|
PureBytes Links
Trading Reference Links
|
I think a guy named Peter Drucker, wrote a piece comparing this time to
the start of the Industrial Revolution. Making an analogy to the
invention of the steam engine to the developement of computerized
internet communication. The key idea after the invention of the engine
is completely separate technologies evolved after its invention. What
also occured of course, was the complete upheaval of an agrarian society
to an industrialized one. Drucker is argueing that the internet and
associated technologies are a similiar cultural event.
>From looking at the long term chart that Wells Wilder published in his
"The Delta Phenomenon", starting in 1800 there are "crashes" but it sure
appears like the trend is up.
Anyone out there with a gif of "stock" prices from 1730 to 1800? To
refute this guys thesis?
In my opinion, what would really cause a crash is a physical destruction
of the
infrastucture, something akin to the whole of California falling into
the ocean with the destruction of the human critical mass of technical
invention and entrepreurship in that state.
Or the introduction by Luddite terrorists of a new bacteria that
sustains and grows by eating copper and glass.
;
Don
nwinski wrote:
>
> News from The Globe and Mail
>
> All bubbles eventually burst,
> Madelaine Drohan says
> by Madelaine Drohan - Friday, December 24, 1999
>
> Ottawa -- Philip Strathy had it right when he said that it's
> absolutely crazy the way people are spending money on
> some technology stocks these days. The vice-president of
> investments at Strathy Investment Management was talking
> specifically of Linux mania where shares in companies with
> even a remote connection to the operating system are being
> snapped up without regard to underlying value.
>
> But he could equally have been talking about the broader
> phenomenon of Internet mania that has driven U.S. stock
> markets to new heights and given Federal Reserve Board
> chairman Alan Greenspan a bad case of the glums.
>
> Even companies that admit they are not making a profit and
> see no change in that situation for the foreseeable future are
> floating shares at unbelievable prices. The fact that some
> haven't lost as much as projected is enough to boost their
> share price.
>
> Look at Red Hat Inc., which packages Linux software. The
> U.S. company announced earlier this week that it suffered a
> $3.6-million (U.S.) loss in the third quarter. Not only that, but
> it intended to issue more shares. The market responded that
> day by pushing the share price UP $15.06 to $267.94 on the
> Nasdaq Stock Market. Does this make sense?
>
> No. And yet there are any number of people prepared to
> defend the current situation by maintaining that we are in a
> new world with technology stocks and the old rules no longer
> apply.
>
> That same argument has been made many times in the past
> with disastrous results. The Mississippi Scheme in France in
> the early 1700s, the South Sea Bubble in England about the
> same time, Tulipmania in Amsterdam in the mid-1600s and
> more recently the pyramid scheme in Albania in 1997 are all
> examples.
>
> In each case the public was willing to suspend disbelief and
> ascribe a value to an object many times its actual worth. At
> the height of Tulipmania, a single bulb was exchanged for
> four oxen, eight swine, 12 sheep, two hogheads of wine, four
> tuns of butter, four tuns of beer, one thousand pounds of
> cheese, a bed, a suit of clothes and a silver drinking cup, not
> to mention some quantities of wheat and rye.
>
> Eventually the truth dawns on someone and the house of
> cards crashes to the ground, bringing the local, and
> sometimes even the national economy with it.
>
> Charles Mackay, who wrote a great book on such
> phenomena in 1841 called Extraordinary Popular
> Delusions and the Madness of Crowds, told an age-old
> truth when he said: "Men, it has been well said, think in
> herds. It will be seen that they go mad in herds, while they
> only recover their senses slowly, and one by one."
>
> The madness of crowds was what Mr. Greenspan was
> worrying about when he chided investors in the stock market
> for their "irrational exuberance" in 1996. Three years later,
> the Dow has soared 4,800 points to 11,405 at yesterday's
> close. Mr. Greenspan continues to worry.
>
> He is not alone. The Organization for Economic Co-operation
> and Development put the possibility of a sharp market
> correction near the top of its list of risks to the world
> economy in the coming year. "Equity valuations are high in
> the United States and Europe and may be vulnerable to sharp
> and disruptive corrections," it warned.
>
> Most of the danger, it has to be said, lies in the United States,
> where markets have risen higher and stock ownership plays
> a wider role in household wealth. The net worth of U.S.
> households rose to $38-trillion from $24-trillion in the five
> years ended in mid-1999. Fully $10-trillion of that is the result
> of the rising stock market.
>
> The so-called wealth effect, where people feel prosperous
> because their stocks have gained in value, has propelled U.S.
> consumer spending. These consumers, rather than exports,
> are sustaining the U.S. economy at the moment. What
> happens when the stock market drops and the reverse wealth
> effect kicks in?
>
> There is a general rule of thumb used by economists that for
> every $1 change in household wealth on a permanent basis,
> consumption will move by about 5 cents. Household wealth
> includes equity holdings. It usually takes a while for changes
> to spending patterns to kick in.
>
> That said, economists admit that no one knows the
> psychological effect a stock market drop will have today
> because stock market involvement has grown so much since
> the last sustained drop. In this area we really are in a new
> and unpredictable world.
>
> Figures for 1997 indicate that equity holdings as a percentage
> of disposable income averaged 140 per cent in the United
> States, compared with only 75 per cent in Canada. This
> means a sustained stock market drop will be felt more deeply
> south of our border than at home.
>
> All that means is that we wouldn't feel the full effect of the
> first shock, but we'd be helpless to avoid the secondary shock
> if the first was enough to send the U.S. economy into
> decline. With more than 80 per cent of Canadian exports
> destined for the United States, we are inextricably tied to
> their economic fortunes.
>
> Today's technology stock investors should read the
> comments U.S. financier Bernard Baruch wrote after the
> stock market crash of 1929. "I have always thought," he
> wrote, "that if . . . even in the presence of dizzily spiraling
> (stock) prices, we had all continuously repeated 'two and two
> still make four,' much of the evil might have been averted.' "
>
> Madelaine Drohan's E-mail address is
> mdrohan@xxxxxxxxxxxxxxx
|