As everybody’s attention has turned toward hurricanes, oil, Obama, and McCain’s surprise (Sarah Palin); my thoughts have been focused on the 800-pound gorillas.
After the dot-com crash of 2000 to 2002, the Federal Reserve lowered interest rates to the unbelievable level of 1%, in order to stimulate a rather moribund economy. It worked. In fact, it worked so well that the next bubble was born: housing. Housing became the 800-pound gorilla that affected every nook and cranny of our economic lives. For example, employment was directly tied to housing. That included everyone working at the big home improvement boxes, to the landscapers, and all the way to the mortgage lenders. Travel, education, and autos were also tied to housing. If you wanted to take a vacation, send the kids to school, and buy a new SUV, simple. Just take out a home equity loan. After all, home prices were going through the roof!
The economists, the pundits, even the TV talking heads (all experts, of course) said housing was the 800-pound gorilla. Then a funny thing happened on the way to the zoo. The 800-pound gorilla turned into a 75-pound chimpanzee. As housing prices collapsed, foreclosures rose, and mortgage lenders filed for bankruptcy, the experts said it mattered, but not that much. Housing, they said, was not that special in the overall picture. Excuse me, but how, I ask, for the last three years, can housing be so significant in the market on the way up, but insignificant on the way down? It made absolutely no sense. It sounded like the experts were just monkeying around. (Sorry about that.)
Now, the experts are at it again. Technology had wonderful tailwinds for the past year. Between a falling dollar, and accelerating foreign economies, the technology sector was not only a good place to hide, but also a place that was well rewarded. Both the falling dollar, and the robust foreign economies were the 800-pound gorillas that drove the future of technology. However, the dollar is now rising, and the foreign economies, are at the least, questionable. The tailwinds have turned to substantial headwinds. But the experts say no problem, the future is robust and bright. Once again, in their eyes, an 800-pound gorilla has become a 75- pound chimpanzee. No way!
According to the experts, the driving forces are significant on the way up, but insignificant on the way down.
You can’t have it both ways. The 800-pound gorilla is still the 800-pound gorilla, whether you like it or not. Make due. Buy some bananas!
Till next time,
Bill
Long: QID
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2 comments:
Great insights, looking forward to reading more in the future.
Thanks for the comment. Glad you could grab the insight. I suspect much of what I say will not be embraced by the mass media but in my career I have never made money with their advice.
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