United States economy will suffer what economists call a “reset” and I call “meltdown.” I really debated writing this piece because I have very little empirical evidence to support this conclusion and I urge you NOT to use my advice to alter your investment strategies. However, during 2000 I had a similar feeling about the economy and it turned out to be exactly right just before the “dot-com bomb.” The comparisons between 2003 and today are eerily similar to me and my casual conversations with leading members of the business community have not assuaged my fears.
A quick look back at the dot-com bubble will provide the setting for my current discomfort. In the mid-1990s it became clear to investors that the internet was an entirely new economic force, so new that few truly understood the “fundamentals.”
Once it became clear to investors and speculators that the internet had created a wholly new and untapped international market, IPOs of internet companies started to follow each other in rapid succession. Sometimes the valuations of these companies were based on nothing more than just an idea on a single sheet of paper. The excitement over the commercial possibilities of the internet was so big that every idea which sounded viable could fairly easily receive millions of dollars worth of funding. The basic principles of investment theory with regard to understanding when a business would turn a profit, if ever, were ignored in many cases. (Bubble)
There were adamant discussions about the need for a high “burn rate” (intense spending creating losses) and a few companies actually saw their stock fall when they showed earnings. I remember several of my friends scratching their heads and excitedly saying “isn’t this crazy?’ I remember thinking, yes, this is crazy.
Along came 2000 and suddenly it was like magic. Everyone turned around and said, “wait, losses are bad and profits are good – dang it.” Promptly the bubble burst, stocks went through a drastic “readjustment” and the economy as a whole went into a recession. Ironically, people still forgot about those pesky little fundamentals and the stock prices of solid companies unrelated to the internet briefly suffered (the only piece of this economic episode that I took part in by buying up devalued blue chips).
To me, our present circumstances are strikingly similar. We have sustained a weak and almost failing economy with unsustainable government spending. Experts are looking around at each other and saying, “wow, isn’t it crazy that the market is doing this well?” Once again, the answer is yes, it IS crazy that the market is doing this well. The market has virtually ignored “fundamentals” for the past few years and stock prices don’t reflect the real state of the economy. The market is just thrilled that Mr. Bernanke is willing to print money as fast as the presses can turn.
I simply don’t think current market prices are sustainable and I am really, really trying to find any economic justification to prove myself wrong. We are living in another Alice in the Looking Glass period of time in which up is down and more is less. The reaction I get when I press smart business folks, all of whom I think would state publicly that they disagree with me, makes me more concerned that I am right. They do not present a compelling factual argument for sustained growth and sustained stock prices but instead make me feel like it is 2000 all over again giving me looks that say ”look son, this is just complicated stuff that you can’t really be expected to understand.”
Remember, I have nothing more than my economically untrained gut to support my feeling so please do not take my prediction to or from the bank. As you can tell from reading this blog, I have a really thick skin and must need a little abuse to make me feel alive so I am willing to put factually unsupported “gut feelings” out there even if I know that I will eventually be proven to be absolutely right or absolutely wrong.
Why You Should Ignore My Opinion
I bought a beta-max. I predicted Romney would win with more than 300 electoral votes. I used to buy lotto tickets. I went to Rick Perry’s Presidential kick-off speech and walked away KNOWING “he was the guy.” I actually predicted the dot-com bubble and neither invested nor divested.
Why You Should Listen To My Opinion
I announced that Rolling Stone was wrong that the Knack was the next Beatles. I predicted the dot-com bubble. What I am saying makes sense. I instantly knew that my wife was the one.